CIPAA 2012 IntroductionThe Construction Industry Payment and Adjudication Act 2012 (“CIPAA”) has come into force on 15th April 2014. The Act introduced statutory adjudication as a means of dispute resolution under construction contracts performed wholly or partly within the jurisdiction of Malaysia. The adjudication mechanism under the Act is speedier and more cost effective compared to arbitration or court proceedings. The adjudication decison can be obtained within 95 working days.
Section 4 of the Act defines “construction work” widely. Apart from conventional construction works, construction works as defined by the Act also includes “construction, extension, installation, repair, maintenance, renewal, removal, renovation, alteration, dismantling, or demolition of any electrical, mechanical, water, gas, oil, petrochemical works or telecommunication works”. It also expressly includes works such as site clearance, soil investigation and improvement, earth-moving excavation, laying of foundation, site restoration and landscaping.
From the above, it is suggested that the scope of the Act is wide enough to cover all aspects of works in the construction industry. Nevertheless, Section 3 of the Act specifically provides that it is not applicable to contract entered into by a natural person for construction of building which is less than 4 storey and which is intended for his own occupation. Hence, the Act will likely affects large scale construction projects.
One unique feature of the adjudication under the Act is that it is mandatory and the agreement of the parties is not required. The Act does not allow for parties to contract out of the statutory adjudication, which makes the adjudication process effective.
The Adjudication Procedure
The adjudication procedure and the respective timeline are clearly provided in the Act. For the ease of reference, the relevant adjudication process is summarized in the following diagram:-
Section 13 of the Act provides that the adjudicator’s decision is binding, unless set aside by
the High Court of Malaya, the dispute is finally decided by arbitration or court or the subject matter has been settled between the parties. The grounds for setting aside are provided in Section 15 of the Act as follow:-
(a) the decision was procured through fraud or bribery;
(b) there is a denial of natural justice;
(c) the adjudicator did not act independently or impartially; or
(d) the adjudicator acted in excess of his jurisdiction.
If the losing party refused to make payment after an adjudicator decision, the winning party may apply to the High Court for the enforcement of the decision under Section 28 of the Act. Once order is granted, the decision can be enforced by any modes provided under the Rules of Court and any other laws, such as the Companies Act 1965.
Further, under Section 29 of the Act, the winning party may suspend or reduce the rate of progress of the construction works under the contract if the adjudicated amount is not paid in full or in part by giving a fourteen (14) days written notice to the losing party of its intention to do so. Section 29 specifically provided that the party exercise this right shall not be treated as breaching the contract, is entitled to a fair and reasonable extension of time to complete his obligation under the contract, is entitled to recover any loss or expenses incurred as a result of the suspension or reduction from the losing party.