By:
Bryan Lui (Co-Managing Partner) [bryanlui@luibhullar.com]
Harneshpal Karamjit Singh (Co-Managing Partner) [harnesh@luibhullar.com]
Understanding the Lion Pacific v Pestech Case: Implications for Uncertified Sums under CIPAA
The Lion Pacific v Pestech Technology case has stirred significant discussion in the construction industry, particularly regarding uncertified sums. By examining this case, we can better understand the implications of the Construction Industry Payment and Adjudication Act 2012 (“CIPAA 2012”) on payment clauses that require certification. This article delves into the details of the case and its broader impact on CIPAA and construction contracts.
Overview of CIPAA 2012 and Conditional Payment Clauses
Section 35 of CIPAA 2012 states that all conditional payment clauses are void. This provision aims to facilitate timely and regular payments to contractors, ensuring that payment is not unduly delayed by conditional clauses.
In the case of Lion Pacific Sdn Bhd v Pestech Technology Sdn Bhd and another appeal [2022] MLJU 2109, the claimant argued that a payment clause stipulating payment upon certification by the Ministry of Transport (MOT) was void due to its conditional nature.
The clause in question stated: “Verification and approval by ICC-MOT 15th – 24th every month. Payment to Sub-Contractor 40 days after certification by MOT.”
Common Practice in Construction Contracts
It is commonplace in construction contracts to include clauses that require payment after certification. However, this practice often leads to disputes, as employers may delay or refuse certification, prompting claims under CIPAA for uncertified sums.
In this case, Pestech claimed RM24 million for works that were not certified. Lion Pacific contended that payment was not due without MOT certification. Pestech argued that the requirement for certification was a conditional payment clause and therefore void under section 35 of CIPAA 2012.
Adjudicator and High Court Rulings
The adjudicator and the High Court sided with Pestech, concluding that the payment clause was indeed conditional. The High Court Judge reasoned that allowing the clause to stand would contradict CIPAA 2012's objective of ensuring timely payments to contractors.
Court of Appeal Decision
On appeal, the Court of Appeal disagreed with the High Court's interpretation. It held that the "pay-if-certified" clause was not conditional as per section 35 of CIPAA 2012. The Court emphasized that the parties had mutually agreed that payment would only be due upon certification, thus honoring their express intentions.
Issues and Implications
Pestech's argument that a pay-if-certified clause is void under section 35 CIPAA 2012 may have been an overreach. Most construction contracts include such clauses, and a more effective argument could have focused on the breach of the obligation to certify. The adjudicator, empowered by section 25(m) CIPAA 2012, could review and revise any certificate issued or pending issuance, effectively certifying the works in the absence of employer certification.
The Court of Appeal's unconditional support for the pay-if-certified clause presents challenges. It is not uncommon in the construction industry for certifications to be withheld, even when work has been completed. If payment depends on certification, contractors might not get paid for their work. In many instances, the certification is controlled by the employer or main contractor, who may have an interest in under-certifying or refusing certification.
Conclusion
The Lion Pacific v Pestech case should be interpreted with caution. It should not set a precedent that disallows payment for uncertified works solely because certification has not been completed. Such a precedent could encourage employers and main contractors to manipulate certifications to minimize their payment obligations. Understanding the nuances of CIPAA 2012 and the adjudication process is crucial for navigating these complex issues.
Consulting with a knowledgeable CIPAA lawyer can help ensure that contractors' rights to fair and timely payment are upheld.
This article aims to provide clarity on the implications of the Lion Pacific v Pestech case and the role of CIPAA in ensuring fair payment practices in the construction industry. For personalized advice and legal support, contact an experienced CIPAA lawyer today.
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