Received a CIPAA Payment Claim? What should you do?

The Construction Industry Payment and Adjudication Act 2012 (CIPAA) is slowly gaining its reputation amongst the construction practitioner that it has now become a norm for the Contractor / Consultant to resort to CIPAA to recover its outstanding payment / fee.

In such circumstance, what should a Non-Paying Party / Respondent do if you receive a CIPAA Payment Claim (Form 1), alleging that there is outstanding payment being due and payable and you wish to challenge and dispute the claim?

Sample of CIPAA Payment Claim (Form 1) | CIPAA Consulting |

This article will discuss the steps a Non-Paying Party / Respondent ought to take upon the receipt of a CIPAA Payment Claim (Form 1) if it wishes to challenge / dispute the CIPAA Claim.

1. Filing of a CIPAA Payment Response (Form 2)?

Section 6 of CIPAA provides that upon the receipt of a CIPAA Payment Claim, the recipient (known as the Non-Paying Party at this stage) shall have 10 working days to respond with a “Payment Response” (Form 2).

If the Non-Paying Party fails to file and submit the Payment Response (Form 2), Section 5(4) of CIPAA provides that the Non-Paying Party will be deemed to have disputed the entire Payment Claim.

Does this mean that the Non-Paying Party doesn’t have to file a Payment Response (Form 2)? Not necessary so.

It was previously thought that if the Non-Paying Party does not/ fails to put in the Payment Response, the Non-Paying Party will be deemed to have disputed the substance of the payment only.

The Non-Paying Party/Respondent will not be allowed to raise new defences in the nature of counterclaim or set-off (e.g. LAD, rectification costs, etc) subsequently in the Adjudication Response.

However, after the Federal Court’s decision in the case of View Esteem Sdn Bhd v Bina Puri Holdings Bhd [2018] 2 MLJ 22, the significance of the Payment Response had been reduced tremendously and it appears that there is NO repercussion to a Non-Paying Party/ Respondent in not filing the Payment Response.

This is because the Federal Court held that the Adjudicator will not be acting beyond its jurisdiction if the Adjudicator considers new defences in the Adjudication Response which was previously not raised in the Payment Response.

Given the Federal Court’s decision in View Esteem, strategically, the Non-Paying Party/Respondent may NOT want to submit the Payment Response at all to preserve the element of surprise and ambush the Unpaid Party / Claimant at the Adjudication Response stage. Given that the Unpaid Party / Claimant only has 5 working days to file Adjudication Reply (which is the final reply) from the receipt of Adjudication Response, the Unpaid Party / Claimant may not have sufficient time to produce the documentary evidence to rebut the claim.

However, it is understand that the Federal Court had granted leave in the case of Milsonland Development Sdn Bhd v Macro Resources Sdn Bhd and another case [2017] 8 MLJ 708 and Leap Modulation Sdn Bhd v PCP Construction Sdn Bhd and another appeal [2019] 1 MLJ 334 on the similar question of law raised in View Esteem Sdn Bhd v Bina Puri Holdings Bhd [2018] 2 MLJ 22 and may review and change the current position of law.

Read: CASE UPDATE: The Failure to file CIPAA Payment Response does not preclude the raising of New Defences in Adjudication Response

Given the circumstances, it would be prudent for a Non-Paying Party to file a Payment Response, albeit a simple one to raise the necessary defences, counterclaims and/or set-off. Further, it is also pertinent for the Non-Paying Party to reserve its rights to further add to and/or amend its defences, counterclaims and/or set-off in the Adjudication Response.

What shall a Payment Response (Form 2) contain?

The Payment Response shall state the amount disputed and the reasons for the dispute, whether it is a substantive challenge, technical objection or counterclaim/set-off.

2. Strategising and Planning Defence against the CIPAA Claim

Secondly, a Non-Paying Party shall consider and strategize the defences it may raise to dispute and challenge the CIPAA Claim.

A Non-Paying Party / Respondent may raise 3 types of defences to challenge the claim namely, substantive challenge, technical objection and/or counterclaims/set-offs.

It is advisable for the Non-Paying Party / Respondent to engage a CIPAA Consultant / lawyer to represent them in a CIPAA Adjudication as the CIPAA Consultant / lawyers are more well versed in legal argument that may be raised during the adjudication proceeding.

Please read: How to Defend Against a CIPAA claim?

3. Preparation of Proofs and Documentation

Moving forward, it is crucial for the Non-Paying Party/Respondent to appreciate that you are competing against time.

While there is no requirement to provide supporting documents at the stage of Payment Response, it is crucial for the Non-Paying Party to prepare all the necessary supporting documents (including expert report if necessary) in anticipation of the Adjudication Proceeding as the Respondent is only given 10 working days to file an Adjudication Response upon the receipt of Adjudication Claim.

It is imperative to note that most of the Non-Paying Parties/Respondents lost the case due to the lack of evidences and documentations in supportive of their defences arising from the lack of time to prepare the necessary supporting documents.

As such, it is important to compile and collate all the necessary correspondences and documentations in supportive of your case as early as from the receipt of a Payment Claim.

4. Summary

In summary, a Non-Paying Party should take the following steps upon the receipt of a CIPAA Payment Claim (Form 1):

  1. Deciding whether to file a Payment Response

    Upon receipt of a CIPAA Payment Claim, a Non-Paying Party shall have 10 working days to admit or dispute the amount claimed by way of a ‘Payment Response‘.

    If you fail to respond to the CIPAA Payment Claim, Section 5(4) of CIPAA provides that you will be deemed to have disputed the entire Payment Claim.

    The current position of law appears to suggest that there is NO repercussion to a Non-Paying Party/ Respondent in not filing the Payment Response.

  2. Strategising Defence(s)

    A Non-Paying Party shall then consider and strategize the defences it may raise to dispute and challenge the CIPAA Claim.

    A Non-Paying Party / Respondent may raise 3 types of defences to challenge the claim namely, substantive challenge, technical objection and/or counterclaims/set-offs.

  3. Gathering Proofs and Evidences

    There is no requirement to provide supporting documents at the stage of Payment Response. However, it is imperative for the Non-Paying Party to start gathering all the proofs and evidences in anticipation of the Adjudication Proceeding.

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