Construction Industry Payment and Adjudication Act 2012 – an update
Author: Janet Chai Pei Ying
Following the footsteps of the United Kingdom, Australia, New Zealand and Singapore, Malaysia has introduced the concept of statutory adjudication to the construction industry via the Construction Industry Payment and Adjudication Act 2012 (‘CIPAA’) which came into operation on 15 April 2014. Applicable to all construction contracts made in writing in relation to construction work carried out wholly or partly within Malaysia, CIPAA was introduced to address cash flow problems in the construction industry due to pervasive and prevalent practice of delayed, non-payment and/or under-payment of works or services.
Under CIPAA, it is intended for the disputes to be decided summarily based on the claim, response and reply filed by the unpaid party and the non-paying party, within a fixed timeline of a 100-day period from the time a payment claim is issued pursuant to CIPAA.
Since its coming into force, CIPAA has received much support from the various players in the construction industry and also seen a number of disputes being brought for adjudication under the Kuala Lumpur Regional Centre for Arbitration which is the adjudication authority under CIPAA. There have also been a number of matters under CIPAA that have been brought before the Courts. This article seeks to provide an update on the types of issues that have been raised before the Courts in Malaysia.
How easy is it to get a stay of the adjudication decision under CIPAA?
In the cases1 that had come before the Court for an application for a stay of the adjudication decision under s16, the Courts have decided that their overarching concern is the object of CIPAA that there be speedy resolution and temporary finality that is, prompt payment of the successful adjudicated claims. In this context, it was determined by the Court that unless there are exceptional circumstances and such circumstances must necessarily refer to the financial status of the adjudication claimant such as insolvency or inability to repay, a stay will ordinarily not be granted even if there is a pending arbitration/court proceeding or a pending application to set aside the adjudication decision.
What about setting aside of an adjudication decision?
Under CIPAA, an adjudication decision can only be set aside on limited grounds – where there has been an excess of jurisdiction, the adjudicator has not acted independently or impartially, there has been a breach of natural justice or the adjudication decision was improperly procured through fraud or bribery.
In the matters that have been filed before the Courts for adjudication decisions to be set aside, the Courts recognised that the task of an adjudicator is not to act as an arbitrator or a judge, and that their task really is to find an interim solution which meets the needs of the case2. The need to have the right answer is subordinated to the need to have an answer quickly. Thus, it is immaterial if the adjudicator had erred in his finding of facts as it is only of temporary finality pending final settlement of accounts. In addition, the mere fact that the adjudicator refused to decide on certain issue is not necessarily a breach under CIPAA. The Courts are slow in granting an application to set aside under s15 unless there is a clear cut breach of natural justice, as demonstrated in the case of WRP Asia Pacific Sdn Bhd v NS Bluescope Lysaght Malaysia Sdn Bhd3 .
Does CIPAA apply retrospectively?
In the case of UDA Holdings Bhd v Bisraya Construction Sdn Bhd & Anor and another case4 , the issue as to whether CIPAA applies retrospectively or prospectively arose. Again, the Court’s approach in this matter was to analyse and understand what CIPAA is all about. The Court reasoned in this case that since CIPAA is an Act
which through adjudication, introduces a fresh or new forum for payment disputes in construction contracts, it would be appropriate to say that such legislation is in character, truth and substance, a procedural and adjectival legislation. Such legislation is presumed in law to be applied retrospectively unless there is clear contrary intention in the statute itself. Therefore, it was determined that CIPAA is to apply to all construction contracts regardless of when those construction contracts were made and that would extend to the payment disputes that arise under those construction contracts.
In the cases listed above, upon dismissal of the applications for stay and/or setting aside, the successful adjudication claimant would in turn be able to apply for an order to enforce the adjudication decision under CIPAA to recover the adjudicated sum. In deciding that the legislation is retrospective in nature, CIPAA has therefore been extended to apply to those construction contracts that were entered into before CIPAA came into force.
In light of the Courts’ treatment of CIPAA thus far in upholding the purpose and object of CIPAA, it is anticipated that the construction industry in Malaysia will be seeing a great shift in many aspects especially with regard to the use of alternate dispute resolution. Be that as it may, it is still early days and it is quite certain that in the next few years, there would continue to be a great deal of disputes pertaining to the interpretation of the Act itself. Although the payment default issues are still a prevalent dilemma amongst the construction industry, it is believed that CIPAA will be the best platform to address the issues of payment default.
1. Subang Skypark Sdn Bhd v Arcradius Sdn Bhd  MLJU 286;  11 MLJ 818; Forster Wheeler E & C (Malaysia) Sdn Bhd v Arkema Thiochemicals Sdn Bhd  1 LNS 632
2. Bina Puri Construction Sdn Bhd v Hing Nyit Enterprise Sdn Bhd  8 CLJ 728; ACFM Engineering & Construction Sdn Bhd v Esstar Vision Sdn Bhd  1 LNS 756.
3.  MLJU 1125.
4.  11 MLJ 499.