On April 15, 2014, the Construction Industry Payment and Adjudication Act 2012 (CIPAA) came into force. CIPAA was established as an alternative to the lengthy and expensive processes of arbitration or litigation, providing a statutory adjudication mechanism to resolve disputes in the construction industry.
The enactment of CIPAA aimed to address common challenges faced in construction projects, such as delays or abandonment due to issues related to underpayment, late payment, or non-payment. Essentially, CIPAA embodies the principle of "Pay now, Argue later."
Applicability of CIPAA
CIPAA is applicable to all written construction contracts, whether made with the government or a private party, in relation to construction work carried out wholly or partially within Malaysian territory.
The term "construction contract" encompasses both construction work contracts and consultancy contracts. "Construction work" includes activities such as construction, extension, installation, repair, maintenance, renewal, removal, renovation, alteration, dismantling, or demolition.
It's important to note that CIPAA solely acts as a mechanism for the unpaid party to claim for "payment." Payment, as defined under CIPAA, refers to payment for work done or services rendered according to the express terms of a construction contract. Other types of claims, such as tortious claims, are not allowed under CIPAA.
Commencing or Defending a Claim under CIPAA
An unpaid party can serve a payment claim on a non-paying party to demand payment as per the construction contract. The unpaid party refers to the party claiming a sum that has not been fully or partially paid, while the non-paying party is the party against whom the payment claim is made.
The adjudication process can be summarized as follows:
a) The claimant (unpaid party) issues a Payment Claim.
b) The respondent (non-paying party) issues a Payment Response within 10 working days.
c) The claimant issues a Notice of Adjudication.
d) An adjudicator is appointed:
i) By mutual agreement within 10 working days from the Notice of Adjudication, or
ii) By the director of the Asian International Arbitration Centre ("AIAC") within 5 working days upon receiving a request to appoint an adjudicator.
e) The claimant issues an Adjudication Claim within 10 working days, which includes the nature of the dispute, the sought remedy, and supporting documents.
f) The respondent issues an Adjudication Response within 10 working days, providing a response to the Adjudication Claim along with supporting documents.
g) The claimant issues an Adjudication Reply within 5 working days, which serves as a response to the Adjudication Response and includes supporting documents.
The adjudicator is responsible for deciding the dispute and delivering the adjudication decision within specific timelines:
a) Within 45 working days from the service of the adjudication response or reply to the adjudication response, whichever is later;
b) 45 working days from the expiration of the prescribed period for serving the adjudication response if no response is received; or
c) Additional time may be agreed upon by the parties.
It is crucial to emphasize that an adjudication decision not made within the specified period is considered void. Even a delay of one day in delivering the decision renders it void.
Effect of Adjudication Decision
The adjudication decision is final and binding, unless;
a) it is set aside by the High Court;
b) the parties reach a formal agreement resolving the matter; or
c) the dispute is finally decided through arbitration or court proceedings.
If an aggrieved party wishes to set aside an adjudication decision, they can apply to the High Court based on specific grounds;
a) The decision was improperly procured through fraud or bribery;
b) There was a denial of natural justice;
c) The Adjudicator has not acted independently or impartially; and/or
d) The Adjudicator has acted in excess of his jurisdiction.
On the other hand, the winning party can enforce the adjudication decision by applying to the High Court for an order to enforce it as if it were a judgment or order of the court. While enforcement and setting aside applications are typically heard together, a party opposing the enforcement cannot rely on the grounds for setting aside the decision if they haven't filed an application to set it aside.
For purposes of enforcing an adjudication decision, the applicant only needs to prove the existence of a favorable adjudication decision, non-payment of the adjudicated sum by the specified date, and no prohibition against granting the sought order.
This article has been produced for general information purposes and further advice should be sought from a professional advisor.