Court of Appeal: Principal’s obligation under s.30 of CIPAA not affected by winding up of losing party in statutory adjudication

On 25 October 2019, the Court of Appeal issued its grounds of judgment in CT Indah Construction Sdn Bhd v BHL Gemilang Sdn Bhd (Civil Appeal No: W-02(C)(A)-2056-10/2017).
The Court of Appeal had the occasion to decide on the issue as to whether the direct payment from the principal to the subcontractor under section 30 of the Construction Industry Payment and Adjudication Act 2012 (‘CIPAA’) is subject to the prohibition against preferential payment under section 293 of the Companies Act 1965 (now section 528 of the Companies Act 2016, the relevant parts of which are substantially similar) given the fact that the main contractor against whom the adjudication decision was made, had been wound up.
In the High Court proceedings, the Learned Judge decided that there is no independent obligation and liability imposed on the principal to make direct payment in the absence of clear words in the statute imposing such an obligation to pay irrespective of the insolvency of the main contractor. Further, any direct payments made by the principal to the subcontractor when the main contractor had been wound up would amount to preferential payments as the sums ought to be handed over to the liquidator to form part of the main contractor’s assets to be distributed amongst the unsecured creditors. To allow the principal to make direct payment to the subcontractor pursuant to section 30 of CIPAA in this situation would circumvent the rules prohibiting preferential payment under the insolvency regime.
However, the Court of Appeal, by a unanimous decision, reversed the High Court’s decision on the following grounds:
  1. Despite the main contractor being in liquidation, the principal is bound by statute, i.e. section 30 of CIPAA, to make direct payment to the subcontractor. This obligation is an independent statutory obligation that exists in parallel with the main contractor’s obligation to pay the subcontractor under the adjudication decision; and
  1. The principal’s liability to make payment to the subcontractor would not be from the assets of the main contractor. Once the adjudicated sum is paid by the principal to the subcontractor, it will be a debt due from the main contractor to the principal which the principal will have to recover from the main contractor pursuant to section 30(4) of CIPAA.
Summary prepared by Joanna Tan Li Pheng, Associate in the Construction and Engineering Practice of Skrine.