by Elvina Leong, Bachelor of Laws (London), CLP.
This article is intended to provide a brief overview to understanding the statutory adjudication regime in Malaysia.
1. What is Adjudication?
Adjudication in Malaysia is governed by the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”). It is enacted to provide a mechanism for speedy dispute resolution to alleviate cash flow problems in the construction industry in Malaysia .
As compared to making a civil claim in Malaysian Courts, adjudication is very much faster due to the strict timelines and the statutory requirement for an Adjudicator to deliver a decision within forty-five (45) working days. Further, adjudication proceedings are also less rigid because the strict rules of evidence prescribed by the Evidence Act 1950 do not apply.
2. Scope of CIPAA?
According to Section 2, CIPAA applies to every construction contract made in writing for construction work carried out wholly or partly within the territory of Malaysia. This also includes contracts, entered into by the Federal or State Government.
Given that CIPAA is a relatively new piece of legislation which impacts parties’ substantive rights by, inter alia, introducing a third dispute resolution mechanism (other than to litigate or arbitrate) for parties to resolve their dispute and the prohibition of conditional payment clauses, the Federal Court in the recent landmark cases, Jack-In Pile (M) Sdn Bhd v Bauer (Malaysia) Sdn Bhd and Ireka Engineering & Construction Sdn Bhd v PWC Corporation Sdn Bhd held that the Act only applies to construction contracts entered into after the commencement of the Act i.e. after 15.4.2014. This effectively puts an end to the much-debated issues relating to the retrospective or prospective application of CIPAA.
Parties are not allowed to contract out of CIPAA as this would defeat the purpose of the Act. If allowed, Employers may likely opt out of the statutory adjudication regime especially in situations where there is inequality of bargaining power. As held by Lee Swee Seng J in Kasugi Prima Sdn Bhd v Cobrain Holdings Sdn Bhd, “…to allow a party to contractually bypass Statutory Adjudication would be to allow the purpose of the CIPAA to be thwarted and the CIPAA itself to be a toothless tiger with no bite but only a growl…”
3. CIPAA Process in Motion
The flowchart provides an overview of the CIPAA process:
4. Adjudication Decision – A Temporary Finality?
The nature of an adjudication decision is often described to be of ‘temporary finality’ or is only provisionally final. After going through the adjudication process above, the party must still apply to the High Court to enforce it . Only then, it will be enforceable as if it were a judgment or an order of the Court.
At the same time, the losing party may be afforded ‘a second bite at the cherry’ by applying to the High Court for the adjudication decision to be stayed and to be set aside on grounds such as:
- Adjudication decision was improperly procured through fraud or bribery;
- There was a denial of natural justice;
- Adjudicator has not acted independently or impartially; or
- Adjudicator acted in excess of his jurisdiction.
Although of temporal finality, adjudication decision if ordered to be enforced, can form the basis for the issuance of a statutory notice for the commencement of winding up proceedings. In theory it seems plausible for the achievement of CIPAA’s objectives, but in reality, it is still unlikely for successful litigants to recover the entire or part of the adjudication sum as they do not become secured creditors and will still have to rank equally amongst other unsecured creditors.
Mr Nadesh Ganabaskaran who heads the Litigation & Construction Department at Messrs Malek, Gan & Partners, is also a Certified Adjudicator registered with Asian International Arbitration Centre (“AIAC”). He has vast experience presiding over complex construction cases and is appointed as counsel in numerous adjudication proceedings. For further enquiries, please do not hesitate to contact him at [email protected].
NOTE: The contents herein are intended to be for general information and reference only, and it does not, and is not intended to, constitute or substitute for legal advice.
 Preamble to CIPAA.
 Section 12(9) CIPAA.
 Section 28 CIPAA.
 Section 15 CIPAA.
 Section 466 of the Companies Act 2016.