By Mr.

Sundra Rajoo Director

Construction disputes are currently resolved by litigation in court, arbitration or mediation. With the construction industrys growth spurt, both on the local and international front, the demand for a swift and effective mechanism to hurry along cash flow and facilitate payment is a necessity. The United Kingdom, some States and Territories in Australia, New Zealand and Singapore have introduced the concept of Adjudication as a means of dispute resolution for the construction industry.

Malaysia is poised to follow suit with the proposed Construction Industry Payment and Adjudication Act (CIPA).

Courts

Adjudication

Arbitration

Mediation & Conciliation

Country Report on Dispute Resolution for the Construction Industry

The construction industry relies heavily on arbitration as a means to resolve disputes.

The trend of moving towards arbitration is due to the usage of Standard Forms in building contracts which provide for disputes to be settled via arbitration. Arbitration is no doubt the preferred alternative given the arbitrators specialized knowledge and speed in dealing with construction matters.

The Malaysian Arbitration Act 2005 was recently amended by the Arbitration (Amendment) Act 2011. The amendments allows the courts to stay proceedings and grant interim measures in respect of international arbitrations with a seat outside of Malaysia.
The courts power to intervene in arbitration is strictly limited to those areas covered under the Act.

The current judicial trend is towards giving effect to parties pre-agreed dispute resolution mechanism unless the courts find that the agreement is null and void. Recent case law strictly maintain that it is mandatory to stay court proceedings when there is an arbitration agreement. This shows a clear change and recognition of ADR as a means of dispute resolution. New commercial courts have been introduced to speed up litigation matters thus complementing the ADR efforts.

The center has since introduced;

The KLRCA Arbitration Rules 2010

Fast Track Arbitration Rules 2010 Mediation/Conciliation Rules 2011

Islamic Banking and Financial Rules 2007

It is the first center in the world to adopt the UNCITRAL Arbitration Rules 2010 in full with some modifications.

The Construction Industry Payment and Adjudication (CIPA) Bill had been recently approved by Cabinet and has gone through the first reading in Parliament on the 1st December 2011.
Introduces the concept of adjudication as a means to resolve construction disputes relating to payment. The primary objective is to address critical cash flow issues in the construction industry.

Removing the practice of conditional payments Establishing a statutorily-enabled adjudication mechanism to solve disputes (fast, cheap, easy) Promote cash flow and reduce payment default via adjudication

Relates to all construction contracts made in writing (construction work, supply and consultancy). All construction contracts made wholly or partly in Malaysia. Applies to the Government of Malaysia. Does not apply to residential construction contracts of the natural person intended for own occupation (less than 4-storeys high). The Bill is wide ranging and covers inter alia, the oil and gas industry, petrochemical, telecommunication, utilities, infrastructure, supply contracts, project and management.

The adjudication process is concise and the time accorded to the adjudicator to produce the written decision itself is forty five (45) days unless the parties extend the same.
The entire process promises an outcome within an approximate one hundred (100) day time frame from the day the payment claim is served until the decision is passed.

Payment Dispute

Payment Claim

Payment Response (w/in 10 working days)

Notice of Adjudication

Nominate Adjudicator either by agreement (w/in 10 working days) or by KLRCA (w/in 5 working days)

Adjudicator Accepts (w/in 10 working days)

Adjudication Claim (w/in 10 working days)

Adjudication Response (w/in 10 working days)

Adjudication Reply (w/in 5 working days)

Adjudication Process begins (inform KLRCA)

Adjudication Proceedings (w/in 45 working days)

Adjudication Decision (to serve a copy to KLRCA)

The centre shall be responsible for;

the setting of the competency standard and the criteria required of an adjudicator; the determination of the standard terms of appointment of an adjudicator and the fees for the services of an adjudicator; to provide administrative support for the conduct of adjudication and any functions as may be required for the efficient conduct of adjudication.

Regulations - KLRCA is charged with making recommendations to the Minister with regards to the drafting of the CIPA Regulations;
Exemptions - KLRCA is also charged with making recommendations to the Minister with regards exemptions on any person or contract from the provisions of the proposed CIPA Act.

The CIPA Bill is at the first reading stage and the full impact of the proposed Act is not yet known. Lessons from other countries seem to suggest that adjudication is an effective method and the construction industry of those respective countries have benefitted. Adjudication has changed the payment culture and mindset of the construction industry in those countries.

Players in the construction industry should prepare themselves for the impending regime of statutory adjudication. Record keeping is important. A new mindset towards payment is necessary and the time for change is now. The effectiveness of the proposed Act remains to be seen but it is a positive step in the right direction.

The achilles of statutory adjudication is no doubt that it is temporarily binding. Parties who are keen to have a binding, fast and effective means of dispute resolution can consider the KLRCA Fast Track Rules.
Section 37 of the CIPA Bill provides that a dispute in respect of payment may be concurrently referred to arbitration or court without affecting the adjudication process.

The advantages of the Fast Track Rules 1. Fast track arbitration process 2. Decisions are final and binding 3. The entire process is approximately 140 days 4. The fees are fixed

Parties are advised to include the KLRCA Fast Track Model Arbitration Clause in their construction contracts.

Any dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or invalidity thereof shall be settled by arbitration in accordance with the Kuala Lumpur Regional Centre for Arbitration Fast Track Rules.

Thank you

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KLRCA homepage: http://www.klrca.org.my

Kuala Lumpur Regional Centre for Arbitration No 12, Jalan Conlay, 50450 Kuala Lumpur Tel: +6 03-2142 0103 / 0702 Fax: +6 03-2142 4513

E-mail: enquiry@klrca.org.my

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