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2021 MarsdenLR 3806
HIGH COURT MALAYA SHAH ALAM
CASMET SDN BHD – Appellant
Versus
OTIS ELEVATOR COMPANY (M) SDN BHD – Respondent
[Originating Summons No: BA-24C-78-08/2020]
The absence of privity of contract between a nominated sub-contractor and the employer negates liability of the main contractor as a non-paying party under the Construction Industry Payment and Adjudication Act.
Headnote:(A) Construction Industry Payment and Adjudication Act 2012 (CIPAA) – Sections 4, 5, 16, and 27 – Contracts Act 1950 – Section 42 – Plaintiff sought declaration of not being a "non-paying party" under CIPAA, arguing direct payment obligation from the Employer to Defendant, based on contract provisions, was sufficient to negate liability. Court dismissed application noting clear contractual obligations imposed by Employer, hence establishing privity of contract is essential and that previous Federal Court rulings affirm the doctrine of privity prevails. (Paras 2, 8, 12, 21, 34)
Facts of the case: The Plaintiff was appointed by the Employer for a construction project, under which the Defendant was nominated as a sub-contractor. Disputed payments led to adjudication wherein Defendant's claims for unpaid amounts were upheld despite Plaintiff's argument over direct payment obligations.
Findings of Court: No liability on Plaintiff as the direct payment provision was between the Employer and Defendant; thus, the identified contract do not create privity.
Issues: The key question was whether legal liability to pay arose due to specific contractual terms and existing precedents on privity of contract.
Ratio Decidendi: The court found that under existing precedents, the absence of a direct contractual relationship between the Defendant and Employer precludes the enlistment of the Plaintiff as a non-paying party under CIPAA.
Result: Application dismissed with costs.
(Court Enclosure No 1)
A. Background
[1] By a "Letter of Award" dated 15 July 2015 (Main Contract), Tujuan Gemilang Sdn Bhd (Employer) had appointed the plaintiff company (Plaintiff) as the main contractor for a construction project (Project). The Main Contract provided in cl 3 [Clause 3 (Main Contract)] as follows:
"3. PAYMENT TO NOMINATED SUB-CONTRACTORS AND NOMINATED SUPPLIERS
Notwithstanding the Conditions of Contract, payments certified for work executed by all Nominated Sub-Contractors and goods supplied by all Nominated Suppliers shall be issued in separate cheques made payable to the respective Nominated Sub-Contractors and Nominated Suppliers. The said cheques shall be issued to the [Plaintiff] for distribution to the respective Nominated Sub-Contractors and Nominated Suppliers. For all purposes and intent of this [Main Contract], all relevant clauses in the Conditions of Contract pertaining to payment to Nominated Sub-Contractors and Nominated Suppliers shall be deemed to have been amended to allow for the payments to be issued to the Nominated Sub-Contractors and Nominated Suppliers in the manner described above."
[Emphasis Added]
[2] The Project's architect had nominated the defendant company (Defendant) as the "Nominated Sub-Contractor" (NSC) for certain construction works regarding electric lifts in the Project (Works). Consequently, by way of a letter dated 1 September 2015, the Plaintiff appointed the Defendant as a NSC for the Works (Sub-Contract).
[3] Clause 5 of the Sub-Contract [Clause 5 (Sub-Contract)] stated as follows:
"5. Payment to [NSC]
Notwithstanding the Conditions of Contract, payments certified for work executed by all [NSC] shall be issued in separate cheques made payable to the respective [NSC].
The said cheques shall be issued to [Plaintiff] for distribution to the respective [NSC] within seven (7) days from [the Plaintiff's] Period of Honouring Certificate."
[Emphasis Added]
[4] The Defendant had claimed that the Plaintiff did not pay a sum of RM529,500.00 for Works performed by the Defendant (Defendant's Claim). The Defendant's Claim was referred to adjudication and the adjudicator, Mr. Saravanan A/L Subramaniam (Adjudicator), delivered an adjudication decision on 31 December 2019 which, among others, allowed the Defendant's Claim (AD).
[5] In addition to this originating summons (This OS), the following two OS (2 Previous OS) had been filed:
(1) the Defendant had filed OS No BA-24C-19-02/2020 against the Plaintiff for leave of Court to enforce the AD against the Plaintiff (Enforcement Application) under s 28 of the Construction Industry Payment and Adjudication Act 2012(CIPAA); and
(2) OS No BA-24C-78-08/2020 had been filed by the Plaintiff against the Defendant for the following orders, among others:-
(a) an order to set aside the AD (Setting Aside Application); and
(b) if the AD is not set aside, an order pursuant to s 16(1)(b) CIPAA to stay the enforcement of the AD until the disposal of This OS (Stay Application).
[6] On 4 September 2020, I have decided as follows, among others [High Court's Decision (CIPAA)]:-
(1) both the Setting Aside Application and Stay Application are dismissed; and
(2) I have allowed the Enforcement Application.
- please refer to the grounds of the High Court's Decision (CIPAA) in Otis Elevator Company (M) Sdn Bhd v. Castmet Sdn Bhd and another case.
[7] The Plaintiff has appealed to the Court of Appeal against the High Court's Decision (CIPAA) [Plaintiff's Appeal (CIPAA)]. At the time of writing this judgment, the Plaintiff's Appeal (CIPAA) is still pending.
B. This OS
[8] The Plaintiff has applied in This OS for, among others, a declaration that the Plaintiff is not a "non-paying party" under s 4 CIPAAvis-avis the Defendant.
[9] In support of This OS, the Plaintiff's learned counsel, Mr. Andrew Chan Kah Jun, has submitted as follows, among others:
(1) Clause 3 (Main Contract) and cl 5 (Sub-Contract) (Direct Payment Contractual Provisions) have expressly provide
