The construction industry in Malaysia is one of the nation’s most dynamic sectors, but it is also prone to disputes. Payment delays, project variations, defective works, and breaches of contract often give rise to conflicts between contractors, subcontractors, employers, and consultants. To address these issues, Malaysia has developed a robust legal framework for dispute resolution, with a combination of statutory adjudication, arbitration, litigation, and mediation.
This blog provides a detailed overview of how construction disputes are resolved in Malaysia, with insights into statutory adjudication under CIPAA, arbitration procedures, recognition of international awards, court processes, and remedies for building safety claims.
1. Statutory Adjudication: The CIPAA Framework
The Construction Industry Payment and Adjudication Act 2012 (CIPAA), which came into force in 2014, was introduced to address chronic cash flow problems in the construction industry. Payment delays and non-payments were threatening not only large infrastructure projects but also small subcontractors further down the supply chain.
CIPAA establishes a mandatory adjudication scheme for written construction contracts executed in Malaysia. The hallmark of this mechanism is its speed and efficiency — most disputes are resolved within 95 working days, unless parties agree to an extension.
If a losing party fails to comply with an adjudication decision, the winning party has several enforcement options:
Enforcing the adjudication decision in the High Court as though it were a judgment.
Suspending or reducing work until payment is made.
Seeking direct payment from the project principal.
Importantly, adjudication decisions can also form the basis for winding-up proceedings, as clarified in cases such as Likas Bay Precinct Sdn Bhd v Bina Puri Sdn Bhd [2019] and Bludream City Development Sdn Bhd v Pembinaan Bina Bumi Sdn Bhd [2024].
2. Arbitration in Construction Disputes
Arbitration remains the most common method of resolving construction disputes in Malaysia, especially under standard form contracts such as PAM, PWD, IEM, and AIAC. These contracts typically contain arbitration clauses, making arbitral proceedings the default forum for disputes.
The Asian International Arbitration Centre (AIAC), established under the Arbitration Act 2005, is the designated body administering arbitration. Its rules are closely aligned with the UNCITRAL Model Law, ensuring consistency with international standards.
Arbitration in Malaysia often includes:
Multi-tiered dispute resolution clauses (such as negotiation or mediation before arbitration).
Procedural timelines established by the arbitral tribunal.
Final and binding arbitral awards are enforceable in Malaysia and abroad.
The Federal Court in Juara Serata Sdn Bhd v Alpharich Sdn Bhd [2015] reinforced that multi-tiered conditions must be complied with before commencing arbitration.
3. Recognition and Enforcement of International Arbitration Awards
Malaysia ratified the New York Convention in 1985, enabling recognition and enforcement of foreign arbitral awards. Under Sections 38 and 39 of the Arbitration Act 2005, international awards are enforceable as though they were domestic awards, provided no grounds exist for refusal.
Malaysian courts adopt a pro-arbitration stance, limiting judicial interference in arbitral awards. For example, in Jan De Nul (Malaysia) Sdn Bhd & Anor v Vincent Tan Chee Yioun & Anor, the Federal Court underscored the importance of respecting arbitral finality to prevent undermining the arbitration process.
4. Litigation: Court Proceedings in Construction Disputes
Where arbitration clauses are absent, bespoke contracts and lower-value projects may end up in court. The jurisdiction depends on the claim amount:
Magistrates’ Court: up to RM100,000
Sessions Court: RM100,001 – RM1 million
High Court: above RM1 million
First-instance hearings generally conclude within 9–12 months, with appeals taking another 6–8 months at each level. Final appeals to the Federal Court are granted only on matters of public importance or unsettled points of law.
Additionally, under the Reciprocal Enforcement of Judgments Act 1958, certain foreign judgments can be registered and enforced in Malaysia, provided reciprocity exists.
5. Mediation: A Growing Alternative
While not mandatory, mediation is increasingly encouraged by Malaysian courts as a cost-effective and amicable means of resolving disputes. Since 2011, court-annexed mediation has been available at no cost to litigants, facilitated by judges or judicial officers.
Parties may mediate at any stage of their dispute, even if their contract does not explicitly provide for it. Mediation is valued for its flexibility, informality, and ability to preserve business relationships.
6. Remedies for Building Safety-Related Claims
Several statutes govern safety standards and building compliance in Malaysia:
Occupational Safety and Health Act 1994 (OSHA) – ensures workplace safety and health.
Street, Drainage and Building Act 1974 & Uniform Building By-Laws (UBBL) – regulate building design, construction, and safety.
Construction Industry Development Board (CIDB) – promotes safe practices and industry training.
Fire Services Act (FSA) – protects against fire risks, requiring fire certificates and safety equipment in high-risk buildings.
These laws provide statutory remedies for parties affected by safety-related issues in construction projects.
Conclusion
Malaysia’s construction dispute resolution system offers a multi-layered framework:
Quick payment remedies under CIPAA
Binding and internationally enforceable arbitration awards
Traditional litigation pathways for court enforcement
Flexible mediation options to promote settlement
Together, these mechanisms strike a balance between speed, fairness, and enforceability. For construction stakeholders — from contractors to developers — understanding these processes is essential for protecting rights and ensuring project continuity.
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