16 July, 2018
The Construction Industry Payment and Adjudication Act 2012 (“CIPA”) was enacted to provide a mechanism for speedy dispute resolution through adjudication, and to provide remedies for the recovery of payment in the construction industry. This article sets out basic information on the adjudication process in Malaysia.
What is adjudication?
Adjudication is a statutory dispute resolution mechanism under CIPA, to specifically deal with claims for payment relating to construction work or construction consultancy services.
However, CIPA does not apply to construction work in respect of a building which is less than four storeys high and which is wholly intended for occupation. For example, a contractor who is engaged to renovate an individual’s home (single storey terraced house), cannot use adjudication against the house owner to claim for unpaid work.
How does adjudication work?
Briefly:
- Claimant (unpaid party) issues a Payment Claim
- Respondent (non-paying party) issues a Payment Response within 10 working days
- Claimant issues a Notice of Adjudication
- An adjudicator will be appointed:
- By agreement between the parties within 10 working days from the Notice of Adjudication; or
- By the director of the Asian International Arbitration Centre (“AIAC”) within 5 working days from a receipt of a request to appoint an adjudicator
- Claimant issues an Adjudication Claim within 10 working days. An Adjudication Claim contains the nature and description of the dispute, the remedy sought, and the supporting documents.
- Respondent issues an Adjudication Response within 10 working days. The Adjudication Response is an answer to the Adjudication Claim and should include supporting documents.
- Claimant issues an Adjudication Reply within 5 working days. The Adjudication Reply is a response to the Adjudication Response and should include supporting documents.
We have prepared a flowchart and infographic that illustrates the adjudication process here.
Is there a timeline for the adjudicator to issue his/her decision?
The Adjudicator must issue a written decision within:
- 45 working days from the Adjudication Response or Adjudication Reply (whichever is later); or
- If no Adjudication Response is received, within 45 working days from the expiry of the time prescribed for the service of the Adjudication Response; or
- Such further time as may be agreed between the parties.
What happens if an adjudicator fails to comply with the timeline for delivering his decision?
- The adjudication decision will be void.
Can an adjudicator correct or amend his decision?
- The adjudicator may at any time correct any computational or typographical error. He can do this on his own initiative, or at the request of any party.
What is the effect of an adjudication decision?
The adjudication decision is binding unless:
- it is set aside by the High Court;
- the subject matter of the adjudication decision is settled by written agreement between the parties;
- the dispute is finally settled by arbitration or the court.
This means that the adjudication decision has an element of “temporary finality”; even though there is an adjudication decision, parties can still have the substantive dispute determined on its merits by arbitration or the court which will then “override” the adjudication decision.
Can you “appeal” against the adjudication decision if you are not happy with the results?
You cannot “appeal” against the adjudication decision. However, the unsatisfied party can apply to the High
Court to have the adjudication decision set aside- but only on certain grounds.
When will the High Court set aside an adjudication decision?
An aggrieved party may apply to the High Court to set aside an improperly procured adjudication decision.
An adjudication decision may be set aside if:
- it 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
Is adjudication a “documents only” process, or will there be site visits, oral hearings and physical meetings between the parties?
The adjudicator has the power to call for site visits, oral hearings or physical meetings. However, the statutory timelines still remain.
What happens if the non-paying party refuses to comply with the adjudication decision? How is the adjudication decision enforced?
In the event the adjudication decision is not complied with, the unpaid party can apply to the High Court to enforce the adjudication decision as if it is a judgment of the High Court. This means that the unpaid party will be able to commence execution/enforcement proceedings on the adjudication award such as a writ of seizure of sale, garnishee proceedings etc.
Further, in the event of non-compliance with an adjudication decision, the unpaid party may suspend or slow down his work (if the project is ongoing) and/or demand for direct payment from the principal.
What are the costs involved in adjudication proceedings?
The typical expenses to be paid for an adjudication proceeding are:
- Adjudicators’ fees and expenses;
- Administrative fees of the AIAC; and
- Each party’s legal fees (if they appoint lawyers)
How much are an adjudicator’s fees?
Parties and the adjudicator are free to agree on the fees to be paid.
However, if parties and the adjudicator fail to agree on the terms of appointment and on the fees, the AIAC’s standard terms of appointment and fees for adjudicators shall apply. The AIAC’s fee schedule for adjudicators can be found here and is calculated with reference to the amount in dispute.
How much are the administrative fees of the AIAC?
As at the time of writing, the AIAC charges an administrative support fee of 20% of the adjudicator’s fees pursuant to Schedule III of the AIAC Adjudication Rules & Procedure.
Can the winning party recover the costs of the adjudication from the losing party?
Yes. The adjudicator, in making the adjudication decision, is required to order that “costs follow the event” (ie: the losing party must pay costs to the winning party). The adjudicator must fix the quantum of costs to be paid in the adjudication decision. This prevails over any agreement made by the parties prior to the commencement of adjudication that one party has to bear the other party’s costs or expenses.
For further information, please contact:
Donovan Cheah, Partner, Donovan & Ho
donovan@dnh.com.my
