Compulsory Adjudication – Effects, Procedure & Inter-Relation with Other Contractual ADR

• Construction Work Contracts

• Procurement of Materials and Labour Contracts

• Construction Consultancy Contracts

• Contracts Carried Out Wholly/Partially in Malaysia

• Applies to Payment Disputes Arising After

15 April 2014

• DEC’s Payment Claims to Employer

• Payment Claims by Domestic Sub-Cons

• Payment Claims by Nominated Sub-Cons

• Payments Claims by Material Supplier

• Payment Claims by Labour Supplier

• Payment Claims by Design Consultants

• Payment Claims by Project Management Co.

• Building less than 4 storey high and only for occupation with Natural Persons

• Government Urgent/Emergency Construction Works

• Government National Security Facilities

• Government Contracts below RM20million: Modified Application

• Minister of Works future Exemptions?

Payment Claim: Progress or Final

• Non-Payment of Certified Sums by Due Date

• Non-Certification + Non-Payment by Due Date

• Under-Certification + Non-Payment by Due Date

• Non-Valuation or Under-Valuation + Non-Payment of Variations, Loss & Expense & Other Claims

• LAD Deductions - EOT becomes part of the Dispute

• Incorrect Quantities/Percentage of Works Completed

• Incorrect Method of Measurement

• Contractual Set-Offs or Equitable Set-Offs

• Not Variation or Value of Variation

• No Right to Loss & Expense – Liability & Quantum: EOT could become part of Dispute

• No Right to Other Claims – Liability & Quantum

• Termination – if related to Final Account

• Option of Party Having Payment Claim

• Use Statutory Adjudication Process; or

• Use Contractual ADR Process; or

• Use Court for Litigation (danger of stay of court proceedings due to preference of contractual ADR Process)

• If Party opts for Statutory Adjudication Process: the Other Party cannot Avoid

• Cannot Contract to make CIPAA Inapplicable

• Option to Party Making Payment Claim

• Prefer Statutory Adjudication • Enforcement Rights Clear & Strong

• Cheaper than Contractual Adjudication

• Prefer Contractual Adjudication • Faster : PAM Adjudication : 21 + 7 days from acceptance of

appointment by Adjudicator

• Intention to Set-Off without Actual Set-Off: No Non-Payment – No Choice but to Use Contractual Adjudication

• Contractual Adjudication Condition Precedent to Arbitration – No Choice if wish to Preserve Right to Arbitration

• Temporary Dispute Resolution Process • Quick : 95- 105 working days (4 months)

• Cheap: Scale Fee for Adjudicator

• RM100,000 dispute: Fee is RM5,760

• RM1million dispute: Fee is RM18,697

• RM5million dispute: Fee is RM48,262

• Over RM5million dispute: Fee is RM50,000

• Binding until Overturned by Arbitration or Court

• Temporary: Dissatisfied Party Can Re-Open in Arbitration or Court

• If Arbitration only when Project Completed (same for Court Implicitly): Adjudication Resolves Dispute Temporarily During Works

• Payment Claim from DEC or Suppliers/Sub-Cons – must contain (compulsory):

• The Amount Claimed

• The Relevant Provision of the Contract

• The Cause of Action: why entitled to the Claim

• Description of Works/Services related to Claim

• Statement that Claim is made under CIPAA 2012

Example : Attachment A

• Hand delivered, left or sent to usual place of business or as agreed under Contract

• Payment Response (Attachment B)

• 10 working days (14 days unless public holidays)

• If Admit whole or partial – enclose payment

• If Dispute – reasons for dispute (unclear whether can’t expand reasons later)

• Safer to reserve right on any other dispute

• Not Compulsory

• If unsure of disputes: don’t respond

• Can later raise any dispute

• Tactically better to respond if certain of disputes: Allows Claimant to decide on Adjudication

• Only after the 10 working days for Payment Response Expires (copy to KLRCA)

• day 15 after Payment Claim received by Other Party

• Refer to Dispute: By Reference to Payment Claim and Payment Response

• Refer to Remedy : Amount Claimed Which is Not Admitted

• Nomination of Single Adjudicator: Best to Enquire with Nominee on:

• Conflict of Interest

• Availability & Ability

Parties to Agree – within 10 w.days from service of Notice of Adjudication

• Freedom of Choice/ KLRCA Panel or Accredited?

If Agreed

• Inform Adjudicator + Notice of Adjudication

• Adjudicator: 10 working days to

• Propose & Negotiate Terms (outside of CIPAA Scale)

• Accept Appointment

• If not Accept, Parties to Agree Another: 10 working days

If Not Agreed

• Request KLRCA to Appoint

• KLRCA has 5 working days to Appoint & Inform

• Adjudicator: 10 working days to

• Propose & Negotiate Terms (outside of CIPAA Scale)

• Accept Appointment

• If not Accept, Parties to Agree Another (10 working days) or KLRCA to Re-appoint (5 working days)

Adjudicator’s Declaration when Accepting Appointment

• no conflict of interest;

• independence;

• impartiality;

• ability to act within time;

• will avoid incurring unnecessary expenses

• will comply with principles of natural justice;

• no justifiable doubts on impartiality & independence

10 working days from Adjudicator’s Acceptance of Appointment

To Adjudicator & Other Party & KLRCA (without docs)

• Claim & Remedy (Attach Payment Claim)

• Nature & Description of Dispute

• Attach Payment Response

• Supporting Narratives with cross-reference to documents which support Payment Claim

• Supporting Narratives to Counter Payment Response with cross-reference to documents

• All Relevant Documents

10 working days from receipt of Adjudication Claim

To Adjudicator & Other Party & KLRCA (without docs)

• Brief Outline of Defences (Attach Payment Response)

• Nature & Description of Defences

• Supporting Narratives with cross-reference to documents which establish each defence

• All Relevant Documents

5 working days from receipt of Adjudication Response

To Adjudicator & Other Party & KLRCA (without docs)

• Brief Outline of Reply to Defences

• Nature & Description of Replies

• Supporting Narratives with cross-reference to documents which establish each reply and attacks each defence

• All Relevant Documents

• Up to Adjudicator when to Fix (Possible before Fifth/Sixth/Seventh Step)

• Decision must be 45 working days after Seventh Step (Parties can extend by agreement – Request?)

• Adjudicator decides Procedure

• Inquisitorial not Adversarial??

• Ask for Experts (Party or Own)

• Set out very tight timetable for any procedure

• Ask for limited information / resubmission of narratives with limited pages & limited documents

• Proper Inquisitorial: Proactive Adjudicator

• List of Interrogatories on Facts, Contract & Law

• List of Queries on Documents & Interpretation

• Request for Affirmed Statements or Memorials

• Questioning by Adjudicator of Pertinent Personnel

• Physical Inspection/Expert Hot –Tubbing/Own Expert

• Limited & Controlled Cross-Examination

• Adversarial-Inquisitorial: Non-Proactive Adjudicator

• To decide simply based on Adjudication Claim, Response & Reply

• Up to Parties to Satisfy

• Try to get to the truth but with limited time

• Try to get the job done, quality secondary

• Fees so small, just guess on entitlements

• Pro-Claiming Party since CIPAA is to ensure cash-flow not affected in Project

• Factual Minded v Legal Minded

• Apply Burden of Proof or Misplace the Burden

• Decision right or wrong cannot be challenged

>45 w.days = Void & Adjudicator no fees = result:

re-commence adjudication?

Evidence Act not apply

Reasoned Decision

Slip Rule

Consolidation only on Parties agreement

Cost to follow Event & Quantum fixed (Parties prior agreement on Cost void (Tolent clauses))

Confidentiality

No kompetenz-kompetenz

Discretion to Proceed whilst Setting Aside Application is made to High Court

Subject to Stay by High Court

Can be referred concurrently to

• Adjudication

• Arbitration

• Court

Adjudication proceeds unless Arbitration or Court decides earlier – Decision temporary binding

Ignored Other Contractual Dispute Resolution Processes such DAB in FIDIC or Expert Determination? What effect?

Temporary Binding subject to:-

• Setting Aside by High Court

• Stay by High Court

• Settlement by Parties

• Final Decision by Arbitration or Court

Setting Aside

• Fraud/Bribery/No Natural Justice/ Lack of Independence or Impartiality/ No Jurisdiction

Stay

• Pending Setting Aside

• Pending Final Decision of Arbitration or Court

• Discretion on Terms of Stay including deposit of adjudicated amount with KLRCA

No Review

Res Judicata on Response for next Payment Claim? No for Continuing Matters (delays etc)

Dangers of Piece-Meal Issue by Issue Adjudications which can reverse effect of prior Adjudications

Dangers of Differing Number of Adjudicators for same Project (different contractual interpretations)

Events Post Decision giving rise to a right of Set-off is Lost?

Application to Enforce in High Court

• No Procedural Rules as yet

• Court may determine Post-Decision Interest

Suspension or Slowing Down

• Needs 14 days prior notice

• Entitled to EOT and Loss & Expense

• Resume within 10 working days of Payment

• What happens if Set Aside/Stayed – No EOT?

Direct Payment from Principal

• May Make Written Request

• Once Principal satisfied Adjudicated Sums not paid and there is money due and payable by Principal = Principal shall Pay

Concurrent exercise of all Remedies

Adjudication = Temporary Binding

Arbitration = Binding (subject to Court again)

Issues in Dispute ventilated Twice

Time for : KLRCA Fast Track Arbitration Rules?

• Same as Adjudication except maximum 140 days & Final

Time for : Opting out of Section 42 Arbitration Act 2005 (no setting aside etc by High Court)

Default Provisions if No Terms on Payment

• Monthly or on Delivery Invoice

• Within 30 days from Invoice

Pay When and If Paid: Void – Effect on NSC contracting

• Not Pay When Certified by Employer and Up to Value Certified

• Not Certified when Paid & Then Pay When Certified?

STATUTORY ADJUDICATION

Payment Claim

Payment Response Adjudication Notice

10 W. Days

Adjudicator Agreed Adjudicator Disagreed

+10 W. Days

Request KLRCA Adjudicator Notification

No time No time

KLRCA Appoint Adjudicator Fees & Terms

+5 W. Days +10 W. Days If Not Agreed

Process Repeated

Adjudicator Fees & Terms

+10 W. Days

If Not Agreed Process

Repeated

Adjudicator Fees & Terms

Adjudicator Acceptance

Same time

Adjudication Claim

Adjudication Response

+10 W. Days

+10 W. Days

Adjudication Reply

Adjudication Decision

Delay (Void)

Re-Commence

+5 W. Days

+45 W. Days [> time agreed by parties]

Time & Manner of Payment

Due (Unpaid)

High Court Enforcement

Order to Enforce

Enforcement

Direct Payment Notice

Principal’s Notice to Losing Party

Losing Party Prove Payment

Principal Direct Payment

Notice to Suspend/Slow

Actual Suspend/Slow

Resume Works

If Paid

+10 W. Days

If No Prove

+10 W. Days

+14 Days

EOT + Loss & Expense

Delay