01c. Speaker 2 - ADJ & ARB - A Trend To Stay

TSIS ANNUAL CONSTRUCTION INDUSTRY SEMINAR
Dispute Resolution:
Adjudication & Arbitration
- A trend to stay?
Presented by Sivabalan Sankaran
Presentation Contents
A. Adjudication
i. Overview
ii. Scope and Applicability of CIPAA
iii. Adjudication Process
iv. Recent Developments
B. Arbitration
i. Overview
ii. Recent Developments
ADJUDICATION
Adjudication - Overview
Prologue:
• Major concern of the Construction Industry:-
CASH FLOW
• “Cash flow is the LIFE BLOOD of the Building Industry.”

- Lord Denning
• Cash flow will be disrupted when there are:-
i. Late Payment
ii. Under Payment
iii. Non-Payment
Prior to CIPAA:-
i. Expensive existing dispute resolution.

- Arbitration & Litigation
ii. Long process to recover the payment.
iii. Causing the delay in project.
iv. Not easy to obtain the remedies for direct payment and
work suspension.
 All these can lead to INSOLVENCY!

• Enactment of Construction Industry Payment and

Adjudication Act 2012 (CIPAA).
• Came into force on 15th April 2014.
• Objectives:-
i. Facilitate regular and timely payment.
ii. Statutory right to enforce payment.
iii. Speedy and cost-effective mechanism to recover
payment.
iv. “Pay first argue later” concept applies.
Scope and Applicability of CIPAA
• Section 2: CIPAA applies to -
 Every construction contract
 Made in writing
 Relating to construction work
 Carried out wholly or partly within the territory of Malaysia
 Includes a construction contract entered into by the
Government of Malaysia
• Section 3: CIPAA does not apply to construction contract
entered into -
× By a natural person
× For any construction work
× In respect of any building which is less than 4 storeys high AND
× Which is wholly intended for his occupation
Adjudication Process
Payment Notice of
Payment Claim
Response Adjudication
(Section 5)
(Section 6) (Section 8)
Adjudication Adjudication Appointment

Response Claim of Adjudicator
(Section 10) (Section 9) (Section 21)
Adjudication Adjudication
Reply Decision
Adjudication Process
• Section 15: Setting aside of Adjudication Decision on one
or more of the following grounds:
 Decision was improperly procured through fraud or bribery;
 Denial of natural justice;
 Adjudicator has not acted independently or impartially; or
 Adjudicator has acted in excess of his jurisdiction.
• Section 16: Stay of Adjudication Decision
• Section 28: Enforcement of Adjudication Decision as court

judgment
Recent Developments
• There is an increase of approximately 39% (217 more cases) of
cases being referred to Adjudication from 2017 fiscal year (562
cases) to 2018 fiscal year (779 cases).
Cases being referred to Adjudication
Registerd Matters Unregistered Matters
14
15
765
547
19
207
84
15.04.14 - 15.04.15 16.04.15 - 15.04.16 16.04.16 - 15.04.17 16.04.17 - 15.04.18
*statistics taken from AIAC’s CIPAA Report 2018

Recent Developments
• There are also an increase in the number of adjudicators to cater
for the increasing number of adjudication.
Number of Adjudicators Empanelled
No. of Adjudicators
541
446
363
15.04.16 15.04.17 15.04.18
*statistics taken from AIAC’s Report 2018 and 2017

Recent Developments
• Information regarding compliance/non compliance with an
adjudicator’s decision
58.7% No amount was
settled at all
34.78% The amount

was settled within the
time limit set by the
adjudicator
6.52% The amount

was fully settled and it
was settled within the
time limit set by the
adjudicator
*statistics taken from AIAC’s Report 2018
TSIS ANNUAL CONSTRUCTION INDUSTRY SEMINAR Recent Developments
1. Interim Claims or Final Account Claims?
Martego Sdn Bhd v Arkitek Meor & Chew Sdn Bhd, CA (2018):-
i. It was held by majority decision that the Final Claims are not excluded by CIPAA;
ii. The dissenting judge held that the inclusion of final payment claims under CIPAA may
lead to abuse of process as adjudication does not dispense with trial process.
2. Retrospective or Prospective?
UDA Holdings Bhd v Bisraya Construction Sdn Bhd, HC (2014) & KLRCA CIPAA Circular 1A
(2014) - CIPAA 2012 was intended to apply retrospectively, i.e. it applies to all construction
contracts regardless on when they were entered, subject to Section 3 & 41 of the Act
Bauer (M) Sdn Bhd v Jack-In Pile (M) Sdn Bhd, CA (2018) - It was held that Section 35 of
CIPAA relates to a substantive right of an individual and accordingly it should be prospective
in nature.
TSIS ANNUAL CONSTRUCTION INDUSTRY SEMINAR Recent Developments
3. Others
View Esteem Sdn Bhd v Bina Puri Holdings Bhd, FC (2018):-

i. Jurisdictional challenge could be made at any time;
ii. Failure to consider all defences raised by the Respondent resulted in breach of natural
justice by the Adjudicator; and
iii. The court may now allow the stay of Adjudication Decision under section 16 where
there are clear errors, or to meet the justice of the individual case.
 What do the above cases indicate?

The recent cases indicate that:-

1. The Courts are now more stringent towards an adjudication
award;
2. Adjudication Proceedings are subjects to closer scrutiny by
the Courts.
Other problems in CIPAA:

 No finality – a high rate of 54% that adjudication are leading
to arbitration or litigation;
 Involvement of legal representatives – in about 78% of all
cases, both parties are represented during adjudication;
 Claims are too complex / too large for the parties to accept
rough justice.
Question: Did CIPAA lose its focus?
• In adjudication, majority of the claimants are sub-contractor

(60%), followed by main contractor (32%) and lastly supplier and
consultant (4% each).
• There is about 88% success rate for a claimant in his adjudication
claim.
• Slightly more than 50% of the claimants successfully obtained the
entire claimed sum.
• About 75% of the claimants successfully obtained more than half
of the claimed sum.
• It is a high rate of success!
Answer: It seems that CIPAA is meeting its objectives for claimants.

However, CIPAA is not free from issues as mentioned earlier.
ARBITRATION
Arbitration - Overview
Prologue:
• Malaysia is a signatory to the New York Convention 1958
– an arbitral award from Malaysia is enforceable in more
than 148 countries.
• The Arbitration Act 2005 is modelled on the UNICITRAL
Model Law on International Commercial Arbitration
1985.
Advantages of Arbitration as compared to litigation:

• Confidential.
• Flexible in terms of procedure.
• The parties are able to select arbitrators who are highly
specialized in the areas of dispute.
• Finality in arbitral awards with the judiciary adopting a
largely non-interventionist approach.
• The awards for international arbitration are enforceable
internationally.
• Arbitration is well fitted to the resolution of construction

disputes which involve high-stakes projects, complex
technical issues and specialized construction law
concepts.
• As such, there is a need for flexibility, confidentiality and
input from individuals with industry-specific expertise.
• 73% of all the arbitration cases are disputes from the
construction sector.
• For domestic arbitration, the existence of an arbitration
clause is a prerequisite to refer the matter to arbitration.
Arbitration Process
Arbitration Appointment of
Notice of
Agreement Arbitrator(s)
Arbitration (Art 3)
Statement of
Hearings (if any)
Decision / Award Claim and Defence
(Section 26)
(Section 25)
• Section 36: An award is final and binding
• Section 37: An award may be set aside by High Court if –
 Incapacity of a party;
 Invalidity of the underlying arbitration agreement;
 Conflict of the award with public policy.
• Section 38: Recognition and Enforcement of Awards

 Both domestic and international arbitral award may be enforced in
Malaysia by entry as a judgment.
• Section 39: Grounds for refusing Recognition or Enforcement

• Incapacity of a party;
• Award exceeding the terms of arbitration;
• Award conflicting with public policy.
Recent Development
1. Introduction of the Arbitration (Amendment) (No. 2) Act
2018.
• Came into force on 8th May 2018.
• In line with the latest revision of the UNICITRAL

Model Law and arbitral laws of leading jurisdictions.
 The amendments, inter alia, are:-

i. Clarification of the status of an emergency arbitrator
(section 2);
ii. Reinstatement of parties’ right to choose
representation by any representative (section 3A);
iii. Recognition of arbitration agreement made in
electronic form (section 9);
iv. Refinement on provisions dealing with the arbitral
tribunal’s power to grant interim measures (section
11, 19, 19A-19J);
v. Reinstatement of parties’ right to choose any law or

rules of law applicable to the substance of a dispute
(section 30);
vi. Clarification on the jurisdiction of the arbitral tribunal
to award pre-award and post-award interest;
vii. Express provisions ensuring confidentiality of
arbitration and arbitration-related court proceedings
(new sections 41A and 41B); and
viii.Reinforcement of principles of minimum court
intervention and enhances the finality of arbitral
awards (repeal of sections 42 and 43).
Question: What led to the amendments?
• The amendments were prompted by the Federal Court
decision in Far East Holdings Bhd & Anor v Majlis
Ugama Islam dan Adat Resam Melayu Pahang [2018] 1
MLJ 1, which widened the scope for judicial intervention
on domestic arbitral awards pursuant to section 42.
• The Federal Court held that an arbitral award may be

challenged in court on any question of law.
• After the abolition of sections 42 and 43, the arbitral

award can now only be challenged on the grounds set
out in sections 37 and 39.
2. Introduction of the latest AIAC Fast Track Arbitration

Rules.
• Effective as of 9th March 2018.
• Enable commercial parties to obtain a globally

enforceable award in the shortest span of time while
rendering minimal costs.
Some of the key features of the Fast Track Arbitration are:-

i. The proceedings can be held either by way of documents-
only, or with oral hearings.
• If the disputed amount is less than or unlikely to exceed

USD75,000.00 for an international arbitration or
RM150,000.00 for a domestic arbitration, the arbitration
shall proceed as a documents-only arbitration, unless the
arbitral tribunal deems otherwise (rule 16);
ii. Parties are allowed to choose the number of arbitrators, but

if they fail to do so, a sole arbitrator will preside over the case
(rule 4);
iii. Strict period of time applies. The arbitral tribunal shall

publish its award within 90 days from the date when the
proceedings were declared closed (rule 21);
iv. The fees of the tribunal and the AIAC have been kept
reasonable and commensurate to the needs of the parties
(rule 24).
Conclusion
• As such, with the introduction of the new amendments
to the existing Arbitration Act 2005 and the AIAC Fast
Track Arbitration, the arbitration proceeding may now be
a more appealing platform for the construction industry
players to resolve their disputes.
• As compared to adjudication proceedings, the finality in

the arbitral award may attracts the parties to resolve
their matters by way of the fast track arbitration
especially when the disputed amounts are lower than
RM150,000.00.
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Is it a trend to stay?

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TSIS ANNUAL CONSTRUCTION INDUSTRY SEMINAR

Adjudication & Arbitration

• Major concern of the Construction Industry:-

• “Cash flow is the LIFE BLOOD of the Building Industry.”

• Cash flow will be disrupted when there are:-

ii. Under Payment

i. Expensive existing dispute resolution.

 All these can lead to INSOLVENCY!

• Enactment of Construction Industry Payment and

Adjudication Adjudication Appointment

• Section 16: Stay of Adjudication Decision

• Section 28: Enforcement of Adjudication Decision as court

*statistics taken from AIAC’s CIPAA Report 2018

15.04.16 15.04.17 15.04.18

*statistics taken from AIAC’s Report 2018 and 2017

34.78% The amount

6.52% The amount

View Esteem Sdn Bhd v Bina Puri Holdings Bhd, FC (2018):-

 What do the above cases indicate?

The recent cases indicate that:-

Other problems in CIPAA:

• In adjudication, majority of the claimants are sub-contractor

Answer: It seems that CIPAA is meeting its objectives for claimants.

Advantages of Arbitration as compared to litigation:

• Arbitration is well fitted to the resolution of construction

• Section 38: Recognition and Enforcement of Awards

• Section 39: Grounds for refusing Recognition or Enforcement

• Came into force on 8th May 2018.

• In line with the latest revision of the UNICITRAL

 The amendments, inter alia, are:-

v. Reinstatement of parties’ right to choose any law or

• The Federal Court held that an arbitral award may be

• After the abolition of sections 42 and 43, the arbitral

2. Introduction of the latest AIAC Fast Track Arbitration

• Effective as of 9th March 2018.

• Enable commercial parties to obtain a globally

Some of the key features of the Fast Track Arbitration are:-

• If the disputed amount is less than or unlikely to exceed

ii. Parties are allowed to choose the number of arbitrators, but

iii. Strict period of time applies. The arbitral tribunal shall

• As compared to adjudication proceedings, the finality in

Revisit the Question -

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