Any request for payment is not an easy task. In the construction industry, cash flow efficiency and non-payment are common issues. However, through the introduction of the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”), there is now a specific legal process to recover unpaid amounts in the construction industry, known as “adjudication”. Not to be confused with arbitration or litigation (court proceedings), adjudication is a statutory dispute resolution mechanism meant to facilitate the speedy recovery of unpaid amounts in the construction industry, with a view of improving cash flow, efficiency and productivity in the industry.
Adjudication proceedings are not mandatory and a party can also opt to have their unpaid amounts recovered through arbitration or litigation. Here are some points to briefly demonstrate the difference between adjudication and court proceedings.
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Adjudication |
Factors |
Litigation (Court Process) |
| Adjudication is administered by the Asian International Arbitration Centre (AIAC). The AIAC charges an administration fee based on the claim amount. |
Administering Body |
The litigation process is administered by the Court. There are no administration fees charged by the court. |
| At first glance, adjudication may appear to be more expensive than court proceedings since the typical expenses to be paid for an adjudication proceeding are:
(i) adjudicator fees; (ii) administrative fees of the AIAC (iii) each party’s legal fees (if they appoint lawyers) Adjudicator fees and the administrative fees are based on the value of the claim amount, which can be significant. These fees have to be paid upfront before a decision is delivered, but are usually split between the parties in equal proportion pending the adjudication decision. However, these costs are usually recoverable by the winning party in the adjudication, at a higher proportion than in court proceedings. |
Costs |
The main expenses to be paid by a party in court proceedings are:
(i) filing fees (payable to the court) (ii) legal fees (if they appoint lawyers) Filing fees are generally not cost-prohibitive. At the end of the litigation, the Court will award a certain amount of costs to the winner. Depending on whether it is at the subordinate court or at the High Court, the costs awarded will either be based on the schedule in the Rules of Court, or a discretionary amount. The costs awarded to the winner are usually nominal and are not granted on an indemnity basis. |
| Adjudication decisions are said to have “temporary finality”. The adjudication decision is final and binding, and can be enforced as it were a court judgment, until and unless the payment issue is conclusively determined via arbitration or litigation. The decision at arbitration or litigation will prevail over the adjudication decision. |
Finality and Enforceability
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A court judgment is binding until it is set aside or overturned on appeal.
A court judgment can be enforced via various methods such as a writ of seizure and sale, garnishee proceedings and judgment debtor summons. Bankruptcy or insolvency proceedings can also be initiated based on an unsatisfied court judgment. |
| Adjudication is comparatively faster since the time frame for filing and deciding on an adjudication matter is prescribed in CIPAA.
For example, under CIPAA, an adjudication decision must be issued within 45 working dates from the receipt of the adjudication reply, failing which the decision will be void and the adjudicator will not receive their fees. This incentivizes the adjudicator to comply with the timelines set by CIPAA and avoid delays. |
Time & Speed |
The period between filing an action and actually obtaining judgment through the civil Courts can be protracted.
In Malaysia, the process could take months or even years for the judge to deliver a decision, depending on the Court’s schedule and how heavily disputed the matter is. There is also no statutory time frame for a matter to be heard and disposed of. |
| Adjudication is usually a “documents only” proceeding, although sometimes it may involve physical meetings, site visits and oral hearings.
It is less formal as there is no requirement for parties to meet physically, attend Court, or produce witnesses to give evidence on oath (unless it is specifically ordered by the adjudicator). |
Practicality |
Litigation is a formal legal process which usually culminates in a trial, where parties are required to attend court, call witnesses and/or experts.
“Documents only” proceedings in litigation are available (i.e. summary judgment) but are usually allowed only in cases where there are clearly no factual disputes and no triable issues. |
| The core issue in adjudication is payment, which CIPAA defines as: “a payment for work done or services rendered under the express terms of a construction contract.”
The adjudicator’s role, among others, is to decide whether the unpaid party is entitled to be awarded the payment for work done. |
Issues |
There are numerous issues that could possibly be raised during a court proceeding which are not limited to payment issues, such as loss of reputation and/or defamation. |
| Adjudication is a private proceeding. Pursuant to Section 20 of CIPAA, parties are prohibited from disclosing any statement, admission or document made or produced for the purposes of adjudication to another person except in limited situations (e.g. the disclosure is necessary to enforce the adjudication decision or any proceedings in arbitration). |
Confidentiality |
Court proceedings take place in public, and anyone who is in the Court room is able to observe “open court” matters. Court papers are also accessible to the public using the electronic file search process.
Further, some court processes like winding-up proceedings, are required to be advertised. |
As payment claims in the construction industry usually involve substantial amounts, there is an urgent need for parties to have their payment disputes resolved speedily and efficiently. This makes adjudication under CIPAA a commercially attractive option to those in the construction industry.
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About the author: Zi-Han Lim is an associate in the dispute resolution practice group at Donovan & Ho. He is experienced in dispute resolution, focusing on employment and industrial relations, administrative law and commercial litigation.
Donovan & Ho is a law firm in Kuala Lumpur, Malaysia. Our practice areas include employment law, dispute resolution (litigation and arbitration), corporate and tax advisory, and real estate/conveyancing. Have a query? Contact us.
