The growth of the construction industry in Malaysia has given rise to several construction-related disputes. To address these problems, the Construction Industry Payment & Adjudication Act (CIPAA), 2012 was enacted by the Parliament. It came into effect from 15th April 2014. CIPAA procedure is a dispute redressal mechanism resolving construction contract conflicts.
CIPAA is intended at reducing payment defaults by establishing a cheaper and speedier system of dispute resolution. This is applicable for construction contracts in respect of work done and services rendered, providing for the recovery of payment upon the conclusion of the adjudication process.
In addition, it also provides a host of other remedies such as the right to reduce the rate of work progress or to suspend work or the securing of direct payment from the principal.
Asian International Arbitration Centre (AIAC) provides support for Alternate Dispute Resolution (ADR) mechanisms like CIPAA. Earlier, its predecessor was Kuala Lumpur Regional Centre for Arbitration (KLRCA) in Malaysia. Since its inception, AIAC has administered over 1,400 adjudication cases with 2017 recording the highest number of adjudication cases.
As AIAC is the adjudication authority, it is responsible for conducting adjudication training programs regularly. This is done to regulate and maintain the high standards of Malaysian adjudicators.
To complement CIPAA, the construction industry payment and adjudication regulations 2014 and their construction industry payment and adjudication (exemption) order 2014 also came into effect on 15th April 2014.
The arbitration time fixed for completion of procedures under CIPAA is 90 days. The following listicle provides a brief overview of the CIPAA procedures:
- Claim of Payment – It is required to be served by the unpaid party on the non-paying party under section 5 of the CIPAA.
- Payment Response – To be served by the non-paying party to the unpaid party within 10 working days according to section 6, CIPAA. A payment claim by the claiming party shall be stated for the whole amount or any amount. While the other party (who disputes) needs to state the amount disputed and the reason for the conflict.
- Adjudication Notice – According to Sec. 7 & 8, CIPAA, within 5 working days, an Adjudication Notice needs to be served together with any supporting document by the claimant on the respondent.
- Appointment of Adjudicator – Under Sec. 21 & 23, CIPAA, within 10 working days, parties may request to appoint/nominate an ADJUDICATOR. In case of non-agreement on the choice of Adjudicator by the parties in dispute, the Director of AIAC (upon request from both parties) or one party can request for the appointment of adjudicator within 5 working days.
- Terms of appointment – These can be negotiated and agreed with the adjudicator within 10 working days. The parties or the Director of the AIAC may proceed to appoint a new adjudicator according to sec. 22 & 23, CIPAA.
- Adjudication Claim – Sec. 9, CIPAA provides for serving together and Adjudication Claim with any supporting documents by the claimant on the respondent and the adjudicator. To be done in 10 working days period.
- Adjudication Response – Sec. 10, CIPAA states than an Adjudication Response shall be served by the respondent with the supporting documents on the claimant and the adjudicator in 10 working days.
- Adjudication Reply – In 5 working days, it is to be served by the claimant on the respondent and the adjudicator according to Sec. 11, CIPAA.
- Representation – Sec. 8, CIPAA provides for self-representation of the parties or by any party appointed by them, including solicitors.
- Adjudication proceedings – Sec. 25, CIPAA states that the adjudication is conducted according to the directions of the adjudicator, not necessarily involving oral evidence.
- Decision – According to sec. 12, of CIPAA, the adjudication decision shall be delivered within 45 working days.
The adjudication proceeding carried out under the CIPAA procedure is binding unless it is set apart by the High Court. The matter is settled by both parties in writing. The conflict is decided by arbitration or the court. There can also be a stay on the adjudication decision according to Sec. 13 and 16 of the Act.
If either or both parties do not agree with the adjudication decision, the case can be reopened by arbitration or litigation after the construction contract concludes/terminates.
Advantages of CIPAA procedures:
- Speedy dispute resolution for the recovery of payment in the construction industry.
- Provides binding and enforceable decisions on payment disputes. The adjudicator’s
decision can be enforced as a judgment.
- High level of enforcement. It allows the suspension of works or reduction in the rate
- Enables direct payment from the principal.
- Parties can choose their own adjudicator.
- An Adjudicator has relevant expertise in a specific field.
- Private and confidential.
- Informal procedures.
Disadvantages of CIPAA procedures:
- CIPAA 2012 only confined to payment disputes in relation to construction contracts.
- The decision made by the Adjudicator is interim in nature as it is subjected to
arbitration and litigation.
- The Adjudicator will decide the course interaction of the proceedings. Parties have
little room to negotiate.
The adjudication mechanism provided under the CIPAA procedure allows a faster process than the court proceedings. The Act has a fixed period of 90 days to adjudicate a dispute.
The disputes that are considered under the adjudication procedures must be related to non-payment issues for work done or services rendered. The Act does not apply to a construction contract entered into by an individual where a building is less than 4 stories high. Also, the act is inapplicable in case the building is intended for the residence/occupation of a person.
The payment disputes in the construction industry need to be dealt with less costly, speedier, contemporary legal proceedings. This is exactly what CIPAA procedures enable through its adjudication process. CIPA Act has been specifically designed to resolve the issues relating to the PROHIBITION of Conditional Payment, to STREAMLINE payment procedures and provide REMEDIES for the recovery of payment.
It is always advisable to consult a reputed lawyer when dealing with legal matters as all cases may not be eligible for statutory adjudication. Please seek legal help before taking any action.