Dispute Resolution for the Construction Industry in ... - IPBA 2012

By Mr. Sundra Rajoo
Director

Construction disputes are currently resolved by
litigation in court, arbitration or mediation.
With the construction industry‟s 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 arbitrator‟s 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 1 st 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
Regional Resolution
Global Solution
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