When the Construction Industry Payment and Adjudication Act 2012 (CIPAA) was introduced, it was widely understood as a tool primarily designed to resolve disputes over outstanding payments in construction projects. However, over time, the scope of CIPAA has broadened through judicial interpretation—most notably through Section 27(2). This provision has opened the door to a wider range of adjudication issues, allowing parties to bring non-monetary claims, raise set-offs, and defend themselves using counterclaims—provided these are related to the payment dispute in question. As Malaysia’s construction adjudication landscape evolves, understanding the reach and implications of Section 27(2) has become increasingly important for all stakeholders involved in construction contracts.

At its core, Section 27(2) of CIPAA allows the adjudicator to decide on any matter raised in response to the adjudication claim, even if it was not part of the original payment claim. This includes defenses based on contractual breaches, claims for delay, damages, liquidated damages (LAD), defective works, or back charges. In practice, this means that if a respondent argues that payment should not be made because the claimant breached certain terms of the contract, the adjudicator has the legal authority to assess and rule on those matters—even though they fall outside the narrow question of payment entitlement. This ability to consider defensive arguments and set-offs significantly broadens the adjudicator’s jurisdiction and allows for a more holistic evaluation of disputes.

This expanded power under Section 27(2) was clarified and affirmed in several key Malaysian cases. In the landmark decision of Uda Holdings Berhad v Bisraya Construction Sdn Bhd & Anor, the High Court confirmed that CIPAA adjudicators are empowered to consider set-offs and cross-claims if raised as part of a legitimate defense. The rationale was that adjudication should not be limited to mechanical enforcement of invoices but should also allow fair consideration of the reasons behind non-payment. This interpretation ensures that the process remains balanced and that respondents are not forced to pay unjustified sums without being heard.

Further reinforcement came in Bauer (Malaysia) Sdn Bhd v Jack-In Pile (M) Sdn Bhd, where the court held that a respondent can raise LAD claims and delay-related counterclaims in an adjudication proceeding, even though these issues were not mentioned in the original payment claim. The court emphasized that once a party initiates adjudication, the other side must be allowed to respond fully, and this includes raising any relevant contractual rights or obligations. As long as the issues are connected to the payment being claimed, they fall within the adjudicator’s purview.

However, there are limits. While Section 27(2) expands the scope of what an adjudicator can decide, it does not provide a blank cheque to introduce entirely unrelated disputes. Courts have drawn the line between related and unrelated claims, stressing that the adjudicator’s jurisdiction is still confined to matters arising out of the same construction contract and in connection with the payment sought. For instance, if a party tries to raise a claim about a different project, or about damages unconnected to the specific invoice under adjudication, the adjudicator may decline jurisdiction. This helps maintain the integrity of the process and prevents adjudications from becoming bloated with extraneous issues.

The practical consequence of Section 27(2) is that CIPAA adjudications are no longer limited to straightforward questions of whether money is due. Adjudicators now frequently deal with complex disputes involving delay analysis, defective works, termination claims, quantum assessments, and back charges. While this makes the process more comprehensive, it also requires parties to be better prepared. Claimants must anticipate that respondents may introduce counterarguments or counterclaims that challenge not just the amount due but the entire contractual relationship. As a result, the level of detail and strategic planning involved in preparing an adjudication case has increased significantly.

For respondents, Section 27(2) offers a crucial opportunity to present a complete defense. Rather than merely denying the claim or disputing the sum, respondents can use this platform to bring up entitlement to LAD, quality issues, or incomplete works, so long as these are relevant to the payment in dispute. This empowers parties with genuine grievances to avoid being steamrolled by procedural rules and ensures that adjudication outcomes reflect the substantive merits of each case.

Legal professionals have also noted that Section 27(2) has blurred the lines between adjudication and arbitration in certain respects. While CIPAA remains a mechanism for interim decisions, the increasingly broad scope of matters considered under Section 27(2) has made some adjudications resemble mini-arbitrations. This is especially true in high-value disputes involving multiple issues, technical expert reports, and complex legal submissions. Nonetheless, the statutory timelines under CIPAA still apply, meaning adjudicators must reach decisions within forty-five working days unless an extension is agreed. This time pressure often forces a focused review of key issues while leaving deeper disputes for later resolution in arbitration or court.

To leverage Section 27(2) effectively, both claimants and respondents must adopt a strategic approach. Claimants should consider proactively addressing anticipated defenses in their initial submissions, rather than assuming that the adjudicator will focus only on payment. Respondents, on the other hand, must ensure that any counterclaims or set-offs are properly documented and argued, not simply tacked on as afterthoughts. Adjudicators are not obligated to consider vague or unsupported assertions, and superficial counterclaims may be dismissed outright.

In conclusion, Section 27(2) of CIPAA represents a powerful tool that has reshaped the Malaysian adjudication landscape. By allowing adjudicators to consider related set-offs, defenses, and counterclaims, it provides a more equitable platform for both claimants and respondents to assert their rights. While this expansion increases the complexity of adjudications, it also enhances the fairness and integrity of the process. For contractors, consultants, and legal advisors, a strong understanding of Section 27(2) is essential not just for preparing claims, but for managing disputes strategically and safeguarding broader contractual interests.