CABNET FOUR (4) TESTS

One of the contentious issues with regard to CIPAA is the recoupment of unpaid sum from the principal and the following chronicles of cases shed some lights onto this murky aspect in pragmatic terms.

In HSL Ground Engineering Sdn Bhd v Civil Tech Resources Sdn Bhd and another summons [2020][1], HSL served notices requesting payment directly from the principal and Civil Tech contends that there is no money due to them. The problem arise is when the principal fails to issue the written notice to the non-paying party. The court held that such failure attracts (1) the principal must pay the unpaid party; and (2) It would be fatal to defence that there are no monies due to the non-paying party, consistent with the earlier ratio.[2]

However, Glocal Tech Engineering Sdn Bhd v Panzana Enterprise Sdn Bhd [2021][3] departed from the above authorities. In this case, the principal Panzana did not issue any notice and argued, whether the question of “is there any money due” has to be satisfied prior to triggering the mandatory notice. The court surprisingly agreed with such position. In Pali PTP Sdn Bhd v Bond M&E Sdn Bhd [2021][4], court held that non-payment is presumed and the onus is for the unpaid party to enquire whether such has been paid from the principal; and “Adjudicated amount” also includes interest and costs.

Then, in Zeta Lektrik Sdn Bhd v JAKS Island Circle Sdn Bhd [2022][5], following the earlier ratios of CT Indah and PCOM, until Cabnet Systems (M) Sdn Bhd v Dekad Kaliber Sdn Bhd & Anor [2020][6] came into existence that the court laid out the test known as the Cabnet Four Tests:
 
Cabnet 4 Requirement Tests:
 
[First condition], the Test required to show that the unsuccessful party in CIPAA, (hereinafter “X”) has failed to pay adjudicated amount to the successful party (hereinafter “Y”).

[Second condition], it is evidence that the successful party in CIPAA, Y has made a request to the unsuccessful party, X’s principal, (hereinafter “Z”) to make the payment to the successful party, Y.

[Third condition], there is a sum owed from principal, Z to unsuccessful party, X during the time the successful party, Y has made a request to Z. Note: only when the first, second and third conditions are fulfilled, the evidential burden concerning the Third condition shifts from Y to Z, the principal.

[Fourth condition], the principal, Z did not response to the successful party, Y’s request for payment of the adjudicated amount.

S.30 of CIPAA can only be invoked if there is money due by the principal, where this evidential burden is a condition precedent before issuance notices under s.30.

Following such, in JDI Builtech (M) Sdn Bhd v Danga Jed Development Malaysia Sdn Bhd [2022][7] the COA held that s. 30(5) of CIPAA “if money is due by the principal to the party, such is the overarching pre-condition before any subsections of s.30 may be utilised; [where] an application under s.30 is ill-suited where everything hinges on the lawfulness or unlawfulness of the main contract termination as the Main contractor is not a party to the s.30 proceedings.[8]

Then, the question of whether s.30(1) notice is invalid in the face of judicial management application? In Cosmos Infratech Sdn Bhd v Turnpike Synergy Sdn Bhd (HC), the court held that s.30 is a separate and distinct statutory obligation imposed on a principal to make payment and must take precedence over the general sections of companies act.
 
Then, the question of whether how to determine who is the principal? In Progress Centre Engineering sdn bhd v Desaru Corniche Hotel sdn bhd & MRCB [2022][9] the court held that it is by conduct placed on the same lateral level in the chain of construction contract as the main contractor, meaning that the employer of the project is the principal for the purposes of s.30 of CIPAA.

Arena Perintis sdn bhd v Pembinaan Bina Bumi sdn bhd [2023] [10] went on to hold, winding up does not affect direct payment under s.30 of CIPAA; and does not contravene the rule of undue preference and is not against of the pari passu principle; as such, there is no necessity to pierce the corporate veil; and any failure to issue s.30(2) notice is fatal that there is no money due or payable.

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[1] MLJU 717
[2] CT lndah Construction Sdn Bhd v BHL Gemilang Sdn Bhd  [2019] MLJU 1215 CA; PCOM Pacific Sdn Bhd v Apex Communications Sdn Bhd & Anor [2020] MLJU 118; HMN Nadhir Sdn Bhd v Jabatan Kerja Raya Malaysia & Ors [2018] 1 LNS 1938
[3] MLJU 474
[4] (CA) W-02(C)(A)-399-02/2021
[5] MLJU 392
[6] MLJU 311
[7] (CA) J-02(C)(A)-1066-06/2022
[8] JDI Builtech (M) Sdn Bhd v Danga Jed Development Malaysia Sdn Bhd (CA) J-02(C)(A)-1066-06/2022
[9] wa-24c-187-09/2022
[10] BA-24C-32-04/2023