What is CIPAA?
CIPAA is the abbreviation for Construction Industry Payment and Adjudication Act 2012, an Act of Parliament which was gazetted on 22.6.2012 and came into force on 15.4.2014.
The enactment of CIPAA represents an alternative dispute resolution mechanism aimed at facilitating regular and timely payments in the construction industry.
Can I commence a claim under CIPAA if my contract does not mention CIPAA?
The short answer is “Yes”.
CIPAA is applicable to every construction contract made in writing which is related to construction work carried out wholly or partly within the territory of Malaysia.
A construction contract covers both contracts to carry out construction work as well as contracts for construction consultancy.
How long do CIPAA proceedings take?
One of the main benefits of a CIPAA claim is the expeditious nature of the proceedings. There is a strict timeline for parties to adhere to in a CIPAA proceeding ensuring the timely resolution of disputes. The overall process would not exceed 105 working days.
The flowchart below illustrates the relevant steps in a CIPAA claim along with the stipulated time frame:
Do I need to attend any hearing?
Generally, the answer is “No”. The Adjudicator would normally decide the matter based on the documents submitted by the parties.
However, the Adjudicator may request for a hearing if deemed necessary.
What can I claim under CIPAA?
Under CIPAA, you can claim for payment for work done or services rendered in a construction contract.
It is common for contractors to seek recourse under CIPAA to claim for unpaid certified works, uncertified work done, and retention sum.
Can I claim under CIPAA if no certificate has been issued?
Yes. Pursuant to section 25(n) of CIPAA, the Adjudicator is empowered to decide on matters notwithstanding no certificate has been issued.
How much do CIPAA proceedings cost?
The cost here can be separated into 5 categories:
- Registration fee: RM265.00, payable to AIAC.
- Appointment fee: RM424.00, payable to AIAC.
- Adjudicator fee: This is the fee payable to the Adjudicator and is based on the disputed amount and the scale adopted.
There are 2 applicable scales, being the Standard Scale and the Recommended Scale. If parties are not able to agree on the applicable scale, the Standard Scale will be applied by default. You can calculate the adjudicator fee together with the AIAC’s administrative fee here.
- AIAC Administrative fee: Calculated at 20% of the Adjudicator’s fee
-Representatives fee: This would be the fee payable to your solicitors/representatives and will depend on the complexity and urgency of matter.
What happened next after I received a favourable Adjudication Decision?
Upon obtaining a favourable decision, you have the following options to recover the monies awarded to you:
- Commence winding up proceedings against the losing party;
- Obtain direct payment from the principal; or
- Enforce the adjudication decision under section 28 of CIPAA.
How could I recover money via winding up proceedings?
The winning party (a creditor) may issue a Notice of Demand to the losing party (a debtor) pursuant to section 466(1)(a) of the Companies Act 2016 (also known as “Statutory Demand”) to demand for payment.
If the debtor does not comply with the demand after the lapse of 21 days, the creditor may then proceed to file a winding up petition in court.
The Court may order the debtor to be wound-up and thereafter proceed with the appointment of a liquidator, which could be either a private liquidator or the Official Receiver.
The liquidator will take over the assets of the debtor and realise them before distributing the proceeds to the creditor(s).
What is direct payment from the Principal?
A Principal is defined under CIPAA as “a party who has contracted with and is liable to make payment to another where that other party has in turn contracted with and is liable to make payment to a further person in a chain of construction contracts”.
As an example, assuming that Party X (the sub-contractor) has been successful in its claim against Party Y (the main contractor) but Party Y refuses to pay the awarded sum to Party X.
Party X can then request to get direct payment from the Party Y’s employer by utilising section 30 of CIPAA provided that there is money due or payable by the Principal to Party Y at the time of receipt of the request by Party X.
What is enforcement of adjudication decisions under section 28 of CIPAA?
Under section 28 of CIPAA, an Adjudication Decision may be enforced as if it is a judgment or order of the High Court.
This means that an Adjudication Decision carries the same weight as a judgement pronounced by a High Court judge.
Once the adjudication decision is enforced, the following modes of execution are made available:
- Writ of Seizure and Sale;
- Garnishee proceedings;
- Judgment Debtor Summons; or
- Writ of Possession.
What are the differences between CIPAA, arbitration and court proceedings?
Traditionally, an aggrieved party would go to court to seek a remedy.
Over time, alternative dispute resolutions such as arbitration gained popularity. Instead of going to court, transacting parties may opt (by agreement) for alternative dispute resolution such as arbitration to resolve disputes where the disputes between the parties can be resolved before an arbitrator instead a judge.
One of the benefits of resolving disputes by arbitration is that unlike papers filed in court that become public documents, matters transpired during arbitration are strictly private and confidential. Parties may also agree to expedite the arbitration proceedings or decide who they want the arbitrator to be whereas such privilege is not available in the court system.
CIPAA is also a form of alternative dispute resolution, i.e. to resolve disputes between the parties by ways other than going to the court. Unlike arbitration, there is no need for parties to agree to resolve the matter through adjudication. It is a statutory right accorded to the parties provided that the dispute is in relation to a construction contract made in writing which is related to construction work carried out wholly or partly within the territory of Malaysia, as discussed above.
By Christine Toh and Chan Ka Jun
This article is for general information and knowledge only. No reliance should be placed on this article as the same does not constitute legal advice. Readers are advised to consult with a certified legal practitioner for advice specific to their circumstances.