2. 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. 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).
4. 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.
5. Garnishment proceeding
This procedures involves an action by a third
party other than the contractual parties (privy),
normally the creditor, to get the court order for
the money owed to the creditor from the third
party who actually holds money for the debtor.
E.g Creditors/sub contractors claimed from the
employer for the retention fund which is hold by
the employer on behalf of the main contractor.
6. The third party has to be within the jurisdiction of
the court.
A preliminary order is made to establish the
availability of the third party’s debt for the
purpose and then an order nisi is shall be issued
by the court and served on the third party
requiring the garnishee to show cause, i.e to
dispute the order if he has valid grounds.
7. The third party in the proceedings is known as
‘garnishee’.
Payment by the garnishee to the creditor
constitute as a valid discharge of the
garnishee liability to the debtor.
This order is available under Subordinate
Court Rules 1980, Order 33, rule 8 of
Garnishee Proceedings.
8. Lee Kam Chun v Syarikat Kukuh Maju Sdn. Bhd
(Syarikat Perumahan Kerajaan Sdn Bhd, Garnishee)
The plf is the sub contractor . He seek to recover money
due to him from the main contractor by way of
garnishee order on the retention fund held by the
employer.The contract between the employer and the
main contractor adopted the PAM 69 form. As a result
of the garnishee to show cause order being served on
the employer (the garnishee), the employer terminated
the main contractor(def) contract and appointed another
contractor to complete the work.
9. To avoid the garnishee order, the employer claimed
that the retention money was not available on three
grounds;
1. The employer has rights towards the fund as
damages due to termination of the contract
2. The architect had not issued that were
necessary for the release of the retention
fund
3. Cl 30(4)(a) of the contract allowed recourse
of the retention money where sums were
recoverable under terms of the contract.
10. Peh Swee Chin J: The retention funds belonged
beneficially to the contractor and thus were a form of
accrued debt, even though payment of the money to
them was subject to certification by the architect…in
principle, they were suitable for attachment by way of
garnishee order. Although there were competing claims
for recourse to the retention fund, in this case the plf
had the prior claim as the order [garnishee] had been
served prior to the def’s termination of contract.
