CIPAA Legislation

The Australian Experience

Related to the Malaysian
Act
Jeremy Coggins
 Jurisdiction Legislation Date of Commencement
England and Wales Part II of The Housing Grants, Construction and Regeneration Act 1996 1 May 1998

Scotland The Housing Grants, Construction and Regeneration Act 1996 (Scotland) 1 May 1998
(Commencement No. 5) Order 1998
Northern Ireland The Construction Contracts (Northern Ireland) Order 1997 1 June 1999
New South Wales Building and Construction Industry Security of Payment Act 1999 26 March 2000
(NSW)
Victoria Building and Construction Industry Security of Payment Act 2002 31 January 2003
New Zealand (NZ) Construction Contracts Act 2002 1 April 2003
Queensland Building and Construction Industry Payments Act 2004 1 October 2004
Isle of Man Construction Contracts Act 2004 1 June 2004
Western Australia Construction Contracts Act 2004 1 January 2005
(WA)
Singapore Building and Construction Industry Security of Payment Act 2004 1 April 2005
Northern Territory Construction Contracts (Security of Payments) Act 1 July 2005
(NT)
Tasmania Building and Construction Industry Security of Payment Act 2009 17 Dec 2009
Australian Capital Building and Construction Industry Security of Payment Act 2009 1 July 2010
Territory (ACT)
South Australia Building and Construction Industry Security of Payment Act 2009 10 Dec 2011
Malaysia Construction Industry Payment and Adjudication Act 2012 15 April 2014
Ireland Construction Contracts Act 2013 Enacted 29 July 2013. Awaiting
commencement order.
 The Australian Legislation
Jurisdiction Legislation Date of Commencement
New South Wales (NSW) Building and Construction Industry 26 March 2000
Security of Payment Act 1999
Victoria Building and Construction Industry 31 January 2003
Security of Payment Act 2002
Queensland Building and Construction Industry 1 October 2004
Payments Act 2004
Western Australia (WA) Construction Contracts Act 2004 1 January 2005
Northern Territory (NT) Construction Contracts (Security of 1 July 2005
Payments) Act
Tasmania Building and Construction Industry 17 Dec 2009
Security of Payment Act 2009
Australian Capital Territory (ACT) Building and Construction Industry 1 July 2010
Security of Payment Act 2009
South Australia Building and Construction Industry 10 Dec 2011
Security of Payment Act 2009
 Objective

To facilitate the flow of cash in

a swift manner down the
hierarchical contractual chain
on construction projects

[Source: Stenning and Associates, 2006]

 NSW Act An Act for the Small Guy

It is all too frequently the case that small subcontractors -

such as bricklayers, carpenters, electricians and plumbers -
are not paid for their work. Many of them cannot survive
financially when that occurs, with severe consequences for
themselves and their families.
(The Hon Morris Iemma, 1999, 2nd reading, NSW Bill)
 Speed of Cash Flow v ADR

NSW Act UK Act

Fast ADR
Cash Credentials
Flow

Pay off between speed and justice!

Where would the Malaysian CIPAA fit on this spectrum?

Payment Scheme under the Malaysian and NSW Acts

Both Acts set up a separate statutory payment system which runs

Alongside the contractual payment system

Contractual Payment System

Statutory Payment System

Adjudication Scheme under the Malaysian and NSW Acts
Rapid interim resolution of payment dispute

Pay now, argue later scheme

About 40 bd from Payment Claim to payment under NSW

adjudication scheme

65 to 70 wd under Malaysian adjudication scheme

Difference due to procedural justice

 NSW Act Payment and Adjudication Scheme

Payment due to H/C Adjudicator must Approx time from PC to

15 bd after PC* make decision Payment = 40 bd

10 bd 10 bd 5 bd 10 bd 5 bd

Last day to serve Adjudication Respondent must pay

Payment Schedule Response due
Payment
Claim
Claimant must apply
for adjudication * If no Payment Schedule and payment not
within 10 bd of made in full, or scheduled payment not made in full,
Payment Schedule then Claimant may choose to apply to court for a
default summary judgment in lieu of adjudication
 Malaysian Act Payment and Adjudication Scheme

Claimant may apply Claimant may Adjudicator must

for adjudication respond to Adj make decision
Response

10 wd 10 wd 5 wd 45 wd

Respondent must pay

Last day to serve at time determined
Payment Response By adjudicator
Payment
Claim Adjudication Approx time from PC to
Response due Payment = 65 to 70 wd
 Key Differences between the Acts

NSW Act has prompt payment provisions: 15 bd after P/C for h/c
and 30 bd after P/C for s/c

In NSW, respondent cannot raise issues in an Adj Response unless first raised
in its Payment Schedule

There is no right to apply to court for a default summary judgment under

the Malaysian Act
 Adjudication Usage in NSW and Queensland
1200

1000

800

600 Queensland
NSW

400

200

0
2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13
 Adjudication Usage in NSW and Queensland
In NSW and Queensland, about half the adjudications are for
payment claims less than $25,000

In 2012/13:
10% of payment claims in NSW > $250,000
21% of payment claims in Qld > $250,000

45% of payment claims made by subcontractors in NSW

63% of payment claims made by subcontractors in Qld
 Issue 1: Unfulfilled Usage Potential
However, evidence that smaller subcontractors reluctant to use the
Act:

Too difficult to understand/poor knowledge

More concerned to get on with the next job than spend time
making a claim
Feel intimidated by fear of losing future work, so dont endorse
payment claims
Removal of Endorsement Requirement in NSW

As from 21 April 2014

An attempt to increase usage
But, may

Cause confusion about which invoice is the payment claim

Overburden principals who have to prepare Payment Schedule
for every invoice

Malaysia may want to keep an eye on how this amendment

impacts usage in NSW
 Issue 1: Observations on the Malaysian Act

Possible low usage rates by smaller subcontractors due to:

Not covering oral contracts

Absence of option for default summary court judgment in lieu
of adjudication
Longer timeframes involved in Malaysian Act
 Item 2: Adjudicator Appointment
In NSW, claimant chooses an Authorised Nominating Authority (ANA)
ANA then appoints adjudicator from their books

Has led to
perception from respondents than profit-driven ANAs are
biased towards claimants for repeat business

Adjudicator shopping

Note: Qld is just about to abolish this ANA system after a recent review
 Item 2: Observations on the Malaysian Act
Appointment by KLCRA, no vested interests

Also parties have option to agree own adjudicator within 10 wd from

adjn application

Therefore, Principal cant influence identity of adjudicator upfront

Which means they are more likely to accept the decision

 Issue 3: Procedural Justice

NSW Act takes away a respondents right to have a voice in

adjudication where reasons not in earlier Payment Schedule

NSW Act precludes legal representation at conferences

Adjudicator under NSW Act only permitted to consider documents

submitted by parties which limits ability to base decision on
relevant facts and law
 Issue 3: Observations on the Malaysian Act

Respondents allowed to raise arguments for first time in their

adjudication response, and Claimant may serve written response
to the adjudication response

Legal representation allowed during adjudication proceedings

Adjudicator has wide inquisitorial powers to ascertain relevant

facts and law
Issue 4: Judicial Reviews of Adjudication Decisions

Over last decade, about 120 judicial challenges

53 adjudication decisions quashed by NSW courts

Adjudicators decisions can be quashed on grounds of jurisdictional

error of law, which has been held to include not meeting
timeframes in the NSW Act

Large amount of litigation is detrimental to effectiveness of

adjudication
 Issue 4: Observations on Malaysian Act

Malaysian Act sets groundwork for a supportive stance to

adjudicators determinations by:

Expressly providing that non-compliance with time limits,

form or content under the Act shall not constitute
jurisdictional error
 Issue 5: Ambush Claims
Under NSW Act, claimants have spent several months preparing
lengthy claims (boxes of documents) before serving
Payment Claim under the Act

Respondent only has 10 days to respond in Payment Schedule

Clearly unfair practice

 Issue 5: Observations on Malaysian Act
Adjudicator has power to limit the submission of documents by
the parties
Issue 6: Home Owner Contracts

NSW Act excludes contracts with residential owner/occupiers

NSW Act generally considered too regulatory/ commercially harsh
for consumers

Means residential head contractor disadvantaged it

cant use Act against owner/occupier but its s/c can use Act
 Issue 6: Observations on the Malaysian Act
Malaysian Act excludes contract with natural persons for
construction of buildings < 4 storeys intended for occupation

Residential construction sector around RM21 billion in 2010

However, Malaysian adjudication scheme is much more

procedurally fair than NSW scheme

Possible item for review in future?

 Conclusion

Malaysian Act has an ADR focus

Should see it be successfully used as a basis for resolution of

even large and complex payment disputes

Should see reduction in construction litigation (similar to UK) and

arbitration
 Things to Watch

Usage rates, particularly amongst small trade contractors

Could the Act be extended to cover home owner contracts?

Does the Act have any effect on rate of construction insolvencies?

 Speed of Cash Flow v ADR

NSW Act UK Act

Malaysian Act

Fast ADR
Cash Credentials
Flow

Pay off between speed and justice!

Where would the Malaysian CIPAA fit on this spectrum?