The court ruled that conditional payment clauses in construction contracts are void under CIPAA, and lawful termination occurred due to the Plaintiff's breach, emphasizing the necessity of proving fraud for piercing the corporate veil.

JUDGMENT

Wong Kian Kheong JCA:

A. Introduction

[1] This judgment discusses, among others, the following matters:

(1) whether a conditional payment clause in a construction contract is invalid in court and arbitral proceedings (court/Arbitral Proceedings) pursuant to s 35(1) and (2)(a) of the Construction Industry Payment and Adjudication Act 2012 (CIPAA) when no adjudication proceedings have been commenced under CIPAA (Adjudication Proceedings). There are conflicting High court decisions on this question; and

(2) the legal and perhaps "undesirable" consequences of construction works which had been contracted to one party and the same works were then sub-contracted three times to three different parties.

[2] A draft of this judgment (Draft) had been previously forwarded to Hanipah binti Farikullah FCJ (who heard this appeal in the court of Appeal) and Azahari Kamal bin Ramli JCA. Both my learned sister and brother had expressed their concurrence with the Draft.

B. Background

[3] We shall refer to the parties as they were in the High court.

[4] The plaintiff company (Plaintiff) had filed this suit (This Suit) against the following five defendants (Defendants):

(1) the first defendant company (1st Defendant) is a subsidiary of the second defendant company (2nd Defendant);

(2) the third defendant (3rd Defendant):

(a) is a director of the 1st and 2nd Defendants; and

(b) owns 56% of the shares in the 2nd Defendant;

(3) the fourth defendant (4th Defendant):

(a) is a director of the 1st and 2nd Defendants;

(b) holds 25% of the shares in the 1st Defendant; and

(c) owns 10% of the shares in the 2nd Defendant; and

(4) the fifth defendant (5th Defendant):

(a) is a director of the 1st Defendant; and

(b) holds 10% of the shares in the 1st Defendant.

[5] A subsidiary of Petronas, PRPC Utilities and Facilities Sdn Bhd (Employer), awarded to the 2nd Defendant a construction project named "Utilities, Interconnecting, Offsite (UIO) Facilities: Construction and Commissioning (CC) of 33 kV and below Distribution Substation Feeder Cable Laying, Jointing and Termination at Gas Insulated (GIS) (Rapid 1200 Project)" in Pengerang, Johor Darul Takzim (Project).

[6] The 2nd Defendant awarded the Project to the 1st Defendant.

[7] On 12 October 2016 :

(1) the 1st Defendant appointed the Plaintiff as a sub-contractor of the Project by way of a "Letter of Award" (LA) dated 12 October 2016 [LA (1st Defendant-Plaintiff)]. The following four provisions in the LA (1st Defendant-Plaintiff) are pertinent:

(a) in cl 4.1(a) [Clause 4.1(a)], the Plaintiff agreed to make an advance payment of RM2.5 million to the 1st Defendant which would be used to secure a performance bond for the purpose of the Project (Plaintiff's Advance Payment);

(b) according to cl 4.2 (Clause 4.2), the 1st Defendant had appointed for the Plaintiff "key PMT" (Project Management Team) "to expedite the planning and execution" of the LA (1st Defendant-Plaintiff) [1st Defendant's Appointment (Plaintiff's Key PMT)];

(c) clause 5 (cl 5) provided that the 1st Defendant "will make payment" to the Plaintiff "based on a back to back arrangement after receiving payment" from the Employer; and

(d) according to cl 7:

(i) the 1st Defendant "reserves the right to terminate" the LA (1st Defendant-Plaintiff) if the Plaintiff "refuses, fails or neglects to comply with" the LA (1st Defendant- Plaintiff); and

(ii) the 1st Defendant "shall not be liable for any cost, loss of profit, expenses, claims and damages whatsoever arising out from" the termination of the LA (1st Defendant-Plaintiff)

(Clause 7); and

(2) the Plaintiff issued a LA [LA (Plaintiff-Tiemura)] which appointed Tiemura Engineering Sdn Bhd (Tiemura) to perform all the works of the Plaintiff under the Project (Works).

[8] The Plaintiff assigned its right to payment under the LA (1st Defendant-Plaintiff) to Tiemura in the Plaintiff's letter dated 13 March 2017 to the 1st Defendant [Plaintiff's Assignment (Tiemura)].

[9] The Plaintiff sent a letter dated 13 February 2018 to the 1st Def