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. The AIAC was previously known as the 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 the 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 106 working days. The following list provides a brief overview of the CIPAA procedures:
- Payment Claim – It is required to be served by the unpaid party on the non-paying party under section 5 of 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 Response needs to set out the amount disputed, whether the whole amount claimed or any part thereof, as well as the reason for the dispute.
- Notice of Adjudication – After the time limited for serving a Payment Response, a Notice of Adjudication may be served pursuant to sec.8 CIPAA.
- Appointment of Adjudicator – Parties have 10 working days under sec. 21 CIPAA to agree on the appointment of an Adjudicator, failing which by sec. 23 CIPAA, either party may request the Director of AIAC to appoint an Adjudicator. If so requested, the Director will appoint an Adjudicator within 5 working days.
- Terms of appointment – These can be negotiated and agreed with the adjudicator within 10 working days of his/her appointment. However, the AIAC standard terms and standard fees will apply in the absence of agreement on the terms of appointment for the Adjudicator. However, if the Adjudicator fails to accept his appointment within 10 working days, then the process of appointing an Adjudicator re-starts.
- Adjudication Claim – An Adjudication Claim must be served pursuant to sec. 9 CIPAA together with all supporting documents within 10 working days after the acceptance of appointment by an Adjudicator. The Adjudication Claim must be served on both the Respondent and the Adjudicator, with a copy advanced to the AIAC.
- Adjudication Response – An Adjudication Response together with all supporting documents must be served pursuant to sec. 10 CIPAA within 10 working days from the receipt of the Adjudication Claim.
- Adjudication Reply – The Claimant then has the right to reply to the Adjudication Response by way of an Adjudication Reply within 5 working days from receipt of the Adjudication Response – see sec. 11 CIPAA.
- Representation – Sec. 8, CIPAA allows parties to be either self-represented, or be represented by any representative including solicitors.
- Adjudication proceedings – The Adjudicator has powers under sec. 25 CIPAA to conduct the adjudication proceedings as he/she deems fit. In most cases, the Adjudicator will not allow for oral hearings.
- Decision – According to sec. 12 CIPAA, the Adjudication Decision shall be delivered within 45 working days from the date of receipt of Adjudication Reply, or from the date when Adjudication Response ought to have been served (if no Adjudication Response made).
The adjudication proceeding carried out under the CIPAA procedure is binding unless it is set aside by the High Court, the matter is settled by both parties in writing, or the dispute is decided by arbitration or the court. The grounds for setting aside is set out in sec. 15 CIPAA. There can also be a stay of the Adjudication Decision pursuant to sec.16 CIPAA.
An Adjudication Decision is only of temporary finality, and the issues raised in adjudication can be re-argued by way of arbitration or litigation. Usually, the construction contract would have a clause to state that arbitration can only commence after the works under the contract is completed, unless the contract is terminated earlier.
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 of the High Court.
- High level of enforcement. It also allows the suspension of works or reduction in the rate of progress.
- Enables claims for direct payment from the principal.
- Parties can choose their own adjudicator if they agree.
- An Adjudicator ought to have relevant expertise in the construction field.
- The entire proceedings are private and confidential.
- The process is relatively informal.
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 how to conduct the adjudication proceedings beyond what is set out in the Act. Parties have little room to seek for oral hearings, site visits, and the like.
The adjudication mechanism provided under the CIPAA procedure allows a faster process than court or arbitration. The Act has a fixed period of 106 working days (from Payment Claim) to complete the adjudication of a dispute.
The disputes that are considered under the adjudication procedures must be related to 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, and intended for own use, whether as residence or occupation.
Payment disputes in the construction industry need to be dealt with in a less costly and speedier manner than what is afforded by arbitration or litigation. This is exactly what CIPAA procedures enable through its adjudication process. Furthermore, CIPAA has prohibited conditional payments, provided for default payment clauses as well as provided multiple avenues for enforcement as remedies for the recovery of payment.
It is always advisable to consult a reputed lawyer who is experienced in Construction Law when dealing with legal matters related to CIPAA as not all cases may be eligible for statutory adjudication. Furthermore, one must be prepared not only for the adjudication process but also for the follow-up actions in Court or arbitration after adjudication. Please seek legal help before taking any action.