Chapter 13

Construction Industry Payment and Adjudication Act 2012 (the CIPAA)

“Take care of the sense, and the sounds will take care of themselves”.1

13.1 The Construction Industry Payment and Adjudication Act 2012 (the CIPAA) [Appendix 16.1] was introduced when the construction industry in Malaysia was undergoing severe payment problems, leading to “delays in the completion of projects, compromise in the quality of works and, in cases of critical contracts, resulting in a termination of those contracts” and, ultimately, giving the construction industry “a negative image”.2 Malaysia is the most recent entrant into the régime of construction adjudication, with the Malaysian Parliament enacting the CIPAA.3

13.2 The CIPAA was introduced with the intention to resolve the “payment problems” and “facilitate regular and timely payment; provide speedy dispute resolution through adjudication which has been seen is also about payment, or to provide remedies for the recovery of payment in the construction industry”.4

13.3 The CIPAA applies to every construction contract made in writing, relating to construction works carried out wholly, or partly, within the territory of Malaysia, including construction contracts entered into by the Government5 (unless exempted by the Minister6), except contracts intended “wholly” for residential occupation.7 The term “construction contract” is defined widely under the CIPAA and includes a “construction consultancy contract” involving planning, feasibility study, architectural works, engineering, surveying, exterior and interior decoration, landscaping and project management services.8

13.4 The existence of a valid construction contract in writing is essential for the claimant to invoke their right under the CIPAA and to be able to commence an adjudication claim.9

Construction adjudication process

13.5 The CIPAA entitles a party, which has carried out construction works, or construction consultancy works, to (1) a “right to progress payment”, unless otherwise agreed to by the parties, and (2) a “speedy resolution through adjudication” for construction disputes relating to payment for works carried out under the construction contract, as well as (3) a determination which has “temporary finality”.10 A party, which executes construction works and which is “unpaid” (referred to as the “unpaid party” in the CIPAA) in “whole, or in part, under the construction contract”,11 may12 serve “a13 payment claim on a “non-paying14 party to the construction contract.15

13.6 The payment claim must:16

The unpaid party is entitled to make a claim for all “unpaid” works and costs17 arising out of, under, or in accordance with, the construction works.18 The unpaid party is required to serve the payment claim on the non-paying party.19

13.7 Following due service of a valid payment claim by the unpaid party upon the non-paying party (in accordance with section 5(1) of the CIPAA), the non-paying party is obliged to (“shall”) serve20 upon the unpaid party within 10 working days21 (1) a payment response,22 together with the whole amount claimed, or any amount as admitted, or (2) a payment response in writing, stating the amount disputed and the reason for the dispute.23 The respondent is deemed to have “disputed the entire payment claim” if they fail to serve a payment response upon the unpaid party.24

Commencement of statutory adjudication

13.8 The expiry of the period for the service of a payment response25 under section 6(3) of the CIPAA triggers26 the following important consequences:

  • .1 It gives either the unpaid party, or a non-paying party,27 the statutory right to refer a28 dispute arising from the payment claim made under section 5 to adjudication;
  • .2 It allows the claimant29 to initiate the adjudication process by serving a written notice of adjudication30 upon the respondent, which includes the proposed name of the intended adjudicator to be appointed;31
  • .3 The claimant has to comply with KLRCA rule 2 and, within seven calendar days of the service of the notice of adjudication upon the respondent, to register the adjudication with the Director of the KLRCA by lodging the prescribed form 3A, containing the required information, enclosing a copy of the payment claim, a copy of the payment response (if any) and the required prescribed nonrefundable registration fees.32

13.9 The respondent is granted 10 working days from the date of the service of the written notice of adjudication to agree, or disagree, to the proposed adjudicator.33 If there is agreement by the parties upon the appointment of the adjudicator within the 10 working days, then the claimant must notify the chosen adjudicator (to be appointed under section 21(a) of the CIPAA) of the agreement in writing and provide them with a copy of the notice of adjudication.34 The proposed adjudicator has 10 working days, from the date upon which he was notified of his appointment, to “negotiate his terms of appointment, including fees chargeable with the parties” and to “indicate his acceptance and terms of appointment of his appointment”.35

13.10 Within 10 working days from the date upon which they were notified of their appointment, the adjudicator must notify the parties as to whether they accept the appointment. If so, the adjudicator must also serve upon the parties their notice of acceptance of the appointment, as well as a written declaration, stating that:

  • .1 There is no conflict of interest with respect to their appointment;
  • .2 They shall act independently, impartially and in a timely manner, and avoid incurring unnecessary expense;
  • .3 They shall comply with the principles of natural justice; and
  • .4 There are no circumstances likely to give rise to justifiable doubts as to their impartiality and independence: see sections 24(a)–(d) of the CIPAA.

13.11 If the parties are unable to agree upon the appointment of the adjudicator, or on the terms proposed by the adjudicator, then either party may request the Director of KLRCA36 in writing to appoint an adjudicator in the manner prescribed under rule 3 KLRCA Rules.37 The director is required, within five working days of receipt of the written request, to appoint an adjudicator: see section 23(1) and (2) of the CIPAA. The adjudicator, who is appointed by the KLRCA and accepts the appointment, will serve their written notice of acceptance and make the declaration required under section 24(a)–(d) of the statute upon the claimant, the respondent and the KLRCA.38

13.12 The adjudication process commences upon the date the adjudicator serves their notice of acceptance of appointment to act upon the parties and the KRCA.39

Construction adjudication process

13.13 Within 10 working days40 from receipt of the adjudicator’s acceptance of appointment, the claimant must serve their written adjudication claim, “containing the nature and description of the dispute and the remedy sought, together with any supporting documents upon the respondent”, the adjudicator and KLRCA.41

13.14 The respondent must, within 10 working days from the date of service of the adjudication claim, serve the adjudication response, “together with any supporting documents”,42 upon the claimant, the adjudicator and the KLRCA. If the respondent fails to serve the adjudication response within the required period, then the claimant “may proceed with the adjudication”,43 or withdraw their adjudication claim.44

13.15 If the respondent serves an adjudication response, then the claimant is required to serve his adjudication reply within five working days “together with any supporting document on the respondent”, the adjudicator and the KLRCA.45

The conduct of construction adjudication

13.16 Construction adjudication in Malaysia commences from the expiry of the period for service of the claimant’s reply to the adjudication response (if any), or upon the expiry of the period for the claimant to serve their adjudication response (if any), whichever is later,46 or “such further time as agreed by the parties”.47

13.17 The date of the commencement of the adjudication is critical because it determines the mandatory period within which the adjudicator must [“shall”] “decide the dispute and deliver the adjudication decision48 upon the parties and the KLRCA,49 failing which, unless it falls with the exceptions under section 12(2)(c) and/or section 19(5) CIPAA, the decision is “void”.50

The rôle of the adjudicator

13.18 The rôle of the adjudicator in Malaysia is to decide the merits of the construction dispute referred to them by the parties within the scope of the adjudication in a fair and impartial manner and to render an enforceable adjudication determination.51

13.19 The adjudicator is bound52 to discharge their duties under the CIPAA in determining the adjudication application referred to them:

  • .1 Without any conflict of interest with respect to their appointment;53
  • .2 Act independently, impartially and in a timely manner and avoid incurring unnecessary expense;54
  • .3 Comply with the principles of natural justice;55
  • .4 There should be no circumstances likely to give rise to justifiable doubts as to the adjudicator’s impartiality and independence;56
  • .5 Decide only issues within their jurisdiction in the adjudication, namely issues raised in the payment claim under section 5 of the CIPAA and the payment response, under section 6 thereof, unless the parties agree in writing to extend the adjudicator’s jurisdiction,57 and
  • .6 To adhere to their duty of confidentiality under the CIPAA58 and not to disclose “any statement, admission or document made or produced for the purposes of adjudication to another person”, unless it falls within the exceptions prescribed by the CIPAA.

Powers of the adjudicator and conduct of the adjudication proceedings

13.20 In Malaysia, the adjudicator, once appointed by either parties, or the KLRCA, is given wide statutory powers59 for the purpose of carrying out their statutory duty to consider the merits of the adjudication application and to make an enforceable determination. The adjudicator is given the power to conduct the adjudication in the manner that they deem fit, so long as they comply with their obligations under the CIPAA, act impartially and give both parties a fair hearing. The parties are bound by the determination made by the adjudicator.60

13.21 The CIPAA provides the adjudicator with the following important wide powers, with which the parties are bound to comply, with the objective of providing a “speedy mechanism” to resolve the construction dispute:

  • .1 The power to consolidate “two, or more, adjudication proceedings before the same adjudicator”, with the consent of all the parties to the adjudication proceedings and adjudicate all the matters in the same proceedings;61
  • .2 To resign from the adjudication proceedings if they are unable to complete the adjudication proceedings, as well as to allow the parties to the proceedings to appoint a new adjudicator and to continue with the proceedings “as if there is no change of adjudicator”;62
  • .3 To treat all non-compliance by the parties with the provisions of the CIPAA, “whether in respect of time limit, form or content or in any other respect”, as a mere “irregularity and shall not nullify the adjudication proceedings” and give the adjudicator the wide powers to deal with these non-compliance including “setting aside either wholly or partly the adjudication proceeding s”, make any order that the adjudicator “deems fit” and to allow amendments to the “documents produced in the adjudication proceedings”;63
  • .4 To establish the procedures in conducting the adjudication proceedings, including limiting the submission of documents by the parties,64 the adjudicator has complete control over the adjudication proceedings in any manner they deem fit, save as to their duty to act fairly, impartially, independently and in compliance with the rules of natural justice;
  • .5 To order discovery and production of documents: see section 25(b) of the CIPAA;
  • .6 To set deadlines for the production of documents: see section 25(c) thereof;
  • .7 To draw on their own knowledge and expertise;65
  • .8 To appoint independent experts to inquire and report upon specific matters with the consent of the parties;66
  • .9 To call for meetings with parties;67
  • .10 To conduct any hearing and limit the hearing time: see section 25(g) thereof;
  • .11 To carry out inspection of the site, work, material, or goods, relating to the dispute, including opening up any work done;68
  • .12 To act inquisitorially, take the initiative to ascertain the facts and the law required for the decision: see section 25(i) of the CIPAA;69
  • .13 To issue any direction as may be necessary, or expedient: see section 25(j) thereof;
  • .14 To order interrogatories to be answered: see section 25(k) thereof;
  • .15 To order that any evidence be given on oath;70
  • .16 To review and revise any certificate issued, or to be issued, pursuant to a construction work contract;71
  • .17 To decide, or declare, on any matter, notwithstanding where no certificate has been issued in respect of the matter;72
  • .18 To award financing costs and interest, under section 25(o) thereof, and
  • .19 To extend any time limit imposed upon the parties under the CIPAAas reasonably required”.73

The adjudication determination process

13.22 In practice, the adjudicator, once appointed by the parties, or the KLRCA, will confirm the scheduled date on which the adjudication decision is to be completed, consider whether a merits conference is required with the parties, or whether the whole adjudication can be decided on a “documents-only74 basis. Moreover, they may:

  • .1 Give directions to the parties for their respective submissions;
  • .2 Give directions for early hearing of the parties on the merits of their claim and/or defences (which the adjudicator deems fit);
  • .3 Hear the parties on the merits of the adjudication application and/or defences on all the issues raised therein;
  • .4 Discuss with the parties the need for any extension of time;
  • .5 Obtain the parties’ consent in the prescribed form and inform them that the adjudication process is completed and no further arguments, or submissions, will be entertained;
  • .6 Confirm with the parties the final date upon which the adjudication decision will be delivered;
  • .7 Discuss any outstanding issues of costs and instruct the parties on which dates the adjudicator’s fees have to be paid to the Director of the KLRCA under section 19(5) of CIPAA,75 and
  • .8 Determine the adjudication application and deliver their decision to the parties and the KLRCA as mandated.76

CIPAA provides the adjudicator with full discretion as to the manner that they “consider appropriate”,77 subject only to their duties and obligations under the CIPAA and the courts’ powers to review,78 and/or stay,79 the adjudication proceedings and/or set aside the adjudication decision.80

13.23 The adjudicator is required81 to determine and deliver the adjudication application to the parties and the KLRCA within 45 working days (1) from the date of service of the adjudication response upon the claimant and the adjudicator, or the date of service of the reply to the adjudication response upon the respondent and the adjudicator, whichever is later,82 or (2) from the “expiry of the period prescribed for service of the adjudication response if no adjudication response is received”,83 or (3) “such further time as agreed to by the parties”.84

13.24 It follows that, in Malaysia, the adjudicator must make and deliver his adjudication determination upon the parties and the Director of the KLRCA within 45 working days from the commencement of the statutory adjudication, unless the parties agree to grant them further time. The CIPAA expressly provides that an adjudication determination that is not “made” to the parties on, or prior to, the mandated deadline date, will be “void85 and that the adjudicator will not be “entitled to any fees or expenses relating to the adjudication”.86 However, the CIPAA includes an exception to the adjudicator’s duty to make and deliver their decision to the parties, namely, where the parties failed to comply with the adjudicator’s directions to “contribute and deposit” the “full payment of the fees and expenses to be deposited with the Director of the KLRCA”.87

13.25 Furthermore, the adjudicator has to determine the amount (if any) to a party, the time and manner in which the amount is payable,88 the date upon which it is payable,89 the interest payable upon the adjudicated amount,90 as well as the costs91 to be ordered.

13.26 The adjudicator (and the KLRCA) is bestowed with statutory “immunity” from any “action or suit” for “any act or omission done in good faith in the performance of his functions” under the CIPAA.92 In addition to the adjudicator’s immunity, the CIPAA also protects the adjudicator and renders them not compellable as a witness “to give evidence in any arbitration, or court, proceedings in connection with the dispute that he has adjudicated”.93

The adjudication decision

13.27 A valid adjudication decision under the CIPAA must comply with the following conditions:94

  • .1 The decision must be made and delivered within and in accordance with the strict time-lines under sections 12(2)(a)–(c) thereof;95
  • .2 The decision must be in writing and shall contain reasons for such decision, unless the requirement for reasons is dispensed with by the parties;96 and
  • .3 The decision must be a final decision, which cannot be amended by the adjudicator, save for “any computational or typographical error on the adjudicator’s own initiative, or at the request of any party”.97

Enforcement of adjudication decisions

13.28 Section 13 of the CIPAA expressly provides that the “adjudication decision is binding unless” it is (1) set aside by the High Court on any grounds under section 13(a) thereof, or (2) the subject-matter of the decision is settled by a written agreement between parties, under section 13(b) thereof, or (3) the dispute is finally decided by arbitration, or litigation, as set out in section 13(c) thereof, mandating the temporary binding and enforceable nature of adjudication decisions thereby in law in Malaysia.

13.29 The Malaysian courts have recognised the temporary binding nature of the adjudication decision (the objective of the CIPAA) and have reiterated the same. In the recent case of Subang Skypark Sdn Bhd v Arcradius Sdn Bhd,98 Her Honour Mary Lim J succinctly reiterated the temporary finality of the adjudication decision in the following emphatic terms:

“This limited right is consistent with the whole scheme of CIPAA 2012, which is to afford speedy disposal of payment disputes on a temporary note of finality. During this time of pendency, be it of an application to Court to set aside the adjudication decision, or where the final determination by another arbiter or Court is awaited, the adjudication decision is binding on the parties. Compliance with the adjudicated decision is a given and part of the rules of the game in this industry and what CIPAA is all about in the first place….

13.30 The CIPAA provides99 that, if the respondent fails to pay the whole, or any part, of the adjudicated amount when it is due and payable, the party entitled to the adjudicated amount (the claimant) is entitled, subject to the prescribed conditions, to enforce the adjudicated amount by the following non-legal and legal means:

The rôle of the courts in construction adjudication under the CIPAA

13.31 Although the CIPAA is in its infant stages of construction adjudication, having only been in operation since 15 April 2014, the Malaysian High Court has reiterated and applied the objective of the CIPAA in reinforcing the temporary binding nature of adjudication decisions and dismissed the following various ingenious challenges against such decisions.103

13.32 The CIPAA, however, requires the Malaysian High Court104 to play an essential rôle under it in the four situations:

The courts’ rôle to decide disputes under construction contracts concurrently with adjudication

13.33 The CIPAA expressly retains the parties’ rights under the construction contract and reinforces the “dual railroad track system109 approach to construction adjudication. It preserves the parties’ rights under the construction contract as distinct and separate from the parties’ rights and obligations under the CIPAA, except where the construction dispute concerns, or involves, the same dispute as that before the adjudicator. The adjudication proceeding is “terminated” once the dispute has been decided by a court, or through arbitration.110

13.34 The CIPAA allows the parties to commence any application in the High Court, before the adjudication, concurrent with the adjudication application and even after the adjudication decision, for the final determination of the construction dispute arising under the construction contract, notwithstanding the adjudication decision.

13.35 The court, or arbitral tribunal, when deciding the final rights of the parties under the construction contract, is not bound by any of the findings of the adjudicator and “must be able to look at the whole dispute”. The “adjudicator’s actual reasoning has no legal, or evidential, weight” upon the court.111

13.36 The CIPAA’s allows the parties to repeat and challenge the whole merits of the adjudicator decision before the court or arbitral tribunal. The court or arbitral tribunal may accept the adjudication decision and take into consideration the adjudicated amount allowed and paid in their final determination.

13.37 The court or arbitral tribunal is also fully entitled to reject, vary, or amend, the merits of the adjudicator’s decision. The court or arbitral tribunal is further entitled to hold that the adjudication decision was made in error and to order the repayment, or refund, of the adjudicated amount, or any part thereof, to the party who did not succeed in the adjudication. In addition, the court or arbitral tribunal may award costs and interest up to any amount, which the court or arbitral tribunal deems just.112

13.38 The CIPAA also expressly allows parties to a construction contract to seek, concurrent relief to the pending adjudication proceeding, in the form of a declaration on the validity of the construction contract, the adjudication proceedings and/or obtain injunctions and declarations to prevent a party from invoking the “speedy mechanism” under the CIPAA.

13.39 In UDA Holdings,113 the Malaysian High Court, in the first case under the CIPAA, had to consider consolidated applications, concurrent to adjudication applications, taken by parties seeking inter alia a declaration regarding two things:

  • .1 That the construction contracts entered into by the parties were not subject to the CIPAA, because they were made prior to the commencement of CIPAA (namely 15 April 2014); and
  • .2 That the claimant had no legal capacity to refer the dispute to adjudication under the CIPAA.

13.40 Mary Lim J dismissed the applications and reinforced the concurrent rights of parties as follows:114

“[99] After taking stock…Through CIPAA, adjudication was to be offered as a simple, fast and cheap mechanism for resolving these payment problems or payment disputes faced by the construction industry … Adjudication is an additional option; additional as the existing options may be currently invoked ….”

(emphasis added)

13.41 Similarly, Her Honour, in Mudajaya Corporation Bhd v Leighton Contractors (Malaysia) Sdn Bhd,115 considered an application, where the party sought a declaration that the construction contract concerned was “exempt” under section 40 of the CIPAA and fell within the minister’s exemption order116 and therefore that the “unpaid” party was not entitled to invoke the CIPAA. Her Honour dismissed the applications and held that the construction contract was not a government contract, did not fall within the exemption order and therefore was governed by the CIPAA.

The courts’ rôle in enforcing adjudication decisions

13.42 The CIPAA expressly provides that the adjudicator’s decision is “binding”, unless it is set aside by the court, the dispute is finally determined, or the parties have in writing agreed to settle the dispute.117 In line with the CIPAA’s objective to provide a “speedy mechanism” for contractors to ease their cash-flow problems, the statute provides that the party in whose favour the adjudication decision has been made (the claimant) has the right to invoke the assistance of the High Court of Malaysia in order to enforce the adjudication decision, albeit temporarily binding, as a judgment of the High Court of Malaysia.118

The courts’ rôle in considering applications for the stay of adjudication decisions, pending “final determination by arbitration, or the court

13.43 The manifest objective of the CIPAA is to provide a “speedy mechanism” for the contractor to obtain a quick temporary resolution of their construction dispute and quick payment in order to ease the contractor’s immediate cash flow.

13.44 However, the CIPAA also expressly envisages that there may be circumstances when it would cause grave injustice to a party to be ordered to pay the adjudication decision and expressly allows a party to apply to the High Court of Malaysia for a stay of the of the adjudication decision when:

  • .1 An application to set aside the adjudication decision has been made under section 15 thereof, or
  • .2 Where the subject-matter of the adjudication decision is pending final arbitration, or High Court litigation.119

The High Court of Malaysia is granted a discretion to stay adjudication decisions as it “thinks fit” or to “order that the adjudicated amount, or part of it, to be deposited with the Director of the KLRCA”.120

13.45 In the exercise of its powers regarding the stay of an adjudication decision, the High Court of Malaysia is invariably required to balance the justice of granting the stay application with the objective of the CIPAA to provide a quick relief to the contractor’s cash flow.

13.46 In the recent Malaysian High Court case of Bina Puri Construction Sdn Bhd No. 1121 the court, in dismissing an application for a stay of the adjudication decision under section 16 of the CIPAA, set out the following important principles to be applied, when considering an application for a stay of the adjudication decision:122

  • .1 In an application for stay of the adjudication decision under the statute, the “ordinary” principles applying to stay application do not apply; the court must instead consider the stay application in light of the “scheme and purpose of CIPAA”, which was to “provide a statutory adjudication mechanism whereby a disputed interim certificate is speedily settled by the CIPAA adjudicator”;
  • .2 The court will “not automatically” grant a stay application under section 16 merely on the ground that an application had been made to set aside the adjudication decision, or that there is a concurrent pending final decision in arbitration or court proceedings;
  • .3 That the discretion to grant a stay “must be exercised sparingly in clear cut cases; otherwise, an adjudication decision would be effectively frustrated and rendered academic”.
  • .4 That the party applying for a stay must comply with the “pre-conditions”, under section 16 of the CIPAA, namely, that there must either be (1) an application to the High Court to set aside the adjudication decision under section 15 of the statute, or (2) a pending action in the court, or arbitral tribunal, when the application for stay is taken out.

13.47 Similarly, in the Malaysian High Court in Subang Skypark Sdn Bhd v Acradius Sdn Bhd,123 the learned judge, in dismissing an application to stay under section 16(1)(a) CIPAA, laid down, inter alia, the following principles applicable by the High Court in an application to stay an adjudication decision under CIPAA:

13.48 It is apparent that the Malaysian High Court has expressed clear opinions to exercise their discretion to stay adjudication decisions, with the clear objective of the CIPAA being the speedy enforcement of adjudicator’s decisions and applications for stays of adjudication decisions are therefore scrutinised in detail to prevent abuses of the salutary objectives of the CIPAA.

The courts’ rôle in considering applications to set aside adjudication decisions

13.49 In an application to set aside an adjudication determination, the courts are invariably called upon to balance between the broad policy of Parliament to provide a “fast and low cost adjudication system” and their duty to prevent injustice.124

13.50 Section 15 of the CIPAA expressly limits the High Court’s jurisdiction to set aside an adjudication decision on “one or more of the following grounds”:

  • .1 That the decision was obtained improperly through fraud, or bribery: see section 15(a) of the statute;
  • .2 That there had been a denial of natural justice: see section 15(b) of the CIPAA;
  • .3 That the adjudicator has not acted independently or impartially: see section 15(c) thereof, or
  • .4 That the adjudicator has acted in excess of his jurisdiction: see section 15(d) thereof.

13.51 In a recent Malaysian High Court decision (the first decision to consider an application to set aside an adjudication decision under section 15 of the CIPAA) of Bina Puri Construction Sdn Bhd No. 2,125 the court set out the following principles, in dismissing the application to set aside an adjudication decision, as follows:

  • .1 Only the High Court of Malaysia has jurisdiction to hear application for the setting aside of adjudication determination;126 and
  • .2 An application to set aside an adjudication determination is not an appeal on the merits and it is not therefore the rôle of the court to review the merits of the adjudicator’s determination, including the manner in which the adjudicator conducts the adjudication, unless it gives rise to jurisdictional issues under section 15(a)–(d) of the CIPAA, including a breach of natural justice.

13.52 In Bina Puri Construction Sdn Bhd No. 2, the applicant invoked section 15 of the CIPAA and argued that the adjudicator erred, exceeded his powers and breached the rules of natural justice because he had failed to consider the respondent’s substantial counterclaim in the sum of RM$13,544,690.45 on the ground that he had no jurisdiction to consider the same, since it was not contained in the payment response, as required under section 6 of the statute. The High Court held that the adjudicator did not err regarding his jurisdiction and that there was no breach of natural justice.127

13.53 It is submitted that, even though the CIPAA is relatively new, the Malaysian courts have and will exercise much caution in considering an application to set aside an adjudication decision in view of the salutary and manifest intention of Parliament regarding CIPAA to provide contractors with a “speedy mechanism” to settle construction disputes with temporary finality and in ensuring that section 15 of the CIPAA is not abused to thwart its objective.


13.54 The CIPAA in Malaysia is in its infant state of developing construction adjudication. Nevertheless, the CIPAA has brought about a radical, but nevertheless extremely welcome, change to certain undesirable practices in the construction industry, where main contractors and owners utilise the grinding legal process to delay and deprive contractors, which have carried out construction works, of their “life blood”, namely, cash flow. In practice, since its inception in 2014, the CIPAA has reversed the “tables” with its “fast and low cost adjudication system”, temporary finality against main contractors and owners and armed the downstream contractors with formidable remedies to recover due payment for works carried out promptly, albeit temporarily. Construction adjudication is on the rise and is a very fast developing area of law in Malaysia.128


1 Lewis Carroll, Alice in Wonderland, chapter 9.

2 Malaysian Parliamentary Debate, Speech by the Deputy Minister during Second Reading of the Bill to Introduce CIPAA on 2 April 2012 and 7 May 2012 as succinctly summarised by the Her Honour Mary Lim J in UDA Holding Case, see fn 3 below, at [91]–[100].

3 The CIPAA was passed by the Malaysian Parliament in March 2012 and received Royal Assent on 18 June 2012, but only came into full operation on 15 April 2014 pursuant to the Minister’s Gazette Notification under section 1(2) CIPAA. The Minister exercising his powers under section 39 CIPAA had prescribed regulations under CIPAA contained in the Construction Industry Payment and Adjudication Regulations 2014 (“CIPAA Reg”) which also came into effect on 15 April 2014.The Kuala Lumpur Regional Centre of Arbitration (“KLRCA”) is the adjudication authority appointed under section 32 CIPAA and the KLRCA has exercised its powers under section 32 CIPAA and passed the KLRCA Adjudication Rules and Procedure (revised as at 14 May 2014), the “KLRCA Rules”. The Act is binding on the Government, subject to the Minister’s right to “exempt (a) any person or class of person; or (b) any contract, matter or transaction or any class thereof” from CIPAA (section 40(a) and (b) CIPAA). See the recent and comprehensive summary of CIPAA, its intention, its scope and applicability to Government construction contracts, in the first High Court decision in Malaysia, UDA Holdings Bhd v Bisraya Construction Sdn Bhd heard together with Capitol Avenue Development Sdn Bhd v Bauer (Malaysia) Sdn Bhd [2014] 1 NS 1584 (UDA Holdings Case), [2015] 5 CLJ 527 by Her Honour Mary Lim J (delivered on 5 December 2014). The appeal from the decision of the High Court was recently heard and dismissed by the Malaysian Court of Appeal on 13 July 2015. The Malaysian Court of Appeal heard the first appeal under the CIPAA and affirmed the High Court’s reasoning but unfortunately there was no grounds of decision delivered. See also Her Honour Mary Lim’s recent reiteration of Parliament’s intention in ACFM Engineering and Construction Sdn Bhd v Esstar Vision Sdn Bhd [2015] 24C-13–05/2015 (delivered on 21 July 2015 – unreported), (ACFM Case) at [37]–[41].

4 See these salutary objectives set out in the long title of CIPAA. See also dicta of Her Honour Mary Lim in UDA Holding Case at [92] as the intention of the Malaysian Parliament. See also her Honour’s decision in Subang Skypark Sdn Bhd v Arcradius Sdn Bhd [2015] unreported in OS No 24C(ARB)-17–03/2015 (delivered on 15 April 2015) at [22] emphasising the “central themes of CIPAA which is to provide temporary finality to payment disputes between parties

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