Profile of set-off cases in Malaysian construction industry

Abstract

The problem of non-payment has long been lamented by the construction industry players. Payment default, as many in the industry know, poses potential undesirable consequences such as stifling the cash flow of industry participants, resulting in their insolvency, and affecting the entire project delivery chain. One of the reasons for non-payment is due to set-off. Set-off relates to the situation where an employer raises a counterclaim against the main contractor or where a main contractor raises a counterclaim against a sub-contractor’s claim. This kind of action had caused the main contractor or sub-contractor to bring action against the employer in reclaiming the money due to them. This study focus on developing the profile of set-off cases in Malaysian construction industry and has been done based on the year, types of parties involved, types of construction project, nature of set-off, amount of money involved and court judgment. This study mainly carried out through documentary analysis of court cases using the online e-database via Lexis Malaysia website. This study covers the set-off cases in construction industry reported by Malayan Law Journal (MLJ) between years of 1961 to 2010 and related to building contract only while the methodology of this study is on the secondary data analysis. Research finding identified that the period between years of 1991 – 2000 had the most set-off cases and the most party involved in construction set-off is between the employer and the main contractor. The analysis also identified that the most types of construction project is private project. Besides that, this study also found that most of the set-off is due to defective works and late completion with the most amount of money involved is between RM100,001 – RM1 million. It also found that 16 out of 22 cases were held as wrongful set-off by the judge. These have proved that in reality, the industry players still lack of understanding on their right of set-off. By developing this profile, hopefully it will provide the relevant parties a better understanding on the set-off and helps to prevent or minimize the disputes in the construction industry.