EMPLOYER’S RIGHTS AND CONTRACTOR’S LIABILITIES IN RELATION TO
CONSTRUCTION DEFECTS AFTER FINAL CERTIFICATE
TAN PEI LING
UNIVERSITI TEKNOLOGI MALAYSIA
DEDICATION
To my beloved father, mother,
sister and Chee Siong
Thank you for your support, guidance and everything.
ACKNOWLEDGEMENTS
This master project can be completed successfully due to the contribution of
many people. First of all, I would like to express my highest gratitude to my
supervisor, Assoc. Prof. Dr. Maizon Hashim for her patience, guidance, advice and
support in order to complete this master project.
Next, I would like to thank all the lecturers for the course of Master of
Science (Construction Contract Management), for their patience and kind advice
during the process of completing the master project.
Besides that, I am deeply grateful to my family for their unconditional love
and care through out the years. Unforgettable, I would like to thank Chee Siong who
has given me full support during this study.
Not forgetting my classmates, a token of appreciation goes to them for giving
lots of advice on how to complete and write this project.
ABSTRACT
Most of the standard forms of contract contain provisions dealing with
defective works. Defective works could be in the forms of design fault, defective
building materials or bad workmanships. Any defects, shrinkages or other faults
arising during construction and defects liability period due to defective materials or
workmanship must be put right by the contractor at his own expense. The contract
administrator will usually mark the end of the defects liability period with the issue
of a further certificate, known as a Certificate of Making Good Defect. Subsequently,
final certificate will be issued to the contractor stating amount finally due to him.
Generally, final certificate will discharge the contractor’s liability for the defective
works and the cost for remedying them. Employers will need to be wary as they can
preclude the employer from claiming damages from the contractors for defects which
appear after the issue of the final certificate. However, court will generally not regard
a certificate as being final except where very clear words are used in the contract.
This research intends to identify the legal position of the construction contract parties
in relation to their rights and liabilities in defects after the issuance of Final
Certificate. This research was carried out mainly through documentary analysis of
law journals and law reports. Result shows that there are four circumstances to be
considered when determining the liability of defects after final certificate, namely by
referring to the conclusiveness evidence, consequential damages/loss, patent defects
and fraud/concealment.
ABSTRAK
Kebanyakan borang kontrak standard mengandungi peruntukan mengenai
kerja-kerja cacat. Kecacatan kerja adalah kesalahan reka bentuk, bahan binaan atau
kemahiran kerja. Segala kecacatan, kekurangan atau kesalahan yang muncul semasa
pembinaan dan tempoh liabiliti kecacatan yang disebabkan oleh kecacatan bahan
atau kemahiran kerja mesti dibetulkan oleh kontraktor dengan perbelanjaannya
sendiri. Pentadbir kontrak akan menandakan akhirnya tempoh liabiliti kecacatan
dengan perakuan siap memperbaiki kecacatan. Kemudian, perakuan muktamad akan
dikeluarkan dengan menyatakan jumlah akhir yang dijangka untuk kontraktor.
Secara umum, perakuan muktamad akan melepaskan liabiliti kontraktor untuk kerjakerja cacat dan kos untuk memperbaikinya. Majikan perlu berhati-hati kerana ini
boleh menghalang majikan daripada menuntut ganti rugi daripada kontraktor jika
kecacatan berlaku selepas perakuan muktamad. Bagaimanapun, mahkamah tidak
akan menganggap satu perakuan sebagai satu keterangan yang tidak boleh
dipertikaikan kecuali perkataan yang jelas digunakan dalam kontrak. Kajian ini
bertujuan untuk mengenalpasti kedudukan sah pihak-pihak kontrak pembinaan
berkaitan dengan hak-hak dan liabiliti dalam kecacatan kerja yang berlaku selepas
pengeluaran perakuan muktamad. Kajian ini telah dijalankan dengan menganalisis
laporan
undang-undang.
Keputusan
menghasilkan
empat
keadaan
yang
dipertimbangkan dengan liabiliti kecacatan kerja selepas perakuan muktamad, iaitu
dengan merujuk kepada bukti jilid, kerosakan/kerugian akibat, kecacatan jenis
‘latent’ dan penipuan/penyembunyian yang jelas.
TABLE OF CONTENTS
CHAPTER
1
2
TITLE
PAGE
DECLARATION
ii
DEDICATION
iii
ACKNOWLEDGEMENT
iv
ABSTRACT
v
ABSTRAK
vi
TABLE OF CONTENTS
vii
LIST OF TABLES
xi
LIST OF FIGURES
xii
LIST OF CASES
xiii
LIST OF ABBREVIATIONS
xvi
INTRODUCTION
1
1.1
Background Studies
1
1.2
Problem Statement
5
1.3
Objective of Research
7
1.4
Scope of Research
8
1.5
Importance of Research
8
1.6
Research Methodology
9
DEFECTIVE WORKS
11
2.1
Introduction
11
2.2
Type of Defects
13
CHAPTER
TITLE
2.3
2.4
PAGE
Nature of Defects
15
2.3.1 Standard of Design
17
2.3.2 Quality of the Building Materials
19
2.3.3 Quality of the Workmanship
20
Liability for Defects
21
2.4.1 Defects discovered during the Construction Period
23
2.4.2 Defects Discovered during Defects Liability
24
Period
2.5
2.6
3
2.4.3 Defects Discovered after the Final Certificate
25
Contractor Obligations after Completion
27
2.5.1 Defects Liability Period
27
2.5.2 Procedural Requirements
31
Conclusion
35
LIABILITY OF DEFECTS
36
3.1
Introduction
36
3.2
Certificate of Making Good Defects
38
3.3
Final Certificate
39
3.3.1 Express Contractual Provisions
41
3.3.2 Conclusiveness of Final Certificate
46
Defects Arising After Issue of Certificate of Making Good
47
3.4
Defects/Final Certificate
3.5
4
3.4.1 Cause of Action in Contract
49
3.4.1 Cause of Action in Tort
50
3.4.1 Postponement of the Limitation Period
52
Conclusion
53
EMPLOYER’S RIGHTS AND CONTRACTOR’S LIABILITIES
55
IN RELATION TO CONSTRUCTION DEFECTS AFTER
FINAL CERTIFICATE
4.1
Introduction
55
CHAPTER
TITLE
4.2
PAGE
Conclusiveness of Final Certificate
56
4.2.1 James Png Construction Pte Ltd v Tsu Chin Kwan
Peter
56
4.2.2 Shen Yuan Pai v Dato Wee Hood Teck & Ors
58
4.2.3 Sa Shee (Sarawak) Sdn Bhd v Sejadu Sdn Bhd
60
4.2.4 Chew Sin Leng Construction Co v Cosy Housing
61
Development Pte Ltd
4.2.5 Usahabina v Anuar Bin Yahya
62
4.2.6 P & M Kaye Ltd v Hosier & Dickinson Ltd
63
4.2.7 Matthew Hall Ortech Ltd v Tarmac Roadstone Ltd
65
4.2.8 University Fixed Assets Limited v Architects
66
Design Partnership
4.2.9 Crown Estate Commissioners v John Mowlem and
68
Co Ltd
4.3
Consequential Loss
69
4.3.1 Teh Khem On & Anor v Yeoh & Wu
69
Development Sdn Bhd & Ors
4.3.2 James Png Construction Pte Ltd v Tsu Chin Kwan
71
Peter
4.3.3 Shen Yuan Pai v Dato Wee Hood Teck & Ors
72
4.3.4 P & M Kaye Ltd v Hosier & Dickinson Ltd
72
4.3.5 HW Nevill (Sunblest) Ltd v William Press & Son
73
Ltd
4.4
Latent Defects
75
4.4.1 P & M Kaye Ltd v Hosier & Dickinson Ltd
75
4.4.2 London Borough of Barking and Dagenham v
76
Terrapin Construction Ltd
4.5
4.4.3 Matthew Hall Ortech Ltd v Tarmac Roadstone Ltd
77
Fraud / Concealment
79
4.5.1 Musselburgh and Fisherrow Co-operative Society
79
v Mowlem Scotland
CHAPTER
TITLE
PAGE
4.5.2 William Hill Organisation Ltd v Bernard Sunley
81
and Sons Ltd
4.6
5
Conclusion
83
CONCLUSION AND RECOMMENDATION
85
5.1
Introduction
85
5.2
Summary of Research Findings
85
5.3
Problem Encountered During Research
88
5.4
Further Studies
89
5.5
Conclusion
89
REFERENCE
91
LIST OF TABLES
TABLE NO.
5.1
TITLE
Summary of Research Findings
PAGE
86
LIST OF FIGURES
FIGURE NO.
TITLE
PAGE
1.1
Practical Completion and Defects Liability
5
1.2
Flow chart of research methodology
10
LIST OF CASES
CASES
Abdul Gaffar v Chua Kwang Yong [1994] 2 SLR 546
53
Adcock’s Trustee v Bridge R.D.C.[1911] 75 J.P. 241
19
Archer v Moss [1971] 3 BLR 1
53
Aubum Municipal Council v ARC Engineering Pty Ltd [1973] NSWLR 513
18
Bagot v Stevens, Scanlan and Co [1964] 2 Lloyd’s Rep 353
49
Bolton v Mahadeva [1972] 2 All ER 1322
22
Carr v JA Berriman Pty Ltd [1953] 27 ALJR 273
32
Chew Sin Leng Construction Co v Cosy Housing Development Pte Ltd [1988] 1 MLJ
137
61
Crown Estate Commissioners v John Mowlem and Co Ltd [1994] 70 BLR 1
68
Dancom Engineering Pte Ltd v Takasago Thermal Engineering Co Ltd 1989 BLD
[May] 606
Dutton v Bogner Regis United Building Co Ltd & Anor [1972] 1 QB 373
16
49, 50
Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1973] 3 WLR 42137
Greaves & Co (Contractors) Ltd v Baynham Meikle & Partners [1975] 1 WLR 1095
17
H W Nevill (Sunblest) Ltd v William Press and Son Ltd [1981] 20 BLR 78
Hancock v Brazier [1966] 2 All ER 901
26, 73
37
Hancock v BW Brazier (Anerly) Ltd [1966] 2 All ER 901, [1966] 1 WLR 1317 20, 21
Hii Soo Chiong v Board of Management [1973] 2 MLJ 204
15
Hoenig v Issacs [1952] 2 All ER 176
21
IBA v EMI Electronics Ltd & BICC Construction Ltd [1980] 14 BLR 1
18
James Png Construction Pte Ltd v Tsu Chin Kwan Peter [1991] 1 MLJ 449
56, 71
Kabatasan Timber Extraction Co v Chong Fat Shing [1969] 2 MLJ 6
34
Kemayan Construction Sdn Bhd v Prestara Sdn Bhd [1997] 5 MLJ 608
30
Khong Seng v Ng Teong Kiat Biscuit Factory Ltd [1963] MLJ 388
20
Leo Teng Choy v Bectile Construction [1982] 2 MLJ 302
15
London Borough of Barking and Dagenham v Terrapin Construction Ltd [1972] 1
WLR 146
76
Lynch v Thorne [1956] 1 WLR 303
21
Martin v McNamara [1951] QSR 225.8 Butterworths
19
Matthew Hall Ortech Ltd v Tarmac Roadstone Ltd [1997] 87 BLR 96
65, 77
Miller v Krupp [1992] 11 B.C.L.74
23
Musselburgh and Fisherrow Co-operative Society v Mowlem Scotland [2006] CSOH
39
79
Oldschool v Gleeson (Construction) Ltd [1976] 4 BLR 103, 131
18
P & M Kaye Ltd v Hosier & Dickinson Ltd [1972] 1 WLR 146
63, 72, 75
P&M Kaye Ltd v Hosier & Dickinson Ltd [1972] 2 All ER 121
39, 43, 46, 47
P&M Kaye Ltd v Hosier & Dickson Ltd [1972] 1 W.L.R. 146
25, 26, 29
Pearce & High Limited v Baxter [1969] 2 MLJ 6, [1999] BLR 101
32, 34, 35
Pirelli General Cable Works Ltd v Oscar Faber & Partners [1983] 2 AC 1
51
Rumbelows Ltd v Firesnow Sprinkler AMK and Installations Ltd [1980] 19 BLR 25
20
Sa Shee (Sarawak) Sdn Bhd v Sejadu Sdn Bhd [2000] 5 MLJ 414
60
Sequerah Stephen Patrick v Penang Port Commission [1990] 2 MLJ 232
53
Shen Yuan Pai v Dato Wee Hood Teck [1976] 1 MLJ 16
44, 58, 72
Sparham-Sounter v Town & Country Development (Essex Ltd) [1976] 3 BLR 70
50
Steven Phoa Cheng Loon &72 Ors v Highland Properties Sdn Bhd & 9 Ors [2000]
AMR 3567
51
Sutcliffe v Chippendale & Edmondson [1971] 18 BLR 149
22
Teh Khem On & Anor v Yeoh & Wu Development Sdn Bhd & 3 ors [1995] 2 AMR
1558 by analogy
44, 69
University Fixed Assets Limited v Architects Design Partnership [1999] 64 Con LR
12
66
Usahabina v Anuar Bin Yahya [1998] 7 MLJ 691
62
William Hill Organisation Ltd v Bernard Sunley and Sons Ltd [1982] 22 BLR 1
81
William Tomkinson & Sons v Parochial Church Council of St Michael [1990] 6
Const. LJ 319, 814
Young and Marten Ltd v Mc Manus Child Ltd [1969] 1 AC 454
24, 30, 34
19, 20
LIST OF ABBREVIATIONS
AC
Appeal Cases, House of Lords
All ER
All England Law Reports
ALJR
Australia Law Journal Reports
AMR
All Malaysia Reports
BCL
Building and Construction Law Cases
BLR
Building Law Reports
Con LR
Construction Law Reports
CSOH
Court of Session (Outer House)
ER
Equity Reports
ICR
Industrial Cases Reports
ILR
International Law Reports
IR
Irish Reports
JP
Justice of the Peace / Justice of the Peace Reports
LIL Rep
Lloyd’s List Reports
Lloyd’s Rep
Lloyd’s List Reports
MLJ
Malayan Law Journal
NSWLR
New South Wales Law Reports
QB
Law Reports: Queen’s Bench Division
QSR
Queensland State Reports
SC
Session Cases
SCR
Supreme Court Reporter
SLR
Singapore Law Reports
WLR
Weekly Law Report
1
CHAPTER 1
INTRODUCTION
1.1
Background Studies
Construction in Malaysia spans a wide spectrum of activities stretching from
simple renovation works for private homes to massive construction projects. Every
such building activity may create its own unique set of requirements and
circumstance. The different sectors including employer groups, contractors, suppliers,
manufacturers, professionals have their own interests which are very often divergent
and competing in nature.1
Most formal building or engineering contracts contain an initial express
obligation of the contractor in some such words as to “carry out and complete the
works in accordance with the contract”. This is, in fact a dual obligation that is, both
to carry out and to complete the works.2 The contractor’s basic obligation, so far as
the standard of work is concerned, is to comply with the terms of the contract. This
includes both express terms (such as the requirement of contract that work shall be of
1
Sundra Rajoo. “The Malaysian Standard Form of Building Contract (the PAM 1998 Form).” 2nd
Edition. (Malayan Law Journal Sdn Bhd, 1999). pp. 3
2
I. N. Duncan Wallace. “Hudson’s Building and Engineering Contracts.” 11th Edition. (Sweet &
Maxwell, 1995) pp. 472
2
the standards described in the bills) and implied terms (such as the principle that all
materials shall be of ‘satisfactory quality’).3
In a construction contract, a contractor undertaking to do work and supply
materials impliedly undertakes4:
a) to do the work undertaken with care and skill or, as sometimes expressed,
in a workmanlike manner;
b) to use materials of good quality. In the case of materials described
expressly this will mean good of their expressed kind and free from
defects. (In the case of goods not described, or not described in sufficient
detail, there will be reliance on the contractor to that extent, and the
warranty (c) below will apply);
c) that both the workmanship and materials will be reasonably fit for the
purpose for which they are required, unless the circumstances of the
contract are such as to exclude any such obligation (this obligation is
additional to that in (a) and (b), and will only become relevant, for
practical purposes in any dispute, if the contractor has fulfilled his
obligations under (a) and (b)).
The contractor’s obligation only comes to an end when the Certificate of
Practical Completion is issued. Only defects due to workmanship and materials not
in accordance with the contract are required to be made good at the contractor’s cost.
In the context of defective work, the express or implied obligation to carry
out and complete the works in accordance with the contract imposes a continuity
dual obligation, and not merely, as in other contracts for work and materials where
work is not carried out on and fixed to the owner’s land as it progresses, a single
3
Murdoch, J and Hughes, W. “Construction Contracts: Law and Management.” (London: Spon Press,
2000) pp. 147
4
I. N. Duncan Wallace. Supra 2. pp. 519.
3
ultimate obligation to handover and deliver a final conforming product or article on
completion.5 In addition to this principal express or implied obligation to complete,
formal English-style contracts may make express reference to “substantial
completion” or “practical completion”. These definitions are often used in formal
contracts to denote the start of the maintenance or “defects liability” period and to
secure the release to the contractor of the first portion of any “retention moneys”. In
general, what is contemplated by these expressions is a state of apparent completion
free of known defects which will enable the owner to enter into occupation and make
use of the project, with the result that they will usually bring any possible liability of
the contractor for liquidated damages for delay to an end. The scheme of this type of
contract thus contemplates the commencement of a period when the owner enters
into occupation but at the end of which any then known omissions or defects will be
made good by the contractor.6
In most of the standard form of building or engineering contract, there are
provisions dealing with defective works. Defective works could be in the forms of
design fault, defective building materials or bad workmanships. In construction
contracts, the works cannot be said to have been practically completed, if the work is
so defective that it would prevent the owner from using the building as intended by
the contract. For example, sub-clause 15.1 of PAM 1998 form of contract specifies
that the works shall be deemed to be practically completed if the architect is of the
opinion that all necessary works specified by the contract have been completed and
the defects existing in such works are ‘de minimis’.7 Clause 45(a) of JKR 203 form
of contract specifies that the contractor is responsible for any defect, imperfection,
shrinkage, or any other fault which appears during the Defects Liability Period,
which will be six (6) months from the day named in the Certificate of Practical
Completion issued, unless some other period is specified in the Appendix.8 Similarly
in CIDB 2000 form of contract, Clause 27.1 specifies that the contractor shall
5
I. N. Duncan Wallace. Supra 2. pp. 473
I. N. Duncan Wallace. Supra 2. pp. 474
7
Mohd Suhaimi Mohd Danuri. “The Employer’s Rights and the Contractor’s Liabilities in Relation to
the Defects Liability Period.” (The Malaysian Surveyor. 39.1, 2005). pp. 54
8
Lim Chong Fong. “The Malaysian PWD Form of Construction Contract.” (Malaysia: Sweet &
Maxwell Asia, 2004) pp. 105
6
4
complete any outstanding work and remedying defects during the Defects Liability
Period.
Once the works have been practically completed and the Certificate of
Practically Completion issued, the Defects Liability Period will begin. Any defects,
shrinkages or other faults arising during this period due to defective materials or
workmanship must be put right by the contractor at his own expense.9 For example,
sub-clause 9(a) of PWD 203A requires the contractor to use materials and
workmanships that comply with the specification, further, sub-clause 9(b) entitles the
superintendent to instruct the contractor to demolish or open up the work done and
the associated cost will be borne by the contractor if the works have not carried out
in accordance with the contract.
The contract administrator will usually mark the end of the defects liability
period with the issue of a further certificate, known as a Certificate of Making Good
Defect. This record the contract administrator’s opinion that defects appearing within
the Defects Liability Period and notified to the Contractor have been duly made good.
The contractor is then entitled to the remainder of the retention money. This last
portion of the retention is the amount finally due to the contractor. It is the contract
administrator’s obligation to issue the Final Certificate that signifies his satisfaction
with the work.
9
Murdoch, J and Hughes, W. Supra 3. pp. 184
5
Contractor carries out and completes the
works as stipulated in the contract
Contractor’s work is to the reasonable
satisfaction of the contract administrator
CERTIFICATE OF
PRACTICAL COMPLETION
Contract administrator specifies all defects
and requires defects to be made good
CERTIFICATE OF
MAKING GOOD DEFECTS
FINAL
CERTIFICATE
Figure 1.1
1.2
Practical Completion and Defects Liability10
Problem Statement
In Malaysia, section 74(3) of Contracts Act 1950 (Revised 1974) provides
that the innocent party is entitled to get compensation for the failure of the defaulting
party to discharge the obligation created by the contract. Therefore, the failure of the
contractor to rectify the defects appear during Defect Liability Period (DLP) as
required by the contract would constitute a breach of contract that entitles the
employer to be remedied in the forms of damages. If the contractor has failed to
rectify the defects as instructed by the contract administrator, the owner is entitled to
10
Sundra Rajoo. Supra 1. pp. 147
6
appoint another contractor and recover the cost of rectifying the defects to the
original contractor.11
However, Employers will need to be wary of Final Certificates as they can
preclude the Employer from claiming damages from the Contractor for defects which
appear after the issue of the Final Certificate. Generally, a Final Certificate will be
binding and conclusive and cannot be opened up except in the cause of fraud.
However, court will generally not regard a certificate as being final except where
very clear words are used. Therefore, the conclusiveness of the Final Certificate
depends upon the terms of the particular contract.12
Both PAM 1998 (Clause 30.8) and JKR 203 (Clause 49) form of contract
states that “No certificate….shall be considered as conclusive evidence as to the
sufficiency of any work, materials or goods to which it relates ….” This clause
primarily states that none of the certificates issued under the contract would be
treated as conclusive evidence as to the sufficiency of any work done, or material or
goods supplied, which is the subject matter of the certificate. The contents of the
certificates will not be final and binding in any dispute between the parties either in
arbitration or in court. In other words, all certificates can be opened up, reviewed and
revised by the arbitrator or the court.13
However, the provision in the CIDB 2000 form of contract is different with
PAM 1998 and JKR 203. Clause 43.2 of CIDB 2000 states that the Final Certificate,
unless either party commences any mediation, arbitration or other proceedings within
30 days after such certificate, shall be conclusive evidence that the works are
executed to the reasonable satisfaction of the Superintending Officer and/or
Employer.
11
Mohd Suhaimi Mohd Danuri. Supra 7. pp. 57
Mallesons Stephen Jaques, 2003. “Defects Liability Period - an introduction. Asian Projects and
Construction Update.”
http://www.mallesons.com/publications/Asian_Projects_and_Construction_Update/6881582W.htm
13
Lim Chong Fong. Supra 8. pp. 114
12
7
There is existence of problems arise in relation to the conclusiveness of the
Final Certificate. The first is whether the Employer is prevented from recovering
damages for any defects which appear after the issuance of the Final Certificate? The
second is whether the contractor is liable for defects which come to light after the
issuance of Final Certificate? And ultimately, whether the contractor or the employer
is liable for defects which come to light after the issuance of Final Certificate?
In view of the above, it is important for the contracting parties in the
construction industry, especially the clients and the contractors, to have a complete
understanding to their rights and liability in relation to the defects which appear after
the issuance of Final Certificate.
1.3
Objective of Research
From the problem statement above, this research is prepared with an
objective:
To identify the legal position of the construction contract parties in
relation to employer’s rights and contractor’s liabilities in defects after the
issuance of Final Certificate.
8
1.4
Scope of Research
Given the legalistic nature of this research, the approach adopted in this
research is based on case-law. The scope of this research will cover the following
areas:
a) Only construction cases will be discussed in the research.
b) Court cases referred in this research include Malaysia, Singapore, and
English cases.
c) Standard forms of contract commonly referred to and examined in this
research are Pertubuhan Arkitek Malaysia (PAM) (2nd Edition, 1998),
Public Works Department (P.W.D) Form 203A and Construction Industry
Development Board (CIDB) Standard Form of Contract for Building
Works (2000 Edition).
1.5
Importance of Research
This research will deal closely with specific issues or problems arise between
the contract parties with regards to construction defect after expiry of Defect
Liability Period (DLP). The author aims to assist both clients and contractors in the
construction industry to understand their rights and liability in relation to defects
which come to light after the issue of the Final Certificate. This research is also to
increase the awareness of the construction parties about their legal position in the
liability of defect, so that unnecessary disputes can be avoided and assuring project
success and tie-up a better relationship among the contractual parties.
9
1.6
Research Methodology
In order to achieve the research objectives, a systematic process of
conducting this research had been organised. The detail methodology is divided into
several essential steps as described below (see figure 1.2 also).
Firstly, initial literature review was done in order to obtain the overview of
the concept of this topic. Discussions with supervisor, lecturers, as well as course
mates, were held so that more ideas and knowledge relating to the topic could be
collected. The issues and problem statement of this research will be collected through
books, journal, cases, articles and magazines. The objective of this research will be
formed after the issue and problems had been identified.
The next stage is the data collection stage. After the research issue and
objectives have been identified, various documentation and literature review
regarding to the research field will be collected to achieve the research objectives.
Generally, primary data is collected from Malayan Law Journals and other law
journals via UTM library electronic database, namely Lexis-Nexis Legal Database.
The secondary sources include books, articles, seminar papers, newspaper as well as
information from electronic media database on the construction contract law. These
sources are important to complete the literature review chapter.
After the data collection stage, the author will analyse all the collected cases,
information, data, ideas, opinions and comments. This is started with the case studies
on the related legal court cases. The analysis will be conducted by reviewing and
clarifying all the facts and issues of the case.
The final stage of the research process mainly involved the writing up and
presenting the research findings. The author will review the whole process of the
10
research with the intention to identify whether the research objectives have been
achieved. Conclusion and recommendations will be made based on the findings
during the stage of analysis.
Literature Review
Books, articles, journals, internet sources
INITIAL STAGE
Brief Discussion
Discussion with lecturers, supervisor and
coursemates
Formation of issues, objective and scope of
research
DATA
COLLECTION &
ANALYSIS STAGE
Identify type of data needed and data sources
Law Journals, e.g. Malayan Law Journal,
Singapore law Report, Building Law
Report, etc
Books, articles, seminar papers, newspaper
Internet sources
Data Recording
Data Arrangement
Analyse data
Research writing up and presenting findings
FINAL STAGE
Conclusion and recommendation
Final report preparation and checking
Figure 1.2
Flow chart of research methodology
11
CHAPTER 2
DEFECTIVE WORKS
2.1
Introduction
Defective work can be described as work which fails to comply with the
express descriptions or requirements of the contract, including very importantly any
drawings or specifications, together with any implied terms as to its quality,
workmanship, performance or design. By definition, therefore, defects are breaches
of contract by the contractor14.
Most standard forms of construction contract will contain express terms
concerning the removal and replacement of defective work during construction. The
usual scheme of such contracts is to confer express powers on the owner or his
architect, engineer or the contract administrator for this purpose during the
construction period up to the time of completion and handover.15 In addition to this,
14
15
Mallesons Stephen Jaques. Supra 11.
I. N. Duncan Wallace. Supra 2. pp. 698.
12
these standard forms usually contain detailed provisions in respect of the employer’s
remedies in respect of defective works, e.g.16:
a)
Defective work to be remedied by contractor
b)
Defective work to be remedied by employer if contractor fails to do so
c)
Employer may agree to a reduction of contract price instead of
remedying the defect
d)
Employer may deduct the cost of remedial works from the contract
price until the remedial works are carried out
e)
Employer to withhold retention monies, to be released upon issuance
of the Certificate of Practical Completion and/or Certificate of
Making Good Defects.
In most situations, there is also a contract provision which requires the
contractor to take full responsibility and liability for the rectification works if the
defects are due to a breach of contract. Defective works are works which fails to
comply with both the expressed descriptions or requirements and implied terms of
the contract affecting the quality of the works, whether structural on one hand or
merely decorative on the other, and whether due to faulty materials or workmanship
or even design (if such design is part of contractor’s obligations under the contract).17
The general principle is that such defective works which amounts to a breach
of contract would entitle the employer to claim for damages notwithstanding other
contractual remedies which the employer may have under the contract or at common
law. The common law, on the other hand, requires that the contractor carry out and
complete the works in accordance with the contract. This obligation, whether express
or implied, places an obligation on the contractor to hand over a final conforming
product or article on completion. Failure to remedy the defect is a breach of contract,
16
Ong See Lian. 2005. “Defective Works.” International Conference on Construction Law &
Arbitration. (26th – 28th April 2005, Kuala Lumpur.) pp. 1.
17
Ong See Lian. Ibid. pp. 1.
13
even if the defect occurred during the period of construction, i.e. prior to completion
or handing over of the final works. The employer is entitles to damages.18
Once the works have been practically completed and the Certificate of
Practical Completion issued, the Defect Liability Period (DLP) will begin. The
Contractor will be liable to rectify the defects, which appear during DLP at the
contractor’s own cost. For example, Clause 15 of PAM 1998 and Clause 45 of JKR
203 provide two ways of notifying the contractor for rectifying the defects during
DLP as follows19:
a)
At any time during DLP, the Architect/Superintending Officer can
request the contractor in writing to make good the defects within
reasonable time; and
b)
Architect/Superintending Officer not later than 14 days after the
expiry of DLP issues schedule of defects to be made good by the
contractor within reasonable time; but in JKR 203 it clearly specifies
that the defects to be made good by the contractor not later than 3
months after receiving the schedule.
2.2
Type of Defects
Defects can be classified into two main categories, i.e. ‘Patent’ defects and
‘Latent’ defects. The first category encompasses the usual defects encountered in
routine inspections. Professor Vincent Powell-Smith describes a ‘patent’ defect as20:
18
Ong See Lian. Supra 15. pp. 1.
Mohd Suhaimi Mohd Danuri. Supra 7. pp. 54
20
Harbans Singh. “Engineering and Construction Contracts Management – Post Commencement
Practice.” (Singapore: LexisNexis, 2003.) pp. 695
19
14
“A defect which is discoverable by reasonable inspection. In the context of
engineering contracts, the term embraces all the items which the engineer or
engineer’s representative must be expected to find and bring to the contractor’s
attention so the remedial works can be carried out. Patent defects are plain to
see, or at least, that is the theory. Whether the engineer could or should have
seen defects on site during site visits has exercised more than one judicial
mind…”
In ‘Construction Law in Singapore and Malaysia’, the authors ascribe a rather
simple definition to the term ‘patent defects’; this being21:
“… a defect that can be discovered by normal examination or testing…”
As to the second category of defects, i.e. ‘Latent’ defects, the same two
references ascribe the following definitions/meanings22:
“A defect which is not discoverable during the course of ordinary and
reasonable examination but which manifests itself after a period of time. In
building and civil engineering work the most common application is defects
becoming apparent after the maintenance period expired.”
Robinson and Lavers describe a ‘latent’ defect in the following words23:
“… a defect that cannot be discovered by normal examination and testing…”
In essence patent defects are defects that can be either seen or can be
discovered by means of reasonable inspection, examination or testing. Hence, the
21
Nigel M Robinson. “Construction Law in Singapore and Malaysia.” 2nd Edition. (Butterworths Asia
Malaysia, 1996) pp. 160
22
Harbans Singh. Supra 19. pp. 696
23
Nigel M Robinson. Supra 20. pp. 161
15
establishment of such defects is not merely confined to the defects that can be plainly
seen or observed but encompasses also those that become apparent on reasonable
inspection, examination and if necessary upon testing. The latter requirement to
testing imposes a more onerous responsibility in terms of discoverability. In contrast,
latent defects are the ones that are either inherent or those that do not manifest
themselves upon reasonable examination, inspection and/or testing. These comprise
defects which will become apparent or noticeable or capable of being discovered
only when they become patent.24
In the definitions for both categories of defects, the emphasis is on the words
‘normal’ or ‘reasonable’ whether these can be in relation to any inspection or
examination or testing in establishing the type of defect in question. The requirement
therefore does not call for a meticulous or exhaustive process in establishing the said
defects. The difference between these two types of defects also extends to their
consequential effects especially in terms of duration of liability, with latent defects
involving a longer duration both contractual and under various statutory provisions.25
2.3
Nature of Defects
A ‘defect’ must be defined as a component supplied or constructed which is
in some respect not in accordance with the contract, or as some action having
consequences not authorised by the contract. Thus, the criteria of acceptability of
performance must, in contract, be limited to those criteria expresses or implied in the
contract: see Hii Soo Chiong v Board of Management26, Leo Teng Choy v Bectile
Construction 27 and Dancom Engineering Pte Ltd v Takasago Thermal Engineering
24
Harbans Singh. Supra 19. pp. 696
Harbans Singh. Ibid. pp. 696
26
[1973] 2 MLJ 204
27
[1982] 2 MLJ 302
25
16
Co Ltd
28
. The implied terms require ‘merchantable quality’, ‘workmanlike’
workmanship and fitness for purpose.29 Express terms are commonly either30:
a) Compliance with the contract’s specification content and the drawings;
b) Satisfaction of the architect (or other supervisor); or
c) Both these
The construction work is defective when it does not accord with the standard
that is required by the contract. For example, Clause 9(a) of JRK 203 and Clause 6.1
of PAM 1998 requires the contractor to use materials and workmanships that comply
with the specifications. The obligation of the contractor to procure and achieve the
specified kind and standard is an absolute one. If the contractor fails to do so, he
would be in breach of contract unless the Superintending Officer is willing to permit
a substitution by way of a variation instruction.31 Further, Clause 9(b) of JKR 203
and Clause 6.3 of PAM 1998 empowers the superintendent to require the contractor
to demolish or open up the work done for inspection and associated cost will be
borne by the contractor if the works have not been carried out in accordance with the
contract. 32 The purpose for opening up and testing is to ensure that the works,
materials, workmanship and goods are ‘in accordance to the contract’. If the
contractor is not in default, he can recover the cost of opening up, testing and making
good. He may also have a right under the contract to claim for extension of time and
recover any direct loss and/or expense cause by the opening up and testing which
disturb the regular progress of the works. This ensures the superintendent act with
moderation.33
Generally, defects in the construction industry can be well divided into three
(3) main categories34:
28
1989 BLD [May] 606
Nigel M Robinson. Supra 20. pp. 160
30
Nigel M Robinson. Ibid. pp. 160
31
Lim Chong Fong. Supra 8. pp. 29
32
Mohd Suhaimi Mohd Danuri. Supra 7. pp. 55
33
Sundra Rajoo. Supra 1. pp. 97
34
Mohd Suhaimi Mohd Danuri. Supra 7. pp. 55
29
17
2.3.1
a)
Faulty design and work not in compliance with design
b)
Quality of the building materials
c)
Quality of the workmanship
Standard of Design
The term ‘design’ has been explained by Prof Vincent Powell-Smith as35:
“A rather vague denoting a scheme or plan of action. In the construction and
engineering industry, it may be applied to the works of the engineer in
formulating the function, structure and appearance of a works or to a structural
engineer in determining the sizes of structural members…”
By that as it may, the undertaking of the design may not be confined to the
employer’s designers but may be the obligation of the contractor whereby quality
standards may be either36:
a) Stipulated expressly in the contract, i.e. in the specifications, standards,
codes of practice, etc and reaffirmed through specific clauses in the
conditions of contract
b) In the absence of express provisions, established by necessary implication,
ie a contractor undertaking a contract on a design and build/design and
construct basis implicitly warrants that where the purpose of the required
works has been adequately brought to his notice, the design undertaken
by him will be fit for that purpose37.
35
Harbans Singh. Supra 19. pp. 698
Harbans Singh. Ibid. pp. 698
37
Greaves & Co (Contractors) Ltd v Baynham Meikle & Partners [1975] 1 WLR 1095
36
18
Therefore, design is wide enough to include (and include correctly) not
merely structural calculations and the dimensions, shape and location of the work,
but the choice of particular materials for particular functions and, similarly, the
choice of particular work processes. In other words, in sophisticated contracts the
designs includes the specification as well as the drawings.38
If the contractor is required to use a design and construct method, the
contractor shall be responsible for the proposed design directly to the owner flowing
from the breach. This is likely to arise where an architect or engineer is not engaged
by the employer. Generally, design and build method imposes on the contractor a
duty to ensure the building would be reasonably fit for its purpose39. However, in the
traditional contracting method, the design responsibility shall remain under the
responsibility of the consulting engineer or the architect. In Oldschool v Gleeson
(Construction) Ltd40, Judge Stabb QC said:
“The responsibility of the consulting engineer is for the design of the engineering
components of the works and his supervisory responsibility is to his client to
ensure the works are carried out in accordance with that design.”
If the defects were proven to be faulty of engineer’s design, the owner can
sue the engineer for breach of contract41. On the other hand, if the defect is flowing
from the contractor’s fault such as departure from the actual design, the contractor
should be liable to remedy the defect.42
38
I. N. Duncan Wallace. Supra 2. pp. 274.
IBA v EMI Electronics Ltd & BICC Construction Ltd [1980] 14 BLR 1
40
[1976] 4 BLR 103, 131
41
Aubum Municipal Council v ARC Engineering Pty Ltd [1973] NSWLR 513
42
Mohd Suhaimi Mohd Danuri. Supra 7. pp. 55
39
19
2.3.2
Quality of the Building Materials
Building and engineering contracts usually define with some precision in the
specification or bills the materials to be used by the contractor. The contractor shall
be held responsible if the building materials appear to be defective although its usage
has been specified by the contract specification. Materials may be said to be of poor
quality when what is meant is that they have been chosen for the wrong purpose, as
common bricks for facing bricks, or iron cramps for zinc.43 The House of Lords in
Young and Marten Ltd v Mc Manus Child Ltd44 held that, the Court of Appeal was
correct when it decided that the contractor was liable for an implied warranty of the
defective material bought from the manufacturer specified by the owner.
In another case of Martin v McNamara45, the Full Court reversed the decision
of the Magistrate Court and held that, the owner was relying on the skill and
judgement of the contractor that the materials were fit for the intended purpose when
the contractor had suggested to use a different type of roof tiles that turned out to be
faulty. The owner should be entitled to the cost of removing and replacing the faulty
materials if the repair work was unreasonably to be carried out. However, it would be
unreasonable to put the liability on the contractor, if the owner has accepted the
material to be used although the contractor has made known to the owner that the
specified manufacturer excluded any warranty of quality.
Undoubtedly, however, as a general rule the contractor’s obligation will not
extend beyond supplying a material of good quality conforming to the express
description of it in the contract documents, if the description is precise and the choice
of the material is indeed the architect’s and engineer’s. 46 The quality standards
expected of the contractor are either47:
43
I. N. Duncan Wallace. Supra 2. pp. 274.
[1969] 1 AC 454
45
[1951] QSR 225.8 Butterworths
46
Adcock’s Trustee v Bridge R.D.C.[1911] 75 J.P. 241
47
Harbans Singh. Supra 19. pp. 697
44
20
a) Expressed in the contract, i.e. in the form of specifications, employer’s
requirements, etc; these being reaffirmed vide appropriately drafted
conditions of contract, e.g. Clause 1.1 of Pam 1998 Form, Clause 15.1 of
CIDB 2000 Form; and/or
b) Established by necessary implication, e.g. materials supplied must be of
‘merchantable quality’ and fit for their purpose 48 , these two criteria
operating independently and exclusively49.
2.3.3
Quality of the Workmanship
The standard of workmanship may be defined in considerable detail by the
contract, for example by requiring it to comply with an appropriate code of
practice. 50 Under PAM 1998, such a requirement would appear in the contract
document, and would have contractual force by virtue of Clause 6.1. Clause 6.1 of
the PAM 1998 provides that the specification of the works contain in the contract
document will specify the kinds and standard of materials, goods and workmanship.
Where the standards are described in the contract documents, the materials, goods
and workmanship must be of those standards. Where the standards are not expressly
described in the contract documents, then the implied duties of the contractor
apply.51 In a situation where the contract document do not so specify, there will be an
implied term that the materials or goods will be of merchantable quality and that the
workmanship will be carried out with reasonable care and skill: see Lord Denning in
Hancock v BW Brazier (Anerly) Ltd52 and Lord Reid in Young and Marten Ltd v Mc
Manus Childs Ltd53.
The owner can still accept minor defective workmanship as a substantial
performance of the contractor’s work. Indeed, the owner can bring an action to
48
Khong Seng v Ng Teong Kiat Biscuit Factory Ltd [1963] MLJ 388
Rumbelows Ltd v Firesnow Sprinkler AMK and Installations Ltd [1980] 19 BLR 25
50
Murdoch, J and Hughes, W. Supra 3. pp. 148
51
Sundra Rajoo. Supra 1. pp. 95
52
[1966] 2 All ER 901
53
[1969] 1 AC 454
49
21
counterclaim the cost of the repair works and set-off from the money due under the
building contract. In Hoenig v Issacs54, the Court of Appeal agreed with the official
referee’s finding that the contract has been substantially performed even though there
were some defects and held that the contractor was entitled to be paid the balance
due, less only a deduction for the cost of making good the defects.
The standards of workmanship to which the contractor must aspire to work
towards are either55:
a) Prescribed in the contract in an express manner. These are usually
contained in the form of the specifications, standards, code of practice, etc,
and endorsed by the relevant express clauses, e.g. clause 4 of JKR 203
Form, and/or
b) Implied under the general corpus of the law, e.g. workmanship has to be
of ‘workmanlike’ standard, i.e. that which an employer could reasonably
expect of an ordinarily skilled and experienced contractor of the type the
employer has elected to employ and having regard to any relevant claims
made by the contractor as to his level of competence56. It is to be noted
that where a contractor has complied exactly with a detail express
specification, there is no room for implication of further provision as to
the standard required to be achieved 57.
2.4
Liability for Defects
As a general principal, defects in the work do not entitle the employer to
terminate the contract and refuse payment altogether. The employer’s remedy is to
54
[1952] 2 All ER 176
Harbans Singh. Supra 19. pp. 698
56
Hancock v BW Brazier (Annerley) Ltd [1966] 1 WLR 1317
57
Lynch v Thorne [1956] 1 WLR 303
55
22
claim damages for the cost of rectification. However, very serious defects may
justify the conclusion that there has nor been ‘substantial performance’ by the
contractor. Where this can be established, the employer need pay nothing.58 In Bolton
v Mahadeva 59, the installation of a central heating system at an inclusive price of
£560 was defectively carried out. The system was only 90% efficient (70% in some
rooms) and gave off fumes in the living room. The Court of Appeal held that the
claimant was entitled to nothing for this work; the defendant was not limited to
setting of the £174, which it would cost to put right the defects.
It is even possible that an accumulation of lesser defects may amount to a
repudiatory breach of contract, even though none of them would be sufficient on
their own.60 It was thus held in the case Sutcliffe v Chippendale & Edmondson61 that
the contractors’ ‘manifest inability to comply with the completion date requirements,
the nature and number of complaints from sub-contractors and their own admission
that…the quality of work was deteriorating and the number of defects was
multiplying’ entitled the employer to terminate the contract and to order the
contractors to leave the site. The employer had justifiably concluded that the
contractors had neither the ability, competence nor the will to complete the work
accordance with the contract.
Timing wise, the contractor’s liability for defects can be demarcated along
three principal stages of a typical contract, namely during construction, during
defects liability period and post defects liability period.
58
Murdoch, J and Hughes, W. Supra 3. pp. 328
[1972] 2 All ER 1322
60
Murdoch, J and Hughes, W. Supra 3. pp. 329
61
[1971] 18 BLR 149
59
23
2.4.1
Defects discovered during the Construction Period
This stage encompasses the period from the commencement of the contract
up to the issue of the certificate of practical completion or sectional completion.
During this stage, the general rule is that the contractor is entitled or has a contractual
right to remedy any patent defect or latent defect becoming patent, at anytime up to
the date of handing over of the works to the employer. Should he fail to remedy to
rectify such defects either on his own or upon instruction of the contract
administrator, he is culpable of breach of contract.62
The architect, engineer or the contract administrator in most standard forms
has extensive powers in respect of63
(i)
opening up and investigation of works; and
(ii)
remedial of defects, e.g. to have defects remedied including removal
and substitution of defective materials and removal and re-execution
of defective work.
Notwithstanding the engineer or the contract administrator supervisory role,
the contractor is solely responsible for compliance with the contract. Failure of the
engineer or the contract administrator to give notice or investigate defects is not
sufficient ground to construe the engineer or the contract administrator has accepted
the works64. In Miller v Krupp65, NSW, Giles J. said:
“Krupp’s [defendant contractor] submission requires that Miller’s [plaintiff
employer] agent for the purpose of supervising Krupp’s performance of the
contract owed a duty to take care to prevent Krupp from falling properly to
perform: a duty to save it from breach of the very contract it had to perform to
62
Harbans Singh. Supra 19. pp. 709
Ong See Lian. Supra 15. pp. 2.
64
Ong See Lian. Ibid. pp. 2.
65
[1992] 11 B.C.L.74
63
24
Miller’s satisfaction. In my view there was not the requisite proximity, a view
confirmed by notions of what is fair and reasonable.”
It should be noted that the commensurate redress is usually stipulated under
the contract itself, i.e. for mere trivial breaches amounting to breach of warranty, the
employer’s right being confined normally to the use of third parties or a financial
adjustment and for a more serius default constituting a breach of a condition, the
remedy being determination of employment. 66 In William Tomkinson & Sons v
Parochial Church Council of St Michael67, it was held that the employer was entitle
to recover damages for the defective work as it was still a breach of contract, despite
occurring during the construction period. Damages which the employer would be
entitle to recover however is not his outlay in remedying the damage but the cost
which the contractor would have incurred in remedying it if they had not been
required to do so; the sum is anticipated to be much less than the actual remedial
costs.
2.4.2
Defects Discovered during Defects Liability Period
The instant stage normally covers the period from the date of completion or
handing over up to the certification by the contract administrator of the contractor’s
obligation to remedy defects, i.e. by the issue of the Certificate of Making Good
Defects.68 During the defects liability period, which starts on the completion of the
works, standard forms of contract generally give the contractor a licence to return to
the site for the purpose of remedying defects. In effect, such condition of contract
confers upon the contractor a right to repair or make good its defective works, which
can (usually) be carried out more cheaply and (possibly) more efficiently than by
some outside contractor bought in by the employer69.
66
Harbans Singh. Supra 19. pp. 711
[1990] 6 Const. LJ 319
68
Harbans Singh. Supra 19. pp. 711
69
Ong See Lian. Supra 15. pp. 3.
67
25
Lord Diplock, commenting on RIBA/JCT defects liability clause in the case
of P&M Kaye Ltd v Hosier & Dickson Ltd70, said:
“Condition 15 imposes upon the contractor a liability to mitigate the damage
caused by his breach by making good the defects of construction at his own
expense. It confers upon him the corresponding right to do so. It necessary
implication from this that the employer cannot, as he otherwise could, recover
from the contractor the difference between the value of the works if they had been
constructed in conformity with the contract and their value in their defective
condition, without first giving the contractor the opportunity of making good the
defects.”
It follows that an employer who chose to repair the defects himself without
giving the contractor an opportunity to do so would thereby be in breach of contract71.
2.4.3
Defects Discovered after the Final Certificate
The post “correction” period starts at the end of the defects liability period.
The contractor will no longer have a right of entry or a right to remedy his own
defects, although many standard forms provide a short transition period for the
contractor to enter and remedy defects notified up to the end of the defects liability
period72.
In the absence of words to the contrary in the contract, the contractor’s
liability for not completing the works in accordance with the contract continues until
statute barred. The Malaysia Limitation Act 1953 Section 6(1) provides that the
70
[1972] 1 W.L.R. 146, at p.166
Ong See Lian. Supra 15. pp. 3.
72
Ong See Lian. Ibid. pp. 3.
71
26
limitation period for a breach of contract and tort are six year from the date on which
the cause of action accrued. A cause of action for ordinary failure to build in
accordance with the contract normally arises at practical completion. A cause of
action for failure to comply with defects liability obligations normally arises at the
end of the defects liability period or such period prescribed by the contract for
carrying out these defects obligations.73
Note, however, the exception under section 29 of the Act, where the action is
based upon the fraud of the defendant or his agent or of any person through whom he
claims or his agent, or the right of action is concealed by the fraud of any such
person, then the period of limitation shall not begin to run until the plaintiff has
discovered the fraud or the mistake (as the case may be) or could with reasonable
diligence have discovered it.74
It appears following H W Nevill (Sunblest) Ltd v William Press and Son Ltd 75
that the satisfactory making good of defects does not amount to an exclusion of
claims in respect of their consequences. The measure of damages will therefore not
only be the cost of repair of the defect, but also such compensation as the loss of the
use of the plant during repairs in accordance with the ordinary rules governing
remoteness of damage.
Where there is a conclusive final certificate of satisfaction given by the
architect, engineer or the contract administrator, the contractor’s liability for the
defective works ends upon the end of Defects Liability Period, notwithstanding that
the certificate may have been granted after the commencement of legal proceedings
in respect of the defects in question76.
73
Ong See Lian. Supra 15. pp. 3.
Ong See Lian. Ibid. pp. 4.
75
[1981] 20 BLR 78
76
Kaye (P&M) Ltd v Hosier & Dickinson [1972] 1 W.L.R. 147 (HL)
74
27
2.5
Contractor Obligations after Completion
There are further obligations imposed on the contractor after completion,
notably by JKR 203, PAM 1998 and CIDB 2000. Clause 45 of JKR 203 governs the
rights and obligations of the parties on defects, imperfections, shrinkages and other
faults in the works which arises during the Defects Liability Period (DLP) after
achievement of practical completion of the works. Clause 45(a) specifies that the
contractor is responsible for any defect, imperfection, shrinkage and other fault
appears during the DLP, which will be six months from the day named in the
Certificate of Practical Completion (CPC), unless some other period is specified in
the Appendix. 77 Clause 15.2 under PAM 1998 also specifies the liabilities of the
contractor after the CPC has been issued. It establishes a formal DLP and a
procedure for dealing with defects within that period. 78 CIDB 2000 also has the
similar provision under Clause 27.1.
2.5.1
Defects Liability Period
The exact status of the ‘Defects Liability Period’ (or ‘Maintenance Period’),
is of a period defined in the construction contract during which the appearance of
defects is at the contractor’s own risk in that he may be called upon to return to site
to correct them as nessasary. This was traditionally a period of six months but is now
commonly specified as 12 months. 79 Under the Housing Developers (Control and
Licensing) Act 1966, the standard pro-forma agreement which must be used for the
sale of units within building projects contains the following basic provision: (the
wording is from Clause 23 of Schedule G in the Housing Developers Regulations)
77
Lim Chong Fong. Supra 8. pp. 105.
Sundra Rajoo. Supra 1. pp. 145.
79
Nigel M Robinson. Supra 20. pp. 170
78
28
“Any defects, shrinkage or other faults in the said Building which shall become
apparent within a period of eighteen (18) calendar months after the date of
handing over of vacant possession, to which water and electricity supply are
ready for connection to the said building, to the purchaser and which are due to
defective workmanshio or materials or the said Building not having been
constructed in accordance with the plans and description as specified in the
Second and Fourth Schedule as approved or amended by the Appropriate
Authority, shall be repaired and made good by the Vendor at its own cost and
expenses within thirty (30) days of its having received written notice thereof from
the Purchaser and if the said defects, shrinkage or other faults in the said
Building have not been made good by the Vendor, the Purchaser shall be entitled
to recover from the Vendor the cost of repairing abd making good the same and
the Purchaser may deduct such costs from any sum which has been held by the
Vendor’s solicitor as stakeholder for the Vendor: Provided that the Purchaser
shall, at any time after the expiry of the said period of theirty (30) dais, notify the
Vendor of the cost of repairing and making good the said defects, shrinkage or
other faults before the commencement of the works shall give the Vendor an
opportunity to carry out the works himself within fourteen (14) days from the
date of the Purchaser has notified the Vendor of his intention to carry out the
said works.”
Note that this contractual term deriving from the Housing Developers
Regulations is operative only as between the purchaser of the housing unit and the
vendor (developer); where the developer has contracted with a contractor for the
construction of the building, the terms of that contract may be quite different.80 The
requirement in the Housing Developers Regulations is limited to “any defect,
shrinkage or other fault … which shall become apparent …”. The sufficiency or that
requirement depends on the definition of completion adopted within the contract and
on the strict enforcement of it. It is not necessary the case that items pf work required
by the contract but remaining outstanding at the date of acceptance ov completion are
80
Nigel M Robinson. Supra 20. pp. 170-171
29
to be classified as defects or faults, but the Defects Liability Period nay be used also
for the completion of such items.81
It is to be noted that under most of the construction contracts, the issue of the
“Certificate of Practical Completion” marks the start of the “Defects Liability
Period”. Any defects, shrinkages or other faults arising during this period due to
defective materials or workmanship must be put right by the contractor at its own
expense. The contractual procedure for dealing with defects arising during the
Defects Liability Period is that the contract administrator should issue a schedule of
such defects to the contractor not later than fourteen days after the end of the defects
liability period, and the contractor then has a reasonable time to put them right. Once
this has been done, the contract administrator will issue a ‘Certificate of Completion
of Making Good Defects’, following which the contractor becomes entitled to the
remaining part of the retention money. It may be noted that, if no schedule of defects
is issued, the employer retains the right to claim damages for breach of contract.82
It is the contractor’s obligation under the contract to rectify the defects
appears during DLP. According to Lord Diplock in P&M Kaye Ltd v Hosier &
Dickinson Ltd83, the DLP’s clause is included in the contract with an intention of
giving opportunity to the contractor to make good the defects appear during that
period. Lord Diplock’s interpretation is easy to understand as we could see that most
of the construction contracts require the superintendent to issue notice to the
contractor for rectifying the defects appear during DLP. Further Lord Diplock said
that:
“…the contractor is under an obligation to remedy the defects in accordance
with the architect’s instructions. If he does not do so, the employer can recover
as damages the cost of remedying the defects, even though this cost is greater
than the diminution in value of the works as a result of the unremedied defects.”
81
Nigel M Robinson. Supra 20. pp. 171
Murdoch, J and Hughes, W. Supra 3. pp. 185.
83
[1972] 1 WLR 146
82
30
During a defects liability period, the contractor has the right as well as the
obligation to put right any defects that appear. What this means is that an employer
who discovers defects should operate the contractual defects liability procedure,
rather than appoint another contractor to carry out the repairs. In William
Tompkinson v Parochial Church Council of St Michael84 , an employer refused to
allow the original contractor access to the site to remedy defects, but instead sued the
contractor for the cost of having these rectified by another contractor. It was held that
the employer’s decision amounted to an unreasonable failure to mitigate the loss
suffered, and the damages were reduced by the amount by which the employer’s
costs exceeded what it would have cost the original contractor to carry out the work.
The Court of Appeal has since approved this decision.
Therefore, in the event that the contractor is fails to rectify the defects after
being given notice or the owner is not satisfied with the remedial works, the owner is
entitled to appoint another contractor to undertake the remedial work and claim the
cost of doing it to the original contractor.85 This has been correctly decided by the
High Court of Malaya, Kuala Lumpur in Kemayan Construction Sdn Bhd v Prestara
Sdn Bhd 86 where the owner is entitled to recover the cost of rectification of the
defective building works from the original contractor who failed to rectify the defects
after being instructed by the Architect. It was held that the owner is entitles to engage
independent contractor to rectify the defects and deducted the rectification cost from
the original contractor’s account. Kamalanathan JC agreed that the owner may
recover from the contractor or may deduct any money due or to become due to the
contractor provided that the architect has issued a written notice to the contractor to
rectify the defects and that at the expiry of seven days notice, it has been shown that
the contractor has failed to rectify the defects.
84
[1990] 6 Const LJ 814
Mohd Suhaimi Mohd Danuri. Supra 7. pp. 56
86
[1997] 5 MLJ 608
85
31
It is also worth noting that defects liability clauses do not act as exclusion
clauses. If a defect is not included on a schedule of defects, and is not noticed by the
contractor or contract administrator before the end of the period, the contractor is still
liable for it. Since the period has expired, the contractor has no right to return to the
site to repair the defect, but is liable to the employer for damages.87
2.5.2
Procedural Requirements
In all cases, the strict entirety of the contract is modified and provision is
made for the making good of defects by the contractor subsequent to handing over
possession. The employer’s right to have defects remedied within a stipulated period
after completion is in substitution for his rights to a damages claim in respect of the
cost of remedial work dine by another contractor, i.e. the provision for the making
good of defects by the contractor is mandatory on both parties and gives the
contractor the right to make good defects notified to him rather than be sued by
breach.88
Where the contract stipulates the procedural requirements, the parties must
observe the requirements to preserve their respective rights. Failure of the employer
to comply with procedural requirements in respect of defects rectification may be
detrimental to his later claim for damages.89
Accordingly, it is generally accepted that the owner would be entitled to
appoint another contractor to rectify the defects if the original contractor had failed to
comply with the said notice. However, the issue would be much difficult if the owner
employ another contractor to rectify the defects without first giving the required
notice to the original contractor. In another words, it deprives the original contractor
87
Murdoch, J and Hughes, W. Supra 3. pp. 185.
Nigel M Robinson. Supra 20. pp. 171
89
Ong See Lian. Supra 15. pp. 4.
88
32
from having the opportunity to undertake the remedial works himself. It must be
noted that the owner cannot employ another contractor to do work that the original
contractor is obliged to do under the contract. 90 The common law principle has
justified that the works under the contract cannot be omitted with an intention of
giving it to another contractor.91
In considering this issue, it is essential to appreciate that the requirement of
such notices impliedly imposing a duty to mitigate the loss on the owner. Refer to the
decision of the Court of Appeal in Pearce & High Limited v Baxter92 , P&H, the
building contractor sued Baxter, the employer for amounts including the sum of BGP
3,919.23 outstanding under an architect’s certificate for workdone under a contract in
the JCT form for Minor Building Works. Defects had become apparent before the
end of the defects liability period, but these were not notified to the contractor. The
Court of Appeal held that the owner was under a duty to mitigate the loss by giving
the opportunity to the original contractor to undertake the remedial works himself.
The judge justified that the cost of employing another contractor to remedy the
defects would be much higher than the cost to the original contractor. Evans LJ said
that:
“The cost of employing a third party repairer is likely to be higher that the cost
to the contractor doing the work himself would have been. So the right to return
in order to repair the defects is valuable to him. The question arises whether, if
he is denied that right, the employer is entitled to employ another party and to
recover the full cost of doing so as damages for the contractor’s original breach.
In my judgement, the contractor is not liable for the full cost of repairs in those
circumstances. The employer cannot recover more than the amount which it
would have cost the contractor himself to remedy the defects. Thus, the
employer’s failure to comply with clause 2.5 (the clause relating to rectification
of defects), whether by refusing to allow the contractor to carry out the repair or
90
Mohd Suhaimi Mohd Danuri. Supra 7. pp. 56
Carr v JA Berriman Pty Ltd [1953] 27 ALJR 273
92
[1999] BLR 101
91
33
by failing to give notice of defects, limits the amount of damages which he is
entitled to recover. The result is achieved as a matter of legal analysis by
permitting the contractor to set off against the employer’s damages the amount
which he, the contractor, has been disadvantaged by not being able or permitted
to carry out the repairs himself, or more simply, by reference to the employer’s
duty to mitigate his loss.”
The employer’s failure to comply Clause 2.5 of the JCT form for minor
works, whether by refusing to allow the contractor to carry out the repairs or by
failing to give notice of the defects, limits the amount of damages whish he is
entitled to recover. As a matter of legal analysis this is either93:
a) By permitting the contractor to set-off against the employer’s damages
claim the amount by which he, the contractor, has been disadvantaged by
not being able or permitted to carry out the repairs himself, or
b) By reference to the requirement for the employer to mitigate the loss for
which is entitled to recover damages
The measurement of damages was therefore the cost of repairs by the
contractor if he remedied the defects himself on the assumption that this is lower
than the cost of repair by a third party. The absence of notice of the defect does not
raise the possibility that the measure of damages in some circumstances may only be
the diminution of the value of the property by reason of the defect, on normal
principles. The decision was not concerned with this aspect however and left the
question open.94
In Malaysia, the principle of mitigating the damages is stipulated in the
explanation to section 74 of the Contracts Act 1950 (revised 1974). It has been
93
94
Ong See Lian. Supra 15. pp. 5
Ong See Lian. Ibib. pp. 5
34
decided in the case of Kabatasan Timber Extraction Co v Chong Fat Shing95 that the
respondent is under a duty to mitigate the damages, when the appellant had failed to
deliver some of the timbers to the designated site. Macintyre FJ in that case has said
that:
“In the instant case, there was no need for the respondent to have gone to the
expense and trouble of buying logs from elsewhere when the logs were lying a few
hundred feet away from the sawmill for the mere taking and all that was required
was additional expense for hauling them up to the sawmill.”
Furthermore, Macintrye FL also quoted the following passage from Anson’s
Principles of the English Law of Contract:
“it also follows from the rule that damages are compensatory only that one who
has suffered loss from a breach of contract must take any reasonable steps that
are available to him to mitigate the extent of the damage caused by the breach.
He cannot claim to be compensated by the party in default for loss which is really
due not to the breach but to his own failure to behave reasonably after the
breach.”96
Therefore, the probability is that the courts in Malaysia will follow the same
principles developed in the case of Pearce & High Limited v Baxter97 by imposing
the owner a duty to mitigate the damages for defects appear during Defects Liability
Period. It has to be noted that the failing of the superintendent to issue the required
notice during DLP shall not bar the owner from appointing another contractor to
rectify the defects and recovering the remedial cost. In this regards, Evans LJ has
agreed with the judgement of Judge Stannard in William Tokinson v St Michaels’s
Parochial Church Council
95
98
that the owner’s common law right to recover for
[1969] 2 MLJ 6
Kabatasan Timber Extraction Co v Chong Fat Shing [1969] 2 MLJ 6
97
[1969] 2 MLJ 6
98
[1990] CLJ 319
96
35
damages is not excluded by failing to issue such a notice, however, it would limit the
damages recoverable by the owner due to the principle of mitigating the damages.99
2.6
Conclusion
It is important to understand the precise nature of the defects obligations
under the contract. It involves basically the right to recall the contractor to return to
the site to carry out rectification works even if the site was returned to the employer
for occupation. The contractor should be given the right to rectify the defects at his
own costs which may appear during the Defect Liability Period. Thus if an employer
who discovers such defects and has rectify them without giving the opportunity to
the contractor to do the making good himself, he may not be able to recover the
additional cost of doing the work by a third party contractor.
In most of the contracts in use today, the certificate by the architect, engineer
or contract administrator is an important instrument to determine whether the work is
accepted or approved. However, such certificate may not be conclusive as often such
contracts also provide for the review of such certificate by an arbitrator. As such the
certificate of the architect, engineer or contract administrator looses its binding effect
unless the express provisions of the contract otherwise provides.
99
Pearce & High Limited v Baxter[1969] 2 MLJ 6
36
CHAPTER 3
LIABILITY OF DEFECTS
3.1
Introduction
There are provisions in most standard form building contracts requiring the
rectification of residue defects by the contractor within a stipulated period after
completion, a period generally described as the ‘defects liability’ or ‘maintenance’
period. Most such contracts also provide for the withholding of retention money until
the expiry of the period, for release only when the contract administrator has certified
his satisfaction that the works are finally in conformity with the contract.100
During the defects liability period, the contract administrator is empowered to
require the contractor to make good the defects, and, in the event of the contractor’s
default in this, to engage another contractor to do so at the expense of the former.
Since these powers of the contract administrator are exercisable until the end of the
defects liability period, contractors (and others) have tended to assume that the
contractor ceases to be liable for defects at the moment that the defects liability
period expires. Similarly, most housing developers assume that they cease to be
100
Nigel M Robinson. Supra 20. pp. 263
37
responsible for defects under the defects liability provisions in their sale and
purchase agreements. Much confusion has arisen out of misunderstanding of the
nature of the obligations embodied in defects liability provisions in contracts.101
The defects liability period (or maintenance period) is by no means definitive
of the duration of rights and liabilities even as between the parties to the contract. For
example, a contractor could still be sue in respect of defective concrete work by the
owner two years or more after the end of the defects liability period, if the defect was
one which was knowingly or recklessly covered up by the contractor so as to amount
to fraud. It is also vital to understand that the period is a contractual provision. It is
not therefore binding upon a subsequent purchaser who suffers loss and damage after
acquiring the property and he would not be prevented from pursuing tortuous
remedies against the original contractor. Similarly, the period cannot be relied upon
by professionals such as architects or engineers to determine the duration of their
liability, since they were not parties to the contract.102
The contractor’s liability in damages for defects is not relieved by the defects
liability clause (in the absence of clear words to the contrary): see Hancock v
Brazier103, Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd104. Lord
Denning in Hancock v Brazier indicated that the expiry of the period of defects
liability does not suspend or extinguish the rights of the employer to general damages
for defective work. The result is that, subject to any clear contractual provisions to
the contrary, a contractor’s liability in damages continues until it becomes statutebarred.
101
Nigel M Robinson. Supra 20. pp. 263
Nigel M Robinson. Ibid. pp. 263-264
103
[1966] 2 All ER 901
104
[1973] 3 WLR 421
102
38
3.2
Certificate of Making Good Defects
The contractor’s satisfactory discharge of his obligation to make good any
reported defects within the defect liability period has to be certified by the contract
administrator; a milestone expressly spelt out in all the standard forms of conditions
of contract.105 A classic example of the latter is clause 27.6(a) CIDB 2000 Form
which reads:
“at the expiry of the Defects Liability Period and when all the Defects notified by
the Superintending Officer to the Contractor under clause 27 have either been
made good by the Contractor in compliance with the Superintending Officer’s
instructions or have been dealt with by the Superintending Officer under clause
27.4 the Superintending Officer under clause 27.4 the Superintending Officer
shall issue a certificate to that effect. Such certificate shall be referred to as the
‘Certificate of Making Good Defects’.”
Similarly worded clauses are included in all the other standard form used
locally, e.g. clause 15.4 PAM 1998 and clause 45(e) JKR 203 Form. In summary, the
principal effects of such a certificate are106:
a) It officially brings to an end the defect liability period stipulated in the
contract
b) It finally discharges any remaining contractual rights of the contractor to
physically attend to the defects, i.e. to enter the site and remedy defects
c) It establishes the commencement of the contractually stipulated period for
the preparation of final account and the issue of the Final Certificate by
the contract administrator
d) It contractually obliges the employer to release the second moiety of any
retention fund or sum withheld
105
106
Harbans Singh. Supra 19. pp. 755
Harbans Singh. Ibid. pp. 758
39
e) It discharges the liability of the guarantor or the body issuing the
performance security deposit and thereby released the same, and
f) It releases the insurers from any obligations and/or liabilities under the
various insurances issued which are valid up to such milestone only
Contrary to popular belief, the said certificate is not conclusive but of limited
effect only; such effects being adverted to above. It does not derogate in any way the
contractor’s liability for defective work at law, i.e. it does not prejudice the
employer’s rights in regard to latent defects and/or other breaches of the contract in
terms of defective work or otherwise. The contractor continues to be liable for such
defects for the duration of the applicable statutory period of limitation.107
3.3
Final Certificate
Final certificates, which frequently are certificates both of satisfaction with
the work of the final balance due to the contractor upon his final discharge of his
obligations under the contract. However, in many earlier contracts, not usually found
at the present day in the UK but still common in commonwealth countries, an earlier
certificate at the beginning of the maintenance period is made the definitive
certificate of satisfaction, but subject to a defects liability during the subsequent
maintenance period.108
Completion of the contract is evidenced by the issuing of the Final Certificate.
Under most contracts, (except in cases of fraud, dishonesty or fraudulent
concealment relating to the works, or any defect or omission in the works which was
not apparent or would not have been disclosed upon reasonable inspection at the time
107
108
Harbans Singh. Supra 19. pp. 758
I.N. Duncan Wallace. Supra 2. pp. 829
40
of issuing the Final Certificate) the Final Certificate is evidence that the works have
been completed in accordance with the terms of the contract. Accordingly, where the
exceptions described above do not apply, the employer is unlikely to have any
recourse against the contractor for breach of contract and the employer may proceed
to rectify the works at its own cost.109
In cases of fraud, dishonesty or fraudulent concealment relating to the works,
or where there is a defect or omission in the works which was not apparent and
would not have been disclosed upon reasonable inspection at the time of issuing the
final certificate, the employer will have recourse against the contractor. However, as
the contract has come to an end, there are no longer any remedies under the contract
which are available to the employer and, if the contractor fails to rectify the defect or
omission, it will be necessary to seek relief through legislation, the common law (via
the courts) or by exercising rights of set off where it is possible to do so.110
Therefore, it can be noted that the Final Certificate exhibits the following
characteristic111:
a) It is issued upon the expiry of the contract period
b) The certificate is issued by the authorised person, i.e. the contract
administrator
c) It is the last of the various certificates issued during the currency of the
contract
d) Form the contractual point of view, the issue of such certificate, prima
facie, signifies discharge of the contract by performance
e) It is also generally renders the contract administrator ‘functus officio’,
and
f) The actual effect of such a certificate is dictated by the precise wording of
the particular term(s) of the applicable conditions of contract
109
Julia Willis. 2006. “Rectification of Building Defects or Omissions after Final Completion.”
http://www.build.qld.gov.au/amps/AmpsDocs/pan-rec-of-bldg-defects.pdf
110
Julia Willis. Ibid.
111
Harbans Singh. Supra 19. pp. 829
41
As can be gleaned from the earlier discussion, the Final Certificate on a broad
brush approach, is generally of the following effect112:
a) It signifies the contract administrator’s satisfaction that the work carried
out by the contractor conforms with the contract, i.e. it is sufficient and
the completion criteria had been achieved, etc; and/or
b) It certifies the amount which is finally due to the contractor; and/or
c) It renders the contract administrator ‘functus officio’ i.e. he has
discharged his duties under the contract and has exhausted his authority
with the result that he cannot thereafter issue any valid certificate under
the contract.
Hence, consequently the contract administrator’s decision as contained in the
Final Certificate on the matters contained therein, i.e. sufficiency of work and
amount finally payable is often binding and conclusive on the parties. However,
whether it is in actual effect really binding and conclusive is not that clear cut, there
being no comprehensive test to establish the same. Much depends in the intentions of
the contracting parties as to such terms. Additionally it may be necessary to look
beyond the contract itself at collateral matters such as possible grounds of
challenging the certificate, the conduct of the contract administrator, etc113.
3.3.1
Express Contractual Provisions
Before the contract administrator issues the Final Certificate to the contractor,
he must ensure that the relevant pre-conditions as expressly stipulated in the
particular terms of the conditions of the contract has been satisfied. As can be
observed from the various standard forms of conditions of contract employed in this
112
113
Harbans Singh. Supra 19. pp. 837
Harbans Singh. Ibid. pp. 837
42
country, such pre-conditions vary markedly between these forms. However, in
general the following pre-conditions can be elicited from these forms114:
a) Certification of the satisfactory completion of the making good of defects,
e.g. the issue of Certificate of Making Good Defects, etc
b) Official expiry of the Defects Liability Period inclusive of any official
extension thereof
c) Certification of the satisfactory completion of the carrying out of the
relevant servicing and maintenance, e.g. issue of Certificate of
Completion of Maintenance, etc
d) Preparation and finalization of the Final Account
e) Formal application for Final Certificate by the contractor, and
f) Satisfaction of all other obligations under the contract, e.g. submission of
warranties,
guarantees,
indemnities,
authority approvals,
records,
documents, etc.
Notwithstanding the listing out of the abovementioned general pre-conditions,
the practitioner must be aware of and strictly comply with the particular provisions of
the contract being implemented, as such stipulations actually govern the rights and
obligations of the parties to the contract115.
Clause 15.4 of PAM 1998 is important since it provides for the architect to
issue what is called the ‘Certificate of Making Good Defects’ when the instruction
contained in the schedule of defects or given under Clause 15.3 has been complied
with. This is an important certificate because116:
a)
One of the alternative events which must occur before the second half
of the retention money is payable (Clause 30.5(iv));
114
Harbans Singh. Supra 19. pp. 829
Harbans Singh. Ibid. pp. 829
116
Sundra Rajoo. Supra 1. pp. 146-147
115
43
b)
One of the events which must have occurred before the period within
which the Final Certificate is due begins to run (Clause 30.7).
There seems to be no advantage in issuing the Certificate of Making Good
Defects earlier that at the end period stipulated as it can lead to some defects being
undetected by the architect. Although the certificate means that the contractor is no
longer obliged to return and remedy defects, it does not discharge him finally of
liability for defects and the cost for remedying them. No competent architect is likely
to issue a final certificate under Clause 30.7 unless all the work is to his reasonable
satisfaction.117
Clause 30.7 in PAM 1998 provides that no certificate issued by the Architect
is conclusive evidence that any work, materials or goods are in accordance with the
contract (Clause 30.8). On examining the above provision in relation to the Final
Certificate, it is clear that the contents of this sub-clause precludes finality only to the
matters as mentioned thereon, i.e. satisfaction with any work, material;s or goods. It
however, does not avoid the conclusiveness, evidence wise of the other essential
matters contained in the Final Certificate, i.e. the balance due between the parties.
Hence, the non-conclusiveness of the Final Certificate is limited to certain matters
only and is not all encompassing.118
Clause 30(7) in the PAM/ISM 1969 Form had been criticized as being
inimical to the interest of the employer as it provides that the Final Certificate is to
be conclusive with regard to the sufficiency of the work by the contractor except for
three exceptions namely, fraud, defects not shown up by reasonable inspection, and
accidental inclusion or exclusion unless notice of arbitration is given by either party
before its issue or by the contractor within 14 days after its issue. It was held in P&M
Kaye Ltd v Hosier & Dickinson Ltd119, that the words in Clause 30(7) of the JCT
117
Sundra Rajoo. Supra 1. pp. 147
Harbans Singh. Supra 19. pp. 841
119
[1972] 2 All ER 121
118
44
1963 prevented any further legal action, including legal proceedings started before
the certificate was issued. The certificate is not reviewable by the arbitrator under
clause 34.0 because it is ‘conclusive evidence that any necessary effect has been
given to all the terms of this Contract which require an adjustment to the Contract
Sum’.120
The case has been followed in the Malaysian case of Shen Yuan Pai v Dato
Wee Hood Teck121. It excuses the contractor from liability for what could be breaches
of contract and obviates the operation of the Limitation Act 1953 providing that
actions founded in contract and tort shall not be brought after the expiration of six
years from the date on which the cause of action accrued. As the Final Certificate
under Clause 30(7) of the PAM/ISM 1969 Form is ‘conclusive evidence’ not only of
the adjustment of the Contract Sum, but also ‘that the Works have been properly
carried out and completed in accordance with the terms of these Contract’, it is, to
say the least, hardly in the employer’s interest since effectively it excuses the
contractor from liability for what could be serious breaches of contract (subject to the
limited exception). In line with the risk apportionment philosophy of the PAM 1998
Form, Clause 30(7) is amended to remove the conclusiveness of the Final
Certificate.122
JKR 203 adopted a similar approach to the PAM 1998, Clause 45 governs the
rights and obligations of the parties on defects, imperfections, shrinkages and othe
faults in the works which arise during the Defects Liability Period after the
achievement of practical completion of the Works. This provision is not in
derogation of the Government’s rights and remedies for breach of contract on the
part of the Contractor in not executing the Works in accordance with the Contract,
which is subject to the limitation period as set out in the Limitation Act 1953123, see
Teh Khem On & Anor v Yeoh & Wu Development Sdn Bhd & 3 ors124.
120
Sundra Rajoo. Supra 1. pp. 309
[1976] 1 MLJ 16
122
Sundra Rajoo. Supra 1. pp. 309-310
123
Lim Chong Fong. Supra 8. pp. 105
124
[1995] 2 AMR 1558 by analogy
121
45
Clause 49 primarily states that none of the certificates of the Superintending
Officer issued under the Contract would be treated as conclusive evidence as to the
sufficiency of any work done, or material or goods supplied, which is the subject
matter of the certificate. The contents of the certificates will not be final and binding
in any dispute between the parties either in arbitration or in court. In other words, all
certificates can be opened up, reviewed and revised by the arbitrator or the court.125
The CIDB Form approaches the matter of conclusiveness of the Final
Certificate by first holding vide sub-clause 43.1 that all certificates issued by the
Superintending Officer (SO) shall not be considered as conclusive evidence as to the
sufficiency of any design works executed and/or any equipment, materials or goods
to which it relates. It then proceeds vide sub-clause 43.2 to stipulate the effect of the
Final Certificate in various situations involving mediation, arbitration or other
proceedings pursuant to the particular provision of the contract. For instance, subclause 43.2(a), renders such certificate as conclusive evidence for matters listed
hereunder in any proceedings arising out of or in connection with the contract in
accordance with clause 47126:
a) Satisfaction of the completion criteria where it is expressly stipulated to
be to the reasonable satisfaction of the SO and/or employer;
b) That all and only such extensions of time as are contractually due have
been given; and
c) That all the contractor’s financial claims, eg loss and expense have been
properly accounted for.
Clause 27.6(c) of CIDB 2000 Form also states that the Certificate of Making
Good Defects shall discharge the contractor from any physical attendance upon the
works for the purpose of remedying defects. Where there is a conclusive final
certificate of satisfaction given by the Superintending Officer, the contractor’s
125
126
Lim Chong Fong. Supra 8. pp. 114
Harbans Singh. Supra 19. pp. 842
46
liability for the defective works ends upon the end of defect liability period,
notwithstanding that the certificate may have been granted after the commencement
of legal proceedings in respect of the defects in question.127 This means that the Final
Certificate will be binding and conclusive and is not reviewable or opened up by the
arbitrator or court except in the case of fraud, dishonesty or fraudulent concealment
relating to the works.
3.3.2
Conclusiveness of Final Certificate
In order for the satisfaction or certificate of an architect or engineer to be
conclusive and binding on the parties, the following conditions must exist128:
(a) The matter in dispute must be one which the contract confers jurisdiction
on the architect or engineer to express his satisfaction or certify. That
jurisdiction will usually be narrowly construed.
(b) The contract must on its true construction provide that the certificate or
satisfaction is intended to be binding. If so, there will be at least a
tendency to regard it as being bilaterally binding, that is to say, both
parties will be bound by the certificates. There are, however, cases, apart
from the example of interim certificates, where the certificate may only
be intended to bind unilaterally. But in either case a provision enabling a
party to go behind or question or dispute the decision will destroy the
conclusiveness of the satisfaction or certificate, in particular any
applicable arbitration clause, either in general terms containing no express
restrictions on the disputes to be referred, and a fortiori if “open up
review and revise” or other express wording showing an intention to
confer an overriding or appellate jurisdiction on the arbitrator used,
(c) The certificate or satisfaction must be honestly given, and if not this will
be a breach of warranty by the owner. It must be given without collusion,
interference or undue influence, and the certifier must preserve his
127
128
P&M Kaye Ltd v Hosier & Dickinson Ltd [1972] 2 All ER 121
I.N. Duncan Wallace. Supra 2. pp. 868-869
47
independence and not act in a way that suggests that he has lost his
independence. Whether or not a breach of contract by the owner sounding
in damages is involved, the certificate in such cases will cease to be
binding and can be disregarded.
(d) The provisions of the contract regulating the matter to be certified must
be adhered to; the approval or certificate must be given by the correct
person at the correct time, and must not take into account any matters
extraneous to the stipulated requirements of the contract, although there
may be a class of satisfaction provision where the architect or engineer
may bona fide impose a stricter standard, for example, of quality, on the
party bound than the contract documents otherwise require.
(e) The owner must have done nothing, by breach of contract or otherwise, to
prevent the contractor from obtaining the certificate or satisfaction.
Where there is a defects clause and the end of the defects liability period a
binding and conclusive final certificate of satisfaction is given by the architect then,
in the absence of fraud or other special circumstances, the contractor’s liability in
contract for any defects which may have been granted after the commencement of
legal proceedings in respect of the defects in question129.
3.4
Defects Arising After Issue of Certificate of Making Good Defects/Final
Certificate
Upon the issue of the Certificate of Making Good Defects and subsequently
the Final Certificate, the contract is deemed to lapse and with it the attendant liability
under the said contract for defective work. The contractor’s liability for defective
works is basically under two principal heads, namely130:
129
130
Kaye (P&M) Ltd v Hosier & Dickinson [1972] 1 W.L.R. 147 (HL)
Harbans Singh. Supra 19. pp. 715
48
a) Contractual liability, i.e. under the express or implied provisions of the
particular contract; and
b) Common law liability, i.e. for breach of contract, tort of negligent, etc.
In regards to the first category, the duration of the liability is merely over the
defects liability period; which period may be six months, twelve months, etc.
Accordingly, one such period has officially lapsed, i.e. upon the relevant certification
by the contract administrator, the employer is not entitled contractually to pursue any
defect arising and/or reported after the said date, i.e. his claim for contractual redress
for defective work being out of time and therefore unenforceable. However, his
common law rights may be still valid depending on the circumstances.131
As for the second category, there are time limits imposed by statutes such as
the Limitation Act 1953 (Rev 1981), Limitation Ordinances (Sabah and Sarawak),
the Public Authorities Protection Act 1948 (Rev 1978), etc beyond which a cause of
action founded on contract or on a tort cannot be brought, subject to statutorily
prescribed exceptions for matter such as fraudulent concealment, mistakes, etc. hence,
claims arising from defective work cannot be pursued successfully by employers
once these are out of the stipulated times, i.e. they become ‘statute’ barred.132
A cause of action for ordinary failure to build in accordance with the contract
normally arises at practical completion. A cause of caution for failure to comply with
defects liability obligations normally arises at such later date after practical
completion as the contract prescribes for carrying out those obligations. If defects are
concealed by the contractor, this may result in an extension of the time limitation
131
132
Harbans Singh. Supra 19. pp. 708
Harbans Singh. Ibid. pp. 708
49
period. A contractor may be liable under express terms of a guarantee, warranty or
indemnity for many years.133
3.4.1
Cause of Action in Contract
Section 6(1) of the Limitation Act 1953 (Rev 1981) reads:
“Save as hereinafter provided the following actions shall not be brought after the
expiration of six years from the date on which the cause of action accrued, that is
to say:
(a) actions founded on a contract or on tort; …….”
Pursuant to section 6(1)(a) of the Limitation Act 1953, the date on which the
cause of action accrued is the date on which the contract was breached, for example,
by the execution of work not conforming the specification. In Bagot v Stevens,
Scanlan and Co134, Diplock LJ held that the limitation period ran from the time when
the drains were improperly built, because the plaintiff at that time was landed with
property which had bad drains. 135 For defective work, the date of the breach of
contract is the date the defective work was carried out.136
As the exact timing of the particular breach may be difficult to establish from
the evidential point of view, a general approach that has been advocated by
authorities is to the effect that in the case of lump sum contracts, the date for the
accrual of the cause of action was to be taken to be the date of handing over to the
employer of the works in its defective state. Hence, commencing from this date, the
133
Furst S and Ramsey, V. “Keating on Building Contracts.” 5th Edition. (London: Sweet & Maxwell,
1991) pp. 248
134
[1964] 2 Lloyd’s Rep 353
135
Nigel M Robinson. Supra 20. pp. 269
136
Bagot v Stevens Scanlon & Co. [1966] 1 QB 197 & Dutton v Bogner Regis United Building Co Ltd
& Anor [1972] 1 QB 373
50
contractor carries liability for a further six years; upon the expiry of which period the
employer’s cause of action then becomes statute barred.137
3.4.2
Cause of Action in Tort
As can be gleaned from section 6(1)(a) of the Limitation Act 1953, actions
founded on a tort shall not be brought after the expiration of six years from the date
on which the cause of action accrued; the most common torts encountered for
defective work being in relation to negligence, i.e. breach of the duty of care in terms
of workmanship, design, etc. Furthermore, the bulk of the claims for defective work
under this head pertain to latent defects.138
The difficulty for the instant head of claim lies in establishing exactly when
the time starts running, i.e. the actual date when the cause of action accrued. There
are three approaches establishing the actual time for the accrual of a cause of action
in tort under the limitation act, which are139:
a) “DUTTON’ Test
As per Lord Denning in Dutton v Bognor Regis United Building Co 140, the
cause of action does not occur until the defective work or damages was done.
b) “Discoverability” Test
As per Lord Denning in Sparham-Sounter v Town & Country Development
(Essex Ltd)141, the cause of action does not accrue and time does not begin to
137
Harbans Singh. Supra 19. pp. 716
Harbans Singh. Ibid. pp. 716
139
Harbans Singh. Ibid. pp. 718
140
[1972] 1 QB 373
141
[1976] 3 BLR 70
138
51
run until such time as the plaintiff that the defect has done damage, or ought,
with reasonable diligence to have discovered it.
c) “PIRELLI” Test
As per Lord Fraser in Pirelli General Cable Works Ltd v Oscar Faber &
Partners142, the plaintiff’s cause of action will not accrue until the date when
the damage actually occurs even though the signs of the damage or defect
may be discovered or undiscoverable.
It is apparent that English case law has discounted the first approach in favour
of the later tests. However, the ‘discoverability’ test also seems to have been
expressly disproved and not adopted in subsequent cases. But the situation seems far
from clear in the local context as the local courts are not bound by the said decisions;
these being more of a persuasive nature. Owing to the harshness of the ‘Pirelli’
decisions, it is submitted that it may not find favour with the local courts who may
prefer the application of the ‘discoverability test’ after all. In situations where the
latent defect manifests itself into the patent from in a dramatic fashion, e.g. resulting
in a catastrophic failure of the likes of the infamous ‘Highland Towers’ case in
Steven Phoa Cheng Loon &72 Ors v Highland Properties Sdn Bhd & 9 Ors143, there
can be little doubt as to the exact commencement of the limitation period. However,
where the transformation into the patent form is less obvious and occurs over a
period of time during which it may not discovered or discoverable with reasonable
diligence, the application of the discoverability’ test in lieu of the Pirelli test may
yield a more equitable result.144
142
[1983] 2 AC 1
[2000] AMR 3567
144
Harbans Singh. Supra 19. pp. 718
143
52
3.4.3
Postponement of the Limitation Period
Another provision in the Limitation Acts which requires consideration is
section 29, which states that:
“Where, in case of any action for which a period of limitation is prescribed by
this Act, either:
a) The action is based upon the fraud of the defendant or his agent or any
person through whom he claims or his agent; or
b) The right of action is concealed by the fraud of any such person as aforesaid;
or
c) The action is for relief from the consequence of a mistake
the period of limitation shall not begin to run until the plaintiff has discovered
the fraud or the mistake, as the case may be, or could with reasonable diligence
have discovered it.”
A number of observations pertaining to the effects of the above provision
needs to be taken cognizance of. In essence, according to section 29, the limitation
period prescribed for, amongst others, a cause of action founded on contract and tort
does not apply when there is fraudulent concealment. Accordingly, where defective
work or workmanship or design have been knowingly covered up or concealed so as
to constitute fraud, the commencement of the limitation period may be delayed. The
said period may be delayed until discovery actually occurs; or at least the defect
could have been discovered with reasonable diligence, whichever is earlier.145
The word ‘fraud’ as employed in section 29 is not used in the common law
sence of ‘deceit’ but in the equitable sense of being unconscionable; see Abdul
145
Harbans Singh. Supra 19. pp. 719-720
53
Gaffar v Chua Kwang Yong146, thereby prescribing a lower standard of proof. The
term ‘his agent’ may in certain circumstances even apply to independent contractors
engaged by a party, e.g. in Archer v Moss147 a builder was held to be the developer’s
agent. Hence, if such a builder were to be the perpetrator of the fraudulent
concealment, his principal could be implicated thereby losing the protection of the
relevant statutory period of limitation.148
In all territories, there are likely to be special statutes and regulations on
diverse matters of an administrative nature and that include particular requirements
for periods of validity of permissions granted, cut-off dates for applications and
claims, and the like. Where such restrictive provisions are challenged, the courts are
vigilant to ascertain the validity of the special rule, and that it is administered fairly
and in the stipulated manner. The case of Sequerah Stephen Patrick v Penang Port
Commission149 provides an example of an injured party having recourse to common
law rules to successfully challenge the application to his claim of a time-limit clause
in secondary legislation.150
3.5
Conclusion
The defects liability period/maintenance period is sometimes confused with
limitation periods. The relationship can be briefly explained. Limitation periods are
imposed by statute to bar the enforcement of state claims, basically after six tears
from the accrual of the cause of action (the breach of contract or, in tort, occurrence
of damage). Within that framework, it is possible and usual for the parties to regulate
their rights and obligations by contract. Thurs, although the limitation period would
146
[1994] 2 SLR 546
[1971] 3 BLR 1
148
Harbans Singh. Supra 19. pp. 720
149
[1990] 2 MLJ 232
150
Nigel M Robinson. Supra 20. pp. 268
147
54
not protect the contractor until six years was past, there is nothing to prevent the
building contract limiting specific rights of recovery within that period. A contract
clause which stipulates that an action of a particular type must be brought within a
specified time is prima facie valid, since the general rule is that the content of the
contract is for the parties to decide. So the parties to the most common forms of
building contract agree that a specified duration will apply to certain
rights/obligations under the contract, being less than six years which govern their
general rights of recovery. Neither party can choose to ignore the defects
liability/maintenance period; both have contracted on that basis. Beyond the
provisions of that clause, the normal rules of limitation apply. 151
151
Nigel M Robinson. Supra 20. pp. 171-172
55
CHAPTER 4
EMPLOYER’S RIGHTS AND CONTRACTOR’S LIABILITIES IN RELATION TO
CONSTRUCTION DEFECTS AFTER FINAL CERTIFICATE
4.1
Introduction
In construction industry, all construction work is done within a contract
except that done by a person for himself.152 The essence of a construction contract is
that the contractor agrees to supply work and materials for the erection of a building
or other works for the benefit of the employer. The design of the work to be carried
out is often supplied by or on behalf of the employer, but may also be supplied in
whole or in part by the contractor. In legal terms there is no difference between a
building and an engineering contract, and the term construction contracts is adopted
to cover both.153
There are various classes of conditions which are inserted in building and
engineering contract as to defects, repairs and maintenance. Under a covenant to
repair from the date of final certificate, a builder is not bound to do more than repair
152
Keith Collier. “Construction Contracts.” 3rd Edition. (New Jersey : Merrill Prentice Hall, 2001.)
pp. 3.
153
John Uff. “Construction law: Law and Practice Relating to the Construction Industry.” 5th Edition,
(London: Sweet & Maxwell, 1991) pp. 152.
56
the structure, including making good the effects of ordinary wear and tear; also he is
bound to make good damage from other causes and to keep the premises in the
condition they were in at the beginning if the period over which the repair obligation
extends. 154 Hence, after reviewing the concepts of defective work and defects
liability in the previous chapters, this chapter will identify and analyse the
circumstances which will render the liability of defective works. Those
circumstances are based on decided court cases, which mainly were held under
Malaysia Law and laws in other commonwealth countries.
4.2
Conclusiveness of Final Certificate
Contractor's liability in relation to defects in the construction works following
the issue of a Final Certificate. Generally, a conclusive and binding final certificate
discharges the liability of the contractor for defects in the work both to the employer
and in any third party contribution proceedings.
4.2.1
James Png Construction Pte Ltd v Tsu Chin Kwan Peter155
In James Png Construction Pte Ltd v Tsu Chin Kwan Peter 156, the plaintiffs,
building contractors, agreed with the defendant, the owner of a single-storey
detached house to construct and complete an additional storey thereon for a lump
sum payment of $118,800. The agreement incorporated the Singapore Institute of
Architects Conditions of Contract (1979 Ed). Due to disputes over defects
rectification between the defendant and his architect, payment of the balance due
154
William H. Gill. Emden and Gill’s Building Contracts and Practice. 7th Edition. London:
Butterworths, 1969) pp. 255
155
[1991] 1 MLJ 449
156
[1991] 1 MLJ 449
57
under the Interim Certificate No. 4 and the amounts due under the penultimate and
final certificate to the plaintiffs amounting to $37,157.50 were not made.
Upon the plaintiffs' application for summary judgment, the deputy registrar
gave judgment for $11,342.13 and allowed $ 25,615.37 to proceed to trial. Both
parties appealed. On appeal, the defendant contended that no valid final certificate
was issued as it was issued prematurely before the end of the defects liability period.
The defendant's claims were for damages for defective work and consequential losses
and thus not covered by the conclusiveness of the final certificate.
Karthigesu J said that the architect would not or should not issue the final
certificate until after the end of the defects liability period because once the final
certificate is issued before the end of the defects liability period and defects occur
during the defects liability period the architect will have to assume the risk on
account of the conclusiveness of the final certificate both as to completion and as to
the quality of the workmanship. The final certificate issued by the architect was
perfectly valid. Its conclusiveness cannot be impugned. The claims for damages for
defective work and consequential losses do not constitute damages for defective
work by the plaintiffs, which in any case cannot be maintained in view of the
conclusiveness of the final certificate.
It was held that according to Clause 30(6) of the conditions of contract does
not impose by express words a prohibition on the architect that he shall not issue a
final certificate before the end of the periods (whichever is the latest) therein limited.
Nor can it be implied. It simply sets out the latest period by which the architect must
issue his final certificate. It was open to the architect to issue his final certificate at
any time provided that he was satisfied the defects listed had been made good by the
plaintiffs to his satisfaction. Therefore, the final certificate issued by the architect
was perfectly valid and its conclusiveness cannot be impugned.
58
The defendant's claim for $ 25,615 when broken down to its component parts
cannot be said to be a claim for damages for defective work or consequential losses.
This amount constituted sums that had been spent by the defendant in rectifying
defects, work done and loss caused by the plaintiffs' delay in rectifying defects.
These sums do not constitute damages for defective work as they did not relate to the
architect's list of defects and which in any case cannot be maintained in view of the
conclusiveness of the final certificate.
4.2.2
Shen Yuan Pai v Dato Wee Hood Teck & Ors 157
In Shen Yuan Pai v Dato Wee Hood Teck & Ors
158
, the defendants had
contracted with the plaintiff for the construction of certain works in relation to an
office building in Thomson Road, Kuching. The plaintiff claimed that in spite of
repeated requests he had not received payment from the defendants and he
commenced action by a specially indorsed writ against them for the sum of $106,918.
This is the balance which he alleged to be due to him for the completion of the
construction of the building. The defence and counterclaim of the defendants was
founded on, inter alia, delay in the completion of the construction work by the
plaintiff, failure on the part of the architect to re-measure the reinforced concrete
work in the building upon completion and the validity of the alleged final certificate
issued and accordingly claimed for loss of profits and damages for non-completion
of works contracted for within the time specified in the contract.
It was held that as the architect in this case had issued his final certificate,
thereby showing his satisfaction with the works carried out by the plaintiff, the
plaintiff was entitled to the amount claimed. The certificate issued by the architect in
this case was conclusive. On conclusiveness of a final certificate, Bth Lee J said that
157
158
[1976] 1 MLJ 16
[1976] 1 MLJ 16
59
"The first question is whether, on the true construction of the conditions, a final
certificate issued by the architect is conclusive evidence as to the sufficiency of
the works subject only to the exceptions mentioned in clause 24(f) of the contract.
Melford Stevenson, J., came to the conclusion that it was not, but thought that it
was only conclusive evidence as between the building owner and the builder until
power to re-open it vested in an arbitrator appointed pursuant to clause 27. In
the Court of Appeal, reversing Melford Stevenson, J., on this point, it was
unanimously decided that a final certificate was final and conclusive save as to
the exceptions stated in the sub-clause."
In Halsbury's Laws of England Volume 4, 4th Edition, page 616, it is
provided that except in cases where there is an arbitration clause entitling an
arbitrator to review the decisions of the architect as to the amount due or as to
whether the works are in accordance with the contract, or where the architect is
disqualified from certifying or where the certificate may otherwise be dispensed with,
the final certificate will be conclusive. In this judgment the intention of the parties
was expressed in terms by the Agreement that the satisfaction of the Architect was to
be expressed in his final certificate which unless there has been a request for
arbitration is conclusive evidence that the works had been properly carried out and
completed in accordance with the terms of the contract.
In this case, it excuses the contractor from liability for what could be
breaches of contract and obviates the operation of the Limitation Act 1953 providing
that actions founded in contract and tort shall not be brought after the expiration of
six years from the date on which the cause of action accrued. The Final Certificate
shall be conclusive evidence as to the sufficiency of the said works and materials. It
prevented any further legal action, including legal proceedings started before the
certificate was issued. The certificate is not reviewable by the arbitrator because it is
‘conclusive evidence that any necessary effect has been given to all the terms of this
Contract which require an adjustment to the Contract Sum’.
60
4.2.3
Sa Shee (Sarawak) Sdn Bhd v Sejadu Sdn Bhd159
In Sa Shee (Sarawak) Sdn Bhd v Sejadu Sdn Bhd 160, the plaintiff (builder)
was engaged by the defendant to do some works on a sea wall and some land
reclamation. A final account and final certificate with regard to the project was
issued in April 1996. The parties had some disputes but was amicably settled when
the plaintiff accepted an offer of the defendant in full and final settlement of the
claim of the plaintiff subject to the defendant reserving their rights to counter claim
or seek recompense.
In December 1997, the defendant complained and demanded rectification of
cracks in certain rooms and a sea wall, and also of sink-holes on the reclaimed land.
As the plaintiff disputed liability, the defendant proceeded to have the matter referred
to arbitration under the contract. The plaintiff however took up this action and sought
for a declaration that there was no dispute to be referred to arbitration on the ground
that the plaintiff was under no liability to the defendant. The plaintiff contended that
even though clause 44 of the contract provided that no certificate should be
considered as conclusive evidence as to the sufficiency of any design, works,
materials or goods to relieve the contractor of liability, it should be read subject to
clause 43.7 which provided the final certificate and final account would become
conclusive to the balance due to the parties, otherwise clause 43.7 would be
repugnant. The defendant contended that clause 43.7 should be read with other
related clauses of clause 43.6.5 and clause 43.10 and that the payment of the
defendant was not conclusive evidence of any design, works, materials or goods in
the contract.
The plaintiff's application is accordingly dismissed with costs to the
defendant. It was held that the final certificate did not resolve all the disputes
159
160
[2000] 5 MLJ 414
[2000] 5 MLJ 414
61
between the parties but only in relation to the amount due under the certificate
leaving claims relating to the designs, works, materials and goods still open. Clause
43.7 was concerned with a certificate being conclusive as to the balance due between
the parties as it only dealt with the balance due and was further shown by clause
43.6.5 which spoke only of the conclusiveness of the balance due.
These two provisions contrasted with clause 43.10, which dealt with payment
for the interim certificate or final certificate, and not being conclusive evidence as to
the 'design, works, materials or goods'. There is no conflict between clause 43.7 and
clause 44 as they dealt with separate matters, that is, one with a balance and the other
with designs, works, materials or goods. Therefore, there is no inconsistency as to
require harmonization.
4.2.4
Chew Sin Leng Construction Co v Cosy Housing Development Pte Ltd161
In Chew Sin Leng Construction Co v Cosy Housing Development Pte Ltd 162,
the plaintiffs and the defendants entered into a contract to carry out and complete the
construction of 20 units of condominium housing for a sum of $1,550,000. Pursuant
to the contract, the defendants sought the payment to them of a certain sum of money
which was supposed to be paid under an architect's certificate of final payment. In
furtherance of their claim, the plaintiffs took out an Order 14 summons for final
judgment.
The learned Deputy Registrar dismissed the defendants' application for a stay.
The defendants appealed against the Registrar's decision. Thean J., who heard the
appeal, set aside the order of the learned Deputy Registrar and stayed all proceedings
pending arbitration. The plaintiffs appealed to the Court of Appeal. In the process of
the appeal, two affidavits were allowed to be admitted on behalf of the plaintiffs.
161
162
[1988] 1 MLJ 137
[1988] 1 MLJ 137
62
The points for decision in the present appeal were whether in the
circumstances of the instant case, the certificate of final payment was a final
certificate within the meaning of clause 30(6), and whether even if the said certificate
of final payment was found to be a final certificate under clause 30(6), it was not
conclusive at least in one aspect, there being defects falling within exception (b) to
clause 30(7).
Appeal was allowed. On the first point the court was of the view that had
these affidavits, particularly that of the architect, been before the learned appeal
judge, he would not have set aside the learned Deputy Registrar's order. On the
second point the court accepted the submission that the defects relied on were those
which the purchasers of the units had raised with the developer and these were not
the defects contemplated by this provision. One must look at the contract between
the developer and the contractor and not at any contract between the developer and
the purchasers of the units.
4.2.5
Usahabina v Anuar Bin Yahya163
In this case, the plaintiff entered into an agreement with the defendant for the
construction of a house according to drawings and specifications prepared by the
architect. The plaintiff then commenced proceedings against the defendant for the
recovery of the amount due under the agreement. The defendant entered an
unconditional appearance. The defendant failed to file the defence despite being
given an extension of time to do so. The plaintiff entered a judgment in default
against the defendant on 15 July 1997.
163
[1998] 7 MLJ 691
63
By letter dated 25 July 1997, the defendant informed the plaintiff that the
dispute should be referred to arbitration according to clause 34 of the agreement. The
defendant then filed an application praying, inter alia, for the judgment in default be
set aside and the matter be stayed pending reference to arbitration. It was submitted
that on the basis of the plaintiff's case, i.e. the architect's certificate were not final and
could be challenge and since there was a dispute and as the defendant was ready and
willing to go for arbitration, in accordance with clause 34, the onus was on the
plaintiff to show why the matter ought not to be referred as required. The issue
before the court was whether the defendant had satisfied the conditions under s6 of
the Arbitration Act 1952.
The defendant’s application dismissed. In this case the defendant's complaints
are against defective workmanship and the use of sub-standard materials. There was
no provision in the agreement whereby the plaintiff must execute the works to the
satisfaction of the defendant. The only instructions that the plaintiff must comply
with were those of the architect. The conclusiveness of a final certificate could be
challenged only if a request for arbitration was sought within the period specified in
the agreement. In that event, the final certificate ceased to be final and may be reopened for resolution. Therefore, unless a written request to concur in the
appointment of an arbitrator shall have been given under clause 34 of these
conditions by either party before the final certificate has been issued or by the
contractor within 14 days after such issue, the said certificate shall be conclusive
evidence in any proceedings arising out of this contract.
4.2.6
P & M Kaye Ltd v Hosier & Dickinson Ltd164
This was an appeal by the employers, P & M Kaye Ltd, against an order of
the Court of Appeal allowing the appeal of the contractors, Hosier & Dickinson Ltd,
from the judgment on the trial of a preliminary issue in two actions brought by the
164
[1972] 1 WLR 146
64
contractors for sums due to them for work carried out under a building contract, held
that the employers' counterclaim for loss of profits due to defective work and
materials was not barred by the terms of the contract.
An agreement was made in between the contractors and the employers, where
the contractors undertook to build a warehouse and offices. The contract was in the
standard form of the RIBA and included an arbitration clause (clause 35) which
provided that any dispute arising as to the construction of the contract was to be
referred to an arbitrator. Work on the warehouse was substantially complete by June
1967 although, with the consent of the contractors, the employers had taken
possession in the previous April. Interim certificates were issued by the architect in
April and July following which the employers paid sums on account, leaving a
balance unpaid of £14,861. They complained that the floor of the warehouse was
faulty. The contractors relaid the floor and completing the work in August and
started proceedings to recover the £14,861.
however, the employers put in an
affidavit of defence which alleged that the flooring was still faulty and that the
previous defects had resulted in a loss of profits amounting to £13,500.
Following further correspondence, the architect issued the final certificate for
the balance of money due to the contractor. Clause 30 (7) of the contract provided
that 'Unless a written request to concur in the appointment of an arbitrator shall
have been given... by either party before the Final Certificate has been issued... the
said certificate shall be conclusive evidence in any proceedings arising out of this
Contract... that the Works have been properly carried out and completed in
accordance with the terms of this Contract...' Employers requested the contractors to
concur in the appointment of an arbitrator. The contractors pointed out that it was
too late and they issued a second writ for the amount due on the final certificate. The
action on the interim certificate was still on the file and the employers put in a
defence and counterclaim in each action claiming £13,500 loss of profits because of
the defective floor.
65
The two actions were consolidated and the official referee directed the
following preliminary issue to be tried: whether in view of the terms of clause 30(7)
and the issue of the architect's final certificate the employers were 'estopped from
relying on their Defence and Counterclaim'.
The employers appealed from a
decision of the Court of Appeal that their counterclaim for bad work was barred in
both actions. They contended that it had been impliedly agreed between the parties
to vary the contract by the exclusion of clause 30(7), or that the contractors had
waived their right to rely on it, or were estopped from relying on it. They further
contended that the meaning of the words in clause 30(7) 'the said certificate shall be
conclusive evidence in any proceedings arising out of this Contract' should be
understood as being limited to proceedings begun after the issue of the final
certificate and that, if proceedings in a court were pending, a final certificate would
not be conclusive evidence.
Although in the Court of Appeal had been accepted that in the event of a
decision on the preliminary issue in favour of the contractors the litigation would be
concluded in their favour, during the hearing of the appeal an entirely new argument
was sought to be introduced on behalf of the employers to the effect that, although
clause 30(7) made the final certificate conclusive as to the state of affairs existing at
its date, it had no effect as regards a pre-existing and vested right to damages
including particularly consequential damages arising in respect of breaches of
contract before its date.
4.2.7
Matthew Hall Ortech Ltd v Tarmac Roadstone Ltd165
In Matthew Hall Ortech Ltd v Tarmac Roadstone Ltd
166
, Matthew Hall
carried out the work and it was alleged by Tarmac Roadstone that 22 steel bunkers
were suffering from what appeared to be structural damage as a result of design and
construction deficiencies emanating from Matthew Hall’s breaches of contract. The
165
166
[1997] 87 BLR 96
[1997] 87 BLR 96
66
responsibility for issuing the final certificate lay with Tarmac Roadstone, but no such
certificate was ever issued.
Matthew Hall argued that a final certificate should have been issued, and if it
had been, it would have acted as a bar to any claim from Tarmac Roadstone. It was
Tarmac’s argument, even if they had issued a final certificate, they would not be
prevented from bringing a claim against Matthew Hall.
This matter was referred to arbitration. It was held by the arbitrator that a
final certificate would bar contractual claims against Matthew Hall for defects which
it was accused of not correcting, but would not prevent either a contractual claim for
defects allegedly put right, but later discovered to have been done badly, or a claim
for latent defects.
The court did not fully agree with the arbitrator. It was considered that there
would appear to be commercial justification for the contract to provide a definite cutoff point once plant has been constructed, tested, provided and made good in all
respects in conformity with the contract. The court considered that Matthew Hall
were correct in their contention that a final certificate is conclusive evidence that all
work has been completed in accordance with the requirement of the contract.
4.2.8
University Fixed Assets Limited v Architects Design Partnership167
In Oxford University Fixed Assets Limited v Architects Design Partnership
168
the University had entered into a contract with Wimpey Construction Limited for
the construction of building to house the Department of Pharmacology and the
167
168
[1999] 64 Con LR 12
[1999] 64 Con LR 12
67
Anatomical Neurapharmocology Unit. The form of contract was JCT 1980 without
Amendment 15. The Architect was ADP.
The University alleged that partition walls of blockwork were not protected
from weather and kept dry, so that when they dried out widespread cracking was
caused. ADP issued a list of defects after Practical Completion, to be made good in
the Defects Liability Period, which included cracking in the plaster to the blockwork.
Remedial works were carried out and the Final Certificate issued under Clause 30.9
of the building contract.
The University sought damages from ADP for the cost of rectifying the
problem of cracking walls. It alleged that ADP had negligently issued the Final
Certificate. ADP denied liability and issued a third party notice against Wimpey
claiming that Wimpey was liable to the University due to breaches of the building
contract. It was assumed in the proceedings that the defects in the blockwork
constituted damage which occurred prior to the issue of the Final Certificate.
In order to decide the issue, His Honour Judge Humphry Lloyd QC examined
the nature and effect of the Final Certificate. He recognised that the JCT Form
envisaged that within a specific period from practical completion of the works,
finality would be achieved both as regards the final account and also the contractor’s
liability for the extent and quality of the work, material and services which it
undertook to provide. It was held that the effect of the Final Certificate was not that it
left Wimpey with no liability in law, but that it operates only as an evidential bar
which would preclude an employer from being able to prove the facts necessary to
establish such liability.
Once the Final Certificate has been issued, no liability could be established
by the University against Wimpey, since a claim by the University in respect of the
same damage for which ADP sought contribution from Wimpey (the defects in the
68
blockwork) would have been defeated. In any ordinary and natural meaning of the
word, liability could not have been established. The issue of the Final Certificate is
thus tantamount to a decision discharging the liability of the contractor. It would be
rank injustice for the Civil Liability (Contribution) Act 1978 to permit the person
who by its own negligence to the common client procured that liability could not be
established by that client, to then claim contribution as if that act had not occurred
and as if the client could have done so. It was held that although the Final Certificate
did not constitute a cessation of liability for the purposes of the Act, liability could
not be established so that the Final Certificate afforded a defence to Wimpey to the
action for contribution.
4.2.9
Crown Estate Commissioners v John Mowlem and Co Ltd169
In Crown Estate Commissioners v John Mowlem & Co. Ltd 170, the issue was
the interpretation of Clause 30.9.1.1 of the JCT 80 form before Amendment 15171.
The clause provided that the Final Certificate was conclusive evidence that where the
quality of materials or the standard of workmanship are to be to the reasonable
satisfaction of the Architect the same are to such satisfaction. It was recognised that
there are three different criteria for the standards and quality of work. First the
criteria could be stipulated in the contract documents, for example British Standard
Specifications. Second the standard and quality may not be stated in the contract
documents but by terms implied. Third the standards and quality may be expressed to
be to the Architect’s satisfaction. It was therefore necessary to decide whether the
conclusive effect of Clause 30.9.1.1 applied only to those standards expressed to be
to the Architect’s satisfaction or whether it extended to all works on which the
Architect was required to form an opinion.
169
[1994] 70 BLR 1
[1994] 70 BLR 1
171
Amendment 15 to the JCT 80 Form, incorporated in JCT 1998, makes the Final Certificate
conclusive only of the Architects satisfaction, where it so expressly provides, but not conclusive that
the works have been carried out in accordance with the contract.
170
69
It was held that the conclusive effect of clause 30.9.1.1 applied not only to
such materials and workmanship as are expressly reserved by the contract to the
opinion of the Architect but includes all approvals of materials and workmanship
which is inherently something for the opinion of the Architect. It was a matter of fact
and degree in each case whether the quality of materials or the standard of
workmanship is inherently a matter for the Architect.
4.3
Consequential Loss
Generally, the satisfactory making good of defects does not amount to an
exclusion of claims in respect of their consequences. The measure of damages will
therefore not only be the cost of repair of the defect, but also such compensation as
the loss of the use of the premises during repairs in accordance with the ordinary
rules governing remoteness of damage.
4.3.1
Teh Khem On & Anor v Yeoh & Wu Development Sdn Bhd & Ors 172
In Teh Khem On & Anor v Yeoh & Wu Development Sdn Bhd & Ors 173, the
plaintiffs (purchasers) entered into a sale and purchase agreement with the first
defendant (builder) to purchase a house. After the purchasers took possession of the
house, they found that the house was defective, i.e. there were cracks on the walls
and floor, and the house had tilted and was sinking. The purchasers then moved out
from the house. The builder admitted the liability to repair the defects and carried out
'cement-grouting' to remedy the problems, but this proved ineffective.
172
173
[1995] 2 MLJ 663
[1995] 2 MLJ 663
70
In the High Court, the purchasers had claimed against the builder, inter alia,
for rescission of the agreement, refund of the purchase price and damages. The
purchasers have further claimed against the second defendant (architect) and the third
defendant ('the engineer') for damages in negligence. As a defence, the defendants
argued that they were not liable, as the damage had occurred after the 12-month
defect liability period under clause 23 of the agreement.
It was held that the builder was liable for breach of contract, and that the
architect and the engineer were not liable. The court found that the damage which
occurred was principally due to settlement of the house. The settlement happened as
the fill of the building site was too thick, the material used as the fill was unsuitable,
and the foundations of the house were inadequate. The court further found that the
damage was extensive and ongoing, and that cement-grouting had not stopped the
settlement.
The builder who was in direct contractual relations with the purchasers by
virtue of the agreement, was in breach of the express condition in clause 12 of the
agreement which provided that the house must be constructed in a good and
workmanlike manner. Apart from that, the builder was also in breach of the three
implied conditions of the agreement, i.e. that it would do its work in a good and
workmanlike manner, that it would supply good and proper materials, and that the
house would be reasonably fit for human habitation. The builder was therefore liable
to the purchasers under both the express and implied conditions of the agreement, in
the absence of any provision which exempted its liability in such circumstances.
Clause 23 of the agreement which provided for the 12-month defect liability
period would not take away the right of the purchaser to sue for defects which were
not discoverable within that period. As for defects which were discovered within the
12-month period, although clause 23 had expressly provided for the remedy of
repairing the defects, that would not exclude the purchasers' right to sue for breach of
contract at common law. The purchasers in this case were only entitled to claim
71
damages for breach of contract as the settlement of the house had only appeared after
the conveyance of the house to the purchasers had been completed. The measure of
damages was based on the cost of remedying the defect, i.e. the cost of micropiling.
The cost of investigation of the damage by the experts engaged by the plaintiff which
had been pleaded and proved would also be allowed.
4.3.2
James Png Construction Pte Ltd v Tsu Chin Kwan Peter 174
In this case, the plaintiffs, building contractors, entered into an agreement in
writing, agreed with the defendant, the owner of a single-storey detached house to
construct and complete an additional storey. The agreement incorporated the
Singapore Institute of Architects Conditions of Contract (1979 Ed) ('the conditions').
The defendant's appeal dismissed with costs. The defendant's claims were for
damages for defective work and consequential losses and thus not covered by the
conclusiveness of the final certificate. The defendant's claim for $25,615 when
broken down to its component parts cannot be said to be a claim for damages for
defective work or consequential losses. This amount constituted sums that had been
spent by the defendant in rectifying defects, work done and loss caused by the
plaintiffs' delay in rectifying defects. These sums do not constitute damages for
defective work as they did not relate to the architect's list of defects and which in any
case cannot be maintained in view of the conclusiveness of the final certificate.
Karthigesu J said:
“In my view these two sums do not constitute damages for defective work by the
plaintiffs, which in any case cannot be maintained in view of the conclusiveness
of the final certificate. Quite clearly they constituted payments for work outside
the contract and are not claimable by the defendant.”
174
[1991] 1 MLJ 449
72
4.3.3
Shen Yuan Pai v Dato Wee Hood Teck & Ors 175
In this case, the defence and counterclaim of the defendants is founded on,
inter alia, delay in the completion of the construction work by the contractor, failure
on the part of the architect to remeasure the reinforced concrete work in the building
upon completion and the validity of the alleged final certificate issued and
accordingly claimed for loss of profits and damages for non-completion of works
contracted for within the time specified in the contract. The counterclaimed $101,400
and $ 122,850 respectively is for prospective loss of rental. Bth Lee J said:
“In my judgment the intention of the parties was expressed in terms by the
Agreement that the satisfaction of the Architect was to be expressed in his final
certificate which unless there has been a request for arbitration is conclusive
evidence that the works had been properly carried out and completed in
accordance with the terms of the contract.”
If there is a loss it was not sustained in consequence of the delay on the part
of the plaintiff while in fact it arose from the neglect and inactivity of the defendants
themselves which the delay was entirely a consequence from the default of the
defendants in not appointing the specialists to do their work in time. Therefore, the
defendants are not entitled to the damages sought. In the result there will be
judgment for plaintiff with costs and the defendant's counterclaim must be dismissed.
4.3.4
P & M Kaye Ltd v Hosier & Dickinson Ltd 176
In this case, during the construction of the works or during the defects
liability period defective work had been done by the contractor in breach of contract,
which had caused consequential damage to the employer before the defects were
175
176
[1976] 1 MLJ 16
[1972] 1 WLR 146
73
made good. The new contention raised by the employers in argument on appeal was
a sound one and ought to be admitted since it raised a pure point of construction of
words which formed part of a single paragraph of the clause which was the subject of
the dispute and it would be intellectually baffling to attempt to construe the
remainder of clause 30(7) on the assumption that one of the most important phrases
in it meant something different from what it clearly did mean. The provision in
clause 30(7) that the final certificate should be conclusive evidence 'that the Works
have been properly carried out and completed in accordance with the terms of this
Contract' dealt, not with the activities of the contractors, but with the state of the
works at the time of the issue of the certificate as a result of the activities of the
contractors. The issue of the final certificate was not to be taken as conclusive
evidence that at no time previously had there been defects in the works which
required remedying; it was merely conclusive evidence that any remedial measures
which had been necessitated by reason of defects in the works had been executed by
the time of its issue. The final certificate was irrelevant to any claims for
consequential damage in respect of defects which had been found after the employers
had taken possession and before the issue of the final certificate. Accordingly the
employers should not be debarred from pursuing their claims for consequential loss.
4.3.5
HW Nevill (Sunblest) Ltd v William Press & Son Ltd 177
By a contract dated 7 December 1973, the plaintiffs agreed that the
defendants should carry out works consisting of site clearance, piling, foundation and
drainage works prior to the erection of a bakery at Walthamstow, London. The
contract was in the JCT standard form, private edition with quantities, 1963 edition,
July 1973 revision. The work was carried out between September 1973 and April
1974, when new contractors (Trenthams) commenced work. Certificate of Practical
Completion, Certificate of making good defects and Final Certificate were issued. In
November 1974 the plaintiffs' architect discovered that the drains laid by the
defendants were defective and that there were defects in the hard-standing. The
177
20 Build LR 78
74
defendants returned to the site and the defects were remedied. However Trenthams
had been delayed by four weeks and the plaintiffs had to pay them for that delay and
for additional work consequent on the defects in the defendants' work. The plaintiffs
also incurred additional architects' fees and losses because the bakery was late in
opening.
The plaintiffs commenced proceedings claiming that the defendants were in
breach of contract and they were therefore liable for the plaintiffs' additional costs
and other consequential losses. The defendants maintained that the plaintiffs were
precluded by the Final Certificate issued under Clause 30(7) of the contract from
bringing any claim in respect of the alleged breach of contract and/or that the
plaintiffs' remedies in respect of the alleged defective work were limited to those
remedies set out in Clause 15 of the contract.
The court held that the final certificate was only conclusive that the work
complied with the contract at the date when it was given. It did not follow that the
original construction had been in accordance with the terms of the contract and
therefore, the employer was justified in arguing that the defects constituted breaches
of contract. The plaintiffs' remedies were not limited to the remedies specified in
Clause 15 since the defects in the works were breaches of contract. Clause 15 merely
created a simple way of dealing with part of a situation created by breaches of
contract and was not to be read as depriving the injured party of his other rights. The
plaintiffs could therefore claim damages for breach of contract to include
consequential loss.
Further, the plaintiffs were not precluded by the terms of the Final Certificate
and by Clause 30(7) from pursuing claims for breach of contract in respect of
consequential loss because the architect was not required to decide whether the
employer had suffered consequential loss or to assess the amount of such loss. The
architect at the time of giving his final certificate was not dealing with consequential
75
loss. The final certificate was not conclusive as to such matters: P & M Kaye Ltd v
Hosier & Dickinson Ltd 178 distinguished; dicta of Lord Diplock ibid, followed.
There was no representation by the defendants to the plaintiffs of a
willingness to accept liability for consequential loss (and not merely admissions as to
liability for defects). If, contrary to the findings with regard to the above issues it
would avail the defendants to rely on the Final Certificate and Clause 30(7), they
would not be estopped from doing so.
4.4
Latent Defects
Latent Defect means a defect in the work which would not ordinarily be
observed during a walk-through inspection. Naturally, contractors take comfort from
a final certificate and assume that no new or further claims can be made against them
for defective or incomplete works under the final certificate, other than latent defects.
4.4.1
P & M Kaye Ltd v Hosier & Dickinson Ltd 179
In the judgement of Lord Diplock, it is stated that if latent defects are
discovered during defects liability period it is extended until the contractor has made
them good and the architect has so certified. During this period the contractor's
obligation is to make good to the satisfaction of the architect any latent defects that
may become apparent. After the end of this period the contractor is not liable to
remedy any further defects; but the contract sum may be adjusted by reason of any
178
179
[1972] 1 WLR 146
[1972] 1 WLR 146
76
defects which would not have been apparent on reasonable inspection or examination
before the issue of the final certificate.
4.4.2
London Borough of Barking and Dagenham v Terrapin Construction
Ltd180
In this case, the contractor (Terrapin) contracted with the employer (Barking
& Dagenham) for new build and refurbishment work at a school in Dagenham under
JCT 1981 Design and Build Conditions. Barking & Dagenham considered that there
were a substantial number of defects in the building and started an action claiming
damages for breach of contract, breach of statutory duty and negligence. Terrapin
argued that they had a 'conclusive evidence' defence, following the agreement of the
final account and final statement.
His Honour Judge Newman QC held that:
'All the claims advanced by the plaintiff are subject to a defence of conclusive
evidence by reason of the operation of clause 30.8.1181 of the JCT conditions,
save and except for those claims which are based upon any failure to meet any
statutory requirements which, under the provisions of clause 6 of the conditions,
are the responsibility of the defendant.'
Terrapin appealed and Barking & Dagenham cross-appealed. It was held that
on its proper construction, clause 30.8.1 made no distinction between patent and
latent defects (save in so far as bad work may have been fraudulently concealed).
Although the assumption of the responsibility for the design was fundamental to a
180
74 ConLR 100, [2000] Build LR 479
'The Final Account and Final Statement when they are agreed or become conclusive as to the
balance due between the parties in accordance with clause 30.5.5. or the Employer's Final Account
and Employer's Final Statement when they become conclusive as to the balance due between the
parties in accordance with clause 30.5.8 shall, except as provided in clauses 30.8.2 and 30.8.3 (and
save in respect of fraud), have effect in any proceedings arising out of or in connection with this
contract (whether by arbitration under article 5 or otherwise).’
181
77
'with Contractor's design' Standard Form of Contract, the employer has supervisory
responsibility (or expertise) when retaining a contractor on a design and build
contract. The Standard Form assigns several functions to the employer which require
him to form an opinion. The employer had retained the right, and the responsibility,
of satisfying themselves as to the works 'in all aspects' (save as to design). Therefore,
agreeing the final account and final statement provided conclusive evidence of their
satisfaction as to the quality of all materials and the standard of workmanship
including (in the absence of their exclusion) all defects, patent or latent (save for
fraud).
4.4.3
Matthew Hall Ortech Ltd v Tarmac Roadstone Ltd182
In this case, Matthew Hall contracted with Tarmac for the design, erection
and commissioning of a mineral processing plant under the IChemE Red Book 1981
edition. The main issue in this case was whether the final certificate prevented claims
for defects that were latent at the time of issue of the certificate. The contract
incorporated the IChemE Red Book 1981 revision. The relevant contractual
provision is Clause 38.5 of the form, which has the following key words: "The issue
of the final certificate ... shall constitute conclusive evidence for all purposes and in
any proceedings whatsoever between the purchaser and the contractor that the
contractor has completed the works and made good all defects therein in all respects
in accordance with his obligations under the contract."
Tarmac commenced arbitration proceedings to recover the cost of
rectification of defects and other related costs, which it alleged it had incurred as a
result of Matthew Hall's breaches of contract. Matthew Hall argued that Tarmac had
failed to issue a Final Certificate when it was properly due under the contract, and as
a consequence they were deprived of the immunity from Tarmac's claim that the
Final Certificate would have given. The arbitrator therefore had to examine whether
182
[1997] 87 BLR 96
78
the claim for such defects would have been barred by the Final Certificate had it been
issued.
The arbitrator concluded that Tarmac was not prevented from bringing its
claim for latent defects since the Final Certificate was only conclusive evidence that
the contractor had physically made good the defects drawn to its attention. On appeal
to the Court this decision was set aside. The judge carefully explained his reasons.
He firstly explained that in interpreting Clause 38.5, no distinction was to be made
between latent and patent defects. In any event, he explained that the defects
complained of in this case were patent. A latent defect is one which has not
manifested itself but which will, over time, become apparent and give rise to damage
to the works. In this case the defect was a patent shortcoming in the design or
workmanship which, as a consequence, had given rise to structural damage.
The judge concluded that Tarmac's claim was based upon a failure to
complete the works in accordance with the contract. The conclusive evidence
provision in Clause 38.5 extended to a presumption that all work and services
provided were completed in accordance with the Contractor's obligations under the
contract. This arose not as a consequence of the words "in all respects in accordance
with his obligations under the contract" found in Clause 38.5, but as a consequence
of the definition of the 'Works' found elsewhere in the contract. Nevertheless, the
effect was the same. Tarmac would be prevented from bringing its present claims in
contract, or alternatively tort, because of its failure to issue a Final Certificate. Clause
38.5 of the contract operated to provide an evidential bar to Tarmac's claims in
contract and/or tort.
Therefore, once the Final Certificate is issued under this form of contract the
employer is prevented from bringing claims for defects in the works arising from a
breach of contract and/or tort irrespective of whether those defects may be said to be
latent or patent.
79
4.5
Fraud / Concealment
Where defects first come to light after completion, the statutory limitation or
prescription period will begin to run from the different dates of awareness of any
distinct defect. If defects are concealed by a contractor, this may result in an
extension to the limitation period. Section 29 of the Limitation Act provides that
where an action is based upon the fraud of the defendant, or any fact relevant to the
plaintiff's right of action has been deliberately concealed by the defendant, the period
of limitation does not begin to run until the plaintiff has discovered the fraud or
concealment or could, with reasonable diligence, have discovered it. Accordingly,
where defective work or workmanship or design have been knowingly covered up or
concealed so as to constitute fraud, the commencement of the limitation period may
be delayed.
4.5.1
Musselburgh and Fisherrow Co-operative Society v Mowlem Scotland183
In the case of Musselburgh and Fisherrow Co-operative Society v Mowlem
Scotland 184, the claim concerned the costs of putting right defects in the works. In
early 1991, Mowlem had entered into a building contract with Musselburgh to design
and construct Quayside Leisure Centre at Musselburgh. The contract was the SBCC
Standard Form of Building Contract With Contractor's Design, the Scottish version
of the JCT 98 WCD form.
The leisure centre opened to the public in May 1992. It included function
suites, a bar and restaurant and a swimming pool. The swimming pool was later
discovered leaked. There were three primary reasons for the leak. Firstly, the design
of the perimeter overflow channel to the pool and the adjacent walkway around the
pool was poor. Watertightness relied upon a sealant at the joint between the overflow
183
184
[2006] CSOH 39
[2006] CSOH 39
80
channel and the walkway. The sealant had failed. Secondly, leaks were occurring at
the joints between the overflow channel and the drainage pipework. Thirdly, there
was seepage of moisture from the swimming pool through the wall of the swimming
pool itself. Whilst the amount of water leaking out of the pool in this way was
thought to be quite small, Musselburgh was particularly concerned that this defect
threatened the structural integrity of the swimming pool tank.
In all three cases, water was accumulating in a duct which ran under the
walkway around the perimeter of the pool and was being drained by a sump pump
which had been installed for this purpose. On evidence it was disclosed that
Musselburgh had been aware of the first two sources of leak since shortly after
practical completion of the works. Lord Eassie concluded that in respect of these two
defects, Musselburgh could, with reasonable diligence, have ascertained from early
1993 that they were suffering loss in respect of an act, neglect or default of the
builder. Since proceedings had not been commenced within five years of that date, it
was too late for Musselburgh to recover damages in respect of those defects.
In Lord Eassie's view, however, the third defect was quite different. It was
plain from the evidence that nobody had actual knowledge of the existence of the
seepage problem through the wall of the swimming pool until an expert had
completed an intrusive survey in November 2002. He was satisfied that there was
nothing prior to that date that would have reasonably alerted Musselburgh to the
seepage problem. Nor did he accept the argument put forward by Mowlem, to the
effect that awareness of the building owner of one defect was sufficient to start the
time running for all defects for which the contractor might be responsible. The
proper approach for the purposes of the five-year prescription period was to examine
each distinct defect and its failure in construction or design separately.
In consequence, Musselburgh was entitled to press its claim for damages in
respect of the third defect, since the prescription period in respect of that claim had
not expired.
81
4.5.2
William Hill Organisation Ltd v Bernard Sunley and Sons Ltd185
In this case, the plaintiffs (the employer) entered into a contract under seal
with the defendants (the contractor) for the construction of an office block in
Blackfriars Road, London. The contract incorporated the RIBA Conditions 1939
edition (revised 1957). Clause 24 of the contract conditions proved inter alia that:
"(g) Unless notice in writing of a dispute or difference shall have been
given . . . before the final certificate has been issued the final certificate shall be
conclusive evidence in any proceedings arising out of this contract (whether by
arbitration under clause 26 hereof or otherwise) that the Works have been properly
carried out and completed . . . in accordance with the terms of this Contract save in
so far as it is proved in the said proceedings that any sum mentioned in the said
certificate is erroneous by reason of
(i) fraud, dishonesty or fraudulent concealment relating to the Works or any
part thereof or to any matter dealt with in the said certificate; or
(ii) any defects (including any omission in the Works) which reasonable
inspection or examination at any reasonable time during the course of the Works or
before the issue of the said certificate would have not disclosed: . . .
(h)Save as aforesaid no certificate of the Architect shall of itself be
conclusive evidence that any works or instructions to which it relates are in
accordance with the Contract."
The building had a reinforced concrete frame with reinforced concrete walls,
clad externally in part with stone, and in part with glass mosaic. The cladding was
erected by nominated sub-contractors. Many defects in the cladding, namely
corrosion of the fixings, which were defective, and the absence of compression beds,
first came to light in late 1971 and early 1972. It was considered that they were
isolated instances, and not grounds for suspecting more widespread defects.
185
[1982] 22 BLR 1
82
In the summer of 1974 signs of movement in the cladding were observed and
defective fixings exposed. Further areas were opened up, exposing similar defects,
and the plaintiffs decided to remove all the cladding. On 11 March 1975 the plaintiffs
issued a writ claiming damages for breach of contract and for negligence in respect
of the stone cladding. The defendants denied liability and pleaded that the plaintiffs'
claim was statute barred by section 2 of the Limitation Act 1939, as practical
completion took place in or before 1962 and that under clause 24(g) of the
Conditions, the Final Certificate was conclusive evidence that the works were
properly carried out.
In reply the plaintiffs alleged that the fixings were fraudulently concealed by
the defendants within the meaning of section 26(2) or section 27(b) of the Limitation
Act 1939 and relied on clause 24(g), so that the Final Certificate did not operate as a
contractual bar. They further contended that the defects first manifested themselves
in 1972 and it was then that the plaintiffs first discovered or could reasonably have
discovered them.
The trial judge dismissed the plaintiffs' claim holding that the failure of the
stone cladding was caused by defects in the fixings and the lack of provision for
differential movement. The use of defective materials and workmanship in the
fixings was in breach of contract and contributed substantially to the damage. The
stone cladding defects were not fraudulently concealed because the plaintiffs had
failed to discharge the burden of proof that lay on them to show that the plaintiffs'
supervisors, in exercising reasonable skill, could not have been expected to have
observed the defects. Accordingly the claim was statute barred. He held further that
the Final Certificate barred any action in contract since none of the matters referred
to in Clause 24(g) had occurred; and that no action lay in tort because there was no
special relationship, all the alleged breaches arose out of the Contract.
83
The plaintiffs appealed. The defendants served a respondents' notice
specifying five further grounds. It was held that the plaintiffs were wrong to argue
that since the defendants were contractually obliged to provide their own supervision
the plaintiffs were entitled to rely upon the defendants' own supervisory team and
that that was sufficient to defeat a plea of fraudulent concealment. The question to be
asked in relation to fraudulent concealment was: in all the circumstances were the
facts such that the conscience of the defendant or the sub-contractor, for whose acts
or omissions the defendant was vicariously liable, should have been affected that it
was unconscionable to proceed with the work or so to cover up the defect without
putting it right?
Counsel for the plaintiffs submitted that whenever a builder under contract
does shoddy or incompetent work, which was subsequently covered up in the due
succession of building work, so that when the building was complete the bad work
was hidden from view, this did not constitute fraudulent concealment within the
meaning of equitable fraud. Simply getting on with the work after something shoddy
or inadequate has been done or omitted does not necessarily give rise to a legal
inference of concealment or of equitable fraud.
4.6
Conclusion
After discuss all the related court cases reported under the Malaysia Law
Journal, the writer found that the head of claim for defective works are often link to
the conclusiveness of the final certificate. Once a conclusive final certificate is issued
under the contract, the contractor will discharged from the liability for defective
work at law. However, it appears that the satisfactory making good of defects does
not amount to an exclusion of claims in respect of their consequences. The measure
of damages will therefore not only be the cost of repair of the defect, but also such
84
compensation as the loss of the use of the premises during repairs in accordance with
the ordinary rules governing remoteness of damage.
85
CHAPTER 5
CONCLUSION AND RECOMMENDATION
5.1
Introduction
This is the final chapter which summarizes the finding of the research in
accordance with the research objective. Problems encountered during the research as
well as the recommendations of future research are also discussed in this chapter.
5.2
Summary of Research Findings
The writer would like to emphasize that this research is not intended to make
a thorough comparison on the various forms of contract available in the construction
industry. This research is prepared with an objective of reviewing the legal position
of the rights of the employers and liabilities of the contractors in relation to the
defective work after the issuance of Final Certificate.
86
The findings are summarised in Table 5.1, as follow:-
Item
Findings
Remarks
1.
Generally, a conclusive and binding final
certificate discharges the liability of the
contractor for defects in the work both to
the employer and in any third party
contribution proceedings.
• The superintendent should not issue the
final certificate until after the end of
the defects liability period because
once the final certificate is issued and
defects occur, the superintendent will
have to assume the risk on account of
the conclusiveness of the final
certificate both as to completion and
quality of the workmanship.
• When superintendent issued his final
certificate, thereby showing his
satisfaction with the works carried out
by the contractor, it excuses the
contractor from liability for breaches if
contract and obviates the operation of
the Limitation Act 1953. It prevent any
further legal action and the
conclusiveness evidence make the
certificate is not reviewable.
• Where there is a binding and
conclusive final certificate of
satisfaction is given by the
superintendent, the contractor’s
liability in contract for any defects
lapsed. The employer is not entitled
contractually to pursue any defect
arising and/or reported after the said
date.
• When the contractor is in direct
contractual relationship with the
purchasers, he was therefore liable to
the purchasers under both express and
implied conditions in the agreement.
• Defect liability period will not take
away the right of the purchaser to sue
for defects which were not discovered
within that period. He would entitled to
claim for cost of remedying the defect
as well as the cost of investigation of
damages.
• Damages for defective work and its
consequential loss is not covered by
the conclusiveness if the final
certificate. If the sums do not constitute
damages for defective work and did
not relate to the list of defects, it is not
claimable by the employer.
Discussed court cases: • James Png Construction Pte Ltd v Tsu
Chin Kwan Peter
• Shen Yuan Pai v Dato Wee Hood
Teck & Ors
• Sa Shee (Sarawak) Sdn Bhd v Sejadu
Sdn Bhd
• Chew Sin Leng Construction Co v
Cosy Housing Development Pte Ltd
• Usahabina v Anuar Bin Yahya
• P & M Kaye Ltd v Hosier &
Dickinson Ltd
• Matthew Hall Ortech Ltd v Tarmac
Roadstone Ltd
• University Fixed Assets Limited v
Architects Design Partnership
• Crown Estate Commissioners v John
Mowlem and Co Ltd
2.
Generally, the satisfactory making good
of defects does not amount to an
exclusion of claims in respect of their
consequences.
Discussed court cases: • Teh Khem On & Anor v Yeoh &
Wu Development Sdn Bhd & Ors
• James Png Construction Pte Ltd v
Tsu Chin Kwan Peter
• Shen Yuan Pai v Dato Wee Hood
Teck & Ors
• P & M Kaye Ltd v Hosier &
Dickinson Ltd
• HW Nevill (Sunblest) Ltd v William
Press & Son Ltd
87
Item
Circumstances
Remarks
2.
Generally, the satisfactory making good
of defects does not amount to an
exclusion of claims in respect of their
consequences. (Cont’d)
3.
Naturally, contractors take comfort
from a final certificate and assume
that no new or further claims can be
made against them for defective or
incomplete works under the final
certificate, other than latent defects.
• The superintendent was not required to
decide whether the employer had
suffered consequential loss or to access
the amount of such loss. Therefore, the
superintendent at the time of giving his
final certificate is not dealing with
consequential loss.
• The final certificate was irrelevant to
any claims for consequential damages
in respect of defects which had been
found after the employer had taken
possession. It is the right of the
employer to claims for consequential
loss.
• If latent defects are discovered during
defects liability period, the period is to
be extended until the contractor has
made them good and the
superintendent has so certified.
• After a conclusive final certificate
issued, the contractor is not liable to
remedy any further defects.
Discussed court cases: • P & M Kaye Ltd v Hosier &
Dickinson Ltd
• London Borough of Barking and
Dagenham v Terrapin Construction
Ltd
• Matthew Hall Ortech Ltd v Tarmac
Roadstone Ltd
4.
If defects are concealed by a
contractor, this may result in an
extension to the limitation period
until the plaintiff has discovered the
fraud or concealment or could, with
reasonable diligence, have
discovered it.
Discussed court cases: • Musselburgh and Fisherrow Cooperative Society v Mowlem
Scotland
• William Hill Organisation Ltd v
Bernard Sunley and Sons Ltd
• If defective work or workmanship or
design have been knowingly covered
up or concealed so as to constitute
fraud, the commencement of the
limitation period may be delayed. The
said period may be delayed until
discovery actually occurs; or at least
the defect could have been discovered
with reasonable diligence, whichever is
earlier.
Table 5.1: Summary of Research Findings
88
Some standard forms of contract identify the Final Certificate as conclusive
evidence of the completion of a specified obligation. In practice the Final Certificate
will prevent the Employer from establishing the Contractor’s liability, even if it is
subsequently found that the Final Certificate should not have been issued. CIDB
2000 form of contract make the final certificate conclusive evidence that work has
been satisfactorily carried out. Action under the CIDB wording must be commenced
within 30 days of the issue of the final certificate. This will discharge the Contractor
from liability to the Employer for defective work.
PAM 1998 and PWD 203 form of contract gives the final certificate no such
effect and the Limitation Act periods apply. During the limitation period, the
contractor carries liability of defect works for a further six years; upon the expiry of
which period the employer’s cause of action then becomes statute barred.
5.3
Problem Encountered During Research
Constraint and insufficiency of time was the main and only problem
encountered when writing up the report for this research. Only eight (8) weeks’ time
was available for this research and hence every process has been carried out in a very
fast manner, especially during the data collection process, which involved collecting
and sorting court cases from different law journals. This limitation led to less cases
being found to support the findings, especially those cases decided in Malaysia
courts. If there were more time given, the study can be done in more comprehensive
and thorough way.
89
5.4
Further Studies
Section 6(1)(a) of the Limitation Act 1953 states that actions founded on a
contract and tort shall not be brought after the expiration of six years from the date
on which the cause of action accrued. The difficulty for the instant head of claim lies
in establishing exactly when the time starts running. Thus, a further study about the
approaches establishing the actual time for the accrual of a cause of action in tort
under the limitation act can be done.
Another future study on the test of reasonableness in assessing the proper
damages for remedying defective works can be held. The contractual requirement
that the works shall be done to the reasonable satisfaction of the superintendent is too
subjective to be used as a basis for evaluating the contractor’s work. In practice,
disagreements do occur in evaluating the defective work done by the contractor on a
reasonable satisfaction basis.
5.5
Conclusion
As a conclusion for this research, where there is a defects clause and at the
end of the defects liability period a binding and conclusive final certificate of
satisfaction is given by the architect, the contractor’s liability in contract for any
defects lapsed. The employer is not entitled contractually to pursue any defect arising
and/or reported after the said date. If the final certificate is not conclusive, it does not
derogate in any way the contractor’s liability for defective work at law. The
contractor continues to be liable for such defects for the duration of the applicable
statutory period of limitation.
90
Once a conclusive final certificate is issued under the contract, the employer
is prevented from bringing claims for defects in the works arising from a breach of
contract and/or tort irrespective of whether those defects may be said to be latent or
patent. In the circumstances where defective work or workmanship have been
knowingly covered up or concealed so as to constitute fraud, the commencement of
the limitation period may be delayed until discovery actually occurs.
However, it appears that the satisfactory making good of defects does not
amount to an exclusion of claims in respect of their consequences. The measure of
damages will therefore not only be the cost of repair of the defect, but also such
compensation as the loss of the use of the premises during repairs in accordance with
the ordinary rules governing remoteness of damage.
This research perhaps is not comprehensive; but the writer hopes that it may
provide assistance to both employers and contractors to understand their rights and
liabilities in relation to defects which appear after the issue of the Final Certificate.
This may avoid unnecessary disputes and assuring project success and tie-up a better
relationship among the contractual parties.
91
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