- February 12, 2021
- 6:02 pm
What is CIPAA 2012
Construction Industry Payment and Adjudication Act 2012 ?
CIPAA 2012 is the abbreviation of an act of Parliament / legislation known as Construction Industry Payment and Adjudication Act 2012 enacted on 15th April 2014.
CIPAA Act 2012 introduces the “Statutory CIPAA Adjudication” dispute resolution mechanism to resolve payment disputes.
Its principal objective is to facilitate timely payment and ease the cashflow in the construction industry in a speedy and summary Adjudication Process.
In the CIPAA Adjudication Proceeding, an “adjudicator” (akin to a judge in court proceeding / arbitrator in arbitration) will be appointed to decide on the parties’ dispute and to deliver the Adjudication Decision which is binding and enforceable on the parties, until and unless the matter is finally decided in arbitration / court proceeding.
The CIPAA Adjudication Proceeding allows the aggrieved party (usually the contractor / consultant) to recover outstanding payment or resolve payment dispute arising out of construction contract such as:-
- non-payment
- under-payment
- non-certification
- under-certification
There must be a 'cash flow' in the building trade. It is the very lifeblood of the enterprise
– Lord Denning in Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd
"Pay Now, Argue Later"
Alleviating Contractor's Cashflow
speedily & efficiently
Efficient & Quick
High Success Rate
Why CIPAA 2012?
The Advantages and Benefits of CIPAA
01.
Speedy and Expeditious
CIPAA takes about 80 – 95 working days to complete from its initiation until the delivery of a binding and enforceable Adjudication Decision.
In comparison, a construction dispute typically takes up to 9 months – 24 months to complete in arbitration proceeding / court proceeding.
02.
High Success Rate
The Claimant has extremely high success rate under the CIPAA regime.
In 2017, AIAC recorded that a whooping 89.28% of the CIPAA Adjudication Decision is rendered in favour of the Claimant.
03.
Pay Now, Argue Later
There is no avenue to appeal against the CIPAA Adjudication Decision.
The CIPAA Adjudication Decision is legally binding and enforceable against the Losing Party.
The Losing Party will have to “pay first” in accordance with the Adjudication Decision and “argued later” by way of court litigation or arbitration proceeding.
04.
No-Lose Situation:
No positive counterclaim
from the Respondent
The Claimant is in a “NO-LOSE” situation in a CIPAA Adjudication Proceeding.
The Respondent may only raise a cross-claim / counterclaim against the Claimant to ‘zerorise’ the CIPAA claim, i.e. to reduce the Claimant’s claim to RM0.00.
The Respondent is unable to obtain a positive award against the Claimant even if the Respondent’s cross-claim / counterclaim is greater than the Claimant’s claim.
05.
Conditional Payment,
Back-to-Back Payment,
Void & Unenforceable
Pursuant to Section 35 of CIPAA, “conditional payment clause” in the construction contract is void.
As such, the Claimant may still initiate a claim against the Respondent despite the presence of the “conditional payment clause” such as pay-when-paid, pay-if-paid, back-to-back payment clause.
The Respondent will not be able to use the conditional payment clause as a defence against the CIPAA claim.
Applicability & Requirement of CIPAA 2012
1. Written Contract
Pursuant to Section 2 of CIPAA 2012, CIPAA only applies if there is a “Written Contract”.
However, the contract needs NOT be a formal contract or signed contract.
The meaning of “written contract” is construed very loosely and it includes letters, correspondences and purchase orders (PO) and delivery order (DO) as per the guideline issued by the CIPAA’s administrative center, Asian International Arbitration Centre (AIAC).
2. Construction Contract
The Contract must relate to Construction Work or Construction Consultancy.
The meaning of “construction work” under CIPAA 2012 goes beyond the traditional sense of construction work and has been defined to encompass the following works:
- any building, erection, edifice, structure, wall, fence or chimney;
- road, harbour works, railway, cableway, canal or aerodrome;
- drainage, irrigation or river control work;
- electrical, mechanical, water, gas, oil, petrochemical or telecommunication work;
- bridge, viaduct, dam, reservoir, earthworks, pipeline, sewer, aqueduct, culvert, drive, shaft, tunnel or reclamation work;
This includes any work which forms an integral part of, or are preparatory to or temporary for such works, including site clearance, soil investigation and improvement, earth-moving, excavation, laying of foundation, site restoration and landscaping.
It also includes the procurement of construction materials, equipment or workers.
On the other hand, construction consultancy work includes planning and feasibility study, architectural work, engineering, surveying, exterior and interior decoration, landscaping and project management services;
3. The contract must be executed after 15.04.2014
CIPAA 2012 only applies to only Construction Contract that was executed AFTER the enactment of CIPAA 2012 which is 15 April 2014.
4. The Construction Contract must relate to construction work carried out within wholly or partly in Malaysia.
CIPAA only applies to construction work or construction consultancy work that is carried out within Malaysia.
5. CIPAA does not apply to building work below 4-storey for self-occupation
Pursuant to Section 3 of CIPAA 2012, CIPAA 2012 is NOT applicable to any building which is less than four storeys high and which is wholly intended for his occupation.
Cost of CIPAA 2012 & Adjudication Fee
Ordinarily, there are usually 3 types of costs incurable in a CIPAA Adjudication Proceedings:
Adjudicator's Fee
The parties involved will have to pay for the Adjudicator’s Fee in CIPAA Adjudication Proceeding.
The Adjudicator’s Fee calculator can be found here.
As a matter of procedure, the Adjudicator will first invite both parties to deposit 50% of the Adjudicator’s Fee and Administrative Fee at equal shares to the AIAC.
In the event that the Respondent fails to make payment, the Adjudicator will proceed to invite the Claimant to deposit the remaining 50% of the Adjudicator’s Fee and Administrative Fee to AIAC.
If Adjudicator’s Fee is not fully paid, the Adjudicator is entitled to withhold the Adjudication Decision until and unless the full payment is deposited with the Director of AIAC.
Administrative's Fee
Further, the parties will also have to pay the Administrative Fee to the Asian International Arbitration Centre (AIAC).
The Administrative Fee payable had been fixed at 20% of the Adjudicator’s Fee pursuant to Schedule III of the AIAC Adjudication Rules & Procedure.
Representative Fee /
Legal Fee
The parties may also incur legal fee / representative fee if the parties engages the service of external party to represent them.
At MalaysianCIPAA.my, we understand that the traditional fee arrangement structure does not fit every client’s need. As such, we strive to meet the client’s need by offering the following fee structure to accommodate our clients’ business needs while at the same time ensure the highest-quality possible of representation:-
- Fixed Fee
- Contingency Fee (No-win, No-fee basis)
CIPAA Procedure
CLAIM STAGE
Notice of Adjudication
The Unpaid Party may initiate the adjudication proceeding by way of Notice of Adjudication (Form 3) pursuant to Section 8 of CIPAA.
Procedurally, the Unpaid Party will have to submit both the Notice of Adjudication and the Notice to Register the Adjudication to the AIAC, and AIAC will proceed to assign an adjudication number to the dispute.
Payment Claim (Form 1)
The CIPAA Proceeding is initiated by Payment Claim (Form 1).
Pursuant to Section 5 of CIPAA, the Payment Claim shall entail the amount claimed, due date for payment, details of the claims, descriptions of the work or services.
Payment Response (Form 2)
Following the receipt of Payment Claim, the Non-Paying Party has 10 working days to reply by way of ‘Payment Response’ pursuant to Section 6 of CIPAA.
In the Payment Response, the Non-Paying Party shall state the amount admitted or disputed and the reasons of disputing.
If the Non-Party fails to reply by Payment Response, the entire Payment Claim shall be deemed to be disputed.
Appointment of Adjudicator
Thereafter, an Adjudicator will be appointed to decide on the payment dispute.
The Adjudicator may either be appointed by mutual agreement or by the Director of AIAC if the parties fail to reach a consensus.
Adjudication Claim (Form 7)
Upon the acceptance of appointment by the Adjudicator, the Claimant shall serve and file the “Adjudication Claim” on the Respondent within 10 working days from the date of acceptance of appointment.
The Adjudication Claim shall clearly outline the nature and the description of the dispute, the remedy sought thereunder and enclose the supporting documents. The Adjudication Claim shall also include the legal reasoning (authorities / case laws) and expert report (if necessary).
Adjudication Response (Form 8)
Upon the receipt of Adjudication Claim, the Respondent shall respond to the Adjudication Claim “Adjudication Response” within 10 working days.
Similarly, the Adjudication Response shall contain the detailed /defence, counterclaim(s) and/or set-off together with supporting documents.
Adjudication Reply (Form 9)
The Claimant may serve its Adjudication Reply within 5 working days from the receipt of Adjudication Claim.
Upon the receipt of Adjudication Response, the Claimant has a final opportunity to reply to the Respondent’s Adjudication Response within 5 working days.
Adjudication Decision
Payment Claim
Payment Response
ADJUDICATION STAGE
Notice of Adjudication
Appointment of Adjudicator
Adjudication Claim
Adjudication Response
Adjudication Reply
Adjudication Decision
Hover over the button for more details
Enforcement of CIPAA Adjudication Decision
Following the issuance of CIPAA Adjudication Decision, if the Losing Party refuses to pay the Adjudicated Sum to the Winning Party, the Winning Party may consider enforcing the Adjudication Decision by the following methods:-
Section 28: Enforcement of Adjudication as Judgment
One of the method to enforce an Adjudication Decision is to file an enforcement application in the High Court.
Upon the granting of the High Court Order, the Winning Party may proceed to execute the Adjudication Decision using the available execution process under the Rules of Court 2012 by either:
- Seizing and selling the property of the losing party by way of Writ of Seizure and Sale;
- Garnishing the money from the losing party’s Bank or other losing party’s debtor by way of Garnishee Proceeding;
- Issuing Judgment Debtor Summons;
Section 29: Suspension or Reduction of Rate of Progress of Performance
Alternatively, if the Project is still underway and incomplete, the Winning Party may suspend or slow down the performance of its work if the Losing Party fails to honour the Adjudication Decision.
In such circumstance, the suspension or slowing down of work will not be seen as a breach of contract and the Winning Party is even entitled for extension of time and to recover any loss and expense incurred arising from the suspension or slowing down of work.
Often time, the suspension or slowing down of work will exert pressure to the Losing Party to pay the Adjudicated Sum as the Losing Party may potentially face the exposure of having to pay liquidated ascertained damages/ delay damages (LAD) to the Employer or the end purchasers (in the case of developer).
Section 30: Direct Payment by Principal
The Winning Party may also enforce the CIPAA Adjudication Decision by seeking direct payment from the Principal of the Losing Party pursuant to Section 30 of CIPAA 2012.
By operation of Section 30 CIPAA 2012, the Principal MUST make direct payment to the winning party if there is money due or payable by the Principal to the losing party notwithstanding that there is no privity of contract between the principal and the winning party.
Winding Up Proceeding
The Winning Party may also issue a Statutory Notice of Demand pursuant to Section 466 of Company Act 2016 to the Losing Party based on the Adjudication Decision.
If the Losing Party fails to meet the statutory demand and make payment thereof within 21 days, the Winning Party may proceed to wind up the Losing Party’s company and liquidate its asset to pay the Adjudicated Sum.