News

14 April 2026

DIRECT PAYMENT FROM THE PRINCIPAL UNDER CIPAA: YOU SAY THERE’S NOTHING OWING? PROVE IT!

I. INTRODUCTION

The Court of Appeal decision in Kinu Sdn Bhd v Kerajaan Malaysia (Jabatan Kerja Raya Malaysia) [2025] 5 MLJ 162 (“Kinu”) provides important clarification on the operation of Section 30 of the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”), in particular the requirement that money be “due or payable” by the principal to the non-paying party.

II. BACKGROUND FACTS

The relevant facts are as follows:

(a) The Public Works Department (“JKR”) appointed Nukima Sdn Bhd (“NSB”) as the main contractor for a hospital project. NSB subsequently engaged Kinu Sdn Bhd (“KSB”) as a subcontractor.

(b) A dispute arose between KSB and NSB. KSB commenced adjudication proceedings under CIPAA and obtained an adjudication decision in its favour. NSB did not satisfy the adjudicated sum, and KSB subsequently obtained an order of the High Court enforcing the adjudication decision.

(c) KSB then issued a written request under Section 30(1) of CIPAA to JKR seeking direct payment of the adjudicated sum. JKR refused to pay. KSB thereafter commenced proceedings under Section 30 of the CIPAA to compel direct payment by JKR.

III. DECISION OF THE HIGH COURT

The High Court dismissed KSB’s claim for direct payment against JKR. The Court accepted JKR’s position that no sums were “due or payable”, on the basis that the latest interim payment certificates reflected a negative balance, with a net sum due from NSB to JKR. Further, there remained ongoing disputes between JKR and NSB relating to the valuation of works and the financial position between the parties.

IV. DECISION OF THE COURT OF APPEAL

The Court of Appeal allowed KSB’s appeal and set aside the High Court’s decision.

(a) “Due or payable” under Section 30(5) of CIPAA is not defeated by bare assertions of dispute

The Court of Appeal emphasised that while the subcontractor bears the initial burden of establishing that there are sums “due or payable”, this is a relatively low threshold. Once crossed, the burden shifts to the principal, which is best placed to account for its financial dealings with the main contractor, to prove that there is no money “due or payable” to the main contractor.

In the present case, JKR failed to produce sufficient documentary evidence to support its position, including evidence of:

(i) the actual cost incurred to complete and/or rectify the alleged incomplete or defective works;

(ii) proper certification or quantification of any liquidated damages or set-off; and

(iii) the application or utilisation of the performance guarantee sum.

In light of JKR’s failure to produce relevant evidence, the Court of Appeal drew an adverse inference against JKR and concluded that there were sums “due or payable” to NSB at the material time.

(b) Retention sums and performance guarantees fall within the meaning of “due or payable”

The Court of Appeal held that retention sums and performance guarantee sums held by JKR may fall within the meaning of “payable” for the purposes of Section 30 of CIPAA, unless it is shown by the principal that such sums have been properly quantified and applied in accordance with the main contract.

V. KEY TAKEAWAYS AND CONCLUSION

The Court of Appeal’s decision in Kinu clarifies that:

(a) The initial burden is on the subcontractor to establish that there are sums “due or payable” by the principal to the main contractor at the time the application under Section 30 of CIPAA is made. Once this is established, the burden shifts to the principal to demonstrate, with proper records, that no such sums are due or payable.

(b) A principal cannot rely on unsubstantiated assertions of set-off, termination or contractual breach. Any contention that no sums are “due or payable” must be supported by evidence.

(c) Retention sums and performance guarantees may fall within the definition of “payable” unless it is shown by the principal, with evidence, that they have been properly quantified and applied elsewhere under the main contract.

Note:     The Court of Appeal’s decision in Kinu is pending appeal before the Federal Court.

This article is intended for general information. It should not be regarded as professional legal advice.

 

Lam Ko Luen Partner Tel: +603-20311788 (Ext. 243) [email protected]	Victoria Loi Tien Fen Partner Tel: +603-20311788 (Ext. 360) [email protected]
Vivek Ashwin Associate Tel: +603-20311788 (Ext. 450) [email protected]