RETENTION

SUM
DR ZUL ZAKIYUDDIN
AHMAD RASHID
Credit: CKH
Retention fund is established by way
of cumulative deduction of a stipulated
percentage (normally 5%) from the
sum otherwise due for certification of
payment.
Retention fund is commonly inserted in std
form contract as a mechanism to protect the
employer against possible contractors’
default
 3

Retention fund is established by way of

cumulative deduction of a stipulated
percentage (normally 5%) from the sum
otherwise due for certification of
payment.
Retention fund is commonly inserted in std form
contract as a mechanism to protect the employer
against possible contractors’ default
 4

In absence of contractors’ default,

one moiety (normally half) of the
accumulated retention fund is eventually
released at practical completion and the
balance after completion of making
good of defects.-30.6 (c) and (d).
The employer has a fiduciary duty
to the contractor as he acted as trustee of
the retention fund- cl 30.6 (a).
Henry Boot Building Ltd v The
Croydon Hotel & Leisure Co.Ltd

The plf (contractor) sought a

mandatory injunction for the money
to be deposited in a separate bank
account.

Held: There was no subsistent

obligation [employer]to appropriate
and set aside
the retention money.
Retention fund is established by way
of cumulative deduction of a stipulated
percentage (normally 5%) from the
sum otherwise due for certification of
payment.
Retention fund is commonly inserted in std
form contract as a mechanism to protect the
employer against possible contractors’
default
 7
Retention ● Most contracts provide for retention
sum (usually 5%)
Monies-
must it be ● Usually released in 2 moiety

in a ○ 1st moiety upon C P C

separate ○ 2nd moiety upon CMGD

account? ● If not set aside in separate account:

○ Employer may utilise monies for its

n own purposes
es t i o
i s tis qu
h
Wh y ○ Monies at risk if employer enters into liquidation before full
po r t ant?
im release

○ Employer may be indebted to other creditors whose claim may

affect the monies held
 Contractually: 8

● PAM
Retention ○ Employer has fiduciary duty as
For discussion:

● Even though
Monies- trustee of money to Contractor PAM provides
for contractors
must it be ○ Contractor’s beneficial interest
subject to deductions certified
to demand for
monies to be
in a separate by Architect
held in trust
account, it is
account?
○ Contractor can demand for
extremely rare
monies to be held in trust
for contractors
account at its cost
to do so. Why
do you think
JKR
that is so?
- No retention sum - use of
performance bond instead
Retention Monies- must it be in a separate account?

Case Law: Qimonda Malaysia Sdn Bhd (in liquidation) v

Sediabena Sdn Bhd & Anor [2012] 3 MLJ 422, CA

Facts:

● Employer voluntarily wound up

● Did not release in excess of RM6m of retention sum to
contractor & sub-con
● Contractor sought declaration retention monies were held in
trust
Retention Monies- must it be in a separate account?
Case Law: Qimonda Malaysia Sdn Bhd (in liquidation) v Sediabena Sdn
Bhd & Anor [2012] 3 MLJ 422, CA

Employer’s Arguments:

Contract does not provide for a trust

Retention sum not set aside in separate account (no request by

Contractor either)

Contractor filed proof of debt as creditor- claim as trust money would

be preferential treatment of Contractor as a creditor

So, how would you argue against the Employer in this case?
Retention Monies- must it be in a separate account?
Case Law: Qimonda Malaysia Sdn Bhd (in liquidation) v Sediabena Sdn Bhd & Anor [2012] 3 MLJ
422, CA

Contractor’s Arguments:

 Retention monies, by nature, are trust monies

 Express clause not a precondition of trust- can be by operation of law

 Employer is fiduciary to the trust

 No issue of preferential treatment because retention monies do not belong to Employer
in the first place

 Filing of proof of debt as an estoppel is an afterthought and non-issue, and is without

prejudice to Contractor’s claim for retention sum as trust money

So, how would you decide if you were the panel?

 Retention Monies- must it be in a separate account?
Case Law: Qimonda Malaysia Sdn Bhd (in liquidation) v Sediabena Sdn Bhd &
Anor [2012] 3 MLJ 422, CA

Held by the Court:

● Property in retention sum resides with Contractor and is held by Employer in trust

● Retention Sum already earned by Contractor for works already done- mere provision for making good
defects. Even if mixed in common fund, is traceable
● No requirement to be held in separate account or Contractor must make such request. Contractor may not
want to jeopardise relationship/applied its mind

● Failure to separate monies cannot defeat the trust. Release or preservation of monies after liquidation is not
preferential treatment because monies do not belong to Employer

● Allowing retention to be part of general funds would unjustly enrich other creditors
THANK YOU