Rights of contractors on recovery of payment after termination of contract under CIPAA 2012

Abstract

The Malaysia construction industry has suffered from the reputation as being less efficient and prone to conflict, mainly due to the relationship between main contractors and subcontractors. It has been so-called that main contractors have abused their dominant position in the contractual relationship to withhold monies due to the subcontractors by deploying “pay-when-paid” or “pay-if-paid” clause in their contract with the sole purpose of increasing their own profit margins. The conventional forms of dispute resolution (i.e. arbitration and litigation) indirectly turned-down the contractors from further pursuing their rights to recover the remaining payment after terminated their contracts due to non-payment. This is because of the long period taken and rather expensive and the chance to succeed is rather rare. This research attempts to identify the legal rights of the contractor to recover his remaining payment after the termination of his contract under the Construction Industry Payment and Adjudication Act 2012 (CIPAA 2012). CIPAA was became law on 22 June 2012, has provided another option to the forms of dispute resolution in Malaysia. The Act was intended to address payment issues in the construction industry which involves non-payment and delay in payment. The research methodology utilized primary data and secondary data, i.e. law journals, books, conference articles, etc. including a review of a large section of published literature. The findings obtained basically shows that CIPAA allows contractors to terminate their contracts in the event of employer?s failure to pay and the only last resort to recover the remaining payment is through the arbitration or litigation process if employer continue withhold the payment unreasonably. Legal cases decided under CIPAA and supported by cases from a similar Act from United Kingdom which is the first to implement statutory adjudication. The analysis have been referred to nine legal cases, the five cases from United Kingdom had allowed employers to refuse making payment of outstanding amount due upon termination of contract based on certain conditions such as the service of withholding notice, issuing pay less notice, contractor?s insolvency, Liquidated Ascertained Damages and default by the contractor. Whereas the four Malaysian cases analyzed stated the conditions for contractors to recover his remaining payments due in contract upon termination, such as the existence of a valid contract or collateral contract, the jurisdiction of the adjudicator and the correct implementation of adjudication under CIPAA. It is concluded that, under CIPAA, contractor may recover his remaining payment as long as the requisites stipulated in CIPAA is abided as the employer may argue on the conduct of the CIPAA itself.