Payments in Construction Law

INTRODUCTION

In construction environment, payments was defined as the value of works, materials or goods comprised in a contract as in Royden (M) Sdn Bhd v Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd[1]. In a simple words, payment can be a consideration in terms of money for works that Contractor had carried out and material delivered to site accordance to the contract. Contractually it can be said that the money must be paid by Employer promptly of fully unless there are specific reasons for delaying or withholding it. While interim payment can be defined as provisional or short-term payments made progressively to a Contractor at weekly, bi-weekly or monthly intervals based on periodical estimated value of work that the Contractor has carried out (Siti Suhana & Rosli, 2010). Interim payment is also known as progress payment or stage payment (Clause 30.2, PAM 2006). The major standard forms of construction contracts used in Malaysia namely the PWD 203A (2007), PAM (1998/2006) and CIDB (2000), contain provisions for payments to be made against Interim Certificates issued periodically by the Architects, Superintending Officer (S.O.) or Client’s Representative or Contract Administrator as the case may be. The provisions give the Contractor the right to be paid upon the issuance of the interim certificate and compel the Employer to pay the Contractor the certified amount (Harban Sigh, 2003). In the event of late payment or non – payment made by Employer, Contractor may have several option either to determine the contract, suspension of work at site or slowing down the work. There is a provision under PAM 2006 Clause 30.7 stated that Contractor has right to suspend the works until payment due is made and a written notice must be delivered by hand or registered post to Employer. While Clause 42.10 of CIDB 2000 allows Contractor to give a notice to Employer about his intention to suspend the works and if the Employer still did not made the payment, Contractor may suspends wholly or partly the works or reduce the rate of execution of works. Contractor also entitled for extension of time and if any loss or damages incurred arising from such suspension of works. In next section 2 cases of Determination by the Contractor will be discussed.

DISCUSSION

Case: Dataran Rentas Sdn. Bhd. v BMC Construction Sdn. Bhd. (2008)

This case is between appellant (Dataran Rentas Sdn Bhd) against the decision of the High Court at Penang on a winding up petition filed by respondent (BMC Construction Sdn Bhd) against the appellant the High Court had made the following orders:- (i) that the appellant be wound up pursuant to the provisions of the Companies Act 1965; (ii) that the Official Receiver be appointed the provisional liquidator of the appellant; and (iii) that the costs of the petition be paid out of the assets of the appellant. Facts The relevant background facts leading to the filing of the winding-up petition by the respondent against the appellant are as follows: (1) The respondent’s claim against the appellant is for the sum of RM173, 096.18 due and owing by the appellant to the respondent pursuant to four interim certificates issued under a building contract entered into between the two parties. (2) By a letter of award dated 29.7.1997, the appellant awarded a building contract to the respondent. (3) Pursuant to the letter of award, it was agreed that the terms and conditions of contract are as per PAM Standard Form Building Contract 1969 Edition (without Quantities) [“PAM Conditions”]. (4) Pursuant to Clause 30(1) of the PAM Conditions read together with the Appendix, the appellant was contractually obliged to pay the respondent the amount due under Interim Certificate within thirty days. (5) The appellant has failed to pay the following interim certificates within the stipulated time stated under Clause 30(1) of the PAM Conditions.

CERTIFICATE	NO. DATES	AMOUNT DUE
5	15.1.1998	RM 23,876.74
6	15.2.1998	RM 23,986.80
7	16.3.1998	RM 68,086.41
8	16.4.1998	RM 57,146.23
	RM173,096.18

Held It was further held that, as per Gopal Sri Ram JCA, on a true construction of clauses 26(1)(a) and 30(1) of the contract, the appellant's obligation to make payment on an interim certificate was a fundamental term or a primary obligation. Court order that the deposits be paid to the respondent (BMC Construction Sdn. Bhd.) to account of taxed costs. Conclusion

Case: D. R. Bradley (Cable Jointing) Limited v Jefco Mechanical Services Limited (1988)

Facts

1. Jefco were main contractor for the refurbishment of Islington Town Hall. Bradley was appointed as domestic subcontractor to Jefco for the electrical installation.
2. The subcontract between Bradley & Jefco were made verbally, no specific payment terms were accepted but it was agreed that interim payment would be made.
3. Bradley made various request for payment but none were met in full. On 29th October 1985, Bradley made another application of interim payment A£27, 140.00 and a notice was given in the event of non – payment, Bradley would leave site.
4. No payment was made and on 12th December 1985, Bradley left the site and litigation commenced.

Held Underpayments by Jefco did not amount to a repudiatory breach, but the non-payment of the last application was such a breach, as it reasonably shattered Bradley’s confidence of being paid. Bradley was entitled to consider the contract at an end and to be terminated. Conclusion In the absence of express clause in the contract, non – payment could give rise to a contractor or subcontractor’s entitlement to determine, if such non – payment undermined the core of the contract. Nevertheless, in the absence of an express clause giving a right to suspend work, no such right exists in common law. The options is either to carry on working, or determine the contract as the only other remedy if the non – payment ‘shatter confidence’.

CONCLUSION

The non – payment event is a common case occurred in a construction industry. In any circumstances, Contractor cannot suspend works or slow down the progress work in event of late payment or non – payment. The Employer entitled to terminate the employment contract based on Clause 51 (a) (ii) PWD 203A, “the Contractor fails to proceed regularly and diligently with the work” if proven Contractor slow down the progress work at site. In Kah Seng Construction Sdn.Bhd. v Selsin Development Sdn.Bhd (1997) and Canterbury Pipe Lines v Christchurch Drainage (1986), the court held that no implied of temporary suspension owing of non – payment from Employer. However, in PAM 2006, and CIDB 2000, Clause 42.10 there are provision that allows suspension of work in event of non – payment. There are provisions under PAM 2006 and CIDB 2000 standard form of contract allowing Contractor to determine his employment in the event of non – payment by the Employer. Under the common law, termination only permissible if proven repudiation of primary obligation by Employer. Reference is made to the cases of Ban Hong Joo Mines v Chen &Yap Ltd (1969), and Yong Mok Hin v United Malay States Sugar Industries Ltd (1967).

---

[1] [1992]1 MLJ 33

Cite this page