Advantages of CIPAA Adjudication

Ever since the implementation of Construction Industry Payment and Adjudication Act 2012 (CIPAA), CIPAA has become a popular alternative dispute resolution to resolve payment dispute. The contractors and consultants will often time resort to CIPAA Adjudication to recover the outstanding payment / fees. 

But one may ask what are the benefits / advantages of resorting to CIPAA Adjudication Proceeding compared to arbitration and litigation then? 

The CIPAA Adjudication mechanism has the following practical advantages / benefits:

  1. Expeditious and Speedy Process
  2. High Success Rate
  3. All Conditional Payment Clause is void 
  4. Direct Payment from Principal 
  5. Suspension of Work if non-payment of Adjudicated Sum 
  6. Pay Now, Argue Later!
  7. No positive counterclaim from Respondent

Expeditious Process

CIPAA only takes about 80 – 95 days from the filing of Payment Claim to the delivery of Adjudication Decision.  

This signifies a great deal of time saving compared to the standard 9 months of KPI set out in normal court claims.

As a result, it provides an immediate and effective solution to alleviate the cashflow issues faced by the unpaid parties.

High Success Rate

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Winning Rate

The Claimant has a very high success rate under the CIPAA regime.

As of financial year 2017, AIAC recorded that 89.28% the adjudication decision is rendered in favour of the Claimant. On top of that, 51% of the cases registered have been awarded of 80%-100% of the claimed sum.

*Source: https://www.aiac.world/wp-content/KLRCA-guides-and-special-reports/KLRCA-CIPAA-Report-2017/PDF.pdf

Conditional Payment Clause (Pay-when-paid / Back-to-back) is void in CIPAA

It is not uncommon that a construction contract may contain a conditional payment clause, e.g. when-paid clause, back-to-back clause, which provides that the Subcontracting Party shall not receive payment UNLESS the Main Contracting Party received payment from the Employer.  

Although such conditional payment clause would typically be upheld in court/arbitration proceeding, such conditional payment clause is void for the purpose of CIPAA under Section 35 of CIPAA.

As a result, the Subcontracting Party may mount a CIPAA claim to recover the outstanding payment to alleviate its cash flow.

Further, the High Court has held that ‘conditional payment’ should be interpreted expansively and not restricted to the two instances provided in Section 35(2). As such, any contractual provision which introduces additional condition(s)/barrier(s) before the entitlement to the payment arises could be caught by Section 35 and thereby, void for the purpose of CIPAA.

Adjudication Decision can be enforced by requesting Direct Payment from Principal

If the losing party fails to honour the Adjudication Decision, the winning party may enforce the CIPAA Adjudication Decision by seeking direct payment from the Principal of the losing party.

Ordinarily, payment will only be made by the contracting parties unless there is express provision for direct payment in the contract.

However, by operation of Section 30 CIPAA, the Principal MUST make direct payment to the winning party if there is money due or payable by the Principal to the losing party notwithstanding that there is no privity of contract between the principal and the winning party.

Suspension of Work

Generally, non-payment or delayed payment is not a valid excuse to suspend or slow down work.

In the absence of an express provision for suspension of work or slowing down of work in the construction contract, the suspension of work or slowing down of work due to non-payment or delayed payment will be seen as repudiatory breach of contract.

However, if the Unpaid Party resorts to CIPAA and obtained an Adjudication Decision in its favour, the winning party may suspend or slow down the performance of its work if the losing party fails to honour the Adjudication Decision.  

In such circumstance, the suspension or slowing down of work will not be seen as a breach of contract and the winning party is entitled for an extension of time and to recover any loss and expense incurred.

Pay Now, Argue Later!

Unlike a court judgment, there is no avenue to appeal against an Adjudication Decision.

It is only in very limited circumstance that a Respondent may set aside the Adjudication Decision in Court under Section 15 of CIPAA.  

Other than that, a CIPAA Adjudication Decision is binding on the losing party until and unless it is finally determined by way of arbitration or litigation. 

As such, the losing party will have to pay first and argue later by way of litigation or arbitration.   

No Positive Counterclaim from Respondent

Unlike in litigation or arbitration where the Respondent may raise cross-claim / counterclaim against the Claimant and obtain the decision in the Respondent’s favour for a positive claim, the Respondent may only  raise cross-claim / counterclaim to ‘zerorise’ the Claimant’s claim in CIPAA. 

In simple word, the Respondent is unable to have a positive counterclaim / cross-claim against the Claimant in CIPAA. As such, the worst scenario a Claimant may face in CIPAA is that the Claim is dismissed in its entirety and ordered to pay cost.

Please read: CASE UPDATE: Non-Paying Party can only ‘zerorize’ claim and will not have a positive claim against Unpaid Party

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