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The Ten Steps

Lam Wai Loon and Serene Hiew provide a step-by-step guide on the statutory adjudication process

INTRODUCTION

After more than 1½ years since the Construction Industry Payment and Adjudication Act 2012 ("CIPAA") received Royal Assent on 18 June 2012, the CIPAA finally came into force on 15 April 2014. The Minister of Works made a set of regulations, the Construction Industry Payment and Adjudication Regulations 2014 ("Regulations"), which came into effect on the day that the CIPAA came into force. The Regulations are intended to supplement the CIPAA for the better carrying out of the provisions of the CIPAA.

Shortly after the CIPAA came into force, the Kuala Lumpur Regional Centre for Arbitration ("KLRCA"), the sole designated Adjudication Authority under the CIPAA, issued a set of rules and procedure called the KLRCA Adjudication Rules and Procedure. These rules and procedures are to facilitate the efficient administration of adjudication cases and other matters by the KLRCA under the CIPAA. In addition, the KLRCA has provided a set of forms to assist and guide intended participants in the adjudication process under the CIPAA. These forms are contained in Schedule 1 of the KLRCA Adjudication Rules and Procedure.

EXEMPTED CONTRACTS

Before proceeding to discuss the adjudication process, it is important to note that the Construction Industry Payment and Adjudication (Exemption) Order 2014 ("Exemption Order") exempts two categories of Government construction contracts from the statutory adjudication regime under the CIPAA.

The first category of exempted contracts is set out in Schedule 1 of the Exemption Order. These contracts are exempted entirely from the operation of the CIPAA, and cover any Government contract for construction work that (a) is carried out urgently and without delay due to natural disaster, flood, landslide, ground subsidence, fire and other emergency and unforeseen circumstances; or (b) relates to national security or security related facilities, including the construction of military and police facilities, military bases and camps, prison and detention camps, power plants and water treatment plants.

The second category of exempted contracts is contained in Schedule 2 of the Exemption Order. It is only a partial exemption in that it gives the parties to Government construction contracts with a contract sum of RM20 million or less, a longer period for service of certain documents, such as the payment response, adjudication response and adjudication reply, than the time frames provided under the CIPAA. This exemption is in force until 31 December 2015.

RETROSPECTIVE OR PROSPECTIVE?

It is unclear whether the CIPAA covers construction contracts made before the CIPAA came into force, and if it does, whether it also covers disputes which arose prior thereto.

Pending the resolution of this issue by our courts, the KLRCA has issued the KLRCA CIPAA Circular 01 dated 23 April 2014 which states that it would administer and appoint adjudicators for adjudication cases in respect of any payment disputes "which arose under a construction contract on or before 15 April 2014, regardless of whether the relevant construction contract was made before or after 15 April 2014".

THE TEN-STEP ADJUDICATION PROCESS

The adjudication process under the CIPAA is highly regulated, and stakeholders who seek recourse through this process must be vigilant in ensuring that the requirements in terms of time, form and substance provided under the CIPAA are complied with. These requirements are necessary to ensure that adjudication cases under the CIPAA can be disposed of in an economical and expeditious manner. The adjudication process, commencing from the filing of the payment claim until the delivery of an adjudication decision, is summarised below.

Step 1

A party who claims payment of a sum which has not been paid in whole, or in part, under a construction contract is entitled to serve on the other party, i.e. the non-paying party, a payment claim under section 5 of the CIPAA. The payment claim must include the information prescribed in section 5(2) of the CIPAA, such as the amount claimed, the payment due date and the provision of the construction contract to which the payment relates. A sample payment claim form is provided in Form 1 of Schedule 1 of the KLRCA Adjudication Rules and Procedure.

Service of a payment claim is important as a party is not allowed to commence adjudication proceedings under the CIPAA without a payment claim having been validly served on the non-paying party.

Step 2

Having received the payment claim, the non-paying party has an option as to whether to respond to the payment claim or not. Pursuant to section 6(4) of the CIPAA, a non-paying party who does not respond to a payment claim is deemed to have disputed the entire payment claim.

A non-paying party who chooses to respond must do so within ten working days from the date of receipt of the payment claim. He may (a) dispute the entire payment claim; or (b) admit the entire claim; or (c) admit part of the claim, and dispute the rest. The non-paying party is required to make payment to the extent that the claim has been admitted.

A sample payment response form is provided in Form 2 of Schedule 1 of the KLRCA Adjudication Rules and Procedure.

Step 3

Upon the expiry of the period provided for the service of the payment response, the unpaid party or the non-paying party may commence adjudication by serving a notice of adjudication on the other party. The party who serves the notice of adjudication is the claimant, and the other party, the respondent. The notice of adjudication must be in writing and contain the nature and description of the dispute and the remedy sought and any supporting documents.

Pursuant to Rule 2 of the KLRCA Adjudication Rules and Procedure, the claimant is also required to serve a copy of the notice of adjudication on the KLRCA and register the adjudication case with the KLRCA, accompanied by a registration fee of RM250.00.

A sample notice of adjudication and the registration form are provided in Form 3 and 3A respectively of Schedule 1 of the KLRCA Adjudication Rules and Procedure.

Step 4

Within ten working days from the service of the notice of adjudication, the parties may attempt to agree on an adjudicator to adjudicate their dispute. If the parties fail to reach an agreement, then either party or both parties may issue a written request to the Director of the KLRCA to appoint an adjudicator. The Director of the KLRCA is required to make the appointment within five working days of receipt of the request.

The adjudicator appointed by the parties or by the Director of the KLRCA may then propose and negotiate his terms of appointment, including his fees and expenses, with the parties. The adjudicator is not obliged to accept the appointment if the parties cannot reach an agreement with him on the terms of appointment. If the adjudicator and the parties cannot reach an agreement, or the adjudicator rejects or fails to accept the appointment within ten working days from the date he was notified of his appointment, then the parties may proceed to appoint another adjudicator.

An adjudicator who accepts the appointment must indicate his acceptance within ten working days from the date he was notified of his appointment. Upon acceptance of his appointment, the adjudicator must submit to the KLRCA a declaration in writing that (a) there is no conflict of interest in respect of his appointment; (b) he will act independently, impartially and in a timely manner and avoid incurring unnecessary expense; (c) he will comply with the principles of natural justice; and (d) there are no circumstances likely to give rise to justifiable doubts as to the adjudicator's impartiality and independence. The adjudicator is also required to send a copy of his terms of appointment and fees to the Director of the KLRCA within seven days of his acceptance of the appointment.

Step 5

Within 14 days after acceptance of his appointment, the adjudicator is to issue a direction to order the parties to deposit with the Director of the KLRCA, in advance as security, the KLRCA's administrative fees, any applicable Government taxes and a reasonable proportion of the adjudicator's fees and expenses.

Step 6

The claimant is required to serve an adjudication claim on the respondent within ten working days from the date of receipt of the acceptance of appointment by the adjudicator and to provide a copy of the same to the adjudicator. The adjudication claim must contain the nature and description of the dispute and the remedy sought, together with any supporting documents. A sample adjudication claim form is provided in Form 7 of Schedule 1 of the KLRCA Adjudication Rules and Procedure.

In addition, the claimant must deliver a copy of the adjudication claim to the KLRCA within seven working days from the date of service of the adjudication claim on the respondent. Unless otherwise directed by the Director of the KLRCA, the claimant is not required to provide the supporting documents to the KLRCA.

Step 7

The respondent is required to serve an adjudication response on the claimant and the adjudicator within ten working days of receipt of the adjudication claim. The adjudication response is to answer the adjudication claim and be accompanied by any supporting documents. A sample adjudication response form is provided in Form 8 of Schedule 1 of the KLRCA Adjudication Rules and Procedure.

In addition, the respondent is required to deliver a copy of the adjudication response to the KLRCA within seven working days from the date of service of the adjudication response on the claimant. Unless otherwise directed by the Director of the KLRCA, the respondent is not required to provide the supporting documents to the KLRCA.

Step 8

The claimant may reply to the adjudication response within five working days from the date of receipt of the adjudication response. The claimant may provide further documents in support of the contentions set out in the adjudication reply. A sample adjudication reply form is provided in Form 9 of Schedule 1 of the KLRCA Adjudication Rules and Procedure.

The claimant is required to deliver a copy of the adjudication reply to the KLRCA within seven working days from the date of service of the adjudication reply on the respondent. Unless otherwise directed by the Director of the KLRCA, the claimant is not required to provide the supporting documents to the KLRCA.

Step 9

Unless the parties agree to an extension of time, the adjudicator must make and deliver his decision within 45 working days from the date of service of the adjudication response or the adjudication reply, whichever is later, or the expiry of the prescribed period for the service of adjudication response, if no adjudication response is received. If the adjudicator delivers his decision outside the 45 working day period, or any extended period agreed by the parties, the adjudication decision is null and void. However, the adjudicator may withhold releasing his decision until the full amount of his fees and expenses have been deposited by the parties with the Director of the KLRCA.

The adjudication decision must be in writing and be reasoned unless the requirement for reasons is dispensed with by the parties. The adjudicator must make a determination in his decision as to (i) the adjudicated amount, if any; (ii) the amount of costs payable to the winner; and (iii) the time and manner of payment. A sample format of an adjudication decision is provided in Form 15 of Schedule 1 of the KLRCA Adjudication Rules and Procedure.

Step 10

A copy of the adjudication decision is to be served on each party and the Director of the KLRCA. The adjudicator's fees are to be released to him upon the receipt by the Director of the KLRCA of a copy of the adjudication decision and written confirmation by the adjudicator that he has complied with the time period prescribed by section 12(2) of the CIPAA for the delivery of adjudication decision. A sample of the said written confirmation is provided in Form 16 of Schedule 1 of the KLRCA Adjudication Rules and Procedure.

Writers' e-mail: This e-mail address is being protected from spambots. You need JavaScript enabled to view it & This e-mail address is being protected from spambots. You need JavaScript enabled to view it

SUBJECT MATTER: CONSTRUCTION & ENGINEERING

WRITERS' NAMES: LAM WAI LOON (L) & SERENE HIEW (R)

WRITERS' PROFILES:

Wai Loon is a Partner in the Dispute Resolution Division of SKRINE. His main practice areas include arbitration and statutory adjudication.

Serene is an Associate in the Dispute Resolution Division of SKRINE. She graduated from Oxford Brookes University in 2009.

 
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