Adjudication is a term that comes up often in construction and property, but it’s a tricky term with different meanings, depending on the situation you're facing:
- In construction, adjudication is all about disagreements. Dispute resolution can be something of a complex game in a complicated industry like this. It’s essential to have a facility to provide such resolution quickly, efficiently, and fairly. That’s where adjudication comes into play.
- In property transactions, adjudication is all down to the assessment of a property's market value, and the important question of stamp duty.
Wait a minute... by looking at the above, you mean to say that there are actually two ways to interpret one single term?
In which case, you may be wondering what the adjudication meaning really is, especially when comparing all the other (somewhat similar) terms that are flying around in the industry — Arbitration? Mediation? Litigation?
Let’s slow down and take a look at what adjudication means, how it applies in construction and property, as well as what the differences are in those two separate contexts.
What does adjudication mean in construction?
A simple explanation of the adjudication meaning is: ‘a formal judgement on a disputed matter’. Well that’s sorted then! Obviously in construction, the regulation and framework is laid out a bit more clearly than that.
Adjudication is designed to be a swift disagreement settlement process that's widely used in the global construction industry today.
It was first introduced in the UK in 1998 as a method of delivering rapid resolution of disputes between parties involved in construction or property transactions. The philosophy of this resolution is ‘pay now, argue later’.
That’s probably a bit of a pain for the person who has to ‘pay’, but that rapid resolution can be a real help to ensure that developments can continue to progress in a timely manner. The idea is it’s faster, and thus cheaper, to ensure a swift settlement of immediate disputes.
Because British law is widely adopted worldwide (we’ll not go into why!) as the basis of ‘common law’, this use of adjudication has been adopted in other common law jurisdictions such as Malaysia and Singapore.
Construction adjudication in Malaysia
In Malaysia, adjudication was introduced in the Construction Industry Payment and Adjudication Act 2012 (CIPA). This act applies to all qualifying construction contracts made in writing after 22nd June 2012.
The foundation of CIPA is that all parties should follow the terms and conditions of an established construction contract for payment of (or unpaid) claims.
A responding party can then dispute that claim within 10 days of it being made, and starting off the adjudication process, by use of a Notice of Adjudication.
At the point of adjudication, a written notice is submitted laying out the details of the claim. The adjudicator then has 45 working days from the point of claim to issue a written decision. That means the timeline is as follows:
- 10 days to issue response to initial claim
- Submit Notice of Adjudication
- 45 days for written decision on adjudication to be issued
- Can be extended by mutual agreement of both parties
- Adjudication is void if timelines not met
Adjudicators don’t just rely on documents. They can schedule site visits, physical meetings, and in-person hearings too. But that 45 day limit remains… the clock is ticking!
Did you know that if the adjudicator fails to meet that 45 day timeline that's been set, the decision will be declared null and void (read: invalid)?
Does adjudication apply to all construction projects?
No. Adjudication does not work/is not applicable on buildings which are less than four storeys in height, and are being constructed wholly for residential purposes.
That means it doesn’t apply to the construction of a standalone bungalow or single-storey terrace house, for example, but would apply to a fifty-storey mixed-development project.
Is an adjudication decision binding?
Adjudication is designed to provide a rapid resolution as we've mentioned, and as such can be later contested, reviewed, and adjusted by the following methods:
- A ruling by the High Court
- Subject of disagreement is settled by written agreement of both parties
- Dispute is ultimately settled by arbitration, or the courts
The word 'arbitration' above refers to a somewhat more informal process of settling a disagreement, as it takes place outside of the courtroom setting, and is therefore usually less expensive. Both the parties involved will be presenting their cases to a person known as an 'arbitrator' (you can consider this person as something like a private judge), who will review the evidence, listen to the arguments, then come to a decision.
You can’t directly appeal against the ruling of the adjudication itself, but you can then take that ruling to the High Court, who has the legal power to dismiss or adjust an adjudication ruling.
Likewise, if one party refuses to comply with the adjudication, the wronged party can then apply to the High Court to enforce these findings.
Obviously, all of these further appeals can add significantly to the cost of dispute resolution.
Adjudication vs arbitration vs litigation vs mediation
So many words ending in "-ation" to choose from! There are a number of different pathways to dispute resolution in construction, so here’s a very simple comparison table of the four main options:
Dispute resolution by agreed third-party (adjudicator) for rapid decision, as per CIPA rules.
Negotiation assisted by a mediator.
Dispute resolution by agreed third-party by consensual agreement.
Legal claim through a court of law.
Maximum 45 days from submission.
No defined period. The better the mediator, the faster it goes!
No defined period. Can extend over a significant time frame.
No defined period. Also exposed to backlog in court cases.
Agreed with third-party mediator, but likely less than arbitration due to quicker resolution.
Agreed with third-party mediator, and depends on time taken to come to resolution.
Longer process thus higher costs than adjudication, and risks prolonged delay/secondary costs on project.
Expensive due to need for legal professionals, and the longer period over which a case may take place.
Financial rulings on dispute of payments is the norm. Non-monetary rulings may not be binding.
Flexible process based on mutual consent. Mediator enables a mutually-agreed resolution.
Ruling limited by legal framework, subject to regulation, and primarily financial.
Strict legal rulings based on regulatory and legal framework. Can include legal instructions that are more strict than arbitration.
Wait… isn’t there an adjudication for property transactions too?
Sometimes, the property industry can be really confusing, we get it! There’s also a term for adjudication used when it comes to property transactions too.
In reality, the application of these two terms are separate, and don’t directly overlap. Adjudication in property most commonly refers to part of the conveyancing process (read: process of transferring the property title).
To recap once more: Adjudication for construction is an agreed legal process to provide rapid resolution of contract disputes.
Adjudication in property transactions, on the other hand, is a process of valuation carried out to determine the chargeable amount of stamp duty for any transfer of property.
So, as you can clearly see, stamp duty adjudication is completely different to adjudication in construction.
What is stamp duty adjudication for property?
What that means is the stamp duty is determined by the Valuation and Property Services Department (JPPH), once a Deed of Assignment and supporting documentation has been submitted.
Form 14a, or the Memorandum of Transfer, confers change of ownership of a purchased property. Adjudication is simply JPPH confirming the market value of the property and the ad valorem stamp duty owed in regards to this form 14a.
Forms for adjudication are submitted to the Stamp Duty Office of the Inland Revenue Board Malaysia (LHDN), who then forward the documents to JPPH if valuation is required. LHDN adjudication is then undertaken by JPPH.
That’s where ‘adjudication’ comes in — JPPH is adjudicating on whether the assessed market value of the property, and thus stamp duty owed, is reasonable and correct!
Once received, JPPH undertakes a valuation of a property, which can include an inspection if it is deemed necessary.
When the valuation assessment is complete, it's reported back to the Stamp Duty Office, who then issues a Notice of Assignment detailing the stamp duty owed. Adjudication complete!
Relevant organisations (like banks, insurance companies, or law firms) can register online at stamp hasil Malaysia on the LHDN website.
Do you need adjudication in a property transfer from parent to child?
This is an interesting question, because parent to child transfers of property are exempt from stamp duty, due to what’s known as a ‘love and affection transfer’.
This means that when passing property from a parent to child, or husband to wife, there is a 100% exemption on the stamp duty.
So, surely adjudication isn’t needed then? It is! Adjudication is still an important step to verify a Memorandum of Transfer in the event of a love and affection transfer.
Essentially, although no stamp duty is owed, it’s still important to adjudicate the value of the property and follow the established stamping process.
This is particularly important if there's a dispute over the property (for any reason), as an unstamped instrument of transfer is inadmissible in court.
Want to know more about the big questions of property financing? Explore our Complete Guide To Obtaining A Mortgage Loan For Property In Malaysia.