Pay-When-Paid / Conditional Payment in Malaysia: Why That Clause Is Void Under CIPAA s.35

TL;DR: If a contractor tells you, “You’ll get paid when I get paid,” that excuse doesn’t fly in Malaysia. Under Section 35 of the Construction Industry Payment and Adjudication Act 2012 (CIPAA), any conditional payment clause (pay-when-paid / pay-if-paid / back-to-back) is void. You can pursue adjudication and get a binding decision quickly.

A short, real case

A subcontractor completed works. RM300,000 outstanding. The main contractor said: “Relax—after developer pays me, I’ll pay you.” We issued a formal demand citing CIPAA s.35 (voiding conditional payment). Faced with the law—and the prospect of adjudication—the contractor paid. No need to wait for the developer.

What the law actually says

Section 35 CIPAA makes any conditional payment term void—this covers:

• “Pay-when-paid” (payment only after the payer receives funds from a third party), and

• “Pay-if-paid” / “availability of funds” conditions. Courts and commentaries consistently read s.35 as a blanket prohibition because such clauses choke cashflow down the chain.

Practical note: Some commentary and cases also show courts striking down “conditional” effects in standard forms (e.g., clauses that delay payment post-termination). The thrust remains: terms that condition or postpone payment based on third-party events are void under s.35.

Common scenarios we see (and how s.35 applies)

• “Back-to-back” payment terms in subcontracts → still void if they condition payment on employer funds.

• Post-termination clauses delaying payment until final account → read as conditional where they inhibit cashflow; courts have treated such terms as void under s.35.

• Standard form tweaks trying to rephrase “pay-when-paid” → label doesn’t matter; if payment depends on third-party events, s.35 bites.

  
  

Templates you can adapt (plain language)

• Email line to contractor:“Please note that under CIPAA 2012 s.35, any ‘pay-when-paid’ or conditional payment clause is void in Malaysia. Our claim is due irrespective of your collection from the employer. Failing payment, we will commence litigation.” 

• Checklist before filing:

  • Contract/subcontract & any payment terms

  • Invoices/progress claims + proof of delivery/valuation

  • Correspondence showing no dispute on scope/quality

  • Statement of account + interest computation

    
    

FAQs

Is a “conditional payment” clause ever enforceable? Not for payment under construction contracts within CIPAA’s scope; s.35 voids any conditional payment clause (pay-when-paid / pay-if-paid / availability of funds). For non-construction contracts, conditional payment clauses may be enforceable subject to pre-agreement and reasonableness.

Does CIPAA cover my situation (I’m a supplier/consultant)? CIPAA applies to written construction contracts relating to work in Malaysia, which include many consultancy agreements; confirm your contract falls within the Act’s scope before proceeding.

What’s the first step if the contractor refuses to pay? Send a formal notice citing s.35 and prepare to appoint a solicitor if payment is not made. AUTHOR PROFILE

Rudi Cheu is the principal of Rule & Co. Advocates & Solicitors; a Malaysian law firm focusing on practical and cost-effective solutions for debt recovery and commercial disputes. With nearly a decade of debt recovery experience under his belt; Rudi is passionate about helping businesses navigate debt recovery challenges and shares insights at www.rulecolaw.com/blog and recoverdebt.my

He can be reached via Whatsapp: +60102028095 or via email: rudi@rulecolaw.com