Given the high success rate of a CIPAA claim against the Non-Paying Party / Respondent, it naturally places enormous pressure and stress on the Respondent upon the receipt of a CIPAA claim pursuant to Construction Industry Payment and Adjudication Act 2012 (CIPAA) especially when the Non-Paying Party / Respondent is only given 10 working days to respond.
What are the defences, challenges that a Non-Paying Party / Respondent can raise in respond to the CIPAA Claim?
Panic no more! This article will explain and set out the defences a Non-Paying Parties / Respondent may put up to defeat and challenge against a CIPAA claim.
Please also read: What to do upon the Receipt of CIPAA Payment Claim?
The Respondent could raise 3 types of defences against a CIPAA claim:-
Substantive Challenge Defence
A substantive challenge defence where the Respondent disputes against the veracity or substance of the Claimant’s CIPAA claim. This may come in different form such as:
- Disputing the actual work done / the progress of work done.
- The claim is based on incorrect rate;
- The work done falls outside the contracted work scope and there was no instruction from the Employer for the work;
In order to succeed in this type of defence, it is imperative for the Respondent to produce proof and evidence to such as photographic evidence, consultant reports or certificates to support and fortify the challenge instead of bare denial.
Technical Objection Defence
The Non-Paying Party / Respondent may also raise the defence of technical objection against the CIPAA Claim.
The technical objection could come in numerous form such as:
This type of challenge can be raised when the subject matter falls outside the scope / ambit of CIPAA.
Examples of this type of challenge are:
- The contract is not a construction contract, e.g. novation contract, assignment contract;
- There was no written construction contract;
- The construction contract was executed before 15.04.2014, the coming in force of CIPAA.
Apart from the above, the Non-Paying Party / Respondent could also raise jurisdictional challenge such as:
- The Unpaid Party / Claimant failed to observe the basic and essential requirement of Payment Claim stipulated in Section 5 of CIPAA;
- The Parties had litigated/arbitrated the subject matter;
- The CIPAA Claim is a ‘Repeated Claim’ which has been adjudicated before under CIPAA;
- The CIPAA Claim is a premature claim whereby the due date to make payment has not expired yet;
Non-compliance of time
The Non-Paying Party / Respondent could also raise an objection when there has been a non-compliance with timeline set out either by the Adjudicator / CIPAA provisions.
However, it should be pointed out that the Adjudicator has the discretion and power to grant an extension of time to the Parties in the event that there has been a non-compliance of timeline under Section 25(p) of CIPAA.
At the same time, the Adjudicator also has the power to set aside the Adjudication Proceeding on the ground that there has been a non-compliance of time under Section 26(2)(a) of CIPAA.
The Non-Paying Party / Respondent could also raise this defence when there has been a procedural defects such as the Claimant failed to effect the services of cause papers properly or using the incorrect mode of service.
Counterclaim / Set-Off
Alternatively, the non-paying party may also raise a counterclaim/set-off defence against the unpaid party’s claim to ‘zerorise’ the claim.
The counterclaim / set-off defence could come in the form of liquidated ascertained damages (LAD), rectification costs, advance payment, direct payment to subcontractors, retention sum, additional cost of completion and so on.
To succeed in this type of challenge, it is incumbent upon the Non-Paying Party / Respondent to produce evidentiary proof instead of mere allegation.
Lastly, it should be noted that the Respondent can now claim for LAD as of right without the need to prove actual loss suffered due to the late completion of work after the Federal Court decision in the case of Cubic Electronics Sdn Bhd (In Liquidation) V Mars Telecommunication Sdn Bhd  6 MLJ 15.