Termination: Termination For & Without Default Effects of Termination

Termination
Termination for & without default

Effects of Termination
General
 Termination clauses are normally construed
strictly by the courts since the parties affected
are severe.
 Only the employment of the Contractor is
terminated, not the Contract.
 The grounds for termination must exist,
otherwise any purported action to terminate the
Contractor’s employment may be rendered
invalid.
Termination for Default
 PSSCOC
 Clause 31.1
 SIA
 Clause 32.(2)
(PSSCOC)
 Employment of contractor may be terminated
for default under 2 broad categories:
 Any of the grounds under Clause 31.1(1)(a)
to (f) : this requires S.O. to issue a
Termination Certificate to certify that in his
opinion a default exists.
 Any of the grounds under Clause 31.1(2)(a)
to (d) : these grounds do not require a
Termination Certificate.
Termination for Default (SIA)
 Employment of contractor may be terminated

for default under 2 broad categories:
 Any of the grounds under Clause 32.(3)(a)
to (h) : this requires Arch to issue a
Termination Certificate.
 Any of the grounds under Clause 32(7) :
these grounds do not require a Termination
Certificate. Termination is automatic.
Grounds for Termination
for Default
 Termination Certificate required
 Has abandoned the Contract
 PSSCOC: 31.1(1) (a)
 SIA: No provision.
 Without
reasonable cause, failed to
commence Works
 PSSCOC: 31.1(1)(b)
 SIA: No Provision.
for Default
 Failed to comply with obligation under Clause
9 (Programme for the Works) or failed to
execute works in accordance with accepted
programme whereby Works will be completed
within the (extended) Time for Completion or
otherwise failed to proceed with the Works
with due diligence or expedition.
 PSSCOC: Cl 31.1(1)(c)
 SIA: Cl 32(3)(a) (Programme),(d)
(suspension/failure to proceed with
diligence) and (g) (repeated failure)
for Default
 This is the most difficult ground of all for
Employer to establish. There are a number of
law cases concerning failure to proceed
diligently with the works and all indicate the
great difficulty in satisfying the court about
this.
 How is diligence to be measured? Simple
failure by the Contractor to comply with his
own programme which is not a contract
document is not itself a breach of contract.
for Default
 In Lintest Builders Ltd v Roberts [1978], Justice O’Connor
said: “Diligence, it is said, has a time concept and they
(contractors) are to work conscientiously on time.”
 Removing labour and plant from the site may well be
evidence of a lack of intention to proceed diligently: Lord
Justice Lawton in J.M. Hill & Sons Ltd v London Borough
of Camden.
 All the factors must be taken into account and it seems
that whether the contractor is proceeding diligently is a
question of fact, depending on all circumstances.
for Default
 Greater London Council v Cleveland Bridge &
Engineering Co Ltd [1984]
 In the result, the overall deadline had been
complied with, and since it was a general principle
of building contracts that it was for contractor to
plan and perform his work as desired within contract
period, it could not be said that contractors had
failed to exercise due diligence and expedition.
 Employers need to exercise caution in relying on this
ground to determine employment unless contract
completion date has passed or it is patently
obvious that it will not be met.
for Default
 CAN THERE BE TERMINATION FOR PROJECT
DELAYS?
 Construction contracts envisage the likelihood of delay:
 Detailed provision on extension of time
 Imposition of liquidated damages for delayed completion
 Construction contracts are typically not terminated for

mere delay but it does not mean that there can never be
termination for delay.
for Default
 CAN THERE BE TERMINATION FOR PROJECT
DELAYS?
 Contractor’s failure to proceed with the Works with due
diligence or expedition may form the basis for
termination:
 Clause 31.1(1)(c) PSSCOC; Clause 30.2.1.2 REDAS (3rd
Ed); Clause 32(3)(d)(i) SIA 2016
 Legal test for what amounts to failure to proceed with
diligence and due expedition spelt out in Jurong
Engineering Ltd v Paccan Building Technology Pte Ltd
(“Jurong Engineering”)
for Default
Relevant facts in Jurong Engineering:
 Delay in subcontractor’s works due to insufficient
manpower
 Various complaints of delay and continued lack of
satisfactory progress were recorded, and the
subcontractor was asked to submit a recovery schedule
 Subcontractor submitted recovery schedule and promised
to increase manpower
 Recovery schedule not adhered to; rate of progress
worsened
 Contractor terminated the subcontractor
for Default
Relevant facts in Jurong Engineering:
 Court of Appeal found that the subcontractor had

failed to proceed with due diligence
 Court of Appeal made this finding by comparing

the actual progress of certain key items of
works against the baseline programme and
recovery schedule
for Default
 Persistently failed to remove Plant, materials, goods
or works from site or to pull down and replace work
following expiry of 14 days from receipt by Contractor
of written notice by S.O. to the effect that the Plant,
materials, goods or works have been condemned and
rejected by S.O .
 PSSCOC: Cl 31.1(1)(d)
 SIA: Cl 32(3)(e) – unreasonably delayed
 Persistencesuggests that there must be
reminders ignored. A simple failure by contractor
to comply with a written instruction without a
reminder could not be said to be persistent.
for Default
 Has acted in breach of Clause 30.1 (Assignment)
or 30.2 (subcontractors).
 PSSCOC Cl 31.1(1)(e)
 SIA Cl 32(3)(b) and (c)
 Persistentlyrefused or failed to comply with a
written SOI which SO is empowered to give.
 PSSCOC Cl 31.1(1)(f)
 SIACl 32(3)(h) following one month written
notice to comply
for Default
 Has wholly suspended work without justification.
 PSSCOC: No provision
 SIA: Cl 32(3)(d) (suspension) and (g) (repeated failure)
A partial suspension is not sufficient. The operative word
is ‘wholly’, which means ‘completely or totally’. Any thing
less than total cession of work may constitute failure to
proceed diligently.
 Suspension does not imply that contractor must
necessarily have left the site but merely that no work is
being carried out.
 There must not only be a suspension but a suspension
‘without justification’ and this is where the difficulty for
employer arises. It is suggested that if employer is himself
in default in a manner which entitle contractor to
determine his own employment, this would constitute
‘justification’.
(with TC)
 Where a Termination Certificate is issued,
Employer needs to meet any of the following
requirements in Cl 31.1(2)(e):
 Default certified has not been made good
within 7 days;
 Default certified has been repeated within 30
days;
 Any other default, though not certified, has
been committed by Contractor within 30 days
of the issue of the Original Termination Cert.
for Default
 Termination Certificate not required: Contractor
 Has committed an act of bankruptcy
 Becomes bankrupt or insolvent
 Makes a composition with creditors
 Any winding up order of any kind is made
 Receiver or Manager or Judicial Manager of the
Contractor’s undertaking or assets is
appointed.
 Possession taken or execution levied by
creditors or debenture holders
 Under a floating charge
 PSSCOC: Cl 31(2)(a)
 SIA: Cl 32(7) (Automatic Termination.)
for Default
 PSSCOC (Termination Certificate not required):
The Contractor
 Failed to provide the security deposit
 Failed to insure the Works or to deposit
insurance policies or receipts for premiums
 Offered any gift or consideration as an
inducement or reward for doing any action in
relation to the obtaining of this Contract with
Employer
 Committed offence under Penal Code or
Prevention of Corruption Act.
 PSSCOC: Cl 31(2) (b) to (d) (on policy grounds)
 SIA: No provision.
Definition of Insolvency
 A company is insolvent if it is unable to pay its
debts as they fall due.
 S 125(2)(c) of the Insolvency, Restructuring and
Dissolution Act 2018 (“IRDA”):
 –“A company is deemed to be unable to pay its
debts if… it is proved to the satisfaction of the
Court that the company is unable to pay its
debts; and in determining whether a company is
unable to pay its debts the Court must take into
account the contingent and prospective
liabilities of the company.”
Definition of Insolvency
 Generally, Singapore Courts apply the “cash-flow
test” to determine insolvency of a company –See
Court of Appeal case of Sun Electric Power Pte
Ltd v RCMA Asia Pte Ltd[2021] 2 SLR 478 (at
[65]):
 –“… the cash flow test assesses whether the
company’s current assets exceed its current
liabilities such that it is able to meet all debts
as and when they fall due. … “current assets”
and “current liabilities” refer to assets which
will be realisable and debts which will fall due
within a 12-month timeframe, as this is the
standard accounting definition for those terms.”
Type of Liquidation Process
 Out-of-Court process(or “voluntary” liquidation) –

Creditors’ voluntary liquidation (“CVL”)
 By way of special resolution passed by members (i.e.
shareholders) of company
 Sometimes, company may choose to appoint
provisional liquidators first pending the calling of the
general meeting and passing of special resolution
 Meeting of creditors will also be called to approve
appointment of proposed liquidators
 Case example: Greatearth entities’ liquidation was via
CVL
Type of Liquidation Process
 Court process(or “compulsory” liquidation) –
Application to Court (e.g. by a creditor) to
wind up company
 Applicant proposes liquidator
 If winding-up application is resisted by
company, Court will decide whether company
should be wound up, including whether
company is insolvent (applying “cash-flow”
test)
 Case example: Hyflux wound up by order of
Court
Winding Up /Liquidation
 What happens if a company is wound up or goes into
liquidation?
 Company ceases business / trading
 Liquidators(usually a public or chartered accountant) are
appointed –Displaces management / board of directors
 Tasks of liquidators:
 Collect and realise assets (such as receivables, existing
goods, real property) of company for distribution to
creditors in fair manner
 Have powers to conduct investigations into any
wrongdoing (e.g. by former directors or officers) or
suspicious transactions entered into by company prior to
winding-up (e.g. which may have effect of “stripping”
company of assets before liquidation)
Winding Up/ Liquidation
 Can sue / commence legal action for damages
and/or to recover / “claw back” assets
 Moratorium on legal proceedings against the
company
 Creditor not allowed to take out or continue
attachment (transfer of debtor asset to creditor)
or execution proceedings against the company
 After affairs of company are fully wound up,
liquidators would be released and company
dissolved (i.e. cease to exist)
Quasi Insolvency Regime
 Judicial Management
 Scheme of Arrangement
Judicial Management
 An alternative to liquidation
 Available only in respect of a locally
incorporated company.
 Court makes order for JM and appoints a JM
to manage affairs and business of company.
 JM is the process by which an objective and
professional assessment of an insolvent
company’s prospect is reached.
Judicial Management
 During the period while the JM is making

this assessment, the court imposes a
moratorium on all claims, proceedings, etc
against the insolvent company.
 Usually, JM is a remedy sought by an
insolvent company to starve off actions by
creditors where there is still hope for the
rehabilitation of the company.
 Under JM, possible for the insolvent
contractor to complete the existing projects
Scheme of Arrangement
 A statutory regime, allowing for the re-
organisation of the company’s debts.
 Facilitates and enables company to enter into
binding arrangement or compromise with
creditors.
 Require majority in number representing 50%
in number/75% in value of creditors present
and voting for binding effect.
 Need approval of Court.
 Company can continue to exist under SOA.
 Under SOA, possible for the insolvent
contractor to complete the existing projects
Scheme of Arrangement
 Some possible proposals to creditors

 Compromise Scheme
 Write off a% of its debts
 Moratorium Scheme
 Defer time of repayment
 Debt for equity swap
 Combination of the above
Terminating a Contract
on Insolvency
 Provided in all major standard forms
 Overriding effect of insolvency laws.
 Power to affirm or negotiate resides with
statutory official – the Official Assignee or
Liquidator.
 Contract cannot provide for a different
distribution of assets from that directed by
insolvency laws.
on Insolvency
 CREDITORS’ CLAIMS AND DISTRIBUTION
 Secured or unsecured claims? Or both?
 Performance guarantees / bond?
 Sufficient to cover all claims?
on Insolvency
 Unsecured component: No full recovery –How many
cents (c) to a dollar ($)?
 Recovery from “common pool” with other unsecured
creditors
 Any distribution from ‘common pool’ will be on a
pari passu (“equal footing”) basis. s 172 IRDA
 “… Subject to the provisions of this Act as to
preferential payments, the property of a company
must, on its winding up, be applied pari passu in
satisfaction of its liabilities …”
on Insolvency
 Pars Ram Brothers (Pte) Ltd (in creditors’ voluntary
liquidation) v Australian & New Zealand Banking Group
Ltd[2018] 4 SLR 1404 at [15]:
 “The pari passu method involves the pari passu sharing
of the total pool of assets according to what each of the
claimants are owed, ignoring the dates on which they
have made their respective investment or
contribution...”
on Insolvency
 Basically, pari passu means pro-rata distribution.
 To illustrate –Assuming there are only 2 unsecured
creditors:
 Creditor A entered into earlier contract with company
and is owed S$5m, which debt arose earlier in time
 Creditor B entered into a later contract with company
and is owed S$10m, which debt arose later than
Creditor A’s debt
 There is only S$5m left in common pool
on Insolvency
 Creditor A is not paid in full ahead of Creditor B.
Instead, they will both receive distributions in the
following amounts on a pari pasu basis:
 Creditor A: S$5m/S$15m x S$5m = Approx. S$1.67m
 Creditor B: S$10m/S$15m x S$5m = Approx. S$3.33m
 In other words, general rule is that no unsecured
creditor is paid first
 However, there are exceptions and no guarantee that
there will be anything left in “common pool”…
on Insolvency
 What to do to protect interests?
 Enforcewhatever security you may have –Call on
performance guarantee / bond
 Ifyou have guarantee against parent company or
individuals (such as director), can enforce the
guarantee
 Forbalanced unsecured amount, to file Proof of Debt
(“POD”) in liquidation
 Can include in POD debts whether presently payable
or payable in the future, and whether certain or
contingent (see s 218 IRDA)
on Insolvency
 These would include:
 Liquidated damages (“LD”) arising from delay in
completion
 Additional costs that may be incurred in engaging
replacement contractor to complete works
 Liquidators will adjudicate claims in POD –Any dispute
/ disagreement, can appeal to Court
 Too late? Should look out for tell-tale signs of financial
distress?
on Insolvency
 Joo Yee Construction Pte Ltd v Diethem
Industries Pte Ltd [1990] 2 MLJ 66
 Main Contractor was wound up. Owner
sought to pay NSCs direct under an express
contract provision.
 Held: such payments contravene the
Companies Act and are thus void against
the liquidator.
on Insolvency
 Joo Yee Construction Pte Ltd v Diethem Industries Pte
Ltd [1990] 2 MLJ 66
“Upon liquidation of an insolvent company (whether
voluntary or compulsory), subject to the rights of
preferential creditors and also secured creditors, if
any, its property must be applied in settlement of
its liabilities pari passu, and any contract made by
the company which provides for a distribution of
any of its property for the benefit of one or more
of its unsecured creditors which runs counter to or
seeks to vary this rule, i.e. any “contracting out”, is
contrary to public policy, and the law as regards
distribution of the insolvent’s property under the
insolvency legislation must prevail. …
on Insolvency
 Joo Yee Construction Pte Ltd v Diethem Industries Pte
Ltd [1990] 2 MLJ 66
Now, these sums are owed by the plaintiff [i.e. the main
contractor] to the three [subcontractors] respectively:
they are liabilities of the plaintiff. Therefore, if the
Government [i.e. the Employer] elects to make payment
of these sums to the three defendants … and in
consequence deducts these amounts from moneys due
or payable to the plaintiff, it is in effect distributing to
the three unsecured creditors of the plaintiff sums of
money which would otherwise be paid to the plaintiff
and form part of the general assets of the plaintiff
available for distribution among all its creditors pari
passu.”
on Insolvency (JM & SOA)
 Key implications for creditors (including Employers):
 Although in both cases company can continue its
business, expect delays in projects
 Risk that restructuring fails?
 Better off terminating on other grounds?
 For scheme, you may have to be prepared to take a
“haircut” on your claim and/or the debt owed to you
could be “termed out” (i.e. repaid over a much
longer period of time)
 Whether to support JM or scheme may depend on
your specific interest – as Employers vs sub-
contractors/ suppliers.
on Insolvency
 Fact of contractor’s insolvency (e.g. commencement of liquidation)
per se is usually an event of default entitling the Employer to
terminate
 See Clause 31.1(2)(a) PSSCOC –Example of an ipso facto(“by the
fact itself”) clause
 “(2) If the Contractor:
 (a) has committed an act of bankruptcy or becomes bankrupt or
insolvent or makes a composition with creditors or if, being a
company, any winding up order of any kind is made, or a receiver
or manager or judicial manager of the Contractor’s undertaking or
assets is appointed, or possession taken or execution levied by
creditors or debenture holders or under a floating charge;”
 But what about other insolvency proceedings such as judicial
management and scheme of arrangement?
on Insolvency
 Restriction on ipso facto clauses–s440 IRDA
on Insolvency
 Applies while company is undergoing specified
“proceedings” which is generally defined to refer to
scheme of arrangement and judicial management
proceedings. But does not apply to liquidation.
 Applies to contracts entered into on or after 30 July
2020 and for specified proceedings commenced on or
after 30 July 2020.
 Despite express clause, cannot terminate on ground
that insolvency proceedings such as judicial
management / scheme of arrangement are commenced
by insolvent contractor.
on Insolvency
 How to mitigate s 440?
 s 440 does not affect other contractual rights to
terminate for other reasons / default
 See 2nd Reading Speech of (then) SMS Edwin Tong in
Parliament (1 Oct 2018):
 “At this juncture, it is necessary to make clear that
clause 440 only limits a certain specific subset of ipso
facto clauses… It does not affect ipso facto clauses
that are triggered on any other contractually
provided grounds. So let me illustrate.
on Insolvency
 In a case of a developer and a main contractor
entering into a contract for the construction of a
building, where the contract contains ipso facto clauses
that may be triggered either on the commencement of
restructuring proceedings, or the failure to meet
construction milestones, which is not untypical in such a
contract:
 a. If the main contractor is in financial distress and files
an application to Court to place the company into
judicial management, the developer will be restricted
by clause 440 from relying on the ipso facto clause,
because it is triggered by the filing of the application
for a judicial management order, which is one of the
on Insolvency
 b. If, however, in addition to the filing of the
restructuring proceedings, the main contractor also
fails to meet construction milestones and timelines,
which are built into the contract, the developer may
use the ipso facto clause in that situation, to
terminate the contract or for a variety of other
reliefs as specified in the contract. So it is only by
reason of the restructuring efforts set out in Clause 440
alone that these ipso facto clauses are restricted.”
on Insolvency
 Better drafting of contract?
 Consider including potential events of default. For
example, any failures on the part of the contractor
which are likely or bound to occur if the contractor
undergoes specified insolvency proceedings such as
judicial management?
 Pegging the event of default to an observable /
objective criteria linked to the contractor’s ability to
perform the contract in the event that it is in financial
distress
 In all the circumstances, the Employer must

serve a Notice of Termination of
Employment of the Contractor (PSSCOC).
 Pursuant to Clause 36.2(4), this notice must
be pre-paid registered mail or hand delivery
to the Contractor.
 Employment of Contractor is terminated upon
the receipt of the termination notice.
Notification Requirements
 Classic case which demonstrates the importance
of following closely the termination procedure:
 Central Provident Fund Board v Ho Bok Kee
(Court of Appeal, Singapore 1981) 2 MLJ 162
 Contract provided termination notice to be
served by registered post. Employer had the
notice served by recorded delivery.
 Held: Service by registered post could not be
substituted by recorded delivery.
 Upon true construction of clauses in contract,
the right to give the notice of default is
reserved to Chairman of CPF Board. The
notice of default signed by SO is accordingly
invalid.
 There is gap in procedure in that no time was

specified for the employer to act after
receiving the architect ’s certificate.
 It was held in the case of Mvita Construction v
Tanzania Harbours Authority (1988) that the
employer was bound to give his notice within
a reasonable time after the engineer’s
certificate to avoid a change in
circumstances.
 If the employer delays beyond a reasonable
time he may also be held to have waived the
right to terminate in that particular case.
 WHEN MUST THE RIGHT TO TERMINATE BE EXERCISED?

 When the party terminating has sufficient knowledge:
 That it has the right to terminate –i.e. aware that a
ground for termination has occurred
 To decide whether it should terminate
 A party that has a valid right to terminate may, by its
words or conduct:
 Waive its right to terminate; or
 Elect to affirm the contract
and thereby lose the right to terminate
 See English case of Tele2 International Card Company

SA & Orsv Post Office Ltd where the innocent party
terminated the contract about 11 months after the
relevant repudiatory breach. The English Court of
Appeal held that such termination was wrongful
(notwithstanding the existence of a non-waiver clause)
as the continued performance of the contract for
nearly a year constituted a waiver by election.

 Can the innocent party impose certain conditions to be
met, failing which, it can still exercise the right to
terminate?
 Yes: See Jurong Town Corp v Wishing Star Ltd:
 Facade contractor engaged for the Biopolis Project
made various misrepresentations to JTC at the time
of tender, which entitled JTC to terminate
 JTC conditionally elected not to terminate if the
contractor engaged certain 3rd party suppliers

 Can the innocent party impose certain conditions to be
met, failing which, it can still exercise the right to
terminate?
 The contractor failed to engage the said suppliers –
i.e. failed to meet JTC’s conditions
 JTC terminated. Contractor challenged termination
 1stSingapore case on doctrine of conditional
election where Court of Appeal overruled the High
Court and found that JTC was entitled to terminate.
Termination on Grounds of
Contractor’s Insolvency
 SIA Form[Cl 32(7)]
 Termination is automatic. However, if
employer intends to rely on the clause, he is
well advised to inform contractor, his trustee
in bankruptcy or liquidator of his reliance on it,
even though the clause does not specifically
require this, so as to avoid a claim that he has
waive his rights under it .
 PSSCOC [Cl 31.1(2)(a)]
 Termination is not automatic here. The
Employer is given the option of whether to
give notice of termination to the Contractor.
 PSSCOC is one of the few COCs which does not
provide for automatic termination.
Termination on Ground of
Employer’s Default or Insolvency
 SIA Form [Cl 33(1) and (2)]
 Grounds for termination:
 Failure to engage successor Arch or QS nominated
 Interfering with issue of Arch’s certificate or
collusion
 Insolvency of Employer
 Termination is not automatic.
 Contractor is required to serve Notice of Termination.
 PSSCOC
 No provision.
 Only common law remedies are available to
Contractor.
Tell-tale Warning Signals
 Signs of impending insolvency
 Disappearance of materials and plant from
site
 Complaints from sub-contractors and
suppliers that they have not received
payments or been paid promptly
 SOP Act adjudications between main
contractor and sub-contractors
 Late or non-delivery of goods and materials
 Decrease in labour force on site including site
supervisors resulting in poor quality work and
higher incidence of defects
 Over claims by contractor in payment claims
Tell-tale Warning Signals
 Signs of impending insolvency (Cont’d)
 Slowing down in progress of works
 Lack of or failure to proceed with diligence and due
expedition in carrying out the Works
 Frequent changes in management personnel/
subcontractor/consultant without good reason
 If Works are in early stages of construction phase,
inability of contractor to provide performance bond
 Unprecedented requests for faster payment of
certified sums and advance payment
 Sub-contractors requesting direct payment from
Employer
 Interim valuations falling behind target figures on
expenditure in the projected cash flow forecasts
Pre-emptive Measures
 Until the Contractor’s insolvency becomes
certain and a fact, pre-emptive measures can
be undertaken in the interim window period by
the Consultants:
 Check quality of materials and workmanship
and request for immediate rectification if
they do not comply with the contract.
Failure to give regard to AD or SOI justifies
issue of a notice requiring compliance.
Pre-emptive Measures
 Ensure that goods and materials delivered to or on
site are adequately protected.
 Instructsite staff not to allow unauthorised
removal of goods and materials – as may be
expected when creditors seek to minimise losses
for unpaid items delivered to site.
 Review payment valuations for any over-
valuation of work done and unfixed goods and
materials on site, or preliminary items where
progress lags behind programme.
 Check performance bond to ensure it is still
operative.
Termination Without Default
 PSSCOC Clause 31.4 and SIA Cl 32(1)
 This provides certainty with regards to the
liability of the Employer i.e. Employer’s liability
is limited to that set out in this clause.
 The Employer may give a Notice of
Termination and the Contractor’s employment
is terminated immediately.
 The Contractor shall immediately vacate Site,
removing all his Construction Equipment and
labour force and give up possession of Site.
 SIA: Arch has no certifying powers as to Sum
due to Contractor.
 PSSCOC: SO to certify sum due to contractor.
Effect of Termination
ADVERSE CONSEQUENCES OF TERMINATION
 Delays to completion of the Project
 Increased cost to complete the Project for Employer
 Managing sub-contractors’ claims for outstanding
payment
 Taking over of works, plant, equipment and material
 Warranty for completed works
 Defects in completed/partially completed works
ALTERNATIVES TO TERMINATION
 Taking work off main contractor and engaging third
parties:
 Based on breach
 By instructing an omission (but main contractor may try to
claim loss of profit on omitted works)
 By mutual consent
 Employer making direct payments to sub-contractors to
secure their continued involvement:
 Risk of unfair preference
 “Double” payment by Employer
 Can payment to sub-contractors be recovered from main
contractor?
 Under SIA Conditions

 Clauses 32(8)(a) to (h)
 Clause 32 (9)
 Under PSSCOC
 Clauses 31.2.(1) to (3)
 Clause 31.3
 1. Employer’s right to use other contractors to
complete remaining work
 SIA Form Cl 32(8)(b)
 PSSCOC
 No express provision.
 However,employer’s right to engage other
contractors may be implied in Cl 31.2(1) “…the
Employer or any other Contractor appointed by
him…”
Re-Possession of Site
 Upon receipt of notice of termination,

Contractor must immediately vacate and
surrender possession of site to Employer,
leaving behind all construction equipment,
etc other than those he was instructed to
leave behind.
 PSSCOC: 31(2)
 SIA:
Cl 32(5) Damages Contractor’s Only
Remedy
 London Borough of Hounslow v Twickenham

Garden City Development [1970] 3 All ER 326
 Works were slow and Arch gave notice to
terminate. Employer terminated
employment of Contractor. Contractor
refused to accept determination and
refused to leave the site. The English Court
held that they could not be expelled from
the Site.
 Contractor is entitled to remain on site

 Employer is excluded until it is decided
whether determination was valid.
 Stalemate
 Withdrawal of certification and interim
payment machinery.
 In Royal Design Studio v Chang Development

[1991] 3 MLJ 269, Thean J raised the difficulties
which are likely to be posed by the stalemate
between the parties and then proceeded to rule
that:
 “Even if the termination was wrongful, the
plaintiff would still have to vacate the site
and deliver possession thereof to the
defendant. The Plaintiff may proceed with its
claim against the defendant for damages.”
 2. Employer’s right to use materials and

equipment brought to the Site
 SIA Form: Cl 32(8)(b), (d) and (h)
 PSSCOC: Cl 31.1 (2) and 31.2(1)
Vesting Clauses
 Principal objects of vesting clauses are to:

 Provide security to the employer for money
advanced.
 Enable the Employer to obtain the speedy
completion of the works by another
contractor in the event of the original
contractor’s default, by providing materials
and plant on the site that are ready to use
and free from claims of original contractors,
his creditors or liquidator.
Vesting Clauses
 Clause 16 of SIA Form

 Allplant and temporary buildings brought
onto the Site shall…be deemed to be the
property of the Employer…Upon completion as
aforesaid, or removal with consent, the
property therein shall be deemed to revest in
the Contractor. [Cl 16(1)]
 PSSCOC: Cl 24.2 and 24.5.
Vesting Clauses
 Clause 16 of SIA Form
 Hired or hire-purchase or leased plant or
equipment…. Not owned by the Contractor
himself, shall not be brought on to the Site
without the consent of the Arch. [Cl 16(4)]
 PSSCOC – Cl 24.4
 Owner of such equipment, plant will consent to
the assignment by the Contractor to the
Employer of the benefit of any hiring or hire
purchase or leasing or other agreement made
with the Contractor upon termination. [Cl
16(4)(a)]
 PSSCOC – Cl 24.4
Vesting Clauses
 Clause 16 of SIA Form [PSSCOC: Cl 24]
 While the Contrast provides for assignment of
the hire or hire-purchase agreement , in
practice, it may be difficult to enforce as the
hirer would first seek payment of any
outstanding hire charges due and owning to him
prior to agreeing to such assignment or
negotiate new agreements with Employer.
 Almost certainly if any assignment is going to
work in practice, the employer will have to take
both the benefits and the burdens. Since the
burdens will include payment of sums
outstanding, the employer will usually be better
off simply by reaching new agreements with
suppliers and sub-contractors.
Vesting Clauses
 Clause 16 of SIA Form [PSSCOC: Cl 24]
 Property in unfixed materials and goods
delivered to the Site shall vest in the employer
upon delivered to the Site and, save as
aforesaid, only revest in the Contractor to the
extent that surplus materials or goods may be
found to exist upon or prior to completion. [Cl
16(2)].
 Contractor or trustee or liquidator etc shall
formally assign benefit of agreement if required
to do so [Cl 16(5)].
Vesting Clauses
 Clause 24.2 of PSSCOC

 AllConstruction Equipment …….owned by the
contractor, or by any company in which the
Contractor has a controlling interest, shall
when on the Site shall be deemed to be the
property of the Employer…”
Are Vesting Clauses enforceable
in the event of insolvency?
 These are greater powers in theory than in practice.
They would work to the full only if the contractor
had title to all the equipment, temporary works and
unused goods and materials.
 He may have little title with most equipment and
temporary works on hire and most unused goods and
materials not paid for.
 The employer’s claims may be valid against the
contractor’s legal successors but against third
parties it has to be recognized that contractual
provisions count for little.
Are Vesting Clauses enforceable
in the event of insolvency?
 Whether a vesting clause would achieve its
purpose depends on the words used.
 “Materials shall be and become” effectively
transfer title – Bennett, etc Ltd v Sugar City
[1951] A.C. 786 at 814
 “Considered to be” or “deemed to be” may
be ineffective – Smith (as administrator of
Cosslett Contractors) v Bridgend Country
Borough Council [2002] BLR 160
Are Retention of Title Clauses
Effective in Building Contracts?
 Where suppliers contract to supply materials for
building contracts, unless the contract expressly
stipulates otherwise, the property will usually pass
not later than the time when they are delivered.
 Therefore, if intention is to retain legal ownership
or title in the materials until payment, then
contract must expressly state so.
 However, such a clause may not effectively extend
beyond the time when the materials are
incorporated into the works.
Are Retention of Title Clauses
Effective in Building Contracts?
 However, a clause in a main contract stipulating
that the property in unfixed materials was to pass
to the employer when their value had been
included in an interim certificate under which the
contractor had received payment was held
ineffective to transfer to the employer property in
a sub-contractor’s materials where property had
not passed from the sub-contractor to main
contractor.
 3. Direct Payment to Sub-Contractors
 SIA Form: Cl 32(8)(c)
 This provision may be necessary for sub-
contractor to continue to carry out the works
as unpaid sub-contractors may not continue
their works unless payment for work done is
made.
 PSSCOC: No provision
 Joo Yee’s Case where it was held that such
provision was contrary to public policy. To
avoid making double payments, Employer
should be aware of potential challenges from
Liquidator.
 4. Termination of Nominated Sub-Contracts
 SIA (NSC): Cl 13.5
 Providesfor termination of sub-contract if Main
Contract is terminated “for any reason
whatsoever”.
 PSSCOC (NSC): Cl 26(1)
 The employment of the Sub-contractor under
the Sub-Contract shall be terminated if “for any
reason the Contractor’s employment under the
Main Contract is terminated (whether due to
any default of the Contractor or otherwise)”.
Follow-up Actions after
Termination
 Insurances
 Employer as a joint insured and having
assumed responsibility for unoccupied site and
half-built works should immediately notify
insurers of Contractor’s position.
 Arrange for additional cover for temporary
buildings, plant, tools and construction
equipment left on site (which would have
been excluded from CAR insurance).
Termination
 Insurances (Cont’d)
 Policyremain operative until fresh insurance
cover taken up under Completion Contract.
 Where a general insurance policy has been
maintained by Contractor, Employer must
take immediate action to confirm the
existence and continuance of policy by
writing to the insurers.
Termination
 Site Safety
 Site must be made secured
 Additional hoardings to those already
existing
 Deployment of 24-hr security personnel to
prevent theft, vandalism and entry of
unauthorised people.
Termination
 Safety and Emergency Works
 Parts of completed building which pose a
danger must be immediately made safe and
stable to prevent accident and collapse due
to defective construction, deterioration or
exposure to weather
 Completed work has to be protected until
such time a new Contractor is appointed and
work resumes on site.
Termination
 Temporary Water and Power
 Make arrangement for the existing accounts
(opened in Contractor’s name) to be transferred
to the Employer.
 Vector Control
 Implement comprehensive vector control
programme to prevent unoccupied site become
favorable to breeding of mosquitoes and other
vectors.
Termination
 Site Inventories
 Take inventories of all materials, goods and
plant on site
 Also on the state and extent of completed
work.
 Take photographic records and detailed notes
to supplement inventory record as they can
prove useful for evidential purposes by various
people are later stage of financial settlement.
Termination
 Defects Survey
 Carryout Defects Survey on Contractor’s
completed work to record nature and scope of
works requiring rectification by Completion
Contractor.
 Only patent defects can be recorded
 Itdoes not mean Contractor will not be liable for
latent defects appearing during Completion
Contract.
Procurement Management
 Factors to be considered in deciding the type of
procurement or tender arrangement for
Completion Contract:
 Nature and extent of work remaining to
achieve completion
 Time available for tender documentation and
procurement
 Additional post contract work required – e.g.
redesigning to correct defective work.
 Competitive Tender or Negotiated Contract?

 If negotiated, there must be practical
grounds or justification that accepted sum
is reasonable.
 BQ,LS or SOR?
 Works of emergency nature is best carried out
separately on SOR or where it is not measurable,
even on daywork basis.
 Iftermination occurs in early stage of Contract and
large % of works remains to be carried out, more
expedient to take original BQ and adjust by
measured quantities for work completed.
 Where Works are near completion at termination
and only piecemeal work remains to be done, a
lump sum contract containing Schedule of Work
Items may be appropriate arrangement.
 Tender Documents
 Amended drawings issued by design
consultants, suitably marked up to show the
actual scope of work.
 Where work to be carried out cannot be
easily communicated by drawn or
descriptive info or specs, it may be
beneficial to conduct site showround to
explain intricacies of what needs to be
done.
 Tender Documents to make provisions for:
 Completion of partly executed work
 Making good of defective construction in original
work (patent and latent) and damaged parts as
result of deterioration
 Disposal of deteriorated materials
 New NSCs or taking over and negotiating
subcontracts assigned to Employer by defaulting
contractor
 Credit allowed on inventories of temporary
buildings, plant, equipment, unfixed materials
taken over in bulk by Employer for use in
completing the Works.
Financial Settlement
 SIA Form
 Cl 32(8)(e)
 PSSCOC
 Cl 31.2 and 31.3
 Arch or SO is not required to issue further payment

certificate.
 SIA Form: Within 3 months of completing the Works
by completion contractor, Arch and QS will jointly
issue a Cost of Termination Certificate.
 PSSCOC: SO has to certify the amount payable from
one party to another depending on whether
Employer’s Cost exceeds the amount accruing to
Contractor upon due completion of the Works.
 It involves drawing up:

 An account of the costs and expenses
incurred by Employer to achieve completion
of Works (Employer’s Cost).
A final contract sum (or called the
hypothetical or notional final account) for
the whole of the Works as if the original
Contractor had completed them and his
employment had not been terminated.
 Cost and Expenses incurred by Employer:

 Amt previously paid to original Contractor
 Amt paid to Completion Contractor to have Works
completed
 Direct payments made to NSCs who have not been
paid by original Contractor.
 Professional fees for additional time spent in
preparing tender documents, issuing amended
drawings and for process of inviting competitive
tenders.
 Legal costs in connection with termination
 Miscellaneous costs arising from repossession of
site by Employer
 Site security and additional hoardings
 Site safety and emergency works
 Temporary water and power
 Vector Control measures
 Site Staff salaries during period of delay

 Insurance premiums for
 Alterationsin scope of the cover during
period between termination date and
commencement date of completion contract
 Completion Contract
 Additional finance charges
 Goods and services tax on additional cost
incurred by Employer to complete the Works.
 Final Contract Sum (Notional Final Account)

 Coats of all variations for both original and
completion contracts priced on the basis of
the original contract rates
 Additional payment or compensation for any
extension of time granted to the Contractor
prior to termination
 Hypothetical final sub-contract values of
designated and nominated sub-contractors
 The costs and expenses items (Employer’s Cost)are

set against the final contract sum (notional final
account) for the Works.
 Resultant difference is a balance due from one
party to the other, upon issue of the Cost of
Termination Certificate (SIA Form).
 SO will certify sum payable from Contractor to
Employer or vice versa, depending on whether
Employer’s Cost exceeds the sum that would have
been paid to Contractor upon due completion of
the Works (PSSCOC).

Termination: Termination For & Without Default Effects of Termination

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Termination: Termination For & Without Default Effects of Termination

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Termination

Termination for & without default

 Employment of contractor may be terminated

 Construction contracts are typically not terminated for

 Court of Appeal found that the subcontractor had

 Court of Appeal made this finding by comparing

 Out-of-Court process(or “voluntary” liquidation) –

 During the period while the JM is making

 Some possible proposals to creditors

 In all the circumstances, the Employer must

 There is gap in procedure in that no time was

 WHEN MUST THE RIGHT TO TERMINATE BE EXERCISED?

 WHEN MUST THE RIGHT TO TERMINATE BE EXERCISED?

 See English case of Tele2 International Card Company

 WHEN MUST THE RIGHT TO TERMINATE BE EXERCISED?

 WHEN MUST THE RIGHT TO TERMINATE BE EXERCISED?

 Under SIA Conditions

 Upon receipt of notice of termination,

 London Borough of Hounslow v Twickenham

 Contractor is entitled to remain on site

 In Royal Design Studio v Chang Development

 2. Employer’s right to use materials and

 Principal objects of vesting clauses are to:

 Clause 16 of SIA Form

 Clause 24.2 of PSSCOC

 Competitive Tender or Negotiated Contract?

 Arch or SO is not required to issue further payment

 It involves drawing up:

 Cost and Expenses incurred by Employer:

 Cost and Expenses incurred by Employer:

 Final Contract Sum (Notional Final Account)

 The costs and expenses items (Employer’s Cost)are

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