1.What is CIPAA 2012

CIPAA 2012 is the acronym for the law known as “Construction Industry Payment and Award Act 2012” enacted by the Malaysian Parliament and entered into force on 15e April 2014. The Construction Industry Payment and Adjudication Regulations 2014 and the Construction Industry Payment and Adjudication (Exemption) Order 2014[1] were also implemented on April 15, 2014 to complement CIPAA 2012.

The CIPAA 2012 is applied for the purpose of providing a fast, expeditious and cost-effective dispute resolution mechanism with respect to payment disputes in the construction industry. The CIPAA applies to all construction contracts in Malaysia, with the exception of contracts for the construction of buildings of less than four storeys intended for personal occupancy.

2.The CIPAA 2012 application

2.1 The scope

Under Article 4 of the CIPAA 2012, the term “construction contract” includes the consultancy contract. “Consultancy Contract” is defined as a contract to perform consultancy services in relation to construction works and includes planning and feasibility study services, architectural works, engineering, surveying, exterior and interior decoration, landscaping and project management services.

2.2 The tendering procedure

Unlike the common venue for submission of various dispute settlements available in the Malaysian legal system, arbitration under the CIPAA 2012 is specific and unique for payment disputes in the construction industry. The procedure is known as an arbitration process where the case will be presided over by an independent and impartial arbitrator mutually appointed by the parties, who has a very experienced experience in construction law and industry fields, relevant to the subject matter of the dispute.

2.3 Prospective candidacy

When CIPAA 2012 was created, the question of whether CIPAA 2012 will apply retrospectively or prospectively arose despite the application of the law was generally viewed favorably by the construction industry. This question was decided differently by the courts in various cases and finally settled by a decision of the Federal Court in Ireka Engineering & Construction Sdn. Bhd v PWC Corporation Sdn. Bhd. [2020] 1 CLJ 193 CIPAA 2012 applies prospectively. The Asian International Arbitration Center (“AIAC”), which handles all claims under the CIPAA 2012, has since taken steps to ensure that it will not administer claims arising from contracts executed before the 15e April 2014.

3.Procedures – How should contractors claim payments under CIPAA?

3.1 Issue a Notice of Claim

(a) Where the primary party (end customer) or prime contractor has defaulted on a payment due and has ignored multiple claims made, the first step is to issue a Notice of Claim stating that the claim is made under the CIPAA 2012 .

(b) The notice of claim must indicate the nature of the claims, the amount and the supporting documents evidencing the overdue payment. For example, a work completion form, a signed delivery note or a certificate of acceptance.

(c) Upon receipt of the Notice of Claim, the Principal or Prime Contractor shall respond with a Notice of Reply admitting or disputing such Claims.

(d) In the event of no response, the principal or the principal contracts are deemed to have disputed the entire claim and the aggrieved party may initiate the award procedure.

3.2 Initiate arbitration proceedings

(a) The aggrieved party, as Claimant in this situation, may serve the Notice of Award against the principal or prime contractor which specifies that the notice is made pursuant to the CIPAA 2012, together with all the details and documents required.

(b) Upon receipt of notice of arbitration, the parties may mutually agree to appoint an independent arbitrator to decide the matter. The case will then be administered by the AIAC where arbitration will take place.

3.3 Referee’s decision

(a) During the arbitration process, the adjudicator will assess the claims, request additional documentation, and decide on the required payment to be made to the claimant.

(b) Upon receipt of this decision, it becomes enforceable against the client or the project manager.

4.The Claimant’s rights if the principal or the main contractor continues to refuse payment by decision of the contracting authority.

4.1 Section 28 provides the claimant’s right to seek an order from the High Court to enforce the arbitration award as if it were a judgment of the High Court, on the basis of which the claim may be sued in the High Court in the event of a new default;

4.2 Article 29 provides that the applicant may suspend the execution or reduce the rate of progress of the execution of the construction project without incurring any penalty; and

4.3 In the event that the Claimant is a sub-contractor, the Claimant may request direct payment from the Principal pursuant to Article 30.

5.Benefits of CIPAA 2012

CIPAA 2012 provides a quick resolution path with a simple process for payment disputes in the construction industry that takes only approximately 106 days for a final decision to be reached. In addition, the fees applicable to file arbitration under the CIPAA 2012 are relatively less expensive than the fees for claims filed in arbitration or litigation.

Since its inception in 2014, the CIPAA 2012 has been known to be an effective means of resolving non-payment issues as decisions made by the adjudicator will be immediately binding and may be enforceable by the High Court if the claimant registers that decision. to the High Court. CIPAA 2012 has been proven to help alleviate the cash flow experienced by many contracting parties in the construction industry resulting from non-payment.