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Compulsory Adjudication – Effects, Procedure & Inter-Relation with Other Contractual ADR
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• 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
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• 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.
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• 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?
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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
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• 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
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• 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
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• 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
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• 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
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• 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
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• 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
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• 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
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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
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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)
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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
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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
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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
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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
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• 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
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• 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
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• 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
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>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
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No kompetenz-kompetenz
Discretion to Proceed whilst Setting Aside Application is made to High Court
Subject to Stay by High Court
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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?
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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
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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
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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?
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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?
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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
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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)
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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?
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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
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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
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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