By Rodney Martin

The Malaysian security of payment legislation, The Construction Industry Payment and Adjudication Act 2012 (“CIPAA”), celebrated its first birthday on the 15th of April 2015, having come into force on 15 April 2014.  How have the months or of life been for this much anticipated legislation?  I would argue that CIPAA has had an excellent start – all said and done.  And yes, much has been said, written, and done – but what hard evidence do I have to support my view?  Well, fortunately, the Kuala Lumpur Regional Centre for Arbitration (“KLRCA”) which is responsible under the Act as the adjudication authority for all CIPAA adjudications has gathered solid evidence in the form of statistical data.1

As of 12 June 2015, a total of ninety-nine adjudications had been registered with the KLRCA.  There were twenty-nine adjudications registered in the two-hundred and sixty calendar days in 2014 after 15 April and  seventy adjudications registered in the first  one-hundred and sixty three calendar days of 2015 to 12 June.  Put another way, in 2014 one matter was registered every nine days on average whereas in 2015 one matter so far has been registered more frequently than every three days.. Wow!  That is a staggering acceleration.  On the basis alone, one can safely conclude that in its first year of operation, CIPAA has had a very respectable start.  An initial modest referral rate to the new statutory regime should be expected as few parties wish to be pioneers in testing an untried dispute resolution system.  For this and related reasons, similar construction industry statutory payment legislation enacted in the UK and Singapore likewise experienced modest beginnings with accelerated trajectories as time passed and parties gained experience and trust in the statutory processes.  As elsewhere, once momentum gathers in Malaysia from increased usage of CIPAA, there will be substantial and growing numbers of registrations each year.  Based on the positive start for CIPAA, time should confirm that the legislation is indeed useful, effective, and relevant to all stakeholders in the construction industry.
There has been an additional favourable factor in encouraging resort to CIPAA’s remedies and bolstering its scope and reach.  CIPPA’s increasing popularity has been buoyed by the judicial determination during CIPAA’s first year holding that CIPAA applies to construction contracts and payment disputes arising before 15 April 2014 and that CIPAA should be liberally interpreted to achieve its goals of speedily determining payment disputes.2

The following chart graphically illustrates the accelerating resort to CIPAA that has been experienced in the first fourteen months of its life based on statistics analysed by the KLRCA, put into graphic form by the KLRCA staff, presented by Datuk Professor Sundra Rajoo during 2015 KLRCA Annual CIPAA Conference held on 17 June 2015.  The KLRCA has kindly granted permission to incorporate into this article the charts used herein.  The views and conclusions presented in this article, however, are solely those of the author and not the views or conclusions of the KLRCA.



As shown on the next chart, for the ninety-nine adjudications registered with the KLRCA to 12 June 2015, there were appointments of eighty-five adjudicators.  Ten appointments were via the agreement of the parties pursuant to section 21(a) of CIPAA; the other seventy-five appointments were by the Director of the KLRCA pursuant to section 21(b). Assuming that the appointments for some of the registered matters were due to be made and accepted close to the cut-off date for the gathering of statistics, 12 June 2015, the data clearly support the conclusion that there has been a very high follow through rate from initial registration of a matter to subsequent appointment of an adjudicator and then progressing the adjudication into subsequent phases.

The data further strongly suggest that parties that register a matter are resolute in their decision to pursue the payment dispute and are firmly set on following CIPAA to obtain delivery of a decision.  In certain instances, there may not have been an appointment of an adjudicator following registration because the parties settled quickly after the claimant initiated adjudication.  Plainly put, there likely was a quick settlement because the non-paying party recognized that an adjudication decision would likely not be in that party’s favour and that the decision would be rendered quickly with costs probably awarded to the prevailing party.  In other words, the day of reckoning had arrived for the non-paying party with the registration of the adjudication and the most prudent course of conduct under those circumstances was for the non-paying party to reach an amicable settlement with the claimant.  As such, CIPAA may very well act to deter deferred payment strategies that are employed to delay the payment of moneys otherwise due to the claimant.  Indeed, it has been my experience that one of my clients managed to get paid an amount that was properly due simply by writing to the non-paying party and informing that party of an intention to refer the payment claim to adjudication under CIPAA.  CIPAA therefore is working on many levels to quickly resolve pending payment claims.

Who have been the brave and the bold parties, stepping forward in the first year to use CIPAA and register claims?

Well, it is not surprising that no employers were claimants.  There were fifty-seven subcontractors, thirty-two main contractors, six consultants, and four suppliers that registered payment claims pursuant to CIPAA with the KLRCA.  In the first fourteen months of CIPAA, more than half (58%) of all adjudications registered with the KLRCA were initiated by subcontractors. This is consistent with the anticipation that the majority of those taking payment claims to adjudication under CIPAA would be subcontractors as they are the ones who have suffered the most from the blight of non-payment issues in the industry and were one of the primary categories of intended beneficiaries of the legislation.
The profiles of the respondents in this first fourteen months also have yielded no surprises. There were sixty-one main contractors, thirty-seven employers, and one sub-contractor named as responding parties.
The following charts illustrate the role of the parties in the adjudication proceedings registered to 12 June 2015.

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Of those payment disputes referred to adjudication under CIPAA, the vast majority (over 77%) presented single payment claims.  A minority of registrations included several payment claims at the same time.  Again, this data is consistent with the legislative purpose for which CIPAA was designed: a party taking action at a certain point in time during the course of the construction process or perhaps at the final account stage to have a serious and sometimes serial non-payment situation promptly addressed before the conclusion of the project.


What was the nature of the payment disputes referred to adjudication?
Here, the statistics reveal an interesting and possibly unexpected trend.  Of the  ninety-nine matters registered with the KLRCA, forty-two (close to one-half) were in respect of interim payments,  twenty-eight (about one-third) were in respect of final account values, and the rest related to payment of professional fees ( seventeen), contract terms ( five), variations ( four), withholding monies ( two) , and extensions of time ( one).
It may be reasonably argued that it was unexpected that there would be such a high proportion of final account value disputes referred to adjudication.  Approximately one third of all the matters registered related to final account values.  This is a significant proportion.  It may be a consequence of frustration with stale, unresolved final account value in projects otherwise completed and turned over to the employer or intended user. Under these circumstances, claimants perhaps have opted to seek relief for payments allegedly long over-due in the faster, cheaper, and quicker forum provided by CIPAA than in arbitration.  Accordingly, to the extent that this logic is accurate, as the years pass and CIPAA adjudication statistics grow, the proportion of final account value matters registered in adjudications under CIPAA may diminish.
Another interesting statistic, and again possibly unexpected, is the number of matters registered concerning payment of professional fees.  Seventeen matters were referred in this respect to adjudication, 17% of the total.  From this, it may be deduced that sub-contractors are not the only ones in the construction industry with serious payment issues.

More evidence of the increasing and accelerating use of adjudication since CIPAA came into force can be found in the figures relating to the rate at which adjudication decisions have been released.  Two adjudication decisions were released in 2014; but twenty five decisions were delivered in calendar year 2015 up to 12 June 2015.
Importantly, only four of the twenty-seven decisions were contested or challenged, with the remaining twenty-three uncontested.  Although the non-paying party in these circumstances may not have been pleased with the outcome, these figures suggest that the adjudication decisions are being accepted.  This is another clear indication that CIPAA is working.

How much is being claimed in the payment disputes submitted to CIPAA?
The total value of all claims registered was approximately RM330 million.  The total value of claims which progressed to the adjudication decision stage was approximately RM271 million for which the corresponding adjudication decisions value was a total of approximately RM104 million.  The minimum adjudicated amount was just in excess of RM26,000 and the maximum adjudicated amount was slightly more than RM32 million.  This range of adjudicated amounts demonstrates the versatility of adjudication under CIPAA.

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From where do the adjudicators come?
Of the three-hundred nineteen empanelled adjudicators, two-hundred and sixty-five or 83% come from or reside in Malaysia with one-hundred and ninety-four resident in Selangor or WP Kuala Lumpur.  The remainder of the panel adjudicators are resident outside Malaysia  with twenty-five from Singapore; six from Sri Lanka; five from Hong Kong; four from the UAE; three each from Australia and the UK; two from China; and  one each from Indonesia, Brunei, Thailand, India, Bangladesh, and Mauritius.
Many of those empanelled adjudicators from foreign countries qualified by registering in the KLRCA adjudication programmes, which have been recognized internationally for their excellence.  These panel members may not intend to take up appointments as adjudicators for practical reasons, but their availability for appointment in appropriate situations deepens the experience and competency levels of the adjudication panel.
A quick review of the numbers of empanelled adjudicators raises the question of whether there are enough trained and certified adjudicators for the nature and volume of anticipated adjudications.  For the time being, the answer is, maybe.  If the number of matters referred to adjudication continues to increase at the same rate in future months, then there will definitely be a need for more trained adjudicators available for the KLRCA to appoint.

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The chart immediately preceding this paragraph disclosed that of the three-hundred nineteen currently empanelled adjudicators, one-hundred and fifty-two are lawyers; thirty-seven are engineers; eight are architects; thirty are quantity surveyors; and ninety-two fall into the category of “others.”
It is logical that just under half of all adjudicators are lawyers as lawyers possess many of the skills required of a competent adjudicator.  But so do engineers, architects, and quantity surveyors.  Nonetheless, lawyers out number all three categories of these disciplines combined by a factor of more than two to one.  There is no logical explanation why so few engineers, quantity surveyors, and, particularly, architects have failed to step forward to train as adjudicators.  Merely from an academic or professional development perspective alone, many of those who administer construction contracts would benefit greatly from developing the skills and knowledge required of an adjudicator, especially when carrying out the independent certifier role.  So, here is an appeal to all engineers, architects, and quantity surveyors in Malaysia.  Your country needs you!  Sign up today for the next KLRCA adjudicator training programme scheduled for November 2015.  As good practice, it would be reasonable, indeed sensible, for every large professional engineer, architect, and quantity surveyor firm in Malaysia to have at least one or two KLRCA empanelled adjudicators.

Having reviewed the statistics gathered by the KLRCA, CIPAA has had a very good first year.  As parties pursue their rights under the Act in increasing numbers and frequency in the coming years, more clarity and understanding will ensue.  For now, there is much cause for celebration.  Due credit and recognition should be given to those who lobbied long and hard for this legislation, to those who worked hard  to prepare for its implementation, and to the KLRCA as the named adjudication authority under CIPAA which has embraced  its training, promotion, administrative, and appointing authority roles with much enthusiasm and competence.  Congratulations are in order to all of the stakeholders and a note of appreciation to the Courts who have supported CIPAA by giving full force and effect to its intent and plain meaning.  Happy Birthday CIPAA!

Rodney Martin is Chief Executive of the Charlton Martin Group, with 28 years of experience as a quantity surveyor in the construction industry having lived and worked in Kuala Lumpur for the last 18 years.  He has worked for many clients in the Asia Pacific Region, Europe, Africa, the Middle East and India.  Rodney holds dual qualifications in quantity surveying and law and as a chartered quantity surveyor is a specialist in construction contract consultancy providing professional and technical advice to clients relating to contract documentation, contractual claims, dispute avoidance and resolution.  He is an accredited mediator, panel arbitrator and panel adjudicator with the Kuala Lumpur Regional Centre for Arbitration (KLRCA).  He is a Fellow of the Chartered Institute of Arbitrators, the Malaysian Institute of Arbitrators and the Singapore Institute of Arbitrators.  Rodney has been appointed as Expert Witness on matters relating to quantum and has acted as lay advocate in arbitration proceedings.  Rodney has also been appointed as an arbitrator and CIPAA adjudicator in Malaysia.

1  Presented by Datuk Professor Sundra Rajoo at the KLRCA CIPAA Conference 2015 – Aligning with CIPAA held on 17 June 2015 at KLRCA.  The charts in this article have been used with the permission of the KLRCA.  The author acknowledges the editor of the Newsletter for his contributions to the article.
UDA Holdings Bhd v Bisraya Construction Sdn Bhd and MRCB Engineering Sdn Bhd heard together with Capitol Avenue Development Sdn Bhd v Bauer (Malaysia) Sdn Bhd.