Issue of late and non-payment in construction industry

5.1 Introduction

This chapter is the final chapter that summaries the findings of the research according to the objective of the research. It is also contains the problems encountered during the research as well as the recommendations for future researches.

5.2 Summary of Research Findings

A total number of 12 cases on the issue of late and non-payment in construction industry were studied. Table 5.1 shows the circumstances where late and non-payment issues are entitled ground for determination by contractor. Table 5.2 shows the circumstances where late and non-payment issues are not entitled ground for determination by contractor.

No

Cases

Circumstances

Judge’ Decision

Types of Contract

Contractual Parties

1

Pembenaan Leow Tuck Chui & Sons Sdn Bhd v Dr.Leela’s Medical Centre Sdn Bhd (1995) 2 MLJ 57

Cross claim by the employer in a penultimate progress payment.

The contractor is entitled to payment for the sum certified upon the expiration of 21 days of Period of Honouring Certificate under clause 30 (1) of the contract.

Clause 26(1) (a) allow the contractor to determine his employment or to suspend works if employer does not pay the sum certified.

As for the employer right to set-off, the court disagreed the opinion of Lord Denning in Dawnays Ltd v FG Minter Ltd & Anor (1971) 2 ALL ER 1389 that “an interim certificate is to be regarded virtually as cash like bill of exchange."

None of the express provisions relevant in the contract to the set-off which was contended, the employer have not right to deduct the money and entitled to pay the certified amount in the Penultimate Certificate to contractor.

Construction Contract

(PAM Form)

Main Contractor

v

Employer

2

Table 5.1 Circumstances of late and non-payment issue are entitled to ground for determination by contractor Perwik Sdn Bhd v Lee Yee Kee (M) Sdn Bhd (1996) 1 MLJ 857

Withhold payment by employer

In refer to the case, Woon Hoe Kan & Sons Sdn Bhd v Bandar Raya Development Bhd (1971) 2 MLJ 213, the court held that in respect of main contractor for progress payment, the employer has not right to withhold the payment without any express provision in the contract.

The employer does not defence or have any supportive evidence to withhold main contractor’s claim. So, the employer breaches his contract which is failure or honouring the certified amount to the contractor.

Construction Contract

(PAM Form)

Main Contractor

v

Employer

No

Cases

Circumstances

Judge’s Decision

Type of contract

Contractual Parties

3

Future Heritage Sdn Bhd v Intelek Timur Sdn Bhd (2003) 1 MLJ 49

Partial payment in two Interim Certificates

The Court of Appeal restored the arbitration award that the contractor is entitled to terminate or determine the contractor to the employer’s failure to pay the certificate of payment No 9 and 10 under clause 26 (1) of the contract.

Construction Contract

(PAM Form)

Main Contractor

v

Developer

4

L’ Grande Development Sdn Bhd v Bukit Cerakah Development Sdn Bhd (2007) 4 MLJ 518

Delayed or refusal of employer pay the six Interim Certificates certified by Architect

After examined the six Interim Certificate (No 5-10), it is cleared that the SO had certified the amount that employer must pay to the contractor for interim.

Therefore, the employer is entitled to pay the amount certified in the interim payment to the contractor unless the amount cancelled by both parties.

The court held that “A certificate is in essence a statement of ascertained and verified fact which is to be accepted as a statement of true at face value. The interim certificate constitutes a finality of the assessed value of work done by the contractor…employer obliged to pay the sum certified to contractor".

Therefore, the contractor should be able to receive the payment in full of the amount certified without have to wait for any contra payments in future.

A failure of the employer pay the full amount certified considered as breach of an essential term of contract and the contractor can determine the contract to sue for the recovering payments for the work done.

Construction Contract

(PWD Form)

Main Contractor

v

Employer

Table 5.1 Circumstances of late and non-payment issue are entitled to ground for determination by contractor (cont’d)

No

Cases

Circumstances

Judge’s Decision

Type of contract

Contractual Parties

5

Haji Abu Kassim v Tegap Construction Sdn Bhd (1981) 2 MLJ 149

Failure to pay by employer.

The Court of Appeal held that the termination contract by the employer was bad in law and he was failed to honour the two progress payments.

It was found at that same time; the employer did not have any funds to make payment and used the complaint that the contractor used inferior materials and poor workmanship in construction as a breach of agreement which was found to be completely without merit.

Construction Contract

(PAM Form)

Employer v

Main Contractor

6

Ban Hong Joo Mines Ltd v Chen & Yap Ltd (1969) 2 MLJ 83

Employer refuse to make the progress payments within agreed time

As referred to the Freeth v Burr (1873-74) which the learned judge, Keating, J said: “it is not a mere refusal or omission of one of the contracting parties to do something which he ought to do what will justify the other repudiation the contract; but there must be an absolute refusal to perform his part of the contract, non-payment is an element."

The court held that the contractor is right to the fortnightly payments, the employer is breaches his contract to make a periodic payments.

The employer ordered the contractor to stop the work is clearly gone to the root of the contract.

Construction contract

Main Contractor v Employer

7

Table 5.1 Circumstances of late and non-payment issue are entitled to ground for determination by contractor (cont’d)PPH Development (M) Sdn Bhd v Fabina Development Sdn Bhd & Anor (2005) 5 MLJ 435

Failure of employer to pay the six Interim Certificates certified by Architect

The court held that the contractor is entitled to determine the contract with first defendant for the Interim Certificate No 20-23.

The second defendant is liable to pay the contractor for the Interim Certificate No 24-26 due to the promised to the contractor.

Construction Contract

(PAM Form)

Main Contractor v Developer

No

Cases

Circumstances

Judge’s Decision

Type of contract

Contractual Parties

8

CJ Elvin Building Services Ltd v Noble and Another (2003) EWCH 837 (TCC)

Whether the contractor is entitled to suspend the work due to non-payment

The court held that the employer repudiated the contract by withholding the payment and he is breaches his contract for the reasonable sums should be paid to contractor at intervals which is the most important term of the contract.

The employer has not a valid excused to put forward financial difficulties as a defense not to pay.

The judge concluded that “a refusal to honour payment obligations, at least in so far as it related to the relative sum of money due, or the threat not to pay further sums due accordance with the contract, could amount to a repudiatory breach." Therefore, the contractor is entitled to determine the employment contract by suspension of work due to non-payment.

Construction contract

Main Contractor v Employer

9

Table 5.1 Circumstances of late and non-payment issue are entitled to ground for determination by contractor (cont’d)Pierce Design International Ltd v Mark Johnston & Anor (2007) EWCH 1691 (TCC)

Partial payments by employer in five interim payments

The proviso to clause 27.6.5.1 prevents an employer from relying on the clause as a defence to a contractor’s enforcement of any right “in respect of amounts properly due to be paid by the employer to the contractor which have accrued 28 days or more before the date of the employment of the contractor".

However, the proviso was not considered because the right to payment accrued less than 28 days before the date of determination.

The court held that the employer breaches the contract and that sums fell due many months before the date of determination.

Construction Contract

(JCT Form)

Main Contractor v Employer

No

Cases

Circumstances

Judge’s Decision

Type of contract

Contractual Parties

1

Yong Mok Hin v United Malay State Sugar Industries Ltd (1966) 2 MLJ 286

Non-payment of a progress payment

A merely non-payment of a progress payment does not constitute the contractor entitled to treat the contract repudiated.

The contractor failed to carry out the work within agreed time and it was the contractor repudiated the contract by abandoning the work.

Construction

Contract

Main Contractor v Employer

2

Kah Seng Construction Sdn Bhd v Selsin Development Sdn Bhd (1997) CLJ Supp 448

Partial and non-payment made by employer

Non-payment of one certificate and partial payment of the employer did not showed an evidence of refusal not perform his side of the contract.

A contractor cannot simply suspend the works because of one or two certificates have not been paid.

“It is trite law that a contractor can only terminate his contract with his employer if he shows, inter alia, a repudiatory breach by employer in the sense the employer has evinced an absolute refusal not to perform his side of the contract."

The contractor must continue his obligation to perform the work and not right to suspend works without valid legal cause.

Construction Contract

Main Contractor v Employer

3

Usaha Damai Sdn Bhd v Setiausaha Kerajaan Selangor (1997) 5 MLJ 601

Suspension work by contractor due to the late and non-payment issues

Non-payment is a breach minor term and the failure of employer pay within the period of honouring certificate is a breach minor.

The contractor does not allow to determine the contract and suspend the works immediately unless otherwise express in the condition of contract.

Construction

Contract

(PWD Form)

Main Contractor v Employer

Table 5.2 Circumstances of late and non-payment issue are not entitled to ground for determination by contractor

Out of the 12 cases analyzed, late and non-payment certainly constitutes a breach of contract and whether a ground for determination or termination is much dependent on the contract provision and the intention of the contracting parties. Single late payment may not be sufficient to contractor determine the contract unless in the situation that the breach is very serious and fundamental as go to the root of contract.

However, some circumstances cannot prove that a late and non-payment in question would amount to be a repudiatory breach by employer without any express term in the contract. The contractor is not encouraged to suspend the work on site, otherwise the contractor can be in a repudiatory breach situation for the employer to turn around to determine the contractor’s employment and terminate the contract in common law.

5.3 Problem Encountered During Research

Insufficiency or lack of time was the main problem encountered in the research. It is only 12 weeks’ time available to complete the research and the data collection process has been carried out in a very fast manner. As a result, it has led to less cases being found to support the findings. At the same time, there are difficulties in finding the suitable cases for this research due to large of numbers of irrelevant court cases. Therefore, it is important to have deeper study rather than a random sample in selecting the suitable cases for the research. If there were more time given, the study done by the author will be more comprehensive and through way.

5.4 Recommendation to Improve Payment Issues

Payment problems in the construction industry cannot be effectively resolved contractually in the standard terms of construction contracts. Remedies such as suspension of work and direct payment are difficult to be properly and lawfully exercised unless there are expressed provisions in the contract and disputes are resolved by an independent third party. (Star, December 2008).

Construction Industry Payment and Adjudication Act (CIPAA) that will launch soon in Malaysia will be the act to resolve the payment issues in the construction industry. The act is suggested to [1] :

Banning to use the Pay-When-Paid clauses

A scheme to facilitated the timely payment procedures in construction works

Establish a speedy disputes resolution process– adjudication

Provides security and remedies for recovering the payment in construction contract.

Thus, the enactment of CIPAA is good fair to contractor because it provide some relief if contractor are assured or given some security and remedies in the key issues of payment. CIPAA is a speedy disputes resolution process through adjudication and give a quick justice to unpaid contractor so that he would not suffers in silence and disputes in a longer time and costly through arbitration and litigation.

5.5 Further Research

The following are some recommendation for further research:

The circumstances other than late payments are entitled the contractor to determine his employment of employer’s default in the contract.

A study of determination contract by employer in construction industry.

The other legal issues of construction disputes through arbitration or adjudication or litigation.

5.6 Conclusion

In a conclusion, late payment and non-payment certainly considered as a breach of contract and whether a ground for determination or termination by contractor is dependent on the contract provisions and the intention of contractual parties. The contractor must understanding on his rights and remedies on part or non-payment and conditions for determination of his employment where applicable in most of standard forms of contract in construction industry.