The Construction Industry Payment and Adjudication Act 2012 (CIPAA) was enacted to address a persistent commercial reality in the construction industry: work is often completed long before payment is secured, and cashflow pressure is felt most acutely by subcontractors. While adjudication under CIPAA provides a fast-track mechanism to determine payment disputes, an adjudication decision on its own does not always translate into actual recovery, particularly where the main contractor is unwilling or unable to pay.
In our earlier article, “Post-Adjudication Remedies: Understanding Work Suspension Rights Under CIPAA”, we explored the suspension of work in detail. In this piece, we will explain the process for recovering the adjudicated sum from the principal and examine how it can effectively ensure payment compliance.
In 2025, the Court of Appeal’s decision in Kinu Sdn Bhd v Kerajaan Malaysia (JKR) [2025] 5 MLJ 162 brought long-awaited clarity to how section 30 operates. The judgment is significant not merely because the subcontractor succeeded, but because the Court dealt decisively with many arguments that principals have historically relied upon to resist direct payment.
This article explains the key principles in plain terms and sets out practical guidance for:
- Subcontractors intending to pursue direct payment; and
- Principals/employers who need to respond to (or resist) a section 30 request/application.
Legislative Framework of Section 30 CIPAA
Section 30 CIPAA is best understood as a statutory redirection of money. It does not create new liability for the principal; rather, it redirects money that would otherwise have been paid to the main contractor. Importantly, CIPAA protects the principal by allowing any amount paid to the subcontractor to be recovered from the main contractor, either as a debt or by way of set-off against future payments.
Once a subcontractor obtains an adjudication decision and the amount remains unpaid, the subcontractor may issue a written request to the principal to pay the adjudicated amount directly to the subcontractor, but only up to the amount of money that is “due or payable” from the principal to the main contractor at the time of the request.
Key points:
- The subcontractor must already have an adjudication decision (and the adjudicated amount must be unpaid).
- The subcontractor makes a written request to the principal under section 30(1).
- Direct payment can only be ordered if there is money due or payable from the principal to the main contractor at the time of the request (section 30(5)).
- If direct payment is made, the principal is protected: the principal can recover that sum from the main contractor as a debt or by set-off (section 30(4)).
In substance, the mechanism under section 30 operates as follows:
Brief Facts of Kinu v JKR
The dispute concerned a hospital construction project in Terengganu, where the government (via JKR) engaged Nukima Sdn Bhd (“NSB”) as the main contractor, and NSB in turn subcontracted Kinu Sdn Bhd (“KSB”) for IBS works. NSB failed to pay KSB for completed works, leading KSB to commence adjudication and obtain a favourable award of approximately RM927,300. As NSB still refused to pay, KSB issued a request for direct payment from JKR under section 30 CIPAA. JKR refused, advancing several arguments that are familiar to many principals: that KSB was not a recognised subcontractor because JKR had not given written consent; that the subcontractor’s works had already been paid under earlier interim payment certificates; and that no money was due or payable because the project accounts showed a negative position and JKR intended to forfeit retention and performance sums.
The High Court accepted JKR’s position. On appeal, however, the Court of Appeal took a fundamentally different view.
Three practical lessons from Kinu v JKR
1. “We didn’t approve your appointment” is unlikely to stop a section 30 claim
A common principal response to a section 30 CIPAA request is: “You are not our subcontractor, we never approved your appointment.”
Kinu v JKR shows that this point, by itself, is not a winning defence. Section 30 was enacted for exactly this situation; the subcontractor is not in contract with the principal, but still needs a route to get paid when money is available upstream.
For subcontractors, this reduces a major obstacle, as you do not need to prove that you were “recognised” by the employer.
For principals, it means you should not assume that consent clauses and internal policies will protect you from a section 30 direct payment request. If you want to resist the request, you will normally need to rely on stronger grounds, mainly whether there is genuinely no money due or payable to the main contractor.
2. Section 30 is not limited to “your” payment certificate or “your” scope
Another frequent response by the principal is: “Your package has already been paid – the IPCs for your work are settled.”
Kinu v JKR indicates that this is not the real question. Section 30 CIPAA generally asks a simpler commercial question: At the time the subcontractor made the written request, was there any money still payable by the principal to the main contractor under the main contract?
If the answer is yes, the money can be redirected, even if it is not linked neatly to the subcontractor’s package or the particular certificate where the subcontractor’s work appears.
For subcontractors, this matters because principals sometimes try to defeat section 30 by “ring-fencing” payment certificates and saying the subcontractor’s category is already settled.
For principals, this means internal allocation of IPC items is not, on its own, a reliable shield. The real defence is proving that nothing at all is due or payable to the main contractor at the relevant time.
3. Retention sum can be exposed, and principals must prove where it went
In many projects, the last meaningful “pool of money” is the retention sum. After termination or disputes, principals often say the retention sum has been absorbed by defects, completion costs, backcharges, LAD, or rectification works.
Kinu v JKR shows the risk of relying on that position without proper documents.
The courts understand a basic reality: subcontractors do not have access to the principal’s internal records and final account workings. So when a subcontractor has an unpaid adjudication decision and makes a section 30 direct payment request, the principal is usually expected to be able to show clearly and with supporting records why the retention sum is not payable.
In Kinu v JKR, the principal’s position was weakened because key supporting documents were not produced to properly explain the retention position. The outcome illustrates a practical point for principals: If you want to say that the retention sum is not payable, you need to be able to show the contractual basis and the actual accounting, not just assert it.
Practical implications for subcontractors
For subcontractors, Kinu v JKR substantially strengthens the effectiveness of section 30 CIPAA as an enforcement tool. It confirms that lack of principal consent is not a barrier, that direct payment is not confined to particular IPCs, and that retention may be targeted where the principal cannot properly account for it.
In practical terms, subcontractors should act promptly once an adjudication decision remains unpaid, ensuring that the section 30 direct payment written request is properly drafted and served. The focus should remain on the statutory question of whether money was due or payable at the time of the request, rather than being drawn into contractual disputes between the principal and the main contractor.
Practical implications for principals and employers
For principals, Kinu v JKR serves as a clear warning that section 30 CIPAA is a substantive remedy rather than a procedural technicality. Principals faced with a section 30 direct payment request must respond swiftly and be prepared to substantiate any assertion that no money is due or payable. Unsupported statements or general references to termination, defects, or set-offs are unlikely to be sufficient.
Where retention is relied upon, principals should ensure that there is clear documentary evidence demonstrating the contractual basis for withholding or applying retention and the actual utilisation of the sums. At the same time, principals should not lose sight of their statutory right under section 30(4) to recover any direct payment made from the main contractor.
Conclusion
Kinu v JKR is a reminder that section 30 CIPAA can be a real recovery tool for unpaid adjudication decisions, not just something “on paper”. It also shows that principals cannot safely rely on broad objections like “no consent” or “your IPCs are paid” to avoid direct payment exposure.
For subcontractors: if you have an adjudication decision and non-payment persists, section 30 may give you a second route to recovery, particularly where retention or outstanding sums still exist under the main contract.
For principals and developers: if you intend to resist a section 30 direct payment request, you will need solid documentation and a coherent account of why nothing is payable, rather than general assertions.
By Aishah Rahim
Note: This article does not constitute legal advice to any specific case. The facts and circumstances of each and every case will differ and therefore will require specific legal advice. Feel free to contact us for complimentary legal consultation.
