Construction Adjudication In Malaysia: Faster And Cheaper Dispute Resolution

• Published date: 09 September 2021
• Subject Matter: Government, Public Sector, Litigation, Mediation & Arbitration, Real Estate and Construction, Government Contracts, Procurement & PPP, Arbitration & Dispute Resolution, Construction & Planning
• Law Firm: MahWengKwai & Associates
• Author: Mr Raymond Mah

The real estate market and the construction industry are interrelated, with improvements and progress in one having a positive impact on the other. The introduction of the Construction Industry Payment and Adjudication Act 2012 ("CIPA Act" or "Act") represents a significant development in the construction industry. It is hoped by the government and the stakeholders of the construction industry that improvements to cash flow and payment disputes within the construction industry will result in fewer delays and abandoned projects, as well as better quality properties and more affordable prices.

The CIPA Act came into force on 15 April 2014. It is stated in the CIPA Act that its objects are to "facilitate regular and timely payment, to provide a mechanism for speedy dispute resolution through adjudication, to provide remedies for the recovery of payment in the construction industry and to provide for connected and incidental matters."

CIPA Act is Retrospective

The Act applies to every construction contract made in writing, whether made before or after 15 April 2014, relating to construction work carried out wholly or partly within Malaysia, including construction contracts with the Government.1 It does not apply to contracts made by individuals for the construction of a building less than 4 storeys high intended for his or her own occupation.2 There is no mention in the Act as to its application to contracts and/or payment disputes before 15 April 2014. This issue was promptly taken to the High Court3 which held that the CIPA Act applies retrospectively to both contracts and disputes which arose before the 15 April 2014. The Kuala Lumpur Regional Centre for Arbitration ("KLRCA") as the adjudication authority issued Circular 1A dated 11 November 20144 to implement the retrospective application of the Act.

Types of Contracts Applicable

The Act has a wide application to contracts for the carrying out of construction work, provision of consultancy services and the procurement of materials and labour.

The application is not limited to written contracts, as the definition of "made in writing" adopted by the KLRCA includes contracts which are not signed, made by exchange of communications in writing or evidenced in writing.⁵

The Construction Industry Payment & Adjudication (Exemption Order) 2014 exempts certain government contracts, including the construction power plants and water treatment plants from coming under the Act. However, the exemptions are read narrowly and...