"Progress Payment" includes "Final Payment" in pay-when-paid clause
The claimant was the nominated subcontractor for the construction of a swimming pool at a condominium. The subcontractor completed the pool, but was not fully paid by the main contractor. In turn, the employer had failed to pay the main contractor, which was in the process of suing the employer to recover payment of RM212, 289.25.
The subcontractor argued that the main contractor could not rely upon clause 27(a)(vii) of the main contract, which was a pay-when-paid clause, because that clause was not part of the subcontract. In addition, the subcontractor alleged that final payment it was claiming was outside the pay-when-paid provision in clause 13.01 because that clause only referred to “Progress Payment/ Interim Payment”, and, consequently was not applicable. The main contractor maintained that the expression “progress payment” covered final payment. The court at first instance ruled that the main contractor had no liability to pay the subcontractor until it had been paid by the employer, and the subcontractor appealed.
The case turned on the interpretation of clause 13.01 of the contract, and whether the definition of “progress payment” encompassed final payment. The relevant part of the clause stated that if any interim certificate contained sums in respect of the nominated subcontract works, then payment was to be made to the subcontractor within 14 days of the main contractor receiving payment from the employer. This sort of clause is commonly used as a “pay-when-paid” or “back-to-back” clause. The court reviewed Hong Kong, Singapore and Malaysian case law.
Having analysed previous authority, the court concluded that “progress payment” meant a payment relating to the “progress” of the works. This included payment at any stage of the works from the first to the last stage. Consequently, the court found the correct construction of clause 13.01 to be that “progress payment” was wide enough to include the final payment claimed by the subcontractor. Consequently, the subcontractor was only entitled to be paid after the main contractor had been paid by the employer.
Author: Ann Glaki
Date: January 2010
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