When I order some 1000 pieces of satay for a wedding, I expect the caterer to deliver on the exact date of the occasion. If the caterer delivers the satay one day late, the items are of no value to me. Here, time is of the essence of the contract.
In a construction contract, though it has often been said, and routinely reproduced as a boilerplate clause (see PWD203 cl 41.3 “Notwithstanding the provision of Clauses 42 and 45, time shall be the essence of this Contract”), it is strictly not accurate to state merely that “time shall be of the essence of the contract”: it would be more accurate and reflective of the intention of the parties to state that time would be of the essence with respect to which provision or provisions of the contract.
The possible legal consequences that can flow from the Contractor’s failure to complete the Works within the contractual time can be inferred from the provisions of section 56 Contracts Act 1950. The material part of section 56 Contracts Act 1950 is reproduced below:
“56(1) When a party to a contract promises to do a certain thing at or before a specified time, …, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of the essence of the contract.
56(2) If it was not the intention of the parties that time should be of the essence of the contract, the contract does not become voidable by the failure to do the thing at or before the specified time; but the promisee is entitled to compensation from the promisor for any loss occasioned to him by the failure.
56(3) If, in case of a contract voidable on account of the promisor’s failure to perform his promise at the time agreed, the promisee accepts performance of the promise at any time other
than that agreed, the promisee cannot claim compensation for any loss occasioned by the non-performance of the promise at the time agreed, unless, at the time of the acceptance, he gives notice to the promisor of his intention to do so.”
The insertion of a clause declaring time to be of the essence in a construction contract, unlike its insertion in other contract forms, will not normally, in and of itself, allow the innocent party to rescind or terminate the contract for any breach of a time condition. In determining the party's intentions, the court will look to all the particular terms and circumstances and may well import little meaning to the "time is of the essence" clause.
It can be said that in construction contracts, with the presence of extension of time and liquidated damages clauses, time is, more often than not, NOT of the essence with respect to completion date. That is to say, for the legal consequences flowing from a delay to the completion date or extended completion date in most construction contracts, the applicable provision in Contracts Act 1950 would be section 56(2).
Case Law
In Tan Ah Kian v. Haji Hasnan [1962] MLJ 400., Gill CJ identifies the following three situations when time would be of the essence:
(a) the parties expressly state in the contract that it shall be so;
(b) where it was not originally stated to be of the essence but it was subsequently made so by one party giving reasonable notice to the other who has failed to perform the contract with sufficient promptitude; or
(c) where from the nature of the contract or of its subject matter time must be taken to be of the essence.
Thursday, July 22, 2010
ENTIRE CONTRACT, SUBSTANTIAL PERFORMANCE
The older reported cases such as Appleby v Myers (1867)LR CP651 and Whitaker v Dunn (1887) 3 TLR 602 require complete performance by a promisor as a condition precedent to his right of recovery under an entire contract.
However the rigours of the common law has since been modified by later judicial pronouncements. It is now established by the doctrine of substantial performance that a promisor who has substantially performed his side of the contract may sue on the contract for the agreed sum, though he remains liable in damages for his partial failure to fulfill his contractual obligations.
At common law, substantial performance is an alternative principle to entire contract. This principle is relevant when a contractor's performance is in some way deficient, through no willful act by the contractor, yet is so nearly equivalent that it would be unreasonable for the owner to deny the agreed upon payment. If a contractor successfully demonstrates substantial performance, the owner remains obligated to fulfill payment, less any damages suffered as a result of the deficiencies in workmanship by the contractor.
Case Law:
Zainun Ali, JCA observed in Nirwana Construction Sdn Bhd v JKR NS(2008) that in the absence of express provision to exclude Substantial Performance, a contract cannot be regarded as Entire Contract
Gunn Chit Tuan, J. observed in KP Kunchi Raman v Goh Brothers Sdn Bhd (1978) 1 MLJ 89 in considering whether there had been substantial performance, it was relevant to take into account both the nature of the defect and the proportion between the cost of rectifying them and the contract price.
However the rigours of the common law has since been modified by later judicial pronouncements. It is now established by the doctrine of substantial performance that a promisor who has substantially performed his side of the contract may sue on the contract for the agreed sum, though he remains liable in damages for his partial failure to fulfill his contractual obligations.
At common law, substantial performance is an alternative principle to entire contract. This principle is relevant when a contractor's performance is in some way deficient, through no willful act by the contractor, yet is so nearly equivalent that it would be unreasonable for the owner to deny the agreed upon payment. If a contractor successfully demonstrates substantial performance, the owner remains obligated to fulfill payment, less any damages suffered as a result of the deficiencies in workmanship by the contractor.
Case Law:
Zainun Ali, JCA observed in Nirwana Construction Sdn Bhd v JKR NS(2008) that in the absence of express provision to exclude Substantial Performance, a contract cannot be regarded as Entire Contract
Gunn Chit Tuan, J. observed in KP Kunchi Raman v Goh Brothers Sdn Bhd (1978) 1 MLJ 89 in considering whether there had been substantial performance, it was relevant to take into account both the nature of the defect and the proportion between the cost of rectifying them and the contract price.
Obligation
Architect’s Contractual Obligation
1. Empowerment as Employer’s agent
2. Empowerment as Independent certifier
Employer’s Contractual Obligation
1. Make site available
2. Effect payment
3. Appoint Architect
Contractor’s Contractual Obligation
1. To carry out and complete works
2. To comply with specifications and instrructions
3. To preceed regularly and deligently
1. Empowerment as Employer’s agent
2. Empowerment as Independent certifier
Employer’s Contractual Obligation
1. Make site available
2. Effect payment
3. Appoint Architect
Contractor’s Contractual Obligation
1. To carry out and complete works
2. To comply with specifications and instrructions
3. To preceed regularly and deligently
Wednesday, June 23, 2010
Reappointment of Architect
Scenario:
1. Client appoints an Arch firm, Body corporate,
2. In PAM form, Arch is to be named as a "person" in article 3,
3. If the arch dies, what happens to the appointment of the firm in relation to the contract?
4. Client must re-appoint arch within 28 days but contractor has the right to object. There will be grounds for delay.
5. Would the client be forced to grant EOT & loss & expense if the there is continuous objection from the contractors?
My answer:
Firstly it is important to note that an architect is not a privy to a contract between the Employer and Contractor. The scope of empowerment an architect is strictly limited to the expressed provision of the contract.
Article 3 provides the insertion of the identity of the Architect which refers to a person. Although practice name is in the contract, the partner is personally looking after the job. As far as the contract is concerned, the Employer is under the common law duty to appoint another architect if the named architect ceases to be able to act for any reason (Croudace Ltd v London Borough of Lambeth(1986)).
Apart from the contract, the relation between the client and Architect also subject to the Memorandum of Agreement between the Client and Architect. If the Firm is named in the agreement, the Client may be obliged to name another partner as the Architect for the contract.
Now, if the Architect named in Article 3 dies, the employer has 28 days to nominate a successor. The right for the contractor to object is inserted because the new architect may be someone with whom the contractor has had unsatisfactory dealings in the past. The contractor has to put the reasons for objection in writing. If the employer thinks that the reasons are insufficient, the matter can be decided in arbitration, a situation to be avoided due to the delaying effect.
The rights for EOT are limited to the expressed provision in the contract. In the case of PAM2006 Form, if the contractor continuously objects the reappointment of architect and the reasons for objection are accepted by the employer or through an award of arbitration, EOT may be granted under clause 23.8(r).
1. Client appoints an Arch firm, Body corporate,
2. In PAM form, Arch is to be named as a "person" in article 3,
3. If the arch dies, what happens to the appointment of the firm in relation to the contract?
4. Client must re-appoint arch within 28 days but contractor has the right to object. There will be grounds for delay.
5. Would the client be forced to grant EOT & loss & expense if the there is continuous objection from the contractors?
My answer:
Firstly it is important to note that an architect is not a privy to a contract between the Employer and Contractor. The scope of empowerment an architect is strictly limited to the expressed provision of the contract.
Article 3 provides the insertion of the identity of the Architect which refers to a person. Although practice name is in the contract, the partner is personally looking after the job. As far as the contract is concerned, the Employer is under the common law duty to appoint another architect if the named architect ceases to be able to act for any reason (Croudace Ltd v London Borough of Lambeth(1986)).
Apart from the contract, the relation between the client and Architect also subject to the Memorandum of Agreement between the Client and Architect. If the Firm is named in the agreement, the Client may be obliged to name another partner as the Architect for the contract.
Now, if the Architect named in Article 3 dies, the employer has 28 days to nominate a successor. The right for the contractor to object is inserted because the new architect may be someone with whom the contractor has had unsatisfactory dealings in the past. The contractor has to put the reasons for objection in writing. If the employer thinks that the reasons are insufficient, the matter can be decided in arbitration, a situation to be avoided due to the delaying effect.
The rights for EOT are limited to the expressed provision in the contract. In the case of PAM2006 Form, if the contractor continuously objects the reappointment of architect and the reasons for objection are accepted by the employer or through an award of arbitration, EOT may be granted under clause 23.8(r).
2009 Paper 2: Question 2
The project is a city centre mixed development consisting of the following components:
Phase 1 – 3 level basement car parks
Phase 2 – Shopping mall in 4 storey common podium block
Phase 3 – 18 storey Serviced Apartment – Block A
Phase 4 - 18 storey Serviced Apartment – Block B
Phase 5 – 20 storey office Block c
The Developer has decided to develop each phase under a different contract. For Phase 1 and 2 the PAM Form of Contract 1998 was used.
a) Upon completion of Phase 1 works, the Phase 2 Contractor’s Land surveyor found several column positions out of alignment. The phase 2 contractor has submitted a VO for realignment of beams and column head adjustments. The Developer has refused to pay for the VO. He pointed out that as he had entrusted the entire construction to the consultants, the extra cost would be deducted from the Professional Fees.
Explain how you would resolve this problem. (5 marks)
My answer:
The architect shall write to the clients on the following salient points:
1. The issuance of CPC and even the Final certificate does not relieve the first contractor from their contractual obligation due to default in their works.
2. According to clause 5.1 the consultant’s is only responsible to provide accurately dimensioned drawings for the contractor to carry out the works.
3. The first contractor is responsible on the error on inaccurate setting out.
4. If the DLP period has not lapsed, Architect (according to clause 15.6) shall issue instruction to Phase 1 contractor to realign the columns and beams head within a reasonable time specified by the Architect.
5. If the Phase 1 Contractor failed to do so in the specified time, the developer may employ other person i.e. Phase 2 Contractor to carry out the works and the cost incurred shall be set off from the Phase 1 contractor’s account under clause 30.4
Phase 1 – 3 level basement car parks
Phase 2 – Shopping mall in 4 storey common podium block
Phase 3 – 18 storey Serviced Apartment – Block A
Phase 4 - 18 storey Serviced Apartment – Block B
Phase 5 – 20 storey office Block c
The Developer has decided to develop each phase under a different contract. For Phase 1 and 2 the PAM Form of Contract 1998 was used.
a) Upon completion of Phase 1 works, the Phase 2 Contractor’s Land surveyor found several column positions out of alignment. The phase 2 contractor has submitted a VO for realignment of beams and column head adjustments. The Developer has refused to pay for the VO. He pointed out that as he had entrusted the entire construction to the consultants, the extra cost would be deducted from the Professional Fees.
Explain how you would resolve this problem. (5 marks)
My answer:
The architect shall write to the clients on the following salient points:
1. The issuance of CPC and even the Final certificate does not relieve the first contractor from their contractual obligation due to default in their works.
2. According to clause 5.1 the consultant’s is only responsible to provide accurately dimensioned drawings for the contractor to carry out the works.
3. The first contractor is responsible on the error on inaccurate setting out.
4. If the DLP period has not lapsed, Architect (according to clause 15.6) shall issue instruction to Phase 1 contractor to realign the columns and beams head within a reasonable time specified by the Architect.
5. If the Phase 1 Contractor failed to do so in the specified time, the developer may employ other person i.e. Phase 2 Contractor to carry out the works and the cost incurred shall be set off from the Phase 1 contractor’s account under clause 30.4
Sunday, June 20, 2010
Application of U.K. common law
It is worth to note that English Law prior to 7 April 1956 is applicable in our courts (see : ss3 of the Civil Law Act 1956):
3. (1) Save so far as other provision has been made or may hereafter be made by any written law in force in Malaysia, the Court shall—
(a) in Peninsular Malaysia or any part thereof, apply the common law of England and the rules of equity as administered in England on the 7 April 1956;
Although modern English cases are not binding, in the specialized field where the contracts are worded identically, the English decisions are of the highest persuasive authority (see: Thames Design Sdn Bhd v Kuching Hotels Sdn Bhd [1993])
3. (1) Save so far as other provision has been made or may hereafter be made by any written law in force in Malaysia, the Court shall—
(a) in Peninsular Malaysia or any part thereof, apply the common law of England and the rules of equity as administered in England on the 7 April 1956;
Although modern English cases are not binding, in the specialized field where the contracts are worded identically, the English decisions are of the highest persuasive authority (see: Thames Design Sdn Bhd v Kuching Hotels Sdn Bhd [1993])
Amending Standard Contract Forms
A developer’s contract department had amended the EOT provisions in the Standard PAM 2006 form by omitting the exceptionally inclement weather provision. What is your advise as the project architect during the Tender stage?
It is easy not to notice that VO is the most important clause in the contract. In the absence of an expressed provision for variation, any instruction issued to modify or alter the original scope of work will entitle the Contractor to end the contract. Subsequently the contractor is no longer bounded by the contract rates and could make the subsequent claims based on ‘quantum meruit’. Therefore, clause 11 of the PAM 2006 Form in general, empowers the Architect to issue instruction ordering a variation without vitiating the contract.
I can’t help but to notice the trend in sidelining architects in the formation of tender/contract documents by some clients (apart from the contract drawings itself). In some projects, we were not even involved in the tender evaluation. Big clients have their in-house legal department to advice, but some of the things coming out of their ‘customised contract’ could rather be ironic. I think it’s prudent to just use the standard PAM forms. Since you’re paying an Architect to administer the contract, you might as well use a form he is familiar with.
Perhaps less liability without fees discount could be healthy to the architects, and perhaps it brings new meaning to Mies Van de Rohe’s “less is more”. However, when the client or other consultant choose to assume certain ‘traditional architect’s responsibility it is prudent to have the decisions documented. In today’s corporate world, we often see key personnel change due to merger and acquisitions or for various other reasons.
But if we may conclude, the industry should be made aware of the consequence of making amendments to standard forms of contracts that it may turn the administration of the contracts a real nightmare. Inconsistencies abound and the varying interpretations are a fertile source of disputes, and possibly the consequence to the two contracting parties is that millions of ringgit may be at stake.
Recent development in the English courts also suggest that the Employer is obliged to draw the attention of the contractor on any onerous conditions at the time the contract is entered into, otherwise they may be unenforceable. (Worksop Tarmacadam v Hannaby [1995])
Another point to note in dealing with amended forms is that, Architects should read thoroughly all the addendums made in the contract and be aware on how the changes affect their scope of empowerment. Architects should be mindful not to grant EOT or instruct variations beyond their contractual ambit, as such act could be regarded as ‘ultra vires’ and could expose the architect directly liable under tort.
It is easy not to notice that VO is the most important clause in the contract. In the absence of an expressed provision for variation, any instruction issued to modify or alter the original scope of work will entitle the Contractor to end the contract. Subsequently the contractor is no longer bounded by the contract rates and could make the subsequent claims based on ‘quantum meruit’. Therefore, clause 11 of the PAM 2006 Form in general, empowers the Architect to issue instruction ordering a variation without vitiating the contract.
I can’t help but to notice the trend in sidelining architects in the formation of tender/contract documents by some clients (apart from the contract drawings itself). In some projects, we were not even involved in the tender evaluation. Big clients have their in-house legal department to advice, but some of the things coming out of their ‘customised contract’ could rather be ironic. I think it’s prudent to just use the standard PAM forms. Since you’re paying an Architect to administer the contract, you might as well use a form he is familiar with.
Perhaps less liability without fees discount could be healthy to the architects, and perhaps it brings new meaning to Mies Van de Rohe’s “less is more”. However, when the client or other consultant choose to assume certain ‘traditional architect’s responsibility it is prudent to have the decisions documented. In today’s corporate world, we often see key personnel change due to merger and acquisitions or for various other reasons.
But if we may conclude, the industry should be made aware of the consequence of making amendments to standard forms of contracts that it may turn the administration of the contracts a real nightmare. Inconsistencies abound and the varying interpretations are a fertile source of disputes, and possibly the consequence to the two contracting parties is that millions of ringgit may be at stake.
Recent development in the English courts also suggest that the Employer is obliged to draw the attention of the contractor on any onerous conditions at the time the contract is entered into, otherwise they may be unenforceable. (Worksop Tarmacadam v Hannaby [1995])
Another point to note in dealing with amended forms is that, Architects should read thoroughly all the addendums made in the contract and be aware on how the changes affect their scope of empowerment. Architects should be mindful not to grant EOT or instruct variations beyond their contractual ambit, as such act could be regarded as ‘ultra vires’ and could expose the architect directly liable under tort.
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