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Issue of late and non-payment in construction industry

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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.Leelas 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 contractors 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
Judges 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 employers 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 contractoremployer 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 (contd)
No
Cases
Circumstances
Judges 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, nonpayment 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 (contd)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
Judges 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 (contd)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
contractors 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
Judges 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 contractors 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 :
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
employers 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.

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