The interpretation of 'pay when paid' clauses in contracts mandates that payment by the contractor to the subcontractor is contingent upon the contractor receiving payment from the employer.

Low Hop Bing JCA:

Appeal

[1] Parties are referred to in their capacities in the Sessions Court.

[2] The Kuala Lumpur Sessions Court had allowed the plaintiff's claim with costs against the defendant.

[3] The defendant's appeal to the High Court was allowed with costs. The High Court made a further order that the judgment sum of RM271,458.29, paid by the defendant to the plaintiff, be returned to the defendant, together with interest at 8% p.a.

[4] The plaintiff has now appealed to this court.

Finding Of Facts

[5] The facts at the trial are not in dispute. The plaintiff was the nominated sub-contractor to build, inter alia, a swimming pool for a 161-unit condominium in Seremban. The defendant had earlier entered into a main contract with the developer ("the employer"), Ng Chee Yew Sdn Bhd, to build the condominium as the main contractor. The plaintiff had completed the swimming pool, but has not been paid fully by the defendant, as the employer had not paid the defendant. Pursuant to the main contract, the defendant has commenced an action against the employer to recover the sum of RM1,749,762.08. Under the sub-contract, the plaintiff had filed the claim in the Sessions Court for the unpaid sum of RM212,989.25.

Reliance On Main Contract

[6]In the instant appeal, the plaintiff's learned counsel Mr Oh Teik Keng cited Ryoden (M) Sdn Bhd v. Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd [1991] 3 CLJ 670 (Rep); [1991] 3 CLJ 2935; [1992] 1 MLJ 33 HC, and argued that the defendant is not entitled to rely on the main contract in order to defer the defendant's liability to pay the plaintiff.

[7] Learned counsel Mr T. Shanmugaraj contended that the defendant did not attempt to rely on the main contract.

[8] In our view, the defendant's stand has rendered Royden, supra, irrelevant.

[9] Be that as it may, we observe that in Ryoden (M) Sdn Bhd, supra, the defendant was employed by the employer as the main contractor for the construction of a project, Raintree Terrace. The defendant and the plaintiff entered into two sub-contracts to supply, inter alia, air-conditioning and ventilation systems. Clause 2 thereof required the plaintiff to observe all the provisions of the main contract only so far as they are related and applicable to the sub-contract works and were not repugnant to or inconsistent with the express provisions of the sub-contract. The plaintiff alleged that the defendant had failed or refused to pay the plaintiff certain progress payments notwithstanding that such payments were duly certified by the authorized architect of the project. The plaintiff instituted the action against the defendant. The learned registrar entered summary judgment against the defendant under O. 14 of the Rules of the High Court 1980. On appeal to judge in chambers, the defendant argued that the defendant was not indebted to the plaintiff on the grounds, inter alia, that cl. 27(a)(vii) of the main contract specially provided that payment would be made only within 14 days after the receipt by the defendant from the employer of the amounts stated in the architect's certificate. Clause 27(a)(vii), which is a "pay when paid" clause, was not expressly stated in the two sub-contracts. Lim Beng Choon J (as he then was) distinguished Brightside Mechanical & Electrical Services Group Ltd v. Hyundai Engineering & Construction Co Ltd 1988 MarsdenLR 568; ; 1988 MarsdenLR 1027, supra, as the wordings used in cl. 11 in the sub-contract therein were different from cl. 11 and cl. 2 in Ryoden