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    Enforcing Conditional Payment Clauses post-CIPAA - CIPAAMalaysia PDF

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    Lawrence Lau
    This document discusses enforcing conditional payment clauses after the Construction Industry Payment and Adjudication Act (CIPAA) made such clauses void. It outlines three possible ways for main contractors to address this: 1) Enter a tripartite agreement with the employer and subcontractor. 2) Make clear in contracts that the employer is the "paying party". 3) Include a term requiring the subcontractor to accept adjudication decisions regarding employer payment disputes. Overall, CIPAA aims to help contractors with cash flow, but conditional payment clauses post-CIPAA remain an issue.

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    Enforcing Conditional Payment Clauses post-CIPAA - CIPAAMalaysia PDF

    Uploaded by

    Lawrence Lau
    45 views5 pages
    This document discusses enforcing conditional payment clauses after the Construction Industry Payment and Adjudication Act (CIPAA) made such clauses void. It outlines three possible ways for main contractors to address this: 1) Enter a tripartite agreement with the employer and subcontractor. 2) Make clear in contracts that the employer is the "paying party". 3) Include a term requiring the subcontractor to accept adjudication decisions regarding employer payment disputes. Overall, CIPAA aims to help contractors with cash flow, but conditional payment clauses post-CIPAA remain an issue.

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    Enforcing conditional payment clauses post-CIPAA - CIPAAMalaysia.pdf

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    This document discusses enforcing conditional payment clauses after the Construction Industry Payment and Adjudication Act (CIPAA) made such clauses void. It outlines three possible ways for main contractors to address this: 1) Enter a tripartite agreement with the employer and subcontractor. 2) Make clear in contracts that the employer is the "paying party". 3) Include a term requiring the subcontractor to accept adjudication decisions regarding employer payment disputes. Overall, CIPAA aims to help contractors with cash flow, but conditional payment clauses post-CIPAA remain an issue.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    45 views5 pages

    Enforcing Conditional Payment Clauses post-CIPAA - CIPAAMalaysia PDF

    Uploaded by

    Lawrence Lau
    This document discusses enforcing conditional payment clauses after the Construction Industry Payment and Adjudication Act (CIPAA) made such clauses void. It outlines three possible ways for main contractors to address this: 1) Enter a tripartite agreement with the employer and subcontractor. 2) Make clear in contracts that the employer is the "paying party". 3) Include a term requiring the subcontractor to accept adjudication decisions regarding employer payment disputes. Overall, CIPAA aims to help contractors with cash flow, but conditional payment clauses post-CIPAA remain an issue.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 5

    10/16/2020 Enforcing conditional payment clauses post-CIPAA - CIPAAMalaysia

    Enforcing conditional payment clauses post-CIPAA


    April 3, 2020 • By admin (https://www.cipaamalaysia.com/blog/author/admin)

    The Federal Court in Ireka Engineering & Construction Sdn Bhd v PWC Corp Sdn Bhd And Other

    Appeals [2020] 1 MLJ 311 made it clear that CIPAA applied only prospectively and not
    retrospectively because it impacted substantive rights. One of the sections in CIPAA said to
    affect substantive rights is s.35 CIPAA which prohibited conditional payments (i.e. pay-if-paid

    and pay-when-paid clauses).

    However, the reality is that employers continue to insist on making direct payments to nominated

    sub-contractors (NSCs) and by virtue of such direct payment arrangements, it becomes a given
    that the NSCs are paid only when the employers choose to pay.

    For subcontractors, the issue is clear-cut. Since conditional payments are prohibited by CIPAA,

    subcontractors can willy-nilly sign any contract imposing conditional payment terms because
    they can rest assured that such payment terms are void. Therefore, at the end of the day, the
    main contractors still have to make payment based on default payment terms under s.36 CIPAA

    if the employers do not pay.

    For employers, the issue is also clear-cut. Notwithstanding any direct payment arrangements, the

    fact is that there is no privity of contract between employers and subcontractors. Therefore,
    there is usually no legal possibility for subcontractors to sue employers direct, although a few
    cases successfully did so on non-contractual grounds like unjust enrichment and promissory
    estoppel.

    However, for main contractors, the issue is not so simple. As the employers insist on making
    direct payment, the main contractor therefore relies on the employer’s payment to pay the

    subcontractor. However, any default on the part of the employer would fall on the head of the
    main contractor, not the employer. Therein lies the challenge for the main contractor.
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    Here are three possible ways that may overcome this di culty:

    Enter into a tripartite agreement among the employer, the main contractor and the NSC

    instead of the usual subcontract. In this way, the main contractor overcomes the challenge
    of there being no privity of contract between the employer and the subcontractor.
    Make it expressly clear in both the main contract and the subcontract that the “paying
    party” is the employer. In the subcontract, reference should also be made to the same

    payment term in the main contract. If the subcontractor has agreed that the employer is the
    “paying party”, then adversely it may be argued that in the event of any default of payment,
    then surely it is the employer who would be the “non-paying party” under CIPAA.
    Insert a term in the subcontract to state that in the event of failure on the part of the
    employer to pay, then the subcontractor will give notice to the main contractor and require
    the main contractor to initiate adjudication proceedings against the employer, and the

    subcontractor will be bound by any decision in those adjudication proceedings. Whilst


    technically it does not stop the subcontractor from mounting a CIPAA claim, it is
    nevertheless a risk-mitigation measure on the part of the main contractor.

    Of course, the best case scenario is for the main contractor to retain the responsibility to pay the
    subcontractor, and not allow a direct payment arrangement. With the control of the purse-strings,
    the main contractor may be better-positioned to ensure that the subcontractor carries out its
    works accordingly. Otherwise, the main contractor ends up in the position of having all the
    responsibilities, with no accompanying rights.

    CIPAA is intended to help contractors with their cash ow. If you need a preliminary assessment
    of your claim or defence, email us at queries@cipaamalaysia.com
    (mailto:queries@cipaamalaysia.com).

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