Release retention after dlp, but no cmgd?

Can a contractor claim for his balance retention sum after the defects liability period (“DLP”) has expired, without the certificate of making good defects (“CMGD”) being issued yet?

The retention sum is a sum of money that is withheld by the employer from each progress payment to the contractor during the project.  The usual purpose of the retention sum is for the employer to have a pool of money from which he can utilize to pay for the repair of defective works in situations where the contractor has failed to carry out such repairs.

Building contracts often provide for the retention sum to be released in two instalments – half upon issuance of the certificate of practical completion (“CPC”), and the balance upon issuance of the CMGD.

In practice, CPCs are issued more commonly than CMGDs.  The CMGD is supposed to be issued upon expiry of the DLP and the satisfactory repair of all defects.  But the CMGD can be held back by the employer or project consultant for a variety of reasons, some of which are legitimate and others not so.

The question therefore arises – assuming the DLP has expired and all defects have been satisfactorily repaired, can a contractor claim for release of the balance retention sum where no CMGD was issued?  The answer – strangely enough – may depend on the forum of dispute resolution.

There are presently three such forums that are mainly in use – courts, adjudication under the Construction Industry Payment And Adjudication Act 2012 (“CIPAA”), and arbitration.

 

The Courts

There are two conflicting High Court decisions on this question.  In Dama Design & Build Sdn Bhd v Universiti Pendidikan Sultan Idris (UPSI) [2017] 1 LNS 638, Mary Lim Thian Suan, J (as she then was) held that the contractor was entitled to release of the retention sum given that the DLP has expired and the CMGD would have been issued (but not actually issued).

In contrast, Evrol Mariette Peters, JC recently in Perkasa Jauhari Sdn Bhd v YS Chong Enterprise Sdn Bhd [2020] 8 AMR 171 rejected a claim for the retention sum because there was no CMGD, even though the DLP has expired.

 

CIPAA Adjudication and Arbitration

Where adjudication under CIPAA is concerned, the adjudicator is empowered to “decide or declare on any matter notwithstanding no certificate has been issued in respect of the matter”.  This is provided in s 25(n), CIPAA.  Accordingly, the adjudicator can order release of the retention sum in circumstances where the CMGD should have been issued, but was not.

As for arbitration, some institutional rules for arbitration empower the arbitrator to award the payment of monies even though no certificate was issued for it.  For example, art 12.5(3) of the PAM Arbitration Rules (2015 edition) allows an arbitrator to “ascertain and award any sum which ought to have been the subject of or included in any certificate”.  As such, an arbitrator operating under those Rules may order release of the retention sum where the CMGD ought to have been issued.

The position is unclear, where the arbitration clause or the applicable institutional rules do not provide such power to the arbitrator.

 

Post-script

The Perkasa case concerned a sub-contractor claiming for the retention sum from the main contractor.  Under the sub-contract, the retention sum is to be released on issuance of the CMGD by the Superintendent Officer to the employer.  From the case report, there was no argument that the main contractor failed to use his best endeavours to procure the issuance of the CMGD, and therefore cannot rely on his own wrong to deny the sub-contractor’s claim.  The decision of the High Court might have been different, if the facts of that case allowed this argument to be made out.

The contents of this article are published for the purpose of general information only; they are not to be regarded, used or relied on as legal advice for any matter.  Please contact us if you require legal advice specific to your case.