3-Minutes Read Up
- CIPAA is to solve cash flow problem of the industry player and uphold principle of “pay now, argue later”.
- Adjudication under CIPAA apply to construction works/ construction consultancy services.
- CIPAA do not apply to over sea construction works
- CIPAA do not apply to contract entered by 1 person and building less than 4 storeys and intended for own occupation.
- CIPAA is initiated by way of Notice of adjudication.
- Whole process of CIPAA take roughly 95 working days.
- An adjudication is concluded upon delivery of adjudication decision.
- Adjudication Decision is void if issued out of time prescribed under CIPAA.
- Typo or computational error can be corrected on an Adjudication Decision.
- Adjudication decision is temporary binding until being set aside or finally resolved in court or arbitration.
- Adjudication decision cannot be appealed against.
- Adjudication Decision can be set aside on limited grounds.
- Winning party can enforce the adjudication decision in the High Court in order to execute it against the losing party.
- Typical expenses in an adjudication proceeding are AIAC administrative fees and Adjudicator fees.
- Winning party can recover cost from losing party.
- Any party can refer the dispute concurrently in adjudication and arbitration or court.
- Pay when paid clause is void under CIPAA.
- In the absence of payment term in the contract between the parties, CIPAA provide 30 days due date from receipt of invoice.
- One adjudication proceeding is only catered for one construction contract regardless if the non-paying party is the same for several other contracts.
- Non-service of Payment Response will bring no legal implication on the Respondent’s case.
Comprehensive guide on Construction Adjudication in Malaysia
Q1.What is Construction Industry Payment and Adjudication Act 2012 (“CIPAA”)?
CIPAA was enacted to provide a mechanism for speedy dispute resolution through adjudication which could effectively help contractors to recover payment due but unpaid in the construction industry. The preamble of CIPAA is to solve the cash flow problem in the industry and the core principle of CIPAA is also known as “Pay now, Argue later”.
Q2. What is adjudication?
Adjudication is one of the mode of dispute resolution recognised under CIPAA to deal specifically with overdue payments strictly in relation to construction works or construction consultancy services1.
Q3. Can a contractor adjudicate under CIPAA a dispute for work done oversea?
No. CIPAA only apply to construction contract made in writing for construction works carried out either wholly or partly within the territory of Malaysia2.
Q4. In what situation CIPAA cannot apply?
CIPAA does not apply to construction contract entered into by a natural person AND construction work for building which is less than 4 storeys high AND which is wholly intended for own occupation3.
Q5. How to initiate an adjudication?
An adjudication can be initiated by the Unpaid party within 10 working days after service of a payment claim to the Non-paying party. The Unpaid party may initiate by serving a Notice of Adjudication which shall contain the nature and description of the dispute including the remedy sought. The Notice of Adjudication shall be accompanied with supporting documents as well as proposal of single common adjudicator to chair the adjudication proceeding.
Q6. What is the process of Adjudication?
a. The Claimant shall issue a Payment Claim upon the progress claim/final claim become due or payable4;
b. The Respondent shall within 10 working days respond with a Payment Response stating the amount disputed and the reason for the dispute5;
c. The Claimant shall within 10 working days after service of Payment Claim issue a Notice of Adjudication to initiate the adjudication proceeding6;
d. The Claimant shall register the adjudication with AIAC after the issuance of Notice of Adjudication;
e. If there is no agreement on common adjudicator, the Claimant shall within 10 working days from the proposal of common adjudicator in Notice of Adjudication request for an appointment from the Director of AIAC which the Director would within 5 working days appoint a panel adjudicator for the parties;
f. The appointed Adjudicator will then negotiate the terms with the parties within 10 working days from the date he/she was notified of the appointment;
g. Upon issuance of Notice of acceptance of the appointment to act as adjudicator(Form 6) by the Adjudicator, the Claimant shall within 10 working days file in the Adjudication Claim together with supporting documents by way of agreed mode of service7;
h. The Respondent shall within 10 working days from the receipt of Adjudication Claim respond to the Adjudication Claim together with supporting documents to justify its reason for not paying8;and
i. The Claimant shall within 5 working days from the receipt of Adjudication Response reply to the Adjudication Response with or without supporting documents9.
Q7. When is the adjudication proceeding concluded?
The Adjudication proceeding is concluded when the Adjudicator issue a written decision within 45 working days from the Adjudication Reply or in the absence of an Adjudication Reply, 45 working days from the Adjudication Response10. However, the timeline for delivery of Adjudication Decision can be extended by agreement of the parties.
Q8. What happen if the Adjudication Decision is issued out of statutory timeline?
The adjudication decision will be null and void11 and the parties could challenge it in the High Court by filing in an Originating Summons to set aside to Adjudication Decision.
Q9. Can an Adjudication decision be amended or corrected?
In the case of computational error or typographical error, an adjudicator may at any time correct it at own initiative or by request of any party.
Q10. What is the legal status of an adjudication decision?
An adjudication decision is binding12 unless it is being set aside by the High Court or the dispute is finally settled by arbitration or the court. This simply means that an adjudication decision is temporary binding pending final resolution at arbitration or the court.
Q11. What can a contractor do if it is not satisfy with the adjudication decision?
Different with conventional court proceeding where a judgment can be appealed against, an adjudication decision cannot be appealed against but can be set aside at the High Court under very limited grounds.
Q12. In what circumstances can an Adjudication Decision be set aside?
Any party aggrieved by the Adjudication Decision can apply to the High Court to set aside13 under the following grounds:-
a. The Adjudication Decision was improperly procured through fraud or bribery;
b. There has been a denial of natural justice;
c. The Adjudicator has not acted independently or impartially; or
d. The Adjudicator has acted in excess of his jurisdiction.
Q13. What can a winning party do if the losing party does not recognize or comply with the adjudication decision?
The winning party can choose to enforce the Adjudication Decision14 in the High Court as if it is a judgment of the High Court. With the conversion to a judgment, the winning party can then proceed with execution or enforcement proceedings such as garnishee proceedings, winding up and/or writ of seizure and sales. It is further provided under CIPAA that the winning party may suspend or slow down his work upon obtaining an Adjudication Decision in its favour. The winning party may also demand direct payment from the principal15.
Q14. How much do I need to pay to initiate an adjudication proceedings?
The typical expenses that will be incurred by an unpaid party in an adjudication proceeding is as follow:-
a. AIAC registration fee and appointment fee;
b. Adjudicator’s fee and expenses16 based on Schedule [Regulation 6] AIAC’s standard fees or KLRCA CIPAA CIRCULAR 02 for recommended fee;
c. AIAC Administrative fees;
d. Every party’s legal fees (if the party choose to appoint a representative)
Q15. Can the winning party recover the costs of the adjudication from the losing party?
Yes. The concept of “costs follow the event”17 is adopted under CIPAA whereby the losing party shall pay costs incurred by the winning party. Usually, the adjudicator will fix the quantum of costs to be paid in the adjudication decision.
Q16. Can a party initiate adjudication and arbitration at the same time?
Yes. Any party is allow to concurrently refer the dispute to different mode of dispute resolution even when an adjudication proceeding has been initiated to finally resolve a dispute18.
Q17. Can the Respondent in the statutory adjudication invoke pay when paid clause as agreed under a contract?
No. Conditional payment clause is prohibited and void under CIPAA19.
Q18. There is no payment term in my contract, can I still claim under CIPAA?
Yes. In the absence of contractual payment term, CIPAA provides a 30 days due date for payment from the receipt of an invoice20.
Q19. I have several projects with the same non-paying party whereby each project has got some payment due from the non-paying party, can I initiate 1 adjudication proceeding for all projects against the same non-paying party?
No. CIPAA only apply to one construction contract per adjudication despite the non-paying party is the same company.21
Q20. What happen if the Respondent overlook on the due date to serve a payment response?
There is no legal implication on the Respondent for failure to serve a payment response as pronounced in the Federal Court case of View Esteem Sdn Bhd v Bina Puri Holdings Bhd22 and that the Respondent is deem to have disputed the amount claimed in Payment Claim.
 Section 4 of CIPAA
 Section 2 of CIPAA
 Section 3 of CIPAA
 Section 5 of CIPAA
 Section 6 of CIPAA
 Section 8 of CIPAA
 Section 9 of CIPAA
 Section 10 of CIPAA
 Section 11 of CIPAA
 Section 12 of CIPAA
 Section 12(3) of CIPAA
 Section 13 of CIPAA
 Section 15 of CIPAA
 Section 28 of CIPAA
 Section 30 of CIPAA
 Section 19 of CIPAA
 Section 18(1) of CIPAA
 Section 31 of CIPAA
 Section 35 of CIPAA
 Section 36(4) of CIPAA
 Section 2 of CIPAA
 2018] 2 MLJ 22
THIS FAQS ARE PREPARED AND PUBLISHED BY MESSRS GAN & ZUL, ADVOCATES & SOLICITORS, KUALA LUMPUR.
-CONSTRUCTION & ALTERNATIVE DISPUTE RESOLUTION DIVISION-
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