Malaysia Auction – Real Estate and Construction


To print this article, simply register or connect to


The use of arbitration as a rapid binding dispute resolution procedure for construction contracts has slowly spread around the world. Arbitration was first introduced in the UK in May 1998 following the Housing, Building and Regeneration Subsidies Act 1996. The legislative scheme provided that anyone signing a construction contract (with a few exceptions) had the unilateral right to appeal to an arbitrator if a dispute arose. The arbitrator was to be appointed within 7 days and had to issue a written decision within 28 days. It quickly became clear that the courts would implement these decisions very quickly. The general rubric was, and remains, “pay now, argue later”. So, if you didn’t like the arbitrator’s decision, you had no choice but to pay while then going to arbitration or litigation to have the dispute reconsidered.

Other common law jurisdictions have followed this model. New Zealand has passed the Security of Payment Act and each of the Australian states has also introduced arbitration. Singapore has introduced a similar process, and now Malaysia has introduced a Payment Security Act which provides for a quick enforceable decision for people working in the construction industry.

The important point about all of this legislation is that anyone doing work in these jurisdictions cannot avoid the binding dispute resolution process. Disputes can be resolved quickly and economically, and more importantly, the courts will enforce those decisions quickly.

This article examines the most recent introduction to arbitration in Malaysia. Anyone entering into contracts in Malaysia after June 22, 2012 is entitled not only to a statutory payment procedure, but also to an arbitration process to resolve disputes.

Malaysian law of 2012

After much debate, the Malaysian Construction Industry Payment and Award Act 2012 received Royal Assent on June 18, 20121. It entered into force on June 22, 2012, and Malaysia therefore now has a legal payment and adjudication regime for construction contracts. The law applies to all construction contracts entered into in writing after June 22, 2012, including those entered into by the Government of Malaysia. It applies to all construction work including consultancy contracts, but excludes buildings of less than four floors intended to be occupied by a “natural person”.

The Act incorporates some of the most successful features of arbitration and security of payments legislation that has been enacted around the world. It provides for a pre-arbitration procedure, followed by an abbreviated arbitration process, which takes a little longer than other statutory arbitration processes.

Payment procedures

The Law obliges the parties to initially follow the payment mechanisms of the construction contract. If a part remains unpaid, the pre-arbitration procedure can be used. This requires a demand for payment based on the unpaid claim under the construction contract. The respondent could then admit or contest the claim in whole or in part within 10 days of the request for payment. A dispute that crystallizes from the exchange can then be submitted to arbitration.


Arbitration is initiated by written notice setting out the nature of the dispute and the remedy required. A request for the appointment of an arbitrator is made to one single appointing body, which is the Kuala Lumpur Regional Arbitration Center “KLRCA”. The request for adjudication must be served within 10 working days of receipt of acceptance of the appointment by the adjudicator. The respondent then has 10 days to serve a written response, and the applicant may, within 5 working days of receiving any response, serve a response. Supporting documents are attached to each submission.

The arbitrator then has 45 working days from the response or reply, whichever is later, to render a written decision. If a response is not delivered, the arbitrator has 45 working days from the date the response should have been served. The parties may agree to extend the time limit further. The decision must be in writing and must also be motivated. If the decision is not taken within the time limit, the decision is void.

Powers of arbitrator

The powers of the arbitrator are set out in section 25 of the Act. The arbitrator may establish the arbitration procedures as well as order the disclosure and production of documents and set time limits. He can explicitly draw on his knowledge and expertise as well as appoint independent experts (but only with the consent of the parties). He may also require that the deposition be made under oath. The power to examine and revise certificates and other documents is expressly stated. In addition, an arbitrator may award finance charges and interest.

The parties may agree on the terms of the adjudicator and his fees. However, if they cannot come to an agreement, the general conditions of appointment and the fees of the KLRCA apply. The parties are jointly and severally liable, in much the same way as other laws in the world. However, a guarantee for these charges can be requested in the form of a deposit placed with KLRCA. An arbitrator has a specific privilege in the Act and therefore may not be required to render his decision until full payment has been made.

The Act states that an arbitrator’s decision is confidential. It is unusual for such legislation to include a specific confidentiality provision. This, however, answers a fundamental question that is often overlooked; the usual immunity of an arbitrator, in this case KLRCA is also included, stating that no action or suit can be brought against them for any act or omission done in good faith.

The decision is binding unless it is overturned by the High Court, definitively arbitrated or the subject of a settlement between the parties. The Law also expressly provides for the execution of an arbitration decision. A party can enforce an arbitration decision by going to the High Court.

Finally, the limited payments provisions of the Act require that interim payments be made on construction contracts. In the absence of specific payment clauses, payments are made monthly. Conditional payment is prohibited, thus rendering any payment arrangement at the time of payment ineffective.


There is no doubt that those involved in the construction industry in Malaysia will not only use the payment procedures but also the legal procedures under the law. There may be some hesitation at first as industry professionals familiarize themselves with the procedures. However, it will help facilitate cash flow and resolve disputes quickly. It will likely be the contractors who will initiate arbitration first against employers who will not settle claims or make payments. However, it won’t be long before subcontractors also bring claims against contractors, and contractors will therefore find themselves very “in the middle”. Those who provide professional services will also be able to use the Act to resolve payment issues with respect to their services. It is therefore clear that employers and owners engaged in construction work in Malaysia will need to pay close attention not only to the law but also to the management of their contracts, carefully considering the notice provisions in contracts and to claims as issued, assess them and not only process them, but also make properly assessed payments.

Other jurisdictions around the world are also considering legislating to introduce a speedy arbitration process. There is no doubt that the supply side of the industry will welcome the slow and continued introduction of arbitration around the world.

* * * * *

The link to the legislation is:

The kind assistance of Muhammad Ehsan Che Munaaim is acknowledged for his comments on this document, as well as for providing an English text of the Malaysian Construction Industry Payment and Arbitration Act 2012.


1. Malaysia Rules Law 746 Construction Industry Payment and Bidding Act 2012..

This article is taken from the latest edition of International Quarterly. To view back issues, go to

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.


Comments are closed.