Construction payment disputes and CIPAA adjudication

When payment under a construction contract is withheld, the Construction Industry Payment and Adjudication Act 2012 (CIPAA, Act 746) gives the unpaid party a fast, statutory route to a binding decision, without waiting for a full trial or arbitration. We act for claimants and respondents in CIPAA adjudication and in the High Court applications that follow it: enforcement, setting aside and stay, as well as related court claims. Our work here is dispute work only; we do not draft or advise on construction contracts.

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Who CIPAA covers

CIPAA applies to every construction contract made in writing for construction work carried out wholly or partly in Malaysia, including contracts entered into by the Government (section 2). A "construction contract" covers both construction work contracts and construction consultancy contracts, such as architectural, engineering, surveying and project management services (section 4). Construction work is defined widely and includes preparatory work and the procurement of materials, equipment or workers needed for the works.

It does not apply to a contract made by an individual for work on a building of fewer than four storeys that is wholly intended for that person's own occupation (section 3). Homeowners renovating their own house usually rely on ordinary contract claims instead; see My renovation contractor did defective work. Can I sue?. Some Government construction contracts, such as urgent works after a natural disaster and works relating to national security, are exempted by the CIPAA (Exemption) Order 2014.

The payment claim and payment response

Payment claim (section 5). The unpaid party serves a written payment claim stating the amount claimed and its due date, the contract provision it relates to, a description of the work or services, and a statement that it is made under CIPAA.
Payment response (section 6). The non-paying party has 10 working days from receipt to pay, or to serve a written response stating the amount disputed and the reasons. If no response is served, the whole claim is treated as disputed.
Right to adjudicate (section 7). Either party may refer the dispute to adjudication once the 10-working-day response period has expired. The Limitation Act 1953 (or the Sabah or Sarawak limitation ordinances) still applies.

"Working days" exclude weekends and the public holidays of the state or federal territory where the site is located (section 4).

Adjudication

Notice of adjudication (section 8). The claimant serves a written notice describing the dispute and the remedy sought. Under the AIAC Adjudication Rules, the claimant also registers the matter with the Asian International Arbitration Centre (AIAC), the adjudication authority under section 32.
Appointing the adjudicator (sections 21–23). The parties may agree on an adjudicator within 10 working days of the notice; otherwise the AIAC appoints one on request.
Exchanges of documents (sections 9–11). Adjudication claim within 10 working days of the adjudicator's acceptance, adjudication response within 10 working days of receiving the claim, and an optional reply within 5 working days.
Decision (section 12). The adjudicator must decide within 45 working days of the response or reply (or of the deadline for the response, if none is served), unless the parties agree to more time. A late decision is void. The decision must give reasons unless the parties dispense with them, and it fixes the amount payable and when.

The decision is binding unless it is set aside by the High Court, the dispute is settled in writing, or it is finally decided by arbitration or the court (section 13). A party can refer the same payment dispute to arbitration or the court at the same time (section 37).

Enforcement and other remedies

Enforcement as a High Court judgment (section 28). A successful party may apply to the High Court for an order to enforce the adjudication decision as if it were a judgment or order of that court, and then use the usual execution procedures. See I won a judgment but the other side will not pay.
Suspending or slowing work (section 29). If the adjudicated amount is not paid, the unpaid party may give 14 calendar days' written notice and then suspend or reduce the rate of work.
Direct payment from the principal (section 30). The unpaid party may ask the paying party's principal to pay the adjudicated amount directly, if money is due from the principal to that party.

These remedies may be used together unless the High Court has granted a stay (section 31).

Setting aside and stay

An aggrieved party may apply to the High Court to set aside an adjudication decision only on the grounds in section 15:

the decision was improperly procured through fraud or bribery;
there was a denial of natural justice;
the adjudicator did not act independently or impartially; or
the adjudicator acted in excess of jurisdiction.

A party may also apply for a stay of the decision while a setting-aside application is pending, or while the dispute awaits final determination by arbitration or the court. The High Court may grant a stay, order the adjudicated amount (or part of it) to be deposited with the AIAC, or make any other order it thinks fit (section 16).

Related court work

Adjudication is an interim, cash-flow remedy. The underlying dispute may still be decided finally in court or arbitration. We also act in related civil claims arising from construction projects, such as claims for unpaid sums, recovery of overpayments and defects claims, and in enforcement after judgment. See also our civil litigation and debt recovery page and What to do when you receive a writ of summons.

Points to note in the contract

Pay-when-paid clauses are void. A clause making payment conditional on the payer first being paid by a third party, or on the payer's funds or financing being available, is void (section 35).
If the contract is silent on payment, CIPAA implies terms, including monthly progress payments for work and services and payment within 30 calendar days of receipt of an invoice (section 36).
Keep the paperwork: the contract, variation instructions, progress claims, certificates, invoices, delivery records and correspondence. The adjudicator decides largely on documents.

Legislation and official sources

Construction Industry Payment and Adjudication Act 2012 (Act 746), Attorney General's Chambers, Laws of Malaysia
AIAC: Adjudication under CIPAA, including the CIPAA Regulations 2014, the Exemption Order 2014 and the AIAC Adjudication Rules & Procedure

FAQ

Does CIPAA apply to my contract?

It applies to written construction contracts, including consultancy contracts, for work carried out wholly or partly in Malaysia. It does not apply to an individual's contract for work on a building of fewer than four storeys wholly intended for that person's own occupation.

How long does a CIPAA adjudication take?

The Act sets short deadlines: 10 working days for the payment response, then a fixed sequence of exchanges, and a decision within 45 working days of the final submission unless the parties agree to extend. The total time depends on how quickly the adjudicator is appointed and whether extensions are agreed.

What if the other side ignores the adjudication decision?

You can apply to the High Court to enforce the decision as if it were a judgment of that court. You may also be able to suspend or slow down work after 14 calendar days' notice, or ask the principal for direct payment.

Can an adjudication decision be challenged?

Yes, but only in the High Court and only on the grounds in section 15: fraud or bribery, denial of natural justice, lack of independence or impartiality, or the adjudicator acting beyond jurisdiction. A stay may be sought while a challenge, arbitration or court case is pending.

Is the adjudication decision final?

It is binding but temporary in nature. The same dispute can be finally decided by arbitration or the court, or settled in writing by the parties.

My renovation contractor did defective work. Can I sue in Malaysia?

Start with your contract and evidence: photographs, a defect list and payment records. Give the contractor written notice to fix the defects. If they refuse, consumers may claim up to RM50,000 at the Tribunal for Consumer Claims within three years, or sue in court. CIPAA adjudication deals with payment disputes under written construction contracts but generally does not apply to individuals building their own low-rise home.

Can I recover money I lent without a written agreement in Malaysia?

Yes, an oral loan can still be enforced. You must prove that money was lent (not gifted) and that it was meant to be repaid. Bank transfer records and messages where the borrower admits the debt are key evidence. Send a letter of demand, then sue: small claims up to RM5,000, or the normal court process. Act within six years.

I have received a writ of summons in Malaysia. What should I do?

Do not ignore it. Under the Rules of Court 2012, you generally have 14 days after service to enter an appearance and a further 14 days after that to file a defence. If you miss these deadlines, the plaintiff can ask for judgment in default without a trial. Read the claim, gather documents and get legal advice immediately.

I won a judgment but the other side will not pay. How do I enforce it in Malaysia?

A judgment is only useful if it is paid. If the debtor does not pay, you can ask the court to seize and sell assets, freeze money owed to the debtor (such as bank balances) through a garnishee order, examine the debtor's means, charge land, or start bankruptcy (judgment debt of at least RM100,000) or winding-up proceedings (company debt above RM50,000).

My developer delivered my house late. Can I claim liquidated damages (LAD) in Malaysia?

For housing sold under the statutory sale and purchase agreements, a developer that delivers vacant possession late must usually pay LAD. KPKT's formula is days late × purchase price × 10% ÷ 365. In Peninsular Malaysia and Labuan, homebuyers can claim at the Tribunal for Homebuyer Claims (up to RM50,000), generally within 12 months of the CCC.

My business partner took money from our business. Can I sue them in Malaysia?

Yes, usually. If you are partners, the Partnership Act 1961 requires partners to render true accounts and account for benefits they take. If you run a company, directors owe duties to the company, and shareholders may have remedies under the Companies Act 2016. Secure the records first, ask for an account in writing, then get advice on a civil claim and, if appropriate, a police report.

I received a bankruptcy notice. What should I do in Malaysia?

A bankruptcy notice is a demand, based on a court judgment, to pay the judgment debt within a very short time after service. Failing to comply is an act of bankruptcy that can lead to a petition. Act immediately: check the judgment and the amount, consider applying to set the notice aside, or negotiate. According to MdI, a creditor's petition needs a debt of at least RM100,000.

What happens at court-annexed mediation in Kuala Lumpur, and do I have to attend?

Court-annexed mediation is a confidential meeting, run under the judiciary's mediation practice direction, where a neutral mediator helps the parties try to settle a case already in court. Settling is voluntary, but if the court directs mediation you should attend and take part in good faith. Any settlement can be recorded as a consent judgment.

I am giving evidence for my company in a commercial dispute — what is expected of me?

When you give evidence for your company, you can only speak truthfully from what you personally know, plus what the company's records show, and you must make clear which is which. Documents are usually best proved by the person who made them. Prepare by reading the file, but never fill gaps in your memory with assumptions.

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