On 15th of April 2014, the Construction Industry Payment and Adjudication Act 2012 (CIPAA) came into effect. As an alternative to the lengthy and expensive processes of arbitration or litigation, CIPAA establishes a statutory adjudication mechanism to settle disputes in the construction industry.
The passage of CIPAA represents an effort to address challenges that frequently arise in construction projects, such as delays in completion or project abandonment due to issues with underpayment, late payment, or non-payment. In other words, CIPAA encapsulates the core principle of “Pay now, Argue later”[1].
The applicability of CIPAA
Whether the contract is made with the government or a private party, CIPAA is applicable to all written construction contracts in relation to construction work carried out entirely or partially within Malaysian territory[2].
The word "construction contract" includes both a construction work contract and a consultancy contract, whereas the term “construction work” entails construction, extension, installation, repair, maintenance, renewal, removal, renovation, alteration, dismantling, or demolition works[3].
Further, CIPAA only acts as a mechanism for the unpaid party to claim for “payment” which is defined as a payment for work done or services rendered under the express terms of a construction contract. This means that other types of claims other than for payment for work done such as tortious claim will not be allowed under CIPAA.
How to commence or defend a claim under CIPAA
An unpaid party may serve a payment claim on a non-paying party for payment pursuant to a construction contract[4]. As the names suggest, unpaid party means a party who claims payment of a sum which has not been paid in whole or in part under a construction contract, whereas non-paying party refers to a party against whom a payment claim is made pursuant to a construction contract[5].
It is crucial that the payment claim must contain the amount claimed and due date for payment of the amount claimed, details to identify the cause of action including the provision in the construction contract to which the payment relates, description of the work or services to which the payment relates and a statement that it is made under this.
After that, the non-paying party must serve a payment response within 10 working days[6]. If the non-paying party fails to serve a payment response, the entire payment claim would still be deemed disputed.
Reference to adjudication
The right to refer a dispute to adjudication will arise after the expiry of the period to serve a payment response. This right can be exercised by either unpaid or non-paying party[7].
To initiate adjudication, the claimant should serve a written notice of adjudication containing the nature and description of the dispute and the remedy sought together with any supporting document on the respondent[8].
Appointment of adjudicator
Once the notice of adjudication is received, the adjudicator may be appointed by agreement of the parties within 10 working days from the service of the notice of adjudicator. Alternatively, the adjudicator may be appointed by the Director of AIAC upon the request of the parties, or upon the request of either party if there is no agreement reached[9].
Adjudication process
After the adjudicator is appointed, the claimant shall, within 10 working days from the receipt of the acceptance of appointment by the adjudicator, serve a written adjudication claim containing the nature and description of the dispute and the remedy sought together with any supporting document on the respondent[10].
Thereafter, the respondent shall, within 10 working days from the receipt of the adjudication claim, serve a written adjudication response which shall answer the adjudication claim together with any supporting document on the claimant[11].
Then, the claimant may, within 5 working days from the receipt of the adjudication response, serve a written reply to the adjudication response together with any supporting document on the respondent[12].
Adjudication decision
The adjudicator shall decide the dispute and deliver the adjudication decision:
within 45 working days from the service of the adjudication response or reply to the adjudication response, whichever is later;
45 working days from the expiry of the period prescribed for the service of the adjudication response if no adjudication response is received; or
such further time as agreed to by the parties[13].
It must be emphasised that an adjudication decision which is not made within the specified period is void[14]. Indeed, it has been held that even an adjudication decision that is delivered one day late is void[15].
Effect of adjudication decision
The adjudication decision is final and binding unless it is set aside by the High Court, the parties reach a formal agreement that resolves subject matter of the decision, or the dispute is finally decided by either arbitration or the court[16].
In relation to the first reason, an aggrieved party may apply to the High Court to set aside an adjudication decision only on the grounds below:
the adjudication decision was improperly procured through fraud or bribery;
there has been a denial of natural justice;
the adjudicator has not acted independently or impartially; or
the adjudicator has acted in excess of his jurisdiction[17].
Therefore, an appeal against the adjudication decision on merits will not be allowed under CIPAA.
The winning party, on the other hand, may enforce an adjudication decision by applying to the High Court for an order to enforce the adjudication decision as if it is a judgment or order of the High Court[18].
Whilst it is common for court to hear both enforcement application and setting aside application together, the party cannot invoke the setting aside grounds under section 15 of CIPAA to oppose an enforcement application under section 28 of CIPAA, if that party did not file an application under section 15 of CIPAA to set aside the adjudication decision.
In other words, section 28 of CIPAA does not require the applicant to show that there are no grounds for setting aside the adjudication decision under section 15 of CIPAA. All that the applicant needs to do is to satisfy the High Court that there is an adjudication decision that has been rendered in the applicant's favour, that there has been non-payment of the adjudicated sum by the date specified in the adjudication decision, and that there is no prohibition to the grant of the order that is sought[19].
[1] As her Ladyship Mary Lim stated in Uda Holdings Bhd v. Bisraya Construction Sdn Bhd & Anor and Another Case [2015] 5 CLJ 527, “these adjudication decisions, 'being quick and dirty', also "provide a quick enforceable interim decision under the rubric of 'pay now, argue later', are necessary so as to give "life" back to the enterprise or underlying contract which had reached an impasse or stalemate. It is in the very nature of the scheme or mechanism that the substantive issues relating to the payment can still be argued at a later point; or taken concurrently at separate proceedings initiated in court or at arbitration”.
[2] Section 2 of CIPAA
[3] Section 4 of CIPAA
[4] Section 5 of CIPAA
[5] Section 4 of CIPAA
[6] Section 6 of CIPAA
[7] Section 6of CIPAA
[8] ibid
[9] Section 21 of CIPAA
[10] Section 9 of CIPAA
[11] Section 10 of CIPAA
[12] Section 11 of CIPAA
[13] Section 12(2) of CIPAA
[14] Section 12(3) of CIPAA
[15] Skyworld Development Sdn Bhd v. Zalam Corporation Sdn Bhd & Other Cases [2019] 1 LNS 173
[16] Section 13 of CIPAA
[17] Section 15 of CIPAA
[18] Section 28 of CIPAA
[19] Inai Kiara Sdn Bhd v. Puteri Nusantara Sdn Bhd [2019] 2 CLJ 229
Authored by Tan Zu Hao
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