Highlights

  1. Modes of construction debt recovery post MCO: Adjudication, Arbitration and/or Court proceedings.
  2. Whether Loss and expenses claimable is based on the contractual terms agreed between the parties.
  3. The Contractor can start initiating proceeding for progress claim not certified or certified but not paid during MCO.
  4. Whether the Employer can delay payment due to MCO must be expressly stated in the contract, otherwise the employer is not allowed under the law or contract to refuse payment due to MCO.
  5. The Employer cannot force the contractor to undergo covid test for all its workers in the absence of any contractual term that give rise to such right to the employer, unless required by the law.
  6. Direct payment from employer is a mode recognized under CIPAA once Adjudication Decision is in the winning party’s favor.
FAQ on Construction Cost Recovery Post MCO

 

Q1. Can a contractor claim for loss and expenses due to COVID-19 and MCO lockdown?

Answer:

The contractor must look into the contractual terms agreed between the parties as the right to claim for loss and expenses is generally a contractual right. For example, Clause 24 of PAM standard form of contract provides for the term to claim loss and expenses.

Q2. Can I claim against the Employer for prolongation cost incurred as a result of suspension of work caused by MCO after MCO is lifted?

You may not be entitled for prolongation cost incurred as MCO and COVID-19 are not caused by the Employer and hence is consider a “neutral event” which has no basis for compensation from Employer.

However, one may ultimately argue that since EOT has been granted, the contractor may claim for prolongation cost due to EOT granted provided always that the contractual terms between the parties must first be observed, whether there is any obligation to mitigate the losses.

Q3. Can a contractor claim for machineries rental, wages of site labour or demobilization and remobilization costs due to COVID-19 and MCO?

Answer:

The contractor must first ascertain if there is contractual right to claim for such losses under the loss and expenses clause due to COVID-19 and MCO. Once such right has been identified, the contractor may then submit a claim making reference to the relevant clauses of the contract.

Q4. I have not received payment for work done certified for month of February, what can I do?

Answer:

The contractor must ascertain the payment terms under the contract and identify if the payment term has been breached by the superintendent officer or the employer. If the employer has breached the payment term, the contractor may on good will basis write a reminder letter to the employer on payment issue. If the certification term has been breached by the consultants, the contractor may write to the consultants and request for certification based on the contract. If none of the above yield any positive result, the contractor may consider pursuing statutory adjudication under CIPAA or Arbitration if the contract provided for it before filing a suit in the court.

Q5. The outstanding due from the employer to me before imposition of MCO is RM200,000.00, how do I recover my claim?

Answer:

If the non-payment issue persist until today, the contractor may choose either to resolve the dispute at statutory adjudication(CIPAA), contractual arbitration or court(without arbitration clause).

In the event there is no arbitration clause, the contractor may file a suit at session court as the claim is less than RM1,000,000.00. Any claim above RM1,000,000.00 will be under the high court jurisdiction.

Q6. Can the Employer refuse or delay payment by reason of MCO and COVID-19?

Answer:

The contractor may refer to the terms of the contract with the employer to see if MCO can be a reason for non-payment or delay in payment, otherwise, the employer must perform its contractual obligation to make payment in accordance to payment term under the contract.

Q7. What can a contractor do after obtaining a judgment in my favour in the High Court of Malaya?

Answer:

There are few effective mode of execution that has always been adopted by the Malaysian. The contractor may choose to wind up the company under Section 218 of Companies Act 2016 upon obtaining a judgment and appoint a liquidator to liquidate whatever that is left in the company to recover monetary sum.

Alternatively, the contractor may initiate garnishee proceedings against judgment debtor under Order 45 rule 1(1)(b) Rules of Court 2012(ROC 2012) whereby the bank will temporary without some money in the JD’s bank account upon presentation of show cause order.

Interestingly, the contractor may also choose to file in writ of seizure and sale under Order 45 rule 1(1)(a) ROC 2012 to sell off the Judgment Debtor’s movable or immovable property in order to recover debt ordered under a judgment obtained.

Q8. Can the contractor be forced by the employer to conduct COVID19 test on all its workers in view of COVID19 and to bare its own cost?

Answer:

Generally, unless the contract expressly provided for such right to the employer, then there is no contractual obligation to perform such test unless required by any law.

Q9. What avenues are available for me to recover money not paid for work done after MCO is lifted?

Answer:

Generally, for the contractors who want swift interim decision and quick recovery mode to address cash flow problem, the contract may choose to pursue statutory adjudication under CIPAA which only take about 95 working days to ventilate the whole adjudication proceedings. Alternatively, if the contract contain arbitration clause, then the parties must resolve the dispute by arbitration, either ad hoc arbitration or under AIAC. In the absence of any arbitration clause, the parties may file a suit in the Court based on the jurisdictions of respective Court.

Q10. How does contractor choose between the dispute resolution mechanism to pursuit its claim for recovery of payment not made after MCO being lifted?

Answer:

This would depend on whether cash flow is a concern for the contractor. If cash flow is a concern, the contractor may choose to pursue statutory adjudication under CIPAA for an interim binding decision whereby the contractor would expect to obtain an adjudication decision within 95 working days from the date of serving a Payment Claim.

However, if cash flow is never a concern, the contractor may choose to pursue arbitration if there is arbitration agreement or to court in the absence of arbitration agreement for final determination of the dispute between the parties. These modes of dispute resolution is far more time consuming than CIPAA but could achieve finality in the dispute between the parties.

Q11. What is Statutory Adjudication and how can I use it to recover money not certified or certified but not paid for work done?

Answer:

Statutory Adjudication is a mode of dispute resolution mechanism where the effect of the Adjudication Decision upon enforcement under Section 28 of CIPAA would be similar to Arbitration and as good as a judgment obtained in the Court. However, contrary to arbitration and court, an adjudication decision is only temporary binding and parties are still free to finally determine the dispute at court or arbitration based on the contract.

Under CIPAA, there is no requirement for there to be a payment certificate before one could pursue to issue a payment claim. All that a contractor has to prove is that there is work done and the progress claim is due for certification and payment under the contract. It is crucial to have systematic filing by the contractor as CIPAA is a document-based proceeding where the parties must prove their case based on written evidence.

Q12. How effective is CIPAA in construction debts recovery?

Answer:

CIPAA is a very effective dispute resolution tool whereby the success rate of a Claimant in the adjudication proceeding is up to 88% based on the AIAC statistics in 20181.

Q13. How much cost will be incurred in CIPAA if my claim is only RM500,000.00?

Answer:

Based on AIAC’s Standard Fees for Services and Expenses in Schedule [Regulation 6] of the Construction Industry Payment & Adjudication Regulation 2014, the Adjudicator fee excluding SST will be RM13,297.00. In addition, AIAC will also charge an administrative fee of RM2,659.40. Sometimes, the Adjudicator may propose recommended fee based on KLRCA CIPAA CIRCULAR 022 as the Adjudicator Fee which will cost slightly higher than standard fee provided that both parties must agree to it.

Q14. What shall a contractor do after procuring an Adjudication Decision but the losing party still refuse to pay?

Answer:

The Contractor may file an originating summon to enforce the Adjudication Decision under Section 28 of CIPAA 2012 as if it is a judgment or order of the High Court. The losing party may also resist the enforcement application by filing in an originating summon to set aside the Adjudication Decision under Section 15 of CIPAA and stay the Adjudication Decision under Section 16 of CIPAA.

Alternatively, the Contractor may cause the Principal of the contract to show cause and make direct payment under Section 30 of CIPAA. If the Court found that there is indeed any sum due from the Principal to losing party of the adjudication, the Court may order direct payment from the Principal to the winning party of an Adjudication Decision.

Q15. What shall a contractor do if the contract contains conditional payment clause and the main contractor is relying on that term to refuse payment?

Answer:

The contractor may still refer the dispute to statutory adjudication under CIPAA as Section 35 of CIPAA expressly prohibit the effect of any conditional payment provision. The definition of conditional payment is further defined under Section 35(2) of CIPAA and any term that is similar to those will be void under Section 35(1) of CIPAA.

FOOTNOTES 

[1] https://www.malaysianbar.org.my/article/about-us/committees/international-malaysia-law-conference-2018/imlc-2018-cipaa-adjudication-leading-the-way

[2] https://admin.aiac.world/uploads/imguploadck8afb00eafb6f7d1e5dd0d1a325f8d020.pdf

THIS FAQS ARE PREPARED AND PUBLISHED BY MESSRS GAN & ZUL, ADVOCATES & SOLICITORS, KUALA LUMPUR.
-CONSTRUCTION & ALTERNATIVE DISPUTE RESOLUTION DIVISION-
Prepared by:

Ben Lee Kam Foo (Partner)
Head of Dispute Resolution
Arbitrator & Adjudicator
Fellow of ADR, AIAC
Cross Border Taxation Planning

Phang Ting Hong (Associate)
Construction Dispute Resolution Division
Arbitration
Adjudication
Mediation

Gan & Zul is an established legal firm in Malaysia which consists of experienced litigation lawyers. Our firm provides a wide spectrum of legal services covering various aspects of laws includes dispute resolution, debt recovery, land, bankruptcy, insolvency and corporate dispute. We are also a firm construction lawyers based in Kuala Lumpur.
If you have any queries or require additional information, kindly email us at kul.litigation@ganzul.com or call us at 03-2242 3836

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