THE CONSTRUCTION INDUSTRY PAYMENT AND

ADJUDICATION ACT 2012

by

PROF. DATUK SUNDRA RAJOO

Chartered Arbitrator,
Advocate & Solicitor (Non-Practising)
Professional Architect & Registered Town Planner
B. Sc (HBP) Hons (USM)
LLB Hons (London), CLP
Grad Dip in Architecture (TCAE)
Grad Dip in Urban and Regional Planning (TSIT)
M.Sc. in Construction Law and Arbitration (With Merit) (LMU)
MPhil in Law (Manchester), DipICArb (CIArb)
FPAM, APPM, FMIArb, FCIArb, FICA, FSIArb, FACICA, MAE,
 A. Overview:

For a considerable period of time in Malaysia, payment defaults have plagued

the construction industry which in turn has led to a drop in the volume of
construction projects. Many contractors and subcontractors have not been able
to receive payments when they are due and as a result are forced to discontinue
construction projects. The Construction Industry Payment and Adjudication Act
2012 (Hereafter referred to as CIPAA or the Act) was enacted to combat this
problem. The primary objective of the Act is to address the cash flow problems in
the construction industry and it has significantly changed the dispute resolution
landscape for construction disputes in Malaysia.

B. Procedure under CIPAA

CIPAA adopts a pay first, argue later mechanism to facilitate cash-flow in the
construction industry. This essentially removes the prevalent and pervasive
practice in the industry of conditional payment or pay when paid. The Act sets a
timeframe which provides that a dispute must be resolved within 45 working
days. 1 Article 12(2) of CIPAA provides that the adjudicator shall decide the
dispute and deliver the decision within 45 workings days from the service of the
adjudication response or reply to the adjudication response, whichever is later. 2
This adjudication decision once made is enforceable and binding on the parties.3
In comparison to CIPAA, the traditional modes of dispute resolution of arbitration
and litigation which are used to determine construction disputes are generally
regarded as too slow or cumbersome a process. This is especially so in terms of
when a contractor receives payment. The new Act provides a quicker way to
resolve disputes, almost so quick that it can be said to administer rough justice to

1
CIPAA, Section 12(2).
2
Ibid.
3
CIPAA, Section 13.
 disputants.4 Whenever a dispute falls within the applicable scope of CIPAA, a
party is entitled to adjudicate the dispute under the Act.

C. Application of CIPAA

Section 2 of the Act states, this Act applies to every construction contract made
in writing relating to construction work carried out wholly or partly within the
territory of Malaysia.5 The importance of the requirement of writing is highlighted
in the English case of RJT Consulting Engineers Ltd v. DM Engineering Ltd.
Here, the English Court of Appeal held that substantial written evidence such as
letters communicating the project, minutes of design meetings which was
sufficient to prove an oral agreement does not satisfy the written contract
requirement.6 This ruling is a clear application of the parole evidence rule, which
excludes extrinsic evidence that is outside of the main contract, used to
demonstrate the intention of the parties or supplement the contract. Following the
parole evidence rule, a contract is assumed to be a complete integrated contract
and includes the contractual terms in its entirety. Another significant ruling
regarding what will be considered a written agreement, is the English case of
Harris Calnan Construction Co Ltd v Ridgewood (Kensington) Ltd (2007),
where the court found that a letter of intent including a defined work scope, an
agreed lump sum and an agreed set of contractual terms based on the JCT 2005
standard form to be a sufficient written contract. The latter case can be
distinguished from the prior in the sense that the latter case was one clear letter
defining the scope of the work, price and included definite terms, thus a complete,
entire and enforceable contract although it was not in a form of contract typically
used as an integrated contract in the industry.

In addition to the requirement of a written contract the agreement must also

satisfy the requirement of being a construction contract which includes either a

4
CHOW KOK FONG, SECURITY OF PAYMENTS AND CONSTRUCTION ADJUDICATION (2013) at 964.
5
CIPAA, Section 2.
6
RJT Consulting Engineers Ltd v DM Engineering (Northern Ireland) Ltd [2002] EWCA Civ 270, [2000] 1 WLR 2344.
 construction work contract or a construction consultancy contract. 7 The term
construction work is widely defined under Section 4 of the Act which includes
not only, amongst others, the construction, maintenance, renovation, alteration,
or demolition of buildings, roads and pipeline but also any work which forms an
integral part of or are preparatory or temporary to the works as well as the
procurement of construction materials, equipment and workers which are
necessarily required for the works. 8 A construction consultancy contract involves
consultancy services relating to a construction including planning and feasibility
study, architectural work, engineering, surveying, exterior and interior decoration,
landscaping and project management services. 9

Especially noteworthy is Section 3 of the Act which states that the Act does not
apply to a contract which is entered into by a natural person for any construction
work in respect of a building which does not exceed four stories and is wholly
intended for that persons occupation.

An important point to look at is whether all disputes arising out of the construction
contract are subject to adjudication as CIPAA has a considerably wide scope. In
this regard the applicable section of CIPAA is Section 27(1) which provides that
the jurisdiction of the adjudicator is limited to the matters referred to adjudication
by the parties pursuant to Sections 5 and 6 relating to payment claims and
payment responses. 10 In essence, this means that solely payment matters
relating to the construction contract are subject to adjudication. 11 However,
should the parties so desire, the subject matter of the adjudication can generally
expand from the initial scope which is limited to payment, to non-payment issues
such as extension of time, liens, technical issues, licenses to occupy site,
determination as well as suspension of work. 12 However this extension of
jurisdiction is not unlimited as for example, the parties may not extend the
7
CIPAA, Section 4; see SUNDRA RAJOO and HARBANS SINGH KS, CONSTRUCTION LAW IN MALAYSIA (2012) at
565.
8
CIPAA, Section 4.
9
CIPAA, Section 4.
10
CIPAA, Section 27(1).
11
SUNDRA RAJOO and HARBANS SINGH supra note 7, at 570.
12
Ibid.
 jurisdiction to more complex issues such as a claim arising out of a collateral
contract, which is not a construction contract.13

One further noteworthy provision is Section 2 which provides that the

Government is not exempt from CIPAA. Government has been interpreted to
include the Federal Government and State Governments and will also include
local authorities which have been statutorily constituted as corporate bodies
pursuant to the Local Government Act 1976.

D. Adjudicators

i. Appointment

CIPAA provides two methods of appointment of an adjudicator. Under Section

21(a) and 21(b), the parties are free to agree on an adjudicator, or in the
alternative, an adjudicator is to be appointed by the Director of the KLRCA.
Under 21(b) the Director of the KLRCA is the statutory appointing authority and
may appoint the adjudicator either upon the request of both the parties or upon
the request of one party when the parties cannot reach an agreement on the
appointment of an adjudicator.14

It is interesting to note that for a party appointed adjudicator CIPAA does not
specify the qualifications, experience and other conditions that a person must
possess in order to be eligible for appointment as an adjudicator. These
standards and requirements are all left to the parties to decide.15 In any case,
parties are encouraged to appoint an adjudicator who is familiar with the
construction industry, who understands the adjudication proceedings, has a good
understanding of the law and is able to manage the adjudication process in a
speedy and fair manner.16 If parties appoint an incompetent adjudicator to decide

13
CHOW KOK FONG, LIM CHONG FONG, OON CHEE KHENG, ADJUDICATION OF CONSTRUCTION PAYMENT
DISPUTES IN MALAYSIA (2014) at 230.
14
CIPAA, Section 21(b).
15
See SUNDRA RAJOO and HARBANS SINGH, supra note 7, at 570.
16
Ibid.
 on their dispute, they have no one else to blame but themselves as they have
made that choice on their own.

As mentioned above, parties may ask the statutory appointing authority to

appoint an ajudicator for them. The Director of the KLRCA is the default
appointing authority in Malaysia under Section 21(b) of the Act. 17 The procedure
where an appointment is made by the Director of the KLRCA is outlined in
Section 23. This section highlights that the appointment of the adjudicator must
be done within five days of receiving a request and the appointment must be
subsequently notified to the adjudicator and the parties in writing.

Under Section 32(a), the KLRCA is responsible for setting the competency
standard and criteria of adjudicators that are appointed by the KLRCA.18 To be
eligible for appointment as adjudicator by the KLRCA, one must sit for and pass
the Adjudication Training Program established by the KLRCA. Once this is
completed an individual may apply to be a member of the KLRCA Panel of
Adjudicators. With parties being able to select any adjudicator they wish based
on agreement between the parties, they are free to make a selection from those
adjudicators accredited by the KLRCA.

ii. Duties

At the time of the acceptance of appointment, the adjudicator must make a

declaration in writing that he does not have a conflict of interest to act in the
matter. If the adjudicator has any substantive link or connection with one of the
parties or their representatives, which may be financial or personal, this might
give rise to a conflict of interest. The adjudicator must agree that they shall act
independently, impartially and in a timely and cost-efficient manner. They must
comply with the principles of natural justice, and that there are no circumstances
giving rise to justifiable doubts as to their impartiality and independence. 19
Impartiality means that the adjudicator shall treat both parties equally without

17
CIPAA, Section 21(b).
18
CIPAA, Section 32(a).
19
CIPAA, Section 24(a),(b),(c),(d).
 bias and will not be influenced by any relationship that they have to one of the
parties. The requirement of Impartiality is very important and should an
adjudicator at any point during the adjudication proceeding cease to be impartial,
he must resign.

An adjudicator must always afford natural justice to the parties. Natural justice
consists of two rules, the first being, no man may be a judge in his own cause
and second hear the other side.20 This means that the parties must be treated
equally and both parties must be given the opportunity to be heard in the
adjudication proceedings. Essentially, an adjudicator needs to act evenhandedly
with each party and determine a case on merits put forth by the parties alone.
The trier of fact must allow each party to the dispute the same opportunity to
make arguments. For example, no party should be allowed to add new claims,
adduce new evidence or raise new arguments when the other party does not
have an opportunity to respond.21 It is important to note however that given the
nature of adjudication proceedings, an adjudicator will not be held to the rigorous
standard required of arbitrators and judges.22 Though they are still held to a high
standard. If an adjudicator is found to have acted in a biased manner, an
adjudication award will not be enforceable.

The legislative intent for the adjudication process is for a speedy and cost-
efficient procedure and therefore the adjudicator must also conduct the
proceeding in a timely manner which will avoid unnecessary costs and delay.

iii. Powers

The powers of adjudicators are found in Section 25 of CIPAA. These powers are
subject to the general duties set out under Section 24 as mentioned above.23 The
powers of adjudicators are very wide and include: the power to determine the
procedure to be employed,24 the extent of discovery and document production,25

20
SUNDRA RAJOO and HARBANS SINGH KS, supra note 7, at 576.
21
See MaAlpine PPS Pipeline Systems Joint Venture v Transco Plc [2004] BLR 352, at 356.
22
See Discain Project Service Ltd v Opecprime Developments Ltd [2000] BLR 402, at 405.
23
See CHOW KOK FONG, LIM CHONG FONG, OON CHEE KHENG, supra note 13, at 194.
24
CIPAA, Section 25(a).
 the power to draw on their own knowledge and expertise,26 appoint experts, 27
conduct hearings, 28 inspect the site, work, material or goods relating to the
dispute,29 to take the initiative to ascertain the facts and the law in an inquisitorial
manner,30issue any direction as may be necessary or expedient;31and also to
order interrogatories to be answered.32 Such powers are necessary in order for
an adjudicator to make an efficient decision on the matter before them in a timely
fashion.

It is pertinent to note that under Section 26, the powers of the adjudicator is not
affected by the non-compliance by the parties of the provisions of the Act. The
non- compliance shall be treated as an irregularity and will not invalidate the
power of the adjudicator to decide on the dispute nor nullify the proceedings or
decision. However, should there be non-compliance in respect of the adjudication
proceedings or documents which are produced in the proceedings, the
adjudicator may set aside, wholly or partly, the adjudication proceedings or allow
amendments to be made to the documents produced in the adjudication
proceedings.33

As mentioned above, these powers are subject to the requirement under Section
24 of the duty to act independently, impartially and the duty to afford natural
justice. Thus, although the adjudicator can decide the procedure to be employed,
for example he has the discretion to decide the amount of evidence and
submissions to be accepted during the proceeding, he has to do so without
prejudicing each partys opportunity to be heard.34 This in practice needs to be a
balancing exercise between affording the parties there right to be heard, while at

25
CIPAA, Section 25(b)&(c).
26
CIPAA, Section 25(d).
27
CIPAA, Section 25(e).
28
CIPAA, Section 25(f)&(g).
29
CIPAA, Section 25(h).
30
CIPAA, Section 25(i).
31
CIPAA, Section 25(j).
32
CIPAA, Section 25(k)
33
CIPAA,Section 26(2)
34
CHOW KOK FONG, LIM CHONG FONG, OON CHEE KHENG, supra note 13, at 208.
 the same time using the adjudicators discretion in limiting a parties arguments
that may be cumulative or vexatious to ensure efficiency in the adjudication.

Touching on a similar issue, although the adjudicator can order discovery and the
production of documents, this power must be exercised in a way that allows the
proceeding to be short and without incurring too much costs on the parties. Thus,
the extent of document production in adjudication is usually smaller compared to
that in arbitration or courts.35 Often times when a party is requesting a large
quantity of documents to be discovered, an adjudicator will make use of a
Redfern Schedule. This is a list of documents in columns, next to the column will
be a brief argument from the party seeking discovery, next to it a brief comment
from the party opposing discovery. A final column will then be the adjudicators
decision for each document whether discovery of that document will be ordered.
This is employed regularly in international arbitration as a particularly efficient
mechanism to save time arguing about the discovery of documents.

An adjudicators power to draw on his own knowledge and expertise is generally

expected in adjudication as a feature of appointing someone with the necessary
experience and knowledge of the area where the dispute has arisen in.36 For
instance if the dispute concerns any type of specialized construction, one would
expect that parties will appoint an adjudicator with those specialized expertise.
However it must again be remembered that principles of natural justice require
that before an adjudicator applies his own knowledge or expertise to the analysis
of the case, the parties must be given the opportunity to submit or comment on
the results arrived at before he makes the final decision. 37 An adjudicator
applying their own expertise should not be confused with an adjudicator raising
separate issues from those raised by the parties. Rather when an adjudicator
applies their own expertise, they will use their specialized knowledge to assist in
making determinations of the dispute in the context that the parties should not
need to explain every technical background detail to the adjudicator as it is

35
Id., at 209.
36
Id., at 210.
37
Balfour Beatty Construction Ltd v Lambeth Borough Council [2002] BLR 288.
 assumed that the adjudicator has the necessary technical knowledge. To
demonstrate the degree of knowledge and determination an adjudicator may
determine is the case of Balfour Beatty Construction Ltd v Lambeth Borough
Council. In this case the English Technology and Construction Court decided
that the adjudicator had committed a breach of the rules of natural justice
because the adjudicator selected a method of delay analysis without consulting
the parties first.38 It is clear therefore that an adjudicator should only apply the
technical knowledge that he possess to understand the dispute and not to
interpose an element into the dispute that was not submitted by the parties.

An adjudicator has wide discretion when it comes to the conduct of the hearing
and this includes for example the discretion to decide the length of the hearings.
However, in exercising this discretion, the adjudicator must balance a number of
important considerations, namely a partys right to be heard, efficiency and cost
effectiveness. Given the focus on efficiency, it is usual for only one round of
written submissions to be permitted before the hearing.39 At the hearing, typically
parties will be confined to a short summary of their cases and proceed to clarify
points made in the submissions. This allows parties to test arguments and
evidence made by the counterparty, explain technical issues which may not be
properly explained by written submissions and also to examine witnesses.

i. Jurisdiction:

In an adjudication proceeding, it is essential that the adjudicator is validly

appointed according to the provisions of CIPAA, in particular pursuant to one of
the modes for appointment under Section 21, namely by agreement of the
Parties or by the Director of the KLRCA.

Once the adjudicator is validly appointed through the agreement of the parties or
by the appointment by the KLRCA, he is competent to hear the disputes. But in
order to proceed on the merits of the dispute, four jurisdictional sub-issues must
be satisfied, which have been touched on earlier in this paper. First, there must

38
Ibid.
39
CHOW KOK FONG, LIM CHONG FONG, OON CHEE KHENG, supra note 13, at 214.
 be a valid payment claim which is made in accordance with the requirements
under Section 5(2). Section 27 (1) clearly states that the adjudicators jurisdiction
in relation to any dispute is limited to the matter referred to adjudication by the
parties pursuant to sections 5 and 6. However the parties may at any time agree
in writing to extend the jurisdiction of the adjudicator to decide on any matter not
referred to pursuant to sections 5 and 6. Second, the subject of the contract
must be a construction contract which is partly or wholly carried out in Malaysia
and is not the kind of contract excluded from the Act under Section 3. (This being
a construction contract entered into by a natural person for the construction of a
building less than four stories high that is wholly intended for that persons
occupation.) Third, the contract must be in writing, which has been expanded on
earlier in this paper. Lastly, the dispute can only be referred to adjudication if it is
within the limitation of time as provided under Section 7(3).

To ensure efficiency of proceedings, a particularly important section relating to

jurisdiction is Section 27(3). This section allows the adjudicator to continue with
the proceeding despite a jurisdictional challenge. The purpose of this provision is
to ensure that the adjudication proceeding is not disputed by tactical jurisdictional
objections aimed at bringing the adjudication to a stop.

The Adjudication Process:

i. Pleadings

The adjudication proceeding begins with the service of notice of adjudication to

the respondent accompanied by any supporting documents. 40 Section 8(2)
provides that upon receipt of the notice by the respondent, an adjudicator shall
be appointed in the manner as described in Section 21.41 Section 21 states that
the parties can jointly nominate an adjudicator. If parties are unable to agree and
a request for appointment needs to be made, the request for appointment is to be

40
CIPAA, Section 8(1).
41
CIPAA, Section 8(2).
 sent to the Director of the KLRCA. This request can be sent by either party to the
adjudication. An outline of the procedure for appointment has been explained
above.

Within ten days from the receipt of the acceptance of appointment by the
adjudicator, the claimant will serve a written adjudication claim to the respondent
and provide the adjudicator with a copy of the claim with any supporting
documents.42 It must be noted that in an adjudication, adjudicators rely heavily on
documentary materials and evidence because the hearing has to be truncated.
Thus parties should ensure that the documents provided are clear and sufficient
to prove and support their arguments without the need for extensive
corroboration from oral testimony.

Upon receipt of the notice to adjudicate, the respondent shall within ten working
days from receipt of the notice, serve a written adjudication response together
43
with any supporting document on the claimant. Following respondents
adjudication response, the claimant may serve a written reply to the response
and provide a copy to the adjudicator. In the case that the respondent fails to
serve any adjudication response within the period provided, the proceedings will
continue regardless of the silent Respondent.44 One should take note however, if
a respondent does not reply, this does not result in a default judgment, the
claimant still must prove their case to the adjudicator on a balance of probabilities.

ii. Proceedings

Once the process of adjudication is started, the adjudicator is the master of the
procedure for the adjudication. The adjudicator conducts the adjudication in any
manner which they consider appropriate, subject to the adjudicators obligations
and duties under CIPAA.

A particularly interesting provision regarding the adjudication process is the

possibility of consolidation of adjudication proceedings. Section 14 provides that

42
CIPAA, Section 9(1).
43
CIPAA, Section 10(1)
44
CIPAA, Section 10(3).
 if two or more proceedings of the same subject matter between the same parties
are adjudicated by the same adjudicator, the proceedings may be consolidated
with the consent of the parties.45 This provision is underpinned by the aims of
adjudication being efficient and cost effective. It is a provision that is very
practical and has the potential of greatly increasing the efficiency of adjudication.

As for the timelines of the proceedings, section 12(2) prescribes the period within
which a decision must be rendered. That being, 45 working days from the service
of the adjudication response or reply to the adjudication response, whichever is
later. Alternatively, 45 working days from the expiry of the period prescribed for
the service of the adjudication response if no adjudication response is received
or such further time as agreed by the parties. 46 Section 12(3) provides that a
decision made exceeding the applicable period is void, which means that the
decision is not enforceable. 47 Additionally, according to Section 19(6), the
adjudicator is not entitled to any fees or expenses relating to the adjudication if
the adjudication decision is late.48 This last provision is one that really ensures
efficiency in putting pressure on adjudicator to render a decision. The withholding
of payment to an adjudicator who takes too long to render an award is the ideal
mechanism to ensure that a decision is timely rendered.

iii. The Decision

At the final stage of the adjudication, the adjudicator must ensure that the
decision meets a number of criterias set out in Section 12 of the Act, such as
make a decision in writing which must contain the reasons for the decision.49

In addition to a final award being in writing and including reasons for its decision,
the following structure can be considered a general template for a decision set
out in three parts. The first section is termed Decision, here the adjudicator
states the issues which has been decided, the prevailing party, the amount

45
CIPAA, Section 14.
46
CIPAA, Section 12(2).
47
CIPAA, Section 12(3).
48
CIPAA, Section 19(6).
49
CIPAA, Section 12(4).
 payable with interest and the time of payment.50 The second section is titled,
Record, here, the adjudicator records the facts of the case and may include:
particulars of the parties, the underlying contract, the specific payment claim, the
payment response, the adjudicators appointment, the adjudication claim, the
reply and other matter such as the process of the adjudication hearing.51 Finally,
Reasons, where the adjudicator states the reasons for each issue in the
adjudication.

Section 13 of CIPAA provides that an adjudication decision shall be binding on

52
the parties to the adjudication. This binding effect endures unless the
occurrence of one of the three following events prescribed under Section 13.
These include a decision being set aside,53 where there is settlement between
the parties on the disputed matter 54 or where the dispute is finally decided by
arbitration or the court.55

As noted above, an adjudication decision ceases to bind parties when it is set

aside by the High Court. 56 As to the grounds for setting aside, the relevant
provision is found in Section 15 which lists a number of enumerated grounds for
setting aside. The aggrieved party may apply to set aside an adjudication
decision cases where: there is the absence of jurisdiction, the decision was
tainted by fraud or bribery or where the proceeding was in violation of the
principles of natural justice or lastly where the adjudicator has not acted
independently or impartially. 57 Thus, for example, if during the adjudication
proceeding, the adjudicator fails to treat the parties equally and impartially or if a
party is not afforded a reasonable opportunity to put his case before the
adjudicator, there arises a ground to challenge the decision in court at the time
that it is enforced. In Herbosh-Kiere Marine Contractors Ltd v Dover Harbour

50
Id., at 111.
51
Id., at 112.
52
CIPAA, Section 13.
53
CIPAA, Section 13(a).
54
CIPAA, Section 13(b).
55
CIPAA, Section 13 (c).
56
CIPAA, Section 13(a).
57
CIPAA, Section 15.
 Board, Akenhead J agreed that an adjudication award compensating a plaintiff
for an item not claimed for is in breach of the rules of natural justice since the
adjudicator failed to give either party the opportunity to address that point.58 But it
is worth mentioning that an adjudicator does not breach the principle of natural
justice merely because he refuses to assign the weight to the evidence as is
wished for by a party.59

As mentioned above, the ground of lack of jurisdiction can be invoked both where
the jurisdiction is non-existent, and where the adjudicator has decided on matters
falling out of the scope of jurisdiction framed by the payment claim and the
response. 60 However, when a jurisdictional challenge is argued it must be
invoked at the outset of the proceedings for it to be successful. If a party realizes
that there is a procedural issue, the proper time to raise that issue is when it
arises, if it is not raised then the objection is deemed waived. As for an
adjudicator deciding a matter that is not raised between the parties; just as an
adjudicator obtains his jurisdiction to hear a dispute based on contract between
the parties, the scope of this jurisdiction is constrained by the issues raised by
the parties. Following this, if a matter is determined outside of the scope of
jurisdiction conferred on the adjudicator by the parties, this is outside the
jurisdiction of the dispute.

Lastly and importantly, an adjudication decision does not immediately entitle the
winning party to seize the assets of the other party in order to enforce the
decision. Section 28 provides specifically that an adjudication may be enforced
by an application to the High Court for an order to enforce the adjudication
decision as if it is a judgment or order of the High Court. 61 Once a decision is
obtained, the successful party must then apply to the court to have the decision
converted into a judgment, so that the decision is enforceable in the same
manner as a judgment of the court.

58
[2012] EWHC 84, TCC.
59
See AM Associates (Singapore) Pte Ltd v Laguna National Golf and Country Club Ltd [2009] SGHC 260.
60
CHOW KOK FONG, LIM CHONG FONG, OON CHEE KHENG, supra note 13, at 140.
61
CIPAA, Section 28.
 E. Enforcement

If the adjudicated amount pursuant to the decision has not been voluntarily paid
wholly or partly after the receipt of the adjudication decision under Section 12(6),
the party may apply to the High Court to enforce the adjudication decision
pursuant to Section 28.

Under Section 29, the party with an adjudication decision in its favor may
suspend or reduce the rate of performance of any construction work or
construction consultancy services under the construction contract provided that a
notice has been given properly to the respondent and that the respondent failed
to pay the due amount after 14 days from the receipt of the notice. The
importance of Section 29 is that this provision grants the party with an award in
its favor an important right to suspend the performance of the contract on the
basis that the losing party has failed to discharge its obligation to pay sums which
are due to the successful party. Although it is conceivable that a failure on the
part of the losing party to discharge its payment obligation may constitute
repudiation and thus entitle the other party to suspend performance on the
contract. Until this point is reached, the aggrieved party may not be able to
suspend his performance without risking breaching the contract. Section 29 thus
circumvented this by directly granting the successful party the right to suspend
works until the amount under the decision is paid to it in whole.

Section 30 provides a further recourse for the recovery of the adjudicated amount.
It applies to a successful claimant who is a subcontractor or a sub-subcontract of
any tier in the chain of construction contracts. The successful claimant may make
a written request for payment of the adjudicated amount direct from the principal
respondent. 62 The principal in the absence of proof of payment provided by
respondent, is obligated to pay the adjudicated amount to the claimant and later
recover this amount paid as a debt or setoff against the respondent. Ideally
however, a successful party in an adjudication will not have to go this far.

62
CIPAA, Section 30 (1).
 F. Costs, Fees and Confidentiality

Section 18(1) of CIPAA expressly requires the adjudicator to order the costs to
follow the event and shall fix the quantum of costs to be paid. This means that
the adjudicator is required to order the respondent to pay the claimant its costs in
the case that claimant is successful, however the adjudicator must fix the
quantum of those costs. For this purpose, a claimant is considered successful if
he recovers the whole or a substantial part of the amount claimed. 63 It suffices if
he recovers, for example 20% percent of the claimed amount to recover his costs.
If on the other hand, a claimant fails in his claim or recovers only a nominal sum
then the respondent is considered to have succeeded and the adjudicator is
required to order the claimant to pay the respondent his costs. In addition to legal
costs, adjudication costs include the costs of the tribunal which consists
adjudicators fees and expenses, the fees and expenses of the KLRCA in relation
to the appointment of the adjudicator and administration of the matter as
provided under the Act, experts as well as other costs such as costs of
documentation investigation.64

Under Section 18(1), despite the fact that the adjudicator shall order costs, the
discretion to fix the amount of the costs is left to the adjudicator. The relevant
factors that an adjudicator may take into account in making this decision include:
the complexity, difficulty and novelty of the matter, the extent to which it was
necessary to incur a particular item of cost, the time spent on the case, the skill,
effort and specialized knowledge entailed by the matter and whether the cost
incurred was reasonable.65

Typically, there are two formulations used when awarding costs. In most cases, a
successful party is awarded costs on what is termed a standard basis. Under
this method, the successful party will recover those costs that are considered
proper and necessary. Using this approach, the successful party may usually
recover 70% to 80% of the amount incurred. The second approach of an
63
Id., at 158.
64
Id., at 157.
65
Id., at 158.
 indemnity basis is used in exceptional cases. This formulation will allow all
costs incurred to be awarded except those which have been unreasonably
incurred.

It is important to note that under Section 18(2), the provisions under Section 18(1)
prevail over any prior agreement between the parties prior to the commencement
of the adjudication proceedings by which one party agrees to pay the other
partys costs or bear the adjudicators fees and expenses. For example, if for
whatever reason, party A agrees with B that A will be responsible for costs of
adjudication (for example, as a clause in their main Agreement) before a dispute
arises, this specific provision of the agreement will not be upheld.

Regarding the fee paid to an adjudicator, under Section 19(1), this is left to the
parties to agree on.66 Typically, the parties will sit with a prospective adjudicator
to reach an agreement on the terms of payment to be made to the adjudicator. If
parties fail to reach an agreement with an adjudicator on the fee arrangement
Section 19(2) provides that the KLRCAs standard terms and fees will apply, and
parties must then find an adjudicator who will accept these terms.67 In terms of
making these payments, 19(3) provides that the parties are jointly and severally
liable to the fees owed to the adjudicator.68

Before an adjudication is under way section 19(4) highlights that the parties will
pay a deposit with the KLRCA as security. Pursuant to Section 19(5), an
adjudicator is entitled to withhold the adjudication decision until the full amount of
fees and expenses is paid. 69 Importantly, an adjudicator will not be able to
recover the adjudication fees and expenses if he is unable to deliver the
adjudication decision within the 45-day period specified for this purpose under
Section 12(2), provided that the parties have fulfilled their duty to deposit the
security as mentioned.. However Section 19(6) deals with the issue where if the

66
CIPAA, Section 19(1).
67
CIPAA, Section 19(2).
68
CIPAA, Section 19(3).
69
CIPAA, Section 19(5).
 delay in the delivery of the decision is due to the parties this will not toll the 45
day period and allow recalcitrant parties to thwart the adjudication procedure and
adjudicators award.

G. Loss and Expense

When a breach of a contract occurs the most favored and common remedy
sought is damages as opposed to equitable remedies such as specific
performance or an injunction. Damages are the innocent partys entitlement as a
result of the breaching of the contract. There are two main principals used when
determining damages. 70 The first focuses on the objective of restoring to the
innocent party the value of his defeated contractual expectation.71 The second is
how remote damages suffered are in relation to liability of a respondent. 72

These are referred to in common law as the two limbs of damage. The first being
losses that may fairly and reasonably be considered as arising naturally (that is,
according to the usual course of things) from the breach. Second, losses such as
may reasonably be supposed to have been in the contemplation of the parties at
the time when they made the contract as the probable result of the breach of it. 73

These principals are reflected in section 74 of the Contracts Act 1950 (Act 136)
which allows the innocent party to recover direct damages and indirect or
consequential damages. The former focuses on restoring parties to the position
they would be in had the breach not occurred. The latter concerns how far
removed an action will be to find a Respondent liable for damages. Essentially
being whether an innocent party that suffered damages can show that a
respondent could have foreseen the damage to have occurred.74 Furthermore, a
claimant will not be able to recover for damages suffered had the claimant been

70
See SUNDRA RAJOO and HARBANS SINGH, supra note 7, at 326.
71
Robinson v Harmon (1848) 1 Exch 850.
72
Hadley v Baxendale (1854) 9 Exch 341.
73
Ibid.
74
Victoria Laundry (Windsor) v Newman Industries [1949] 2 KB 528.
 able to mitigate or avoid the damages by taking reasonable steps to do so.75 It is
important to note that this does not include damages such as punitive damages,
which are both outside the scope of this paper.

To practically apply these classifications of damages, some conditions of

contracts allow for direct loss and/or expense, 76 while others refer to, loss
and/or expense. 77 The former, includes recovery only under the first limb
mentioned above, which the latter, which is wider in scope allows for recovery
under both the first and second limb.78 As for loss and expense under CIPAA, the
enactment of CIPAA gives an unpaid contractor a right to recover and loss and
expense incurred as a result of the suspension or reduction in the rate of
progress of performance if the adjudicated amount pursuant to an adjudicated
decision has not been paid wholly or partly by the non-paying employer. 79
However, depending on how the contract is worded, as highlighted above, it may
not necessarily cover damages under the second limb of damages.

H. Final Remarks

The enactment of CIPAA will remedy many problems suffered by contractors in

the Malaysian Construction industry. This Act brings long awaited relief and
reconfigures the regime of payment disputes in the construction industry. CIPAA
does this through the implementation of a comprehensive and efficient dispute
resolution scheme. There has been a great deal of preparation and anticipation
of the coming into force of CIPAA. The enactment of CIPAA ushers in a new age
of dispute resolution for construction matters which will change the face of the
construction industry in Malaysia.

75
Kabatasan Timber Extraction Co. v Chong Fah Shing [1969] 2 MLJ 6.
76
See SUNDRA RAJOO and HARBANS SINGH, supra note 7, at 326 Citing clause 44.1 and 44.2 of the JKR Forms 203
and 203A (Rev 1/2010).
77
See SUNDRA RAJOO and HARBANS SINGH, supra note 7, at 326 Citing clause 24.0 of the PAM Contract 2006
(With Quantities).
78
Id. at 327.
79
Id. at 329.