JUDICIAL INTERPRETATIONS OF THE TERM ‘LUMP SUM’
IN CONSTRUCTION CONTRACT
NORWATI BINTI HAJI MOHAMAD ALI
UNIVERSI TI TEKNOLOGI MALAYSIA
JUDICIAL INTERPRETATIONS OF THE TERM ‘LUMP SUM’
IN CONSTRUCTION CONTRACT
NORWATI BINTI HAJI MOHAMAD ALI
A thesis submitted in partial fulfilment of the
requirements for the award of
Master of Science in Construction Contract Management
Faculty of Built Environment
University Technology Malaysia
NOVEMBER 2009
iii
To my parents, whose long journey and persistence sacrifice made it all possible.
iv
ACKNOWLEDGEMENT
A research of this nature may not be undertaken without help and support of
others. First and foremost, I would like to extend my sincerest and most heartfelt
appreciation to Mr. Norazam Othman, my main master dissertation supervisor for his
tired less supervision and guidance throughout the whole process of writing this
dissertation. I am also very thankful towards Dr. Rosli Abdul Rashid, Mr. Jamaludin
Yaakob, Dr. Maizon Hashim and Dr. Nur Emma Mustafa for all guidance and
support given.
Most of all, I wish to express my deepest gratitude to all my family, friends
and colleagues in Jabatan Kerja Raya Sarawak for their never-ending support and
encouragement.
Thank you so much.
v
ABSTRACT
‘Lump sum’ is a commonly used term in contract since the 18th century. Although
the term is widely used in the construction industry, the interpretations and position
of the lump sum contract in the eyes of the law is lacking which could contribute to
dispute on rights and responsibilities of contracting parties.
Failure of contract
conditions to define the term interpretations could impact the overall project
implementation and completion process. As such, the objective of this research is to
investigate the judicial interpretation of the term ‘lump sum’ in construction contract.
In the legal textbook, the term ‘lump sum’ is interpreted as ‘fixed priced’. It is also
interpreted as ‘a lump sum contract is one to complete the whole (sometimes termed
as ‘entire’ or a ‘specific’ work) work for a lump sum’. Based upon PAM Contract
2006 (with quantities), ‘lump sum’ is fixed price and is not subject to remeasurement
or recalculation except for provisional quantities and variations.’ The study had
shown that none of the relevant cases had the judge himself given firm judicial
interpretation of the term ‘lump sum’. Occasionally the term ‘lump sum contract’ is
referred to as ‘entire contract’. The doctrine that a lump sum contract has to be
completed in practically all respects in order to qualify the contractor to get any
money at all is very out of date. Lump sum itself is subject to adjustment because the
court leans against a construction of the contract which would deprive the contractor
of any payment at all simply because there are some defects or omissions. Whether a
contract is an entire one is a matter of construction. Clear words are needed to bring
an entire contract into existence. In the absence of such words, the ordinary lump
sum contract cannot be an entire contract, for the courts to construe the promise to
complete as a term and not a condition.
vi
ABSTRAK
Istilah ‘wang pukal’ biasa digunakan di dalam kontrak semenjak kurun ke-18 lagi.
Walaupun istilah ini digunakan secara meluas di dalam industri pembinaan,
kefahaman mengenai penafsiran dan kedudukan kontrak wang pukal dalam
kehakiman undang-undang masih kurang yang mana ini boleh menyumbang kepada
pertikaian mengenai hak dan tanggungjawab pihak yang berkontrak. Kegagalan
syarat kontrak untuk menjelaskan panafsiran istilah ini mampu memberi impak
dalam proses perlaksanaan dan penyiapan projek. Oleh itu, objektif kajian ini ialah
untuk menyiasat tafsiran kehakiman ke atas istilah wang pukal di dalam kontrak
pembinaan. Di dalam buku teks undang-undang, istilah wang pukal ditafsirkan
sebagai ‘harga tetap’.
Ia juga ditafsirkan sebagai ‘kontrak wang pukal untuk
menyiapkan ‘semua’ (kadangkala diistilahkan sebagai ‘seluruh’ atau ‘tertentu’) kerja
untuk wang pukal. Berdasarkan Kontrak PAM 2006 (dengan kuantiti), wang pukal
ialah harga tetap dan tidak bergantung kepada pengukuran atau pengiraan semula
kecuali kuantiti sementara dan variasi. Kajian ini menunjukkan tiada kehakiman
yang memberikan panafsiran sendiri yang kukuh untuk istilah ini. Sekali sekala
istilah kontrak wang pukal dirujuk pada kontrak seluruh. Doktrin yang mengatakan
kontrak wang pukal mesti disiapkan dalam semua hal secara praktikalnya bagi
membolehkan kontraktor memperoleh sebarang bayaran adalah setinggalan zaman.
Wang pukal itu sendiri cenderung pada pengubahsuaian kerana mahkamah enggan
bersandar pada kontrak pembinaan yang mampu melucutkan hak kontraktor untuk
sebarang bayaran hanya kerana terdapat sebarang kerja yang ditinggalkan atau
kecacatan.
Perkataan yang jelas diperlukan untuk mewujudkan kontrak seluruh.
Dengan ketiadaan perkataan ini maka kontrak wang pukal biasa bukanlah kontrak
seluruh yang membolehkan mahkamah menafsirkan yang janji untuk penyiapan
adalah terma dan bukannya syarat.
vii
TABLE OF CONTENTS
CHAPTER
1
TITLE
PAGE
DECLARATION
ii
DEDICATION
iii
ACKNOWLEDGEMENT
iv
ABSTRACT
v
ABSTRAK
vi
TABLE OF CONTENTS
vii
LIST OF FIGURES
xi
LIST OF TABLES
xii
LIST OF APPENDICES
xiii
LIST OF ABBREVIATIONS
xiv
TABLE OF CASES
xvi
INTRODUCTION
1
1.1
Introduction
1
1.2
Background of Research
1
1.3
Statement of Issues
3
1.4
Objective of Research
4
1.5
Scope of Research
5
1.6
Significance of Research
5
1.7
Research Methodology
6
1.8
Research Structure
6
viii
2
THE CONSTRUCTION CONTRACT
9
2.1
Introduction
9
2.2
Placement of Contract
10
2.3
Contractual Arrangements in Construction Contracts
10
2.3.1
Drawings and Specification-based Packages
12
2.3.2
Work Schedule or Bill of Quantities Based
Packages
2.3.3
2.3.4
2.4
2.5
2.6
2.7
3
12
‘Package Deal’ or ‘Design and Build’
Arrangements
13
‘Measure and Value’ or ‘Schedule’ Contracts
13
Features of Construction Contract
13
2.4.1
Comparison with a Sale of Goods Transaction
14
2.4.2
Provisions for Progress Payments
15
2.4.3
Provisions for Variation of Works
16
Contract Documents
16
2.5.1
Articles of Agreement
17
2.5.2
Conditions of Contract
17
2.5.3
Plans and Drawings
17
2.5.4
Bills of Quantities
18
2.5.5
Schedule of Rates
18
2.5.6
Specifications
19
Interpretation of the Contracts
19
2.6.1
Rules of Interpretation of the Contracts
20
2.6.1.1 Literal Interpretation
21
2.6.1.2 The Contra Proferentum Principle
21
2.6.1.3 The Ejusdem Generis Rule
22
Conclusion
’LUMP SUM’ IN CONSTRUCTION CONTRACT
23
26
3.1
Introduction
26
3.2
The Term ‘Lump Sum’ in Construction Contract
27
ix
3.2.1
Standard Form of Contract
27
3.2.1.1 JKR 203A (Rev. 2007) Form
28
3.2.1.2 JKR 75 (JKR Sarawak Form of
Contract)
3.2.2
30
Contract Act 1950 (Act 136)
30
Interpretation from Literature
3.4
Other Aspects of Construction Contract Related to
31
‘Lump Sum’ Interpretations
36
3.4.1
Lump Sum Tender
36
3.4.2
Lump Sum Contract
37
3.4.3
Entire v Divisible Contracts
40
3.4.4
Substantial Completion
42
3.4.5
Non-Completion
43
3.4.6
Valuation of Variations
44
3.4.7
Contract to Do Whole Work is Lump Sum
3.4.8
4
3.2.1.4 PAM Contract 2006 (with Quantities)
3.3
3.5
29
Contract
45
Quantum Meruit
45
Conclusion
47
JUDICIAL INTERPRETATIONS OF THE TERM
’LUMP SUM’ IN CONSTRUCTION CONTRACT
49
4.1
Introduction
49
4.2
The Law of Lump Sum or Entire Contract
50
4.3
Law Cases in Relation with the Term Lump Sum
53
4.3.1
Sapiahtoon v. Lim Siew Hui
54
4.3.2
Building & Estates Ltd v AM Connor
56
4.3.3
KP Kunchi Raman v Goh Brothers Sdn Bhd
58
4.3.4
Ming & Co v Leong Ping Ching
61
4.3.5
Nirwana Construction Sdn Bhd v Pengarah
Jabatan Kerja Raya Negeri Sembilan Darul
x
Khusus & Anor
4.3.6
Tong Aik (Far East) Ltd v. Eastern Minerals
& Trading (1959) Ltd.
4.3.7
4.5
65
Judicial Interpretations of the Term
‘Lump Sum’ In Construction Contracts
67
Conclusion
73
4.5.1
Judicial Positions on Lump Sum Contract
74
4.5.2
Instances Where Lump Sum is not
considered as Entire Contract
5
64
Yong Mok Hin v United Malay States Sugar
Industries Ltd
4.4
62
78
CONCLUSIO N
80
5.1
Introduction
80
5.2
Summary of Research Findings
81
5.3
Study Constraints
89
5.4
Conclusion
89
REFERENCES
92
APPENDICES
94
xi
LIST OF FIGURES
FIGURE
TITLE
Figure 1
Design Detailing and Contractual Arrangement
PAGE
11
xii
LIST OF TABLES
TABLE
TITLE
Table 1
Interpretations of the Term ‘Lump Sum’
from Literature
Table 2
PAGE
29
Judicial Interpretations of the Term
‘Lump Sum’ In Construction Contracts
64
xiii
LIST OF APPENDICES
APPENDIX
TITLE
A
JKR 203B: JKR Standard Form of Tender
B
JKR 203B: Standard Form of Tender
PAGE
94
(Design & Build or Turnkey Contracts)
96
C
Appendix Q: JKR Sarawak Standard Quotation Form
97
D
JKR 203B: JKR Standard Form of Tender Rev. 2007):
JKR Standard Form of Contract
E
PWD 75 (Rev. 12/06): JKR Sarawak Standard Form
of Contract
F
G
H
98
99
PAM Contract 2006 (With Quantities): Agreement
and Conditions
100
Contracts Act 1950 (Act 136)
103
Nirwana Construction Sdn Bhd v Pengarah Jabatan Kerja Raya
Negeri Sembilan Darul Khusus & Anor [2008] 4 MLJ 157
111
xiv
LIST OF ABBREVIA TIONS
AC
-
Appeal Cases
ALL ER
-
All England Law Reports Reprint
App. Cas.
-
Appeal Cases
B. & Ad
-
Barnewall & Adolphus
BLR
-
Building Law Reports
Camp
-
Campbell
CP
-
Carrington & Payne
CIDB
-
Construction Industry Development Board
DLP
Defects Liability Period
ER
-
English Reports
FC
-
Federal Court
FIDIC
-
Federation Internationale de Inginieurs Conseils
HL
-
House of Lords
IBID
-
(in the same)
ICE
-
The Institution of Civil Engineers, UK
J
-
Judge
JKR
-
Jabatan Kerja Raya
KB
-
King’s Bench
LGR
-
Local Government Reports
LJ
-
Lord Justice
LJ Ex.
-
Law Journal Exchequer
LR
-
Law Report
LT
-
Law Times Report
LTD
-
Limited
MLJ
-
Malayan Law Journal
PAM
-
Pertubuhan Arkitek Malaysia
xv
PWD
-
Public Works Department
RIBA
-
Royal Institute of British Architects
SC
-
Session Cases
SCR
-
Supreme Court Report
SO
-
Superintending Officer
Term Rep.
-
Term Reports
TLR
-
Times Law Report
VO
-
Variation Order
VOL
-
Volume
WLR
-
Weekly Law Report
xvi
TABLE OF CASES
CASES
PAGE
Aisla Craig Fishing Co Ltd v. Malvern Fishing Co [1983] 1 All ER 101……….….21
Appleby v Myers [1867] LR 2 CP 651…………………………………35,36,40,43,46
Bolton v. Mahadeva [1972] 1 WLR 1009……………………………...………...38,39
Boone v Eyre [1779] 126 ER 160……………………………..…………………….52
British Steel Corporation v. Cleveland Bridge and Engineering
[1984] 1 All ER 504...………………………………………………………….41
Building & Estates Ltd v AM Connor [1958] 1 MLJ 173……..………...……51,62,66
Collins v Godfrey [1831]1 B. & Ad. 950…………………………………..……..…34
Cutter v Powell [1795] 6 Term Rep. 320…………………………….……….36,42,59
Dakin v. Lee [1916] 1 KB 566………………………………………………..……..42
Farnsworth v. Garrard [1807] 1 Camp 38……………………………....………….37
Forman & Co Pty Ltd v. The Liddlesdale [1900] AC190…………………………..37
Forrest v Scottish County Investment Co Ltd [1915] SC 115………………………40
Gilbert-Ash v Modern Engineering [1974] AC 689 (HL)…………………..…..13,23
Gilbert & Partners v. Knight [1968] 2 All ER 248 (CA)…………….……..………41
H Dakin & Co. Ltd v. Lee [1916] 1 KB 566……………………………………...…37
Hanvale v Green [1958] 2 WLR 775…………………………………..……………60
Hoenig v. Issacs [1952] 2 All ER 176………..……13,23,36,37,38,43,44,50,51,55,58
Holland Hannen & Cubitts v. W.H.T.S.O. [1981] 18 BLR 80………………..….….41
Hollier v. Rambler Motors (AMC) Ltd [1972] 1 All ER 399…………………….….20
Interpro Engineering Pte Ltd v. Sin Heng Construction Co Pte Ltd
[1998] 1 SLR 694………………………………………………….……...……20
KP Kunchi Raman v Goh Brothers Sdn Bhd [1978] 1 MLJ 89…….…...46,52,63,66
Ming & Co v Leong Ping Ching [1964] 1 MLJ 312…………………...…55,63,65,66
xvii
Newfoundland Government v. Newfoundland Ry.
[1888] 13 App. Case. 199 (PC)………………………………………………..41
Nirwana Construction Sdn Bhd v Pengarah Jabatan Kerja Raya
Negeri Sembilan Darul Khusus & Anor [2008] 4 MLJ 157…………….56,64,66
Pattinson v Luckley [1875] L.R. 10 Ex. 330………………………………………..59
Peak Construction (Liverpool) Ltd v. Mckinney Foundation Ltd
[1970] 69 LGR 1…………..………………….…………………………......…20
Pigott Foundations Ltd v. Shepherd Construction Ltd [1993] 67 BLR 48……...19,23
Rigby v Bristol Corporation [1860] 29 LJ Ex 356…………………..………..…….34
Sapiahtoon v Lim Siew Hui [1963] 1 MLJ 305……..……………...…....…..49,62,66
Stegmann v. O’Connor [1899] 81 LT 627 (CA)……………………………………42
Sumpter v. Hedges [1898] 1 QB 673……………………………………..12,37,56,59
Tern Construction Group v RBS Garages [1992] 34 Con LR 137………...……36,43
Thorn v London Corporation [1876] 1 App.Cas. 120…………………..………34,42
Tong Aik (Far East) Ltd. v Eartern Minerals & Trading
(1959) Ltd. [1963] 1 MLJ 322 ……………………….….……………45,58,65,66
Williams v Fizmaurice [1858] 3 H&N 844……………………………………30,33,34
Williams v Roffrey Brotheres & Nicholls [1990] 1 All ER 512…………………..…14
Wells v. Army & Navy Co-operative Society [1902] 86 LT 764…………………….21
Whitaker v Dunn [1887] 3 TLR 602…………………………………………..……..46
Vigers v Cook [1902] 2 KB 475…………………………………………………...…42
Yong Mok Hin v United Malay States Sugar Industries Ltd
[1967] 2 MLJ 9…………………………………………………………..60,65,66
CH A P T E R 1
I NT RO D U C T IO N
CHAPTER 1
INTRODUCTION
1.1
Introduction
This chapter will briefly discuss the background, objective, scope and the
methodology of this research.
1.2
Background of Research
Lump Sum is the commonest form of construction contract 1 and the term is
used in JKR 203B: Standard Form of Tender; ‘Having examined the Government’s
Requirement including instruction to Tenderers and the Conditions of Contract…we,
the undersigned, offer to design, construct and complete the said Works in
conformity with the said Pre-bid Documents for the Lump Sum of….. in accordance
with the said Conditions of Contract’.
Typically, the construction contract is placed through a tender exercise. This
may be done by inviting tenders from a list of selected contractors, or through a
general invitation. Each contractor submits a tender, sometimes accompanies by
unsolicited offers on the base tender. The general expectation is that the contract
1
Henry Henkin (1988). Drafting Engineering Contracts. England: Elsevier Applied Science
Publishers Ltd. Page 120.
2
shall be awarded to the contractor who has tendered the most attractive price and
terms in his bid. Alternatively, the client may decide on a particular contractor in
advance and negotiate the price for the project with the owner pays the contract price
in consideration for the contractor’s obligation to construct and complete the project
in accordance with the requirements as set out in the drawings, Bill of Quantities,
specifications and other contract document. 2
A contract is a legally binding agreement made between two or more parties,
by which rights are acquired by one or more to acts or forbearances on the part of the
other or others. These contractual agreements give rise to rights and obligations
which the law recognizes and enforces.
3
The purpose of Lump Sum projects is to
reduce the costs of design and contract administration associated with quantity
calculation, verification and measurement. This contracting technique requires the
Contractor to submit a lump sum price to complete a project as opposed to bidding
on individual pay items with quantities provided. The Contractor will be provided a
set of bid documents (plans, specifications, etc.) and will develop a Lump Sum bid
for all work specified in the contract drawings.
In a lump sum contract the contractor is paid a predetermined sum for
completing a particular stage or the whole contract works. The sum is not adjusted to
take into account any change in the extent of work from that estimated by the
contractor at the time of contracting. The contractor therefore carries the risk of
correctly estimating, at the time of contracting, the extent of work required to be
carried out. The payment mechanism is easy to administer, provided the Owner does
not vary the Works.
If variations are likely contract terms will need to be
incorporated to make provision for establishing an appropriate price on the basis
either of a Schedule of Rates, or by negotiation or by reimbursement at cost.
Inevitably variations on Lump Sum contracts give rise to many disputes and
resolution of the Final Account may take some time.
2
Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition. Singapore: Sweet
& Maxwell Asia. Pg. 4
33 David Barker & Colin Padfield (1992). Law. 8th Edition. Oxford, England: Butterworth-Heinemann
ltd. Page 112.
3
Lump sum is intensively used term in construction contract and there are
many theories of lump sum available in law dictionaries and literatures. But what
matters is the construction industry parties who are involved and applied this term of
contract which has been used since the 18th century4. Lump sum contracts are the
commonest form in building work and in mechanical and electrical engineering work
and may be used in some civil engineering work where quantities of the various
types of work cannot be fixed or accurately defined initially (at tender stage, where
there is formal tendering).5
Although the term ‘lump sum’ is widely used in the industry, the
understanding among constricting parties on the true interpretation of the term in
construction contract is still lacking. Its subjective nature contributes to constant
misinterpretation and the allocation of responsibility under a contract may not always
be clear. As such, this research is to determine the judicial interpretation the term
‘Lump sum’ in the construction contract.
By understanding its true meaning,
contracting parties can avoid unnecessary dispute with clearer understanding on risk
and responsibility involved in accordance with the terms and condition of the
contract.
1.3
Statement of Issue
In today construction contract, ‘lump sum’ is always the starting point where
contractor is normally asked to fill bid of one sum for the cost of the whole tendered
project. It is comparatively rare for the price the contractor is entitled to receive at
the end of the day to be exactly the same as the lump sum. Lump sum to be paid to
the contractor is unrelated to the actual cost to the contractor of completing the
works. The lump sum is usually subject to adjustment for extra work, fluctuations
4
Christopher Hill (1999), Lump Sums: The Essentials. Retrived on 20th June, 2009, from
www.building.co.uk
5
Henry Henkin (1988). Drafting Engineering Contracts. England: Elsevier Applied Science
Publishers Ltd. Page 120.
4
sub-contractors, and so on. This has been the practice since there usually arise some
inadequacy of the drawings or the contract specification. The position of lump sum
in law is not widely understood.
‘Lump sum’ is a commonly used term in contract since the 18th century.
Although the term ‘Lump sum’ is widely used in the industry, the understanding
among contracting parties on the interpretations and position of the lump sum
contract in the eyes of the law is lacking which could contribute to dispute on rights
and responsibilities of contracting parties.
Its subjective nature contributes to
constant misinterpretation and the allocation of responsibility under a contract may
not always be clear. Failure of contract conditions to define the term interpretations
could impact the overall project implementation and completion process.
All these issues have triggered author to conduct the research to identify
issues brought to litigation pertaining to ‘lump sum’ or ‘lump sum contract’. This is
also to clear the misconception of the term in the agreement that supposed signifying
that the parties are agreed together about the same thing. This research will give
some overview on the issue on lump sum contract from the legal point of view.
Hopefully, this research will give contracting parties better understandings of this
commonly use terms. The outcome of the study may be used as lessons learned for
Malaysia in pursuing all its lump sum projects.
1.4
Objective of Research
The objective of this research is to determine the judicial interpretation of the
term ‘Lump sum’ in construction contract.
5
1.5
Scope of Research
The approach adopted in this research is case law based way by literatures
from selected legal textbook will be used in search of the interpretation. Selected
standard forms of contract will also be referred to and they are as follows:
(i)
PWD 75 (Rev. 12/06): JKR Sarawak Standard Form of Contract;
(ii)
PWD Form 203A (Rev. 2007): JKR Standard Form of Contract;
(iii)
PAM Contract 2006 (With Quantities): Agreement and Conditions.
Related law from Contracts Act 1950 (Act 136) will also be used in this
research. Due to time constraint, all related case laws in relation with the subjective
nature of the legal interpretation were searched via Lexis Nexis website6 through its
own search engine and limited to cases reported in Malaysia, Singapore and Brunei
as at 31st July, 2009. The keywords used in the search were ‘lump sum’ and
“construction contract”.
1.6
Significance of Research
This research will investigate the subjective nature of contract interpretation
of the term ‘lump sum’ from the judge interpretation based on the findings of the
case. In addition, the research will also report the interpretations from available legal
textbooks and finally the judicial positions when dealings with lump sum contract.
This research will present findings of the investigation from selected cases
which will show evidence that contracting parties interpret the contract differently.
The intention of this study is to bring forward the actual interpretation of ‘lump sum’.
By knowing this commonly used contracts’ true effect, this will assist contracting
players to have better understanding on obligation under this contract. This will be a
6
http://www.lexisnexis.com.
6
measure to manage potential risk, thus appreciation of the ‘lump sum’ true
interpretation will enable better decision making.
1.7
Research Methodology
This research involved literature review on the legal term ‘lump sum’ in the
construction industry. Initial study will be carried out involving extensive reading
and understanding of the theories involved from legal textbook.
Then data and information collecting will be carried out. Primary source will
be law cases found in Malayan Law Journal through the access of Lexis Nexis
available in the university’s online database. Secondary sources such as articles,
journals, textbooks and related websites will also be studied and referred to in the
course of the whole research.
Analysis will be done on collected information and will be arranged in an
orderly manner and writing up will be carried out, followed by checking and
correction of writing.
1.8
Research Structure
This research consists of five chapters. The brief descriptions of each chapter
are as follows:
7
Chapter 1: Introduction
This chapter presents the overall content on the study and a brief report on the
processes involved in carrying out this research. It introduces the background of the
study, relevant issue, objective and method to achieve the objective.
Chapter 2: The Construction Contract
This chapter concentrates on discussing placement of contract, various type
of contractual arrangements, the features in construction contract and the contract
document that uses the term ‘lump sum’ as part of the formation of the contract
document. The theories and rule of interpretation of in order to understand the
meaning of the term ‘lump sum’ in construction contract will also be discussed in
detail.
This involved literature review from books, journals and other reliable
sources to provide true understanding of this contract.
Chapter 3:
‘Lump Sum’ in Construction Contract
This chapter discussed on theories and issues in relation to the law of lump
sum. Topics related to ‘lump sum’ in construction contract from various literatures
will be listed and reported to assist understanding of the subject matter. The terms
normally found in construction document contract in relation with ‘lump sum’ from
relevant sources of information will be archived and analyzed and all findings from
this exercise will be identified and presented in organized manner.
8
Chapter 4:
Judicial Interpretations of the Term ‘Lump Sum’ In Construction
Contract
This chapter analyzed selected cases in relation with this research from the
judicial decisions as reported in law reports which are related to the research issue on
‘‘lump sum’’. All cases are discussed in detail, analyzed and present in scheduled
form. Besides that, positions of court when dealing with ‘lump sum’ contract will
also be reported with in depth discussion of the relevant issues.
Chapter 5:
Conclusion
This chapter will compare all findings on the relevant ‘lump sum’ theories
and judicial interpretations and judgments from previous chapters. This chapter will
also bring forward findings on judicial positions when dealings with ‘lump sum’
contract. After that, the constraint found during this research will be reported.
CH A P T E R 2
T H E CO N ST RU C T IO N
CO N T R A CT
CHAPTER 2
THE CONSTRUCTION CONTRACT
2.1
Introduction
There are variety types of contracts used in the construction industry. 7 The
contractor’s right to payment depends on the terms of the contract. Assuming the
normal case of payment in money, building contracts are generally entered into on
the basis either of a ‘lump sum’, unit price, or a cost plus basis, or some
combination.8
Many of the problems likely to arise under a building contract are concerned
with the meaning to be given to words in a written contract. The process by which
the courts arrive at this meaning is termed construing a contract, and the meaning, as
determined by the court, the construction of the contract.
This chapter broadly concerns on the placement of contract, the contractual
arrangements and features of construction contract, brief discussion of the contract
documents and lastly the interpretations of the contract. All these discussion will be
discussed in detail in this chapter.
7
Edward R. Fisk and James R. Negele (1988). Contractor’s Project Guide to Public Agency
Contracts. Canada: John Wiley & Sons, Inc.
8
Stephen Brickford-Smith, Norman Palmer & Ruth Redmond-Cooper (1993). Butterworths
Construction Law Manual. London: Butterworth & Co.
10
2.2
Placement of Contract
Typically, the construction contract is placed through a tender exercise. This
may be done by inviting tenders from a list of selected contractors, or through a
general invitation.
Each contractor submits tender, sometimes accompanied by
unsolicited offers on the base tender. The general expectation is that the contract
shall be awarded to the contractor who has tendered the most attractive contract price
and terms in his bid.9
Alternatively, the client may decide on a particular contractor in advance and
negotiate the price for the project with this contractor. In essence, the transaction in
a construction contract is that the owner pays the contract price in consideration for
the contractor’s obligation to construct and complete the project in accordance with
the requirements as set out in the drawings, Bill of Quantities, specifications and
other contract documents.10
2.3
Contractual Arrangements In Construction Contracts
A construction contract, like any contract, is formed when an offer made by
one party is accepted by the other and the whole is supported by consideration.11 The
fundamentals of any contractual relationship are primarily conditioned by the precontract availability of design detail for the project.
The presumed ‘project
management’ goal of having a ‘lump sum’ contract in which clear definitions of the
mutual obligations can be stated and predictability of outcome is maximized, is
attainable only when the project design work is done at a time which permits of its
transcription into a specification and/or a schedule of measured quantities for
adoption as the basis of pricing by the contractors. Thus the scale of information
9
Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition. Singapore:
Sweet & Maxwell Asia. Page 4
10
Ibid
11
Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition. Singapore:
Sweet & Maxwell Asia. Page 6
11
provision (see Figure 1) is closely related to the scale of risk allocation, but other
factors also are present in the risk spectrum that may produce different orders of
ranking.12
No Detail
Contractor’s design and construct’ package
1. Speculative
2. On response to client’s brief
performance criteria terms
in
broad
Cost reimbursement contract
1. Without target cost
2. With target cost
Contractor’s design and construct’ package – in
accordance with client’s outline design
DEGREE
OF CLIENT
Measurement and Value Contract
1. With schedule of rates
2. With approximate Quantities
a. With PC sums
b. Without PC Sums
PROVISION
OF DESIGN
DETAIL TO
TENDERER
‘lump sum’ contract with drawings and specification
a. With PC and provisional sums
b. Without PC and provisional sums
Full
‘lump sum’ contract with bill of quantities
a. With PC and provisional sums
b. Without PC and provisional sums
detail
Figure 1: Design Detailing and Contractual Arrangement13
12
Nigel M. Robinson & Anthony P. Lavers (1988). Construction Law in Singapore and Malaysia.
The Butterworth Group of Companies. Page 34-43.
13
Ibid
12
2.3.1
Drawings and Specification-based Packages
This is the oldest traditional method by which the scope of work may be
defined and communicated to a tenderer. A full set of detailed drawings is required
and, in theory, a comprehensive and definitive written statement of requirements is
provided. This ‘specification’ sets out the minimum required standards of:14
·
Material quality, handing and preparation;
·
Workmanship for installation and finishing;
and, in the absence of prepared quantities,
·
‘directives’ or ‘scope of work’ clauses, defining the contractual obligation,
element by element, with reference to the drawings and to design schedules
for finishings, fittings, windows and doors, etc.
2.3.2
Work Schedule or Bill of Quantities Based Packages
In this formats, a provided quantification or schedule of work to be executed
is a contract document.
The quantification may be prepared by reference to a
nationally or internationally standardized code of measurement and may incorporate
(or be linked by reference to) material and workmanship specification clauses (in
BQs commonly referred to ‘preambles’). The schedule in its totality may be and
exclusive definition of the scope of the work undertake within the agreed contract
price, or, where that definitive role is cast on the drawings and specifications only,
the schedule becomes merely a vehicle for establishing comparability of tenders and
provides a price breakdown useful only in the valuation of variations and payment
purposes.15
14
Nigel M. Robinson & Anthony P. Lavers (1988). Construction Law in Singapore and Malaysia.
The Butterworth Group of Companies. Page 34-43
15
Ibid
13
2.3.3
‘Package Deal’ or ‘Design and Build’ Arrangements
The design responsibility is passed in varying degrees to the contractor who
(directly or by his consultants) prepares the documentary package on one or other of
the bases already described. The definition of scope of work is presented by the
detailed proposals prepared by the contractor and following the briefing provided by
the client/owner (or his consultants). The contractor’s proposals for the satisfaction
of the client’s requirements normally comprise drawings, a specification of material
and workmanship standards, and a price and payment schedule (not usually
amounting to a bill of quantities). 16
2.3.4
‘Measure and Value’ or ‘Schedule’ Contracts
In ‘measure and value’ contracts where scope of work definition is
impossible except in wide general terms (as is the normal case in the world of civil
engineering), arithmetic precision is expressly excluded.
The drawings provide
sufficient indication of the scope and nature of the work to be undertaken to permit
tendering on the basis either a schedule of rates or bill of quantities prepared with
reference to a standardized code of measurement but as to which the quantification is
normally entitled a ‘Bill of Approximate Quantities’.17
2.4
Features of Construction Contract
“In the case of goods sold and delivered, it is easy to show a contract from the
retention of goods; but that is not so where work is done on real property18.” Chitty
16
Nigel M. Robinson & Anthony P. Lavers (1988). Construction Law in Singapore and Malaysia.
The Butterworth Group of Companies. Page 34-43.
17
Ibid
18
Sumpter v Hedges [1898] 1 QB 673
14
L.J. said that on the authority of Sumpter v Hedges [1898] 1 QB 673. The decision
must be right. In order to determine the law position in dealings with construction
contract, there are features in construction contract in terms of its comparison from
the sales of goods transaction and the contract the provisions in terms of payment and
variation.
2.4.1
Comparison with a Sale of Goods Transaction
In the case of Gilbert-Ash v Modern Engineering [1974] AC689, Lord
Diplock described a building or construction contract as “an entire contract for the
sale of goods and work and labour for a ‘lump sum’ price: and this price is payable
by installments as the goods are delivered and the work is done”. Reduced to its
simplest terms, the contractor may be considered to be in a position a kin to that of a
seller in a sale of goods transaction whereby in consideration for a sum of money, the
seller agrees to supply specified goods to the buyer.19
However, this analogy cannot be carried too far because of the size of
financial commitments involved in construction contracts and the relatively long time
for the “end product” to be produced.
Consequently, the law and practice of
construction contracts have allowed for a number of important modifications to be
made to this simple transactional relationship.
The objective behind most of these modifications is to enable both the risks
and the financial burdens associated with the project to be distributed on a more
commercially efficient basis between the parties. For example, in the absence of
provisions for the contractor to be paid progressively, a construction contract
operates as an “entire contract”.20
19
Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition. Singapore:
Sweet & Maxwell Asia. Page 23-25
20
Gilbert-Ash v Modern Engineering [1974] AC 689 (HL).
15
An entire contract is an “indivisible contract”: a party has to complete the
entire performance of his obligations before he can call on the other party to fulfill
his part.21 In essence, this requires a project to be basically completed before the
contractor is entitled to demand that the client fulfils his obligation to pay. If the
contractor fails to complete the works in an entire contract, he cannot even claim a
corresponding percentage of the contract price or recover on a quantum meruit for
the portion of the work which he has completed.22
Hence, except where a project is relatively small, it is necessary in most
situations for a contractor to build a very substantial premium into his price to cover
both the magnitude of risk and the not inconsequential financing costs which an
entire contract will entail. The result can be an expensive end product for the owner.
At any rate, it will not make sense to incur this additional premium in the contract
price where the client’s cost of funds is lower than that of the contractor’s.
2.4.2
Provisions for Progress Payments
The effect of these provisions generally is that the contractor is paid at regular
intervals in accordance with the value of work he has completed. The provision for
progress payments differs from a condition stipulating a schedule of installment
payments which is found commonly in transactions relating to the purchase of
residential apartments. Each progress payment made to a contractor by the developer
is usually preceded by a formal valuation of works for progress payments is made by
the quantity surveyor on the basis of his measurement of the work done.
21
Hoenig v Isaacs [1952] 2 All ER 176
Lord Denning MR in Hoenig v Isaacs noted in his judgement that whether the entire performance is
a condition precedent to payment depends on the true construction of contract, but “when a contract
provides for a specified sum to be paid on completion of specified work, the courts lean against a
construction of the contract which would deprive the contractor of any payment at all simply because
there are some defects of omissions” (pp 180-181). This statement of principle was cited with
approval in Williams v Roffrey Brotheres & Nicholls [1990] 1 All ER 512.
22
16
In turn, the architect or engineer issues, on the basis of this valuation, a
progress payment certificate for the amount valued subject to the deduction of a sum
(usually 5 percent or 10 percent) to be retained as security for good workmanship and
repairs. This accumulates during the course of the contract as the “retention fund”.
A portion of this fund is usually released on the physical completion of the works
while the remainder is released on the expiry of the maintenance period.
The
retention fund thus operates as a “carrot and stick” mechanism to motivate the
contractor to deliver quality components and to properly address issues relating to
workmanship during the construction of the project, particularly in respect or
specialist areas.23
2.4.3
Provisions for Variation of Works
Variations of works have the effect of changing, adding to or subtracting
from the work as originally described by the drawings and specifications at the time
of tender. The legal effect of these powers is that the contractor must comply with
these variation orders and if, as consequences, he incurs additional cost or expense,
he may seek financial compensation in accordance with the provisions set out in the
contract. The power to vary the works thus provides a measure of flexibility in the
contractual dealings between the client and the contractor during the execution of the
works.
2.5
Contract Documents
Contract documents contain the express terms under which a contract is to be
performed ad sets out the obligations of each of the parties.
In the case of a
construction contract, the principal parties are of course the employer and the
23
Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition. Singapore:
Sweet & Maxwell Asia. Page 23-25
17
contractor, but the provisions also provide for parties like architects and quantity
surveyors to have prescribed administration and certification roles.
The major
components of the contract documents in a typical construction contract may be
briefly described.
2.5.1
Articles of Agreement
The articles of agreement contain brief description of the project and its
location, together with the names of the parties and the consultants appointed to the
project. A part of the articles contain preambles, describing in general terms the
obligations of the parties24 and the general contracting philosophy which is intended
to govern the interpretation of the contract.
Individual articles then list the
documents which constitute the subject contract, specify the price to be paid by the
employer in consideration for the contractor’s execution and delivery of the works
and stipulate the period within which the works are to be completed.
2.5.2
Conditions of Contract
The conditions of contract refer to the elaborate set of legal terms and
conditions which regulate the contractual relationship between parties to a contract.
They define the duties and rights of the parties and, the same time, address some of
the likely events which may arise during the course of the works. In many modern
contracts, these contract conditions are based on the provisions of standard and
amended to reflect the particular requirements of the employer.
24
Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition. Singapore:
Sweet & Maxwell Asia. Page 26.
18
2.5.3
Plans and Drawings
Plans show in graphic form how a construction project is to be built in terms
of the spaces allocated, the principal features and their reference to the site. In a
building project, the more important of these are the floor plans and the elevations.
Drawings provide a cross-section view of various parts of the building as well as the
particulars of major components and finishes.
The purpose of plans and drawings in a construction contract is to enable the
price for the works to be computed. Accordingly, it is sufficient for drawings issued
at the time of tender to be fairly general character, but it should contain sufficient
information for the preparation of estimates and the pricing of the work
2.5.4
Bills of Quantities
The expression “quantities” refers to a quantified description of the extent of
a particular item of work to be executed by the contractor in a construction project.
The quantities of all the items which comprise the construction project are then
collated in what are described as “Bills of Quantities”. In the usual presentation, bills
of quantities consist of three principal parts: the preliminary bill, the trade’s bills and
a schedule of provisional sums.
2.5.5
Schedule of Rates
Schedules of Rate are found in contracts which are expressed to be “‘lump
sum’ contracts” or which are drafted on the basis that they are not subject to remeasurement of the permanent work. The Schedule of Rates is intended as a basis
for adjusting the contract price where variations and extras have been ordered. Like
19
the bills of quantities, the items on a schedule of rates are usually classified
according to construction work trades.
In general, the rates priced in the Schedule of Rates are usually not subject to
price competition since they are not necessarily the basis on which contractors
compute their final price and as such, do not influence the final price submitted in the
tender. Indeed, contractors may be tempted to insert generous margins in these rates
and use them to compensate for the lower margins in the tender price. For this
reason, in some contracts, the unit prices for individual items in the schedule are predetermined by the quantity surveyor and these are usually described as “fixed
Schedule of Rates”. In these cases, the contractor is expected to have allowed in his
contract price for the possibility that the varies work when priced on these rates may
not be profitable.25
2.5.6
Specifications
The place of specifications in a construction contract depends on the terms of
the particular contract. Where the specifications are intended to form a part of the
contract, this should be expressly stated in the contract. Specifications may also be
found in contracts which are based on bills of quantities. In these cases, subject
again to the incorporating provisions, the significance of the specifications reside
largely with the elaboration of the descriptions of the item found in the bills. Where
it is intended that a particular item in the bills of quantities should be elaborated in
the specifications, a better practice is to expressly incorporate in the relevant portion
of the specifications by specific reference in the description of the item in the bills.
25
Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition. Singapore:
Sweet & Maxwell Asia. Page 23-25
20
2.6
Interpretation of the Contracts
Although most parties in the construction industry rarely enter into oral
contracts, however the written contracts prevalent in the industry are seldom devoid
of lack of clarity, ambiguities, uncertainties and discrepancies.
This is more
especially now as work is being increasingly let out on a so called ‘fast track’ basic
with the pre-contract stage being shrunk to a notional fraction of the overall project
period. Consequently, disputes arise during the post-contract award stage either on
the commencement or during the currency of the contract as to the interpretation of
the contract entered by the parties as to their respective rights, obligations and
liabilities.
Where a contract is made in writing, a court will seek to give effect to the
intention of the parties as expressed in the written documents. The general rule is
that a written contract cannot be varied by parol (i.e. oral) evidence, either by the
parties thereto or by others.26 This means that, in general, oral evidence is not
admissible to contradict, vary, add to or subtract from the written terms. However,
oral evince may be brought to explain the customary or technical meaning of a
particular word in the contract, or to establish the background circumstances in
which the contract was made.27
2.6.1
Rules of Interpretation of the Contracts
In the context of building contracts, issues in relation to express terms relate
mainly to:
(i)
26
Their interpretation; and
Collin F. Padfield (1978). Law Made Simple. 4th Edition. London: A Howard & Wyndham
Company. Page 191.
27
Pigott Foundations Ltd v. Shepherd Construction Ltd [1993] 67 BLR 48.
21
(ii)
Whether the terms found in some other documents have been
incorporated into the subject contract.28
2.6.1.1 Literal Interpretation
The starting point in the construction of any contract term is consider its
literal meaning (the ‘literal rule’) unless such a reading renders an absurd set of
results which the parties could not have possibly intended. Literal rule is where the
language is clear and explicit, it must be given affect whatever the consequences.29
The principle was demonstrated recently in Interpro Engineering Pte Ltd v.
Sin Heng Construction Co Pte Ltd.30, a case concerning a building sub-contract.
Clause 2 of the sub-contract had provided that the only profit which the subcontractors were entitled to make five per cent of the builder’s work of $4.65 million.
The court ruled that this should be read literally. Accordingly, it should not be
construed so as to entitle the sub-contractor to claim a percentage of payment in
respect of variation or additional works, even though such works were contemplated
at the time of the contract.
2.6.1.2 The Contra Proferentum Principle
This expression means “against the Profferer”. The contra proferentum rule
applies to a situation where there is doubt as to the meaning and scope of some
excluding clause or provision in a contract. By operation of the rule, the courts will
construe the subject provision against the party who drafted and relied on it. The
classic cases on this subject concern provisions which support to exclude liability on
the happening of some event. In Hollier v. Rambler Motors (AMC) Ltd.31, a clause
which attempts to exclude a party’s liability for damage caused by fire to customer’s
28
Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition. Singapore:
Sweet & Maxwell Asia. Page 33.
29
Nigel M Robinson, Anthony P Lavers, George KH Tan and Raymond Chan (1996). Construction Law in
Singapore and Malaysia. 2nd Edition. Singapore: Butterworths Asia. Page 26.
30
[1998] 1 SLR 694
31
[1972] 1 All ER 399.
22
cars on its premises was held to be insufficient clear to exclude liability for
negligence.
It was suggested that while this rule would apply to construction
contracts which have been drafted by the employer (as would be the case with
contracts produced by government agencies and local authorities32) it should not
apply to construction contracts where the conditions have been drawn up by bodies
which seek to represent substantial constituencies within the industry.
Furthermore, the courts appear to take more moderate approach when
applying the rule to provisions which merely limit liability as opposed to provisions
which totally exclude liability.33
2.6.1.3 The Ejusdem Generis Rule
The ejusdem generis rule applies to the interpretation of words which purport
to describe a class of objects. Where words describe a general class of objects, they
may be interpreted by relying on the words which describe the specific objects. An
example of the kind of situations contemplated here is the extension of time
provision in a construction contracts. An extension of time clause typically lists the
relevant events in respect of which time may be extended under the contract. In
determining whether a particular event comes within the ambit of a particular class of
events provided in the clause, the general words may be read ejusdem generis with
the particular events specified.
Thus, in Wells v. Army & Navy Co-operative
34
Society , the court held that the words ‘other causes’ in the extension of time clause
in that contract should be read ejusdem generis with preceding words such as
‘strikes’ and ‘default of sub-contractors’.
32
Peak Construction (Liverpool) Ltd v. Mckinney Foundation Ltd [1970] 69 LGR 1
33
Aisla Craig Fishing Co Ltd v. Malvern Fishing Co [1983] 1 All ER 101
[1902] 86 LT 764.
34
23
2.7
Conclusion
Where the contract terms are set out in more than one document, as is the
case with many construction contracts, then the approach is that “the four corners of
the contract” must be construed as a whole and, as far as possible, every part of the
contract must be given the effect intended by the parties.35
There are variety types of contracts used in the construction industry.36 The
contractor’s right to payment depends on the terms of the contract. Assuming the
normal case of payment in money, building contracts are generally entered into on
the basis either of a ‘lump sum’, unit price, or a cost plus basis, or some
combination.37
A construction contract, like any contract, is formed when an offer made by
one party is accepted by the other and the whole is supported by consideration.38 The
fundamentals of any contractual relationship are primarily conditioned by the precontract availability of design detail for the project.
The presumed ‘project
management’ goal of having a ‘lump sum’ contract in which clear definitions of the
mutual obligations can be stated and predictability of outcome is maximized, is
attainable only when the project design work is done at a time which permits of its
transcription into a specification and/or a schedule of measured quantities for
adoption as the basis of pricing by the contractors.39
In order to determine the law position in dealings with construction contract,
there are features in construction contract in terms of its comparison from the sales of
goods transaction and the contract the provisions in terms of payment and variation.
35
Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition. Singapore:
Sweet & Maxwell Asia. Page 35.
36
Edward R. Fisk and James R. Negele (1988). Contractor’s Project Guide to Public Agency
Contracts. Canada: John Wiley & Sons, Inc.
37
Stephen Brickford-Smith, Norman Palmer & Ruth Redmond-Cooper (1993). Butterworths
Construction Law Manual. London: Butterworth & Co.
38
Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition. Singapore:
Sweet & Maxwell Asia. Page 6.
39
Nigel M. Robinson & Anthony P. Lavers (1988). Construction Law in Singapore and Malaysia.
The Butterworth Group of Companies. Page 34-43.
24
In the case of Gilbert-Ash v Modern Engineering (1974) AC689, Lord Diplock
described a building or construction contract as “an entire contract for the sale of
goods and work and labour for a ‘lump sum’ price: and this price is payable by
installments as the goods are delivered and the work is done”. However, this analogy
cannot be carried too far because of the size of financial commitments involved in
construction contracts and the relatively long time for the “end product” to be
produced. Consequently, the law and practice of construction contracts have allowed
for a number of important modifications to be made to this simple transactional
relationship.
The objective behind most of these modifications is to enable both the risks
and the financial burdens associated with the project to be distributed on a more
commercially efficient basis between the parties. For example, in the absence of
provisions for the contractor to be paid progressively, a construction contract
operates as an “entire contract”.40 An entire contract is an “indivisible contract”: a
party has to complete the entire performance of his obligations before he can call on
the other party to fulfill his part.41 In essence, this requires a project to be basically
completed before the contractor is entitled to demand that the client fulfils his
obligation to pay. If the contractor fails to complete the works in an entire contract,
he cannot even claim a corresponding percentage of the contract price or recover on a
quantum meruit for the portion of the work which he has completed.42
Many of the problems likely to arise under a building contract are concerned
with the meaning to be given to words in a written contract. The process by which
the courts arrive at this meaning is termed construing a contract, and the meaning, as
determined by the court, the construction of the contract.
40
Gilbert-Ash v Modern Engineering [1974] AC 689 (HL)
Hoenig v Isaacs [1952] 2 All ER 176
42
Lord Denning MR in Hoenig v Isaacs noted in his judgement that whether the entire performance is
a condition precedent to payment depends on the true construction of contract, but “when a contract
provides for a specified sum to be paid on completion of specified work, the courts lean against a
construction of the contract which would deprive the contractor of any payment at all simply because
there are some defects of omissions” (pp 180-181). This statement of principle was cited with
approval in Williams v Roffrey Brotheres & Nicholls [1990] 1 All ER 512.
41
25
Where a contract is made in writing, a court will seek to give effect to the
intention of the parties as expressed in the written documents. The general rule is
that a written contract cannot be varied by parol (i.e. oral) evidence, either by the
parties thereto or by others.43 This means that, in general, oral evidence is not
admissible to contradict, vary, add to or subtract from the written terms. However,
oral evidence may be brought to explain the customary or technical meaning of a
particular word in the contract, or to establish the background circumstances in
which the contract was made.44
43
Collin F. Padfield (1978). Law Made Simple. 4th Edition. London: A Howard & Wyndham
Company. Page 191.
44
Pigott Foundations Ltd v. Shepherd Construction Ltd [1993] 67 BLR 48.
CH A P T E R 3
’L U M P S U M ’ I N
CO N S T R U CT I O N
CO N T R A CT
CHAPTER 3
’LUMP SUM’ IN CONSTRUCTION CONTRACT
3.1
Introduction
Generally, a lump sum contract is one to complete the whole work for a
‘lump sum’45. The contractor’s primary duty in a lump sum contract is to do work as
defined and as required by the contract documents within the contract period stated
in the agreement. There is an important characteristic of lump sum contracts that
affects a contractor’s duty: the legal concept of a fixed sum for a complete job of
work.46
As such, this chapter will discuss this commonly use term ‘‘lump sum’’ based
on the selected standard form of contract available in the country namely PWD 75
(Rev. 12/06): JKR Sarawak Standard Form of Contract, PWD Form 203A (Rev.
2007): JKR Standard Form of Contract and PAM Contract 2006 (With Quantities):
Agreement and Conditions. Related law from Contracts Act 1950 (Act 136) and
some interpretation from selected construction contract literature available in the
Perpustakaan Sultanah Zanariah, University Teknologi Malaysia (UTM Library)
will also be discussed to aid the understanding on this term.
45
Michael Furmstone (2000). Building Contract Casebook. 3rd Edition. London: Powell-Smith &
Furmston’s.
46
Henry Henkin (1988). Drafting Engineering Contracts. England: Elsevier Applied Science
Publishers Ltd. Page 60.
27
3.2
The Term ‘Lump Sum’ in Construction Contract
It is not unusual for smaller projects to be tendered for without bills, and there
is little doubt that the use of bills of quantities on many projects may have effect of
increasing the total cost. Thus standard form of contract available for such works,
which is commonly but misleadingly referred to as a ‘lump sum’ contract, and which
referred to as the specification form of contract, or the form without quantities.47
3.2.1
Standard Form of Contract
There are several types of standard form of contract available in Malaysia,
such as PWD 75 (Rev. 12/06): JKR Sarawak Standard Form of Contract, JKR 203B:
JKR Standard Form of Tender Rev. 2007): JKR Standard Form of Contract and PAM
Contract 2006 (With Quantities): Agreement and Conditions. These standard forms
of contract is use to explain the term of delivery and payment of the goods or
services being quoted by contractor or supplier provided by the contract
administrator.
So far as construction activity is concerned, standard forms of contract help to
relate two facets: the general law in its effect on contracting parties and the detailed
interaction of the contract documents in the production of the finished physical
result. In so doing it does not, however, solve all problems – indeed it may create
fresh ones and so there is also the need for interpretation.48
47
Duncan Wallace (1970). Hudson’s Building and Engineering Contracts. 10th Edition. London:
Sweet & Maxwell. Page 171.
48
Dennis F Turner (1971). Building Contracts: A Practical Guide. London: George Godwin Ltd.
Page 3.
28
3.2.1.1 PWD Form 203A: JKR Standard Form of Contract
In this form, the term lump sum is use in its standard Form of Tender.
“Having examined the Government’s Requirement including Instruction to
Tenderers and the Condition of Contract and the Appendices annexed thereto
(hereinafter referred to as the Pre-bid Document) we, the undersigned, offer
to design, construct and complete the said Works in conformity with the said
Pre-bid Documents for the Lump Sum of Malaysia Ringgit: (State the Lump
Sum bid here) or such other sum as may be ascertained in accordance with
the said conditions of Contract.”
Provisions covering ‘lump sum’ is also shown in Clause 26.0 on the summary
of tender.
Clause 26.1:
…the Summary of Tender, drawings and specification shall
form part of this contract and shall be the basis of the Contract Sum.
Clause 26.3:
…any adjustment of prices in the Summary of Tender… shall
before signing of this Contract be so adjusted and rectified that the total
amount in the Summary of Tender shall correspond to the Lump Sum amount
tendered by the Contractor in the Form of Tender. Provided always the
Lumps Sum amount shown in the Form of Tender shall remain unaltered.
Clause 26.4:
… the quality and quantity of the works included in the
Contract Sum shall be that which is shown upon the Contract Drawings or
described in the Specification and/or the Summary of Tender. Where
quantities of work are given in the Contract Drawings and/or Specification
and/or the Summary of Tender for the purpose of tendering, unless otherwise
stated, these shall be deemed to form part of this Contract and method of
measurement of and payment for the same shall be made in accordance with
the rules as set down in the Contract Drawings and/or the Specification
and/or Summary of Tender.
Although the term ‘lump sum’ is use in the form of tender as indicated at the
above clause, its definition and interpretation are not available in any part of the
contract document.
29
3.2.1.2 PWD 75 (Rev. 12/06): JKR Sarawak Standard Form of Contract
In this form, the term ‘lump sum’ is exemplified in its Agreement and
Condition. The term is used in Appendix ’Q’ (Government of Malaysia, Treasury
Instruction No.170), and the instruction is as follows;
‘Please quoted for the supply of the goods/service listed below subject to the
terms and condition prescribed.
1.
Term of delivery: (the part to be filled by contract Administrator,
whether Lump Sum or as and when required basis).
Description of
Quantity
Rate
Good/Services &
Amount
(RM)
Special Condition
State the description
As per summary of Quotation
Lump sum
here
or state the quantity of
Or
Goods/services here
state the rate here
This appendix is later become part of the project Contract Document.
In this form, the term ‘lump sum’ is also exemplified in Clause 8.2, Contract
based on Drawings and Specifications:
Clause 8.2(a):
(i)
Subject to Clauses 2, 3 and 4, the quality and quantity of the Works
included in the Contract Sum shall be deemed to be that which is
shown in the Contract Drawings or described in the Specifications
and the Summary of Tender.
(ii)
Where items of work are shown or implied on the drawings or in the
Specifications as being a requirement under the contract, or are
obviously required to satisfactorily complete the Works, but are not
specifically covered by the item descriptions in the Summary of
Tender, such work shall be deemed to be covered by related items in
the Summary of Tender, and in any event in the tendered lump sum.
The term ‘lump sum’ is use in the form of tender and indicated at the above
clause. The definition and interpretation of the term are not available in any part of
30
the contract document for reference of the contracting parties and this could
contribute to parties making their own interpretation to suit the situation, position and
interest.
3.2.1.3 PAM Contract 2006 (With Quantities): Agreement and Conditions
In this form, the term ‘lump sum’ is indicated in Article 7: Definitions (ah) of
the Articles of Agreement and Clause 12.2: The Conditions of Contract.
Article 7 (ah): Lump Sum Contract means a fixed price Contract and is not
subject to remeasurement or recalculation except for Provisional Quantities
and Variations which shall valued under Clause 11.0 (clause on Variations,
Provisional and Prime Cost Sums).
Clause 12.2: unless otherwise expressly provided, the contract is a Lump
Sum Contract. Any error in description, quantity or omission of items in the
Contract Bills shall not vitiate the Contract and shall be corrected by the
Architect of Consultant.
The definition of the term ‘lump sum’ is clearly given in this agreement
which is ‘lump sum’ is ‘fixed price’ and is not subject to remeasurement or
recalculation except for provisional quantities and variations. As such, any error in
description, quantity or omission of item should not be used to invalidate the
contract.
3.2.2
Contract Act 1950 (Act 136)
In this act, there is no provision specifically on ‘lump sum’ term or lump sum
contract but there are provisions discussing the performance of project which
31
indirectly related to this term in the contract. The Contract Act makes detailed
provisions covering performance.
Section 38(1) provides that ‘the parties to a contract must either perform or
offer to perform their respective promises, unless such performance has been
dispensed with or excused under this Act, or of any other law’. 49
Section 40 then provides that ‘when a party has refused to perform or
disabled himself from performing, his promise in its entirety, the promisee (other
party) may put an end to the contract, unless he has signified, by words or conduct,
his acquiesced in its continuance.’50
Certain other provisions of the Act deal with the circumstances in which
personal performance by the promisor is necessary,51 the effect of accepting
performance from a third party,52 the time and place for performance.53 Section 51
provides that ‘the performance of any promise may be made in any manner, or at any
time which the promisee prescribes or sanctions’. Sections 52 to 55 deal with the
performance of reciprocal promises.
3.3
Interpretation from Literature
While the parties to a contract will seek to come to an agreed interpretation if
the contract documents and perhaps be guided by the professional person responsible
for drafting or incorporating the documents, this blissful situation may not always be
achieved. It is little consolation for an aggrieved party to be told ‘well, that is what I
49
Contracts Act 1950 (Act 136), Contracts (Ammendment) Act 1976 (A329) & Government Contract
Act 1949 (Act 120). Law of Malaysia (2005): International Law Book Services. Legal Research
Board.
50
Ibid
51
Section 41 of the Contracts Act
52
Section 42 of the Contracts Act
53
Section 47-50 of the Contracts Act
32
meant it to mean’. Such intentions have no significance; all that counts is what the
wording actually does mean.54
In the light of the widespread use of forms of contract, the term ‘lump sum’
has become commonly used in the construction industry. Hence, the interpretation of
the term ‘lump sum’ plays a very important role in order to provide guidance on the
exact circumstances in which a contractor’s primary duties and right can be
determined.
In this section, the interpretations of the term ‘lump sum’ derived from the
literature review will be reported.
The literature review involves reading and
appraising the literature on the subject matter.
Table 1:
Interpretations of the Term ‘Lump Sum’ from Literature
No. Literature
Related discussion on the interpretations of
the term ’Lump Sum’
1
2
L.B. Curzon (2003).
Lump sum contract: contract by which it is
Dictionary of Law. 6th
intended that complete performance shall take
Edition. Petaling Jaya
place before payment may be demanded.
Selangor: International Law
Failure to complete performance prevents any
Book Services.
payment being recovered.
John S. Scott (1984).
Dictionary of Building. 3
Lump sum contract: A contract in which the
rd
Edition. Granada Publishing.
contractor submits a price for construction (and
maintenance for a short period) of the work
shown on the contract drawings. A bill of
quantities is sometimes drawn up by the
engineer or architect to help the contractor, but
not normally. This is a simple type of fixed
54
Dennis F Turner (1971). Building Contracts: A Practical Guide. London: George Godwin Ltd.
Page 5.
33
No. Literature
Related discussion on the interpretations of
the term ’Lump Sum’
price contract which is suitable for small
buildings but not for large work of any sort.
3
Bob Greenstreet, David
‘lump sum’ is where the contractor agrees in
Chappell, Michael Dunn
advance to undertake a specified amount of
(2003). Legal and
work for a fixed price. The inflexible nature of
Contractual Procedures for
the price may mean that the contractor could
th
Architects. 5 Edition.
fall foul of inflation or unforeseen
Oxford: Architectural Press.
circumstances and may be inclined to raise
prices as a safeguard.
4
Chow Kok Fong (2004).
‘Lump Sum’ Contracts: in contrast to bills of
Law and Practice of
quantities contracts, there is a category of
Construction Contracts. 3rd
construction contracts commonly called ‘lump
Edition. Singapore: Sweet &
sum’ contracts. These contracts do not
Maxwell Asia.
incorporate the Bills of quantities as part of the
contract documents. Consequently, the
contractor is deemed to have tendered a
contract price for the execution of the works as
described by the contract drawings and
specification. The contractor undertakes, in
consideration for the contract price, to furnish
everything contingently necessary to bring the
works to completion.55 The contractor is
expected to measure and compute the quantities
of work from the drawings and price the work
on the basis of the drawings and the
specification. If, in the process of executing the
works, the contractor finds that the actual
quantity of work executed exceeds that which
55
Williams v Fizmaurice [1858] 3 H&N 844
34
No. Literature
Related discussion on the interpretations of
the term ’Lump Sum’
he has computed from the drawings, he has to
bear this expense and cannot recover the
additional expense from the employer. In terms
of risks, therefore, the contractor in a lump sum
contract bears the risks associated with errors in
the measurement and estimation of the quantity
of work required to bring the works to
completion, whereas in a contract based on the
bills of quantities, this risk is essentially borne
by the client.
5
Karl Williams (1992). Civil
In essence, a lump sum contract constitutes the
Engineering Contracts,
simplest type of construction contract in that
Volume 1: The Law,
the contractor undertakes to carry out the
Administration, safety.
specified work for an agreed lump sum. In
England: Ellis Horwood.
cases where the extent of the specified work is
Page 144.
small, this sum will probably be payable in
‘single payment’ form upon satisfactory
completion. This will, of course, require the
contractor to carry the entire cost of the project,
a fact which he will, no doubt, take into
account when evaluating his tender price.
6
JR Lewis (1976). Law for
Where the sum payable to the contractor for
the Construction Industry.
building a house is to be payable on
London: The Macmillan
completion, the contract is a lump sum
Press Ltd.
contract. It follows that if he completes the
work according to the contract, he can claim
the full sum; if he does not complete the whole
work in accordance with the contract, the
situation will depend upon whether the parties
35
No. Literature
Related discussion on the interpretations of
the term ’Lump Sum’
have contemplated this possibility or not.
7
Michael Furmstone (2000).
A lump sum contract is one to complete the
Building Contract Casebook.
whole work for a lump sum. The satisfactory
3rd Edition. London: Powell-
completion of the work for the stated number
Smith & Furmston’s. Page
of dollars remains the obligation of the
170.
contractor, regardless of the difficulties and
troubles he may experience in the course of his
construction activities, even though the total
cost of the work may turn out to be greater than
the contract price. However, this contractual
responsibility is subject to contractor relief
because of impossibility of performance and
where there is contract provision for price
adjustment because of changed conditions and
possibly other contingencies.
8
Duncan Wallace (1970).
lump sum contract may mean a ‘fixed priced’
Hudson’s Building and
contract in the first of the above senses, or it
Engineering Contracts. 10 th
may be used in its legal sense to mean an
Edition. London: Sweet &
‘entire’ contract in which the law will not
Maxwell. Page. 201.
imply any term for stage payment (a contract
using bills would also be a lump sum contract
in this sense), and in which the obligation to
complete is, subject to the doctrine of
substantial performance, unqualified in the
legal sense.
9
Richard H. Clough (1986).
The lump sum contract is one where the
Construction Contracting. 5th
contractor agrees to perform a stipulated job of
Edition. USA: John Wiley &
work in exchange for a ‘fixed sum’ of money.
Sons Inc. Page 140.
36
No. Literature
Related discussion on the interpretations of
the term ’Lump Sum’
10
Donald Keating (1969). Law
A lump sum contract is one to complete the
and Practice of Building
whole (sometimes termed as ‘entire’ or a
Contracts. 3rd Edition.
‘specific’ work) work for a lump sum.
London: Sweet & Maxwell.
Page 48.
3.4
Other Aspects of Construction Contract Related to ‘Lump Sum’
Interpretations
There are others condition in the literatures which related to performance and
payment of parties in construction industry that can assist to explain the law of lump
sum namely Lump Sum Tender, Lump Sum Contract, Entire Contracts, Substantial
Completion, Non-Completion, Valuation of Variations, Contract to Do Whole Work
and Quantum Meruit.
3.4.1
Lump Sum Tender
A lump sum tender is a tender, in which the tenderer quotes a lump sum price
for executing the work according to the plans, drawings, specifications and other
conditions. Acceptance of a lump sum tender creates a lump sum contract, which is
one to complete the work comprised in it for an ascertained and specified sum, or for
a specified sum subject to its being increased and diminished by taking into
consideration the value of extras done and omissions made in accordance with the
contract.
37
A lump sum contract may or may not be an entire contract. The normal
course, however, is to invite a lump sum tender, or tenders, for the satisfactory
completion of the work as defined by the plans, drawings, specifications and the
quantities supplied by the employer or his architect, or available at a time and place
for inspection and consideration of contractors, who propose to send their tenders for
the work in question.56
The question in each case is what was the contract? If the contract is to build
a house complete and fit for occupation, or to complete a bridge or a dock or any
other work, the contractor cannot recover as extra for work which is indispensably
necessary in order to complete the work he has undertaken to do. A contractor who
tenders to execute the entire work must consider whether he can carry it out or not,
so as to enable him to earn the price agreed to be paid to him for the completed work.
In a contract the contractor agreed to complete the house and make it fit for
occupation by a particular date and not that the flooring was not mentioned, it was
necessary implied that the builder who abandoned could not recover on the contract
or in trevor for the flooring seized.57
3.4.2
Lump Sum Contract
A lump sum contract is s contract to complete the work comprised in it, for an
ascertained and specified sum, or for a specified sum subject to it being increased or
diminished by taking into consideration the value of extras done and omissions
made, in accordance with the contract. A lump sum contract may or may not be an
entire contract.58
56
K. Gajria (1999). Law Relating to Building and Engineering Contracts in India. 4th Edition. India:
Butterworths. Page 9-10.
57
Williams v Fizmaurice [1858] 3 H&N 844
58
W.T. Creswell (1954). Creswell on Building Contracts. 5th Edition. London: Pittman. Page 5.
38
A lump sum contract is one to complete the whole work for a lump sum.59
Lump sum contract is also “contract by which it is intended that complete
performance shall take place before payment may be demanded. Failure to complete
performance prevents any payment being recovered“60.
In a lump sum contract the contractor agrees to execute a complete work with
all its contingencies in accordance with the drawings and specification for a fixed
sum, the following being the essential characteristic:(i)
A schedule of rates is specified in order to regulate the amount to be
added to or deducted from the fixed sum on account of additions and
alterations not covered by the contract.
(ii)
Except as provided in clause (i), no allusion is made in the contract to
the departmental estimate of work, schedule of rates or quantities of
work to be done.
(iii)
Detailed measurements of the work done are not required to be
recorded except in respect of additions and alterations.
In others words, a lump sum contract is incomplete without the essential
drawings and specification.
A lump sum contract, sometimes called stipulated sum, is the most basic form
of
agreement
between
a
supplier
of
services/contractor
and
a
receiver/customer/employer. The supplier agrees to provide specified services for a
specific price. The receiver agrees to pay the price upon completion of the work or
according to a negotiated payment schedule. In developing a lump sum bid, the
builder will estimate the costs of labor and materials and add to it a standard amount
for overhead and the desired amount of profit.
59
60
Michael Furmston (2000). Building Contract Casebook. 3rd Edition. Powell-Smith & Furmston’s.
L.B. Curzon (2003). Dictionary of Law. 6th Edition. Selangor: International Law Book Services.
39
The obligation to complete the work for the Lump sum is not affected if the
indispensably necessary works are not specified,61 or are not shown on the drawings,
or are calculated wrongly, or even understated, or if their cost is underestimated in
the engineer’s specifications, or are impracticable.62
Where work is not fully described in the contract and has to be one according
to the instruction of an architect or engineer, the builder cannot recover as an extra
for work done in carrying out such instructions, nor where work is to be done to the
satisfaction of an architect or engineer can the builder recover extra payment for
executing work to satisfy him or to obtain his approval.63 There is no consideration
for a promise to pay a contractor extra for that which he is already bound to do.64
A lump sum contract is a contract to complete a whole work for a lump sum,
e.g. to build a house for £60,000. If the house is completed in every detail required
by the contract the contractor is entitled to £60,000, and if extra work was carried out
he may be able to recover further payment. If he does not complete the house,
detailed clauses may provide what amount, if any, he is to receive. But parties
entering into a contract do not always contemplated its breach, and in the absence of
such clauses, and even to some extent when they are present, a difficult problem may
arise as to what payment, if any, the contractor can recover.65
If a contractor agrees to do a whole work according to a specification which
consists of 40 items for a lump sum of £5,000 and fails to carry out 20 of the items, it
is obvious that he is not entitled to recover the whole of the £5,000 and that the
employer may have an action against him for damages. But is the contractor entitled
to recover any of the £5,000? Can the employer say to him, “You agreed to complete
the whole and to be paid when the whole was completed?66 The work is incomplete,
therefore you are entitled to nothing?” and can the employer rely on the same
61
Williams v Fitzmaurice [1858] 3 H&N 844
Thorn v London Corporation [1876] 1 App.Cas. 120
63
Collins v Godfrey [1831]1 B. & Ad. 950
64
Rigby v Bristol Corporation [1860] 29 LJ Ex 356
65
Stephen Furst and Vivian Ramsey (1991). Keating on Building Contracts.
London:Sweet & Maxwell. Page 69.
66
Appleby v Myers [1867] LR 2 CP 651
62
5th Edition.
40
argument where only two out of the 40 items are omitted? These problems, which
have greatly exercised the courts, require discussion of entire contracts and
substantial performance.
3.4.3
Entire v Divisible Contract
An entire (or indivisible) contract is one in which there is agreement, implicit
or explicit, that neither party may demand performance until he is ready to fulfill, or
has fulfilled his promise.67 The opposite of entire contract is divisible contract. A
divisible contract is a contract in which the parties intend that their promises are to be
independent of each other.68
An entire contract is one where entire performance by one party is a
condition precedent to the liability of the other party and where therefore the
contractor’s right to payment depends on entire performance on his part. In some
contracts, entire completion of the building is a condition precedent to payment.
Such a contract is termed as an ‘Entire contract’, and is an indivisible contract, one
where the entire fulfillment of the promise by either party is a condition precedent to
the right to call for the fulfillment of any part of the promise by the other.
69
The
entire performance by one party is a condition precedent to the liability of the other
party. Under such contracts, the right of the contractor to receive payment depends
on the entire performance on his part.
Whether a contract is an entire one is a matter of construction.70 Clear words
are needed to bring an entire contract into existence.71 In the absence of such words,
the ordinary lump sum contract cannot be an entire contract, for the courts construe
67
L.B. Curzon (2003). Dictionary of Law. 6th Edition. Selangor: International Law Book Services.
Page 139.
68
Ibid.
69
Cutter v Powell [1795] 6 Term Rep. 320
70
Hoenig v. Isaac [1952] 2 All ER 176 (CA)
71
Appleby v Myers [1867] LR 2 CP 651
41
the promise to complete as a term and not a condition.72 However, whether a
contract is an entire one is a matter of construction as, for example, the standard form
of building contracts is held not to be entire contract.73
The type of contract which may be entire is that where the contractor
undertakes some simple clear obligation such as to put some broken article or part of
a house in working order and completely fails to do so. In such a case he may be
entitled to nothing although he has expended much work and labour, for the main
purpose of the contract is that the article or part of the house shall work and there is
no scope in the contract for terms collateral to the main purpose. It is perhaps
academically debatable whether or not a lump sum contract is by definition an entire
contract. It is submitted that, subject to provisions for installments:
(i)
Most lump sum contracts are entire contracts in the sense that “the
builder can recover nothing on the contract if he stops work before the
work is completed in the ordinary sense – in other words abandons the
contract”74; but
(ii)
Most lump sum contracts are not entire contracts in the sense that they
are construed as excluding the principle of substantial performance.
The traditional position in these situations is to regard these contracts as
entire contracts so that a contractor has to necessarily complete the whole of the
works in scrupulous compliance with the prescribed requirements of the underlying
contract before he is entitled to any payment. This position has, through the years,
been gradually modified, so that in the mid 1950s, the English courts were prepared
to rule that a contractor may sue on the lump sum if the contractor has substantially
completed his works, although the building owner may bring a cross-claim for
defects and outstanding works or, alternatively, set these claims in diminution of the
price. In Hoenig v. Isaacs75, Lord Denning MR in delivering his judgment of the
English Court of Appeal in that case stated the position as follows:
72
Hoenig v Isaacs [1952] 2 All ER 176
Tern Construction Group v RBS Garages [1992] 34 Con LR 137
74
Hoenig v Isaacs [1952] 2 All ER 176
75
Ibid
73
42
“Where a contract provides for a specified sum to be paid on completion of
specified work, the courts lean against a construction of the contract which
would deprive the contractor of any payment at all simply because there are
some defects or omissions.”
Thus, in an early case, it has been held that where a contractor did work on a
house under a lump sum contract, he was entitled to receive payment for his work,
notwithstanding that he has departed from the terms of the contract.76 However, this
entitlement to be paid is extinguished where the works were incomplete because the
contractor abandoned the works.77 A contractor also forfeited his entitlement to be
paid where there was a total failure of consideration, as where the works delivered
conferred no benefit whatsoever to the building owner78 and where the work
undertaken was different from which he has contracted to deliver.79
3.4.4
Substantial Completion
At common law, substantial performance is an alternative principle to the
perfect tender rule. This principle is relevant when a contractor's performance is in
some way deficient, through no willful act by the contractor, yet is so nearly
equivalent that it would be unreasonable for the owner to deny the agreed upon
payment.
If a contractor successfully demonstrates substantial performance, the
owner remains obligated to fulfill payment, less any damages suffered.
Sachs LJ held (in Bolton v Mahadeva case) that Bolton was entitled to
nothing because there had been no substantial performance at all. He said that, ‘It is
76
H Dakin & Co. Ltd v Lee [1916] 1 KB 566
Sumpter v Hedges [1898] 1 QB 673
78
Farnsworth v Garrard [1807] 1 Camp 38
79
Forman & Co Pty Ltd v The Liddlesdale [1900] AC190
77
43
not merely that so very much of the work was shoddy, but it is the general
ineffectiveness of it for its primary purpose that leads me to that conclusion.’80
In the ordinary lump sum contract the employer cannot refuse to pay the
contractor merely because there are a few defects and omissions.
If there is
substantial completion he must pay the contract price subject to a deduction by way
of set-off or counterclaim for the defects.81 One test to be applied is whether the
work was finished or done in the ordinary sense, even though part of it was defective.
Moreover, it is relevant to take into account both the nature if the defects and the
proportion between the cost of rectifying them and the contract price. It will not be
sufficient to consider the cost of rectification alone.82
The general rule in ordinary lump sum contracts is that the contractor is
entitled to be paid the pre-agreed lump sum as and when he substantially completes
the Works. 83 Substantial completion does not necessarily entail the perfect execution
of every detail of the Works, and if the contractor is guilty of only comparatively
minor defects and/or omissions then he is entitled to be paid the lump sum less a setoff in respect of his failings...84
3.4.5
Non-Completion
This may occur by express or implied agreement, because the employer
prevents completion, because the contractor in breach of contract fails to complete or
because the contract is frustrated. If the contractor fails to complete in breach of
contract, his breach will normally amount to repudiation.
Prevention by the
employer may amount to repudiation.
80
Bolton v Mahadeva [1972] 2 All ER 1322
Hoenig v Isaacs [1952] 2 All ER 176
82
Stephen Furst and Vivian Ramsey (1995).
London:Sweet & Maxwell. Page 78-79.
83
Hoenig v Isaacs [1952] 2 All ER 176
84
Denning LJ
81
Keating on Building Contracts.
6th Edition.
44
It has been said that the rule that a contractor who has not substantially
completed cannot recover payment does not work hardly upon him if only he is
prepared to remedy the defects before seeking to resort to litigation to recover the
lump sum.85 It seems to follow that ordinarily there is an implied duty upon an
employer to give a willing contractor an opportunity to remedy defects, breach of
which duty amounts to prevention. Such duty does not, it is submitted, arise if the
defects are so grave as to show that the contractor is unable to perform the contract.
3.4.6
Valuation of Variations
In a lump sum contract, the price is a firm price, and any schedule of rates or
bills of quantities which exist are designed solely for the purpose of placing a value
upon the variations, whether by way of omission or addition, which the contract may
empower the employer or his architect to order.
In such contracts, invariably a schedule showing the nature of the variations
or deviations from the original work which is the basis of the lump sum amount is
incorporated containing the price at which such variations or deviations are to be
valued. In case of additions, the price so calculated will be added to the lump sum.
If the variations or deviations are such that they are not mentioned in the schedule,
their price is fixed according to other terms of the contract and failing that, the
contractor will be entitled to claim on quantum meruit.
Where the contract is to erect a specified work for a lump sum and there is no
power to order extras or variations, the builder is bound to do the work as specified
and cannot recover anything by way of extras or variations unless he can establish a
new contract to pay for them either by showing that the employer expressly or
impliedly ordered them or that the architect, acting within the scope of this authority ,
did so, or that the employer accepted the work either personally or by his duly
85
Bolton v. Mahadeva [1972] 1 WLR 1009
45
authorized agent. If the architect or the engineer-in-charge has no authority under the
terms and conditions of the contract, to sanction the deviations, the owner cannot be,
held liable for any such deviations and the builder could only recover the contract
price subject to deductions for such portions of the work as were not in accordance
with the contract.86
3.4.7
Contract to Do Whole Work is Lump Sum Contract
The manner of payment can be arranged in a variety of ways and it is
impossible to attempt any exhaustive classification. A contract to do a whole work
in consideration of the payment of different sums for different parts of the work is
prima facie subject to the same rules about completion as an ordinary lump sum
contract.87 A contract to do a whole work with a provision for payment of each
completed part of the whole may be a divisible contract in the sense that if the whole
is not completed through the default of the contractor, he may be entitled to payment
under the contract for those part he has completed subject to the employer’s right to
counterclaim for non-completion of the whole. 88
3.4.8
Quantum Meruit
The expression quantum meruit means “the amount he deserves” or “what the
job is worth” and in most instances denotes a claim for a reasonable sum. It is used to
refer to various circumstances where the courts award a money payment whose
amount at least is not determined by a contract. In some instances, the basis for the
payment also is less than contractual.
86
Forrest v Scottish County Investment Co Ltd [1915] SC 115
Appleby v Myers [1867] LR 2 CP 651
88
Newfoundland Government v Newfoundland Ry. [1888] 13 App. Cas. 199 (PC)
87
46
“A quantum meruit claim (like the old actions for money has and received
and for money paid) straddles the boundaries of what we now call contract
and reinstitution; so the mere framing of a claim as a quantum meruit claim,
or a claim for a reasonable sum, does not assist in classifying the claim as
contractual or quasi-contractual.”89 A claim on a quantum meruit cannot
arise is an existing contract between the parties to pay an agreed sum.90 But
there may be a quantum meruit claim where there is:
(i)
An express agreement to pay a reasonable sum
(ii)
No price fixed
(iii)
A quasi-contract
(iv)
Work outside a contract
(v)
Work under a void contract
“If it is the kind of additional work contemplated by the contract, the
Contractor must be paid for it and will be paid for it according to the prices regulated
by the contract. If the additional or varied work is so peculiar, so unexpected and so
different from that any person reckoned or calculated upon, it may not be within the
contract at all and he could either refuse to go on or claim to be paid upon quantum
meruit.”91
Where the contract is to complete the entire work and work is increased
without any unlawful act or breach of the contract by the building owner, the builder
cannot recover additional payment.92
When entire completion is a condition precedent to payment, the contractor
cannot recover anything either under the contract or on a quantum meruit if he has
failed to complete in every detail.93
89
For an ordinary lump sum contract, the
British Steel Corporation v Cleveland Bridge and Engineering [1984] 1 All ER 504; Holland
Hannen & Cubitts v. W.H.T.S.O. [1981] 18 BLR 80
90
Gilbert & Partners v Knight [1968] 2 All ER 248 (CA).
91
Thorn v London Corporation [1876]
92
K. Gajria (1999). Law Relating to Building and Engineering Contracts in India. 4th Edition. India:
Butterworths. Page 495.
93
Cutter v Powell [1795]; Sinclair case, supra note 13; Ellis v. Hamlen [1810] 3 Taunt. 52; Dakin v.
Lee [1916] 1 KB 566; Stegmann v. O’Connor [1899] 81 LT 627 (CA); Vigers case, supra note 13.
47
contractor cannot recover anything either under the contract or on a quantum meruit
unless he shows substantial completion.
3.5
Conclusion
Only one out of three standard forms of contract being studied has given clear
definition the term ‘lump sum’; PAM Contract 2006 (With Quantities): Agreement
and Conditions, which is lump sum is fixed price and is not subject to remeasurement
or recalculation except for provisional quantities and variations. As such, any error
in description, quantity or omission of item should not be used to invalidate the
contract.
Research in the selected literature had given the following conclusion:
(i)
Lump sum is where the contractor agrees in advance to undertake a
specified amount of work for a fixed price.94
(ii)
A lump sum contract is one to complete the whole work for a lump
sum. The satisfactory completion of the work for the stated number of
dollars remains the obligation of the contractor, regardless of the
difficulties and troubles he may experience in the course of his
construction activities, even though the total cost of the work may turn
out to be greater than the contract price.95
(iii)
‘Lump sum’ contract may mean a ‘fixed priced’ contract in the first of
the above senses, or it may be used in its legal sense to mean an
‘entire’ contract in which the law will not imply any term for stage
payment. 96
94
Bob Greenstreet, David Chappell, Michael Dunn (2003). Legal and Contractual Procedures for
Architects. 5th Edition. Oxford: Architectural Press.
95
Michael Furmstone (2000). Building Contract Casebook. 3rd Edition. London: Powell-Smith &
Furmston’s. Page 170.
96
Duncan Wallace (1970). Hudson’s Building and Engineering Contracts. 10th Edition. London:
Sweet & Maxwell. Page. 201.
48
There are other aspects in the literatures which are related to performance and
payment of parties in construction industry that can assist to explain the law of lump
sum.
These aspects are the basis for consideration and judgment of contract
litigation to determine whether a contractor have the right to be paid lump sum due to
failure to complete the whole project.
Whether a contract is an entire one is a matter of construction.97 Clear words
are needed to bring an entire contract into existence.98 In the absence of such words,
the ordinary lump sum contract cannot be an entire contract, for the courts construe
the promise to complete as a term and not a condition.99 However, whether a
contract is an entire one is a matter of construction as, for example, the standard form
of building contracts is held not to be entire contract.100
Lastly, subject to provisions for installments:
(iii)
Most lump sum contracts are entire contracts in the sense that “the
builder can recover nothing on the contract if he stops work before the
work is completed in the ordinary sense – in other words abandons the
contract”101; but
(iv)
Most lump sum contracts are not entire contracts in the sense that they
are construed as excluding the principle of substantial performance.
Hoenig v. Isaac [1952] 2 All ER 176 (CA)
Appleby v Myers [1867] LR 2 CP 651
99
Hoenig v Isaacs [1952] 2 All ER 176
100
Tern Construction Group v RBS Garages [1992] 34 Con LR 137
101
Hoenig v Isaacs [1952] 2 All ER 176
97
98
CH A P T E R 4
J UDI CI AL
I NT E RP R ET AT I O NS O F
T H E T E RM ’L U M P SU M ’
I N CO N S T RU C T I O N
CO N T R A CT
CHAPTER 4
JUDICIAL INTERPRETATIONS OF THE TERM ’LUMP SUM’ IN
CONSTRUCTION CONTRACT
4.1
Introduction
Lump sum is the most common contract system of procurement in building
construction projects. A lump sum contract is one to complete the whole work for a
lump sum102 and the contractor’s right to payment depends upon the wording of the
(lump sum) contract103
Cases are still the most important source of law of contract. This chapter will
address the results of an investigation into the subjective nature of contract
interpretation where appropriate case laws were searched from the Lexis Nexis
website104 through its own search engine and limited to cases originating and decided
in Malaysia, Singapore and Brunei.
The keywords used were ‘lump sum’ and
“construction contract”.
Out of 52 cases found by using the selected keywords, only seven cases were
suitable to be used in this research. These seven cases basically discussed the
dilemma whether the contract being disputed was a lump sum contract or not based
102
Michael Furmstone (2000). Building Contract Casebook. 3rd Edition. London: Powell-Smith &
Furmston’s.
103
Donald Keating (1969). Law and Practice of Building Contracts. 3rd Edition. London: Sweet &
Maxwell.
104
http://www.lexisnexis.com.
50
on oral or written agreement and case findings and, secondly to determine the
positions of court when dealing with lump sum contract.
4.2
The Law of Lump Sum or Entire Contract
Lump sum contract are also referred to as entire contract: see Tong Aik (Far
East) Ltd v. Eastern Minerals & Trading (1959) Ltd. [1963] 1 MLJ 322. In an entire
contract, failure on the part of the contractor to complete the work will disentitle him
from making any claim whatsoever against the employer. Even a claim on quantum
meruit for the value of the work done cannot be sustained by the contractor. The law
on this point relating to building contracts is stated in Volume 4 Halsbury’s Laws of
England (4th Edition) paragraph as follows:
An entire contract is one where the complete performance of one party is a
condition precedent to his right to call for the performance of the other
party’s obligation. Where the contractor undertakes to complete the works
and the contract on its true construction is entire, the employer is entitled to
insist on completion before his obligation to pay arises. If the building
contractor leaves the work unfinished to a substantial degree, he cannot
claim a corresponding percentage of the contract sum or recover on a
quantum meruit basis for that part of the work he has completed; moreover,
he will be liable in damages to the employer for breach of contract.
Nevertheless, if he can show that he has substantially completed the works
(even though some minor items might remain unfinished) he will be entitled to
claim payment. Where a contractor agrees to do work for a lump sum he
cannot recover any part of the sum until the work is complete, unless there is
provision in the contract for payment by installments.
51
In the ordinary lump sum contract105 the employer cannot refuse to pay the
contractor merely because there are a few defects and omission, if there is substantial
completion he must pay the contract price106 subject to a deduction by way of set-off
or counter claim for the defects.107
Where a contractor agrees to do the work for a lump sum he cannot recover
any part of that sum until the work is complete, unless there is provision in the
contract for payment by installments.
When the contract provides for progress
payments to be made as the work proceeds, but for retention money to be held until
completion, then entire performance is usually a condition precedent to payment of
the retention money, but not, of course, to the progress payments. The contractor is
entitled to payment pro rata as the work proceeds, less a deduction for retention
money. But he is not entitled to the retention money until the work is entirely
finished, without defects or omissions.
The law of entire contract shown in the older reported cases such as Appleby
v Myers [1867] LR 2 CP 651 and Whitaker v Dunn [1887] 3 TLR 602 which require
complete performance by a promisor as a condition precedent to his right of recovery
under an entire contract has been modified by later decisions, and it is now
established by the so-called doctrine of substantial performance that a promisor who
has substantially performed his side of the contract may sue on the contract for the
agreed sum, although he remains liable in damages for his partial failure to fulfill his
contractual obligations. The authoritative statement of the law on this matter can be
found in the said judgment of Lord Justice Denning in the case of Hoenig v. Isaacs.108
In every lump-sum contract there is an implied term that no part of the price
is to be recovered without complete performance. In most modern contracts of any
size, however, payments by installments are specified, so that the law on entire
Denning LJ said of the contract in Hoenig v Isaacs “I think this contract should be regarded as an
ordinary lump sum contract”.
106
Subject to some unfulfilled condition precedent imposed by the contract.
107
Hoenig v Isaacs [1925] 2 All E.R. 176
108
KP Kunchi Raman v Goh Brothers Sdn Bhd [1978] 1 MLJ 89
105
52
contracts is not often relevant to contracts nowadays.109
Where the contractor
undertakes to complete the works and the contract on its true construction is entire,
the employer is entitled to insist on completion before his obligation to pay arises. If
the building contractor leaves the work unfinished to a substantial degree he cannot
claim a corresponding percentage of the contract sum or recover on a quantum
meruit basis for that part of the work he has completed; moreover, he will be liable in
damages to the employer for breach of contract. Nevertheless, if he can show that he
has substantially completed the works (even though some minor items might remain
unfinished) he will be entitled to claim payment.
The question whether the contract is entire or divisible depends on the
construction of the contract. The mere fact that some payments are made at some
stage of the contract does not by itself render the contract a divisible one. Generally
where payments are made at different stages in accordance with the work done at
each stage, the contract will be considered to be a divisible contract. Therefore
where in a building contract, the contractor is paid at each stage of the construction
upon a certificate being issued by an architect to certify that progressive work had
been completed, the contract will clearly be held to be divisible and not entire.
It is an accepted rule that for an entire or lump sum contract, complete
performance is a prerequisite for payment, whereas in a divisible contract, the party
is entitled to payment for work done.
The distinction between ‘entire’ and ‘divisible’ contracts is set out clearly in
Volume 8 of Halsbury's Laws of England, 3 rd Edition, at page 166 as follows:
"There is a distinction to be drawn between contracts which are and those
which are indivisible, and the distinction is of importance in regard to
questions of illegality and of payment. Contracts are indivisible where the
consideration one and entire, or where it is stated or can be gathered by
inference that no consideration is to pass from one party the whole of the
109
KP Kunchi Raman v Goh Brothers Sdn Bhd [1978] 1 MLJ 89
53
obligations of the other party have been; but where no such intention can be
gathered, and the resolves itself into a number of considerations for a number
acts, as in the case of periodical payments for a number of services do not
form one complete whole, the contract is divisible. an indivisible or entire
contract the right to payment does not until the contract has been completely
performed; but if there been substantial performance a claim will be allowed
subject to any or set-off for omissions or defects in execution. A contract is
divisible, for example where a seller of goods agrees deliver by installments,
the right to payment arises as each part of contract is performed and where
there has been partial performance proportionate payment may be recovered.
Claim can also be made where it can be inferred from the that there is a fresh
agreement between the parties that shall be made for work already done or
goods already supplied the original contracts, as for example where a buyer
of goods less than the stipulated quantity."
The following passage from Pollock on Contracts, 13th Edition, at page 209
throws further light on this distinction. “A contract which can be fulfilled only as a
whole, so that failure in part is failure in the whole, is said to be entire. A contract of
the performance can be separated, so that failure in one part the parties' rights as to
that part only, is said to be."
4.3
Law Cases in Relation with the Term Lump Sum
As a general rule, performance of a contract must be exact and precise and
should be in accordance with what the parties had promise. It is, however, often a
difficult task to determine with exactitude what the parties had promised to perform.
Would a variation or a slightly imprecise performance discharge the other party of
54
his liability? The imprecise answer to this question would depend on the intention of
the parties which can only be ascertained from the contract itself. 110
The parties may if they choose by clear language show that they intend that
the contractor should be entitled to nothing until he has completed the contract in
every detail, or that he should not be entitled to the retention money until he has so
completed the contract.
It is an accepted rule that for an entire or lump sum contract, complete
performance is a prerequisite for payment, whereas in a divisible contract, the party
is entitled to payment for the work done.111 But the rigours application of the general
rule that performance must be complete in an entire contract has felt unacceptable.
The refusal of the courts to grant payment on a pro rata basis or to follow a claim on
quantum meruit led to much injustice. To overcome this undesirable consequence,
the courts introduced certain exceptions to this rule.
4.3.1
Sapiahtoon v Lim Siew Hui
The law excuse failure to completely perform the contract if the failure relate
to an unimportant part of the contractual obligations like in the local case Sapiahtoon
v Lim Siew Hui [1963] 1 MLJ 305. In this action the plaintiff claims from the
defendant, who described himself as a building contractor, damages for breach of
contract in respect of a house at Coronation Road built for her by the defendant for
$8,500 pursuant to an agreement in writing dated the 2nd November 1958.
The plaintiff went into occupation of the house early in April 1959 and has
lived in it ever since but she has refused to pay the balance of the purchase price. She
110
Dato’ Visu Sinnadurai (1987). The Law of Contract in Malaysia and Singapore: Cases and
Commentary. 2nd Edition. Singapore: Butterworths Asia. Page 546
111
Lord MacKay of Clashfern (editor) (1991). Halsbury's Laws of England, Volume 4. 4 th Edition.
UK: LexisNexis Butterworths. Para 1146.
55
alleges that the sum of $7,000 which she has paid to the defendant on account of the
purchase price was paid upon a consideration which has failed and that the erection
of the house was not completed, that much of the work was defective and of inferior
quality and that the timber used was not in accordance with the terms of the contract.
The plaintiff further claims special damages in the sum of $5,840 incurred in having
the house completed and the defects remedied, including an architect's fee. The
defendant denies the allegations and counter-claims the sum of $1,500 being the
balance of the purchase price.
The learned Lord Justice Buttrose expressed himself that the doctrine of
substantial performance is enunciated clearly and conveniently in the case of Hoenig
v Isaacs [1952] 2 All ER 176 by Lord Justice Denning as follows:"...the first question is whether, on the true construction of the contract, entire
performance was a condition precedent to payment. It was a lump sum
contract, but that does not mean that entire performance was a condition
precedent to payment. When a contract provides for a specific sum to be paid
on completion of specified work, the courts lean against a construction of the
contract which would deprive the contractor of any payment at all simply
because there are some defects or omissions. The promise to complete the
work is, therefore, construed as a term of the contract, but not as a condition.
It is not every breach of that term which absolves the employer from his
promise to pay the price, but only a breach which goes to the root of the
contract, such as an abandonment of the work when it is only half done.
Unless the breach does go to the root of the matter, the employer cannot
resist payment of the price. He must pay it and bring a cross-claim for the
defects and omissions, or alternatively, set them up in diminution of the price.
The measure is the amount which the work is worth less by reason of the
defects and omissions and is usually calculated by the cost of making them
good".
“The rigour of the common law rule requiring exact performance by the
promisor as a condition precedent to his right of recovery under a lump sum
56
contract has been modified to some extent by judicial decisions during the
course of the last century and it is now well established that in certain
circumstances a promisor who has substantially performed his side of the
contract may sue on the contract for a lump sum but, of course, remains
liable in damages for his partial failure to fulfill his contractual obligations.”
It was held that there was sufficiently substantial compliance with the terms
of the contract to entitle the defendant to claim for the balance of the contract price
against which the plaintiff may set up the defects and omissions in diminution
thereof. The measure being the amount which the work is worth, less by reason of
such defects and omissions and is usually calculated by the cost of making them
good.
4.3.2
Building & Estates Ltd v AM Connor
In the case of Building & Estates Ltd v AM Connor [1958] 1 MLJ 173, the
plaintiffs claimed from the defendant a sum of $4,803 being the amount of the
purchase money which remained unpaid in respect of a house which the plaintiffs
built for the defendant pursuant to an agreement whereby the defendant agreed to
buy a plot of land together with the house to be erected thereon for a lump sum of
$21,492. The defendant went into occupation of the house but refused to pay the
balance of the purchase price on the ground that it was not built according to
specification and much of the work was defective and of inferior quality.
She
therefore denied liability for the sum claimed and furthermore counterclaimed for the
sum of $12,063 which she said must be expended on the house to make it correspond
with the specification.
The learned Whyatt C J also refer this case to the doctrine of substantial
performance enunciated in the case of Hoenig v Isaacs [1952] 2 All ER 176 by Lord
Justice Denning.
57
Whyatt CJ said before his judgment of this case is that:
“…the first question to be decided is whether the plaintiffs are entitled to sue
for the balance of the purchase price, assuming for the purpose of argument,
the house has not been built exactly according to specification. The answer
to this question depends upon the construction of the agreement entered into
between the plaintiffs and the defendant in May 1955. It is an agreement for
the sale of a plot of land together with the house to be erected thereon for a
lump sum of $21,492, and if the ordinary rule governing the discharge of
contracts by performance were to be applied it would be necessary for the
plaintiffs to show that they had performed their obligations completely and
precisely before they could recover anything for the work they have done.”
“…the rigour of the common law rule requiring exact performance by the
promisor as a condition precedent to his right of recovery under a lump sum
contract has been modified to some extent by judicial decisions during the
course of the last century and it is now well established that in certain
circumstances a promisor who has substantially performed his side of the
contract may sue on the contract for a lump sum but, of course, remains
liable in damages for his partial failure to fulfill his contractual obligations.
The doctrine of substantial performance, as it has been called, is usually
traced back to Lord Mansfield's judgment in Boone v Eyre [1779] 126 ER
160. It has been re-affirmed in many cases since that date.”
Based on the court findings, it was held that in an action on a contract to build
a dwelling house in accordance with the specification and plans in the contract for a
lump sum payable on completion the defendant cannot refute the liability on the
ground that, the work, though substantially performed, is in some respects not in
accordance with the specifications and plans forming part of the building contract,
and therefore the defendant in this case was liable for the balance sued for, less a
deduction based on the costs of making good the defects and omissions proved.
58
4.3.3
KP Kunchi Raman v Goh Brothers Sdn Bhd
In the local case of KP Kunchi Raman v Goh Brothers Sdn Bhd [1978] 1
MLJ89, the plaintiff, K.P. Kunchi Raman, who was a contractor, originally claimed
that a sum of $16,580.18, which was later reduced to $11,656.81, was due to him
being the balance payable for work performed under an agreement dated the 17th day
of November, 1970. By that agreement, the plaintiff agreed to execute certain works,
namely, to lay water pipes complete with specials and valves between Mak Mandin
and Prai and between Mak Mandin and Jalan Raja Uda in Butterworth. Under the
agreement, the defendant undertook to supply the pipes, etc. at the site of work,
whereas the plaintiff was to supply all labour and other equipment for laying the
pipes. The contract also included work for the reinstatement of a cycle track of a size
and length and at rates detailed in the said agreement.
The plaintiff claimed that he had performed the work of reinstatement of the
cycle track by July 15, 1971 and the other works by September 15, 1971. The
defendant, a company, denied that the plaintiff had completed the works in question
as claimed by him, and averred that it was a term of the contract that the plaintiff
would execute the works to the satisfaction of the defendant and the Chief Resident
Engineer of the River Muda Water Scheme, who was in charge of the contract works,
but in spite of repeated requests by the defendant to comply with the instructions, the
plaintiff failed to complete the works as agreed.
Because of the plaintiff's failure and refusal to complete the contract work
and to carry out repairs in respect of work already completed, the defendant had to
engage other sub-contractors to replace the plaintiff after giving him due notice. The
defendant had to pay the other sub-contractors appointed in place of the plaintiff a
total sum of $22,451.44 to complete the contract work and to carry out the necessary
repairs on works which had been unsatisfactorily completed. It claimed that it had
suffered a loss of $6,047.54 and therefore counter-claimed for the repayment of a
sum of $55,024.23 already paid to the plaintiff or alternatively, damages in the sum
of $6,047.54, and costs.
59
Although the plaintiff commenced work about a week before the date of the
said agreement and he agreed to "complete the whole work within four months of the
starting date of the work", yet it was agreed by the parties concerned and shown by
the events in this case that time was not of the essence of the contract.
The
defendant, who was executing the works concerned on behalf of Messrs. Goh Soo
Hean Construction Co. Ltd. which had contracted with the State Government of
Penang, received the specials, etc. late from the State Jabatan Kerja Raya and was in
turn unable to supply them to the plaintiff until about the early part of September
1971. But that did not affect the work of the plaintiff who accepted the situation as
such and carried on other works until he left the site also in September 1971 after the
arrival of the specials, etc. the plaintiff abandoned his contract work with the
defendant and left the site for Kuala Lumpur because he had obtained and started
work there for Messrs. Lim Huck Bee Construction Co. in late August/beginning of
September 1971.
The issue in the case is to determine whether the lump sum contract is entire or
divisible. On entire and divisible contracts, Chitty on Contracts (23 rd Edition) Vol. 1
(1968) states as follows in paragraph 1147:
“Entire and divisible contracts. In an entire contract, complete performance by
one party is a condition precedent to the liability of the other; in such a
contract the consideration is usually a lump sum which is payable only upon
complete performance by the other party. The opposite of an entire contract is
a divisible contract, which is separable into parts, so that different parts of the
consideration may be assigned to severable parts of the performance, e.g., an
agreement for payment pro rata. It is a question of construction of the contract
whether it is entire or divisible, but in the reported cases (none of which is of
recent date) the courts have tended to the view that in every lump-sum contract
there is an implied term that no part of the price is to be recovered without
complete performance. In most modern contracts of any size, however,
60
payments by installments are specified, so that the law on entire contracts is
not often relevant to contracts nowadays."112
There is also the following paragraph of the meaning of entire contracts in
paragraph 1145 of Vol. 4 of Halsbury's Laws of England (Fourth Edition):
"An entire contract is one where the complete performance of one party is a
condition precedent to his right to call for the performance of the other party's
obligation. Where the contractor undertakes to complete the works and the
contract on its true construction is entire, the employer is entitled to insist on
completion before his obligation to pay arises. If the building contractor
leaves the work unfinished to a substantial degree he cannot claim a
corresponding percentage of the contract sum or recover on a quantum meruit
basis for that part of the work he has completed; moreover, he will be liable
in damages to the employer for breach of contract. Nevertheless, if he can
show that he has substantially completed the works (even though some minor
items might remain unfinished) he will be entitled to claim payment. Where
a contractor agrees to do the work for a lump sum he cannot recover any part
of that sum until the work is complete, unless there is provision in the
contract for payment by installments."113
In that case, it was held that as the plaintiff had substantially completed the
contract he was entitled to claim for any balance due to him for work done. The
defendant was also entitled to cross-claim for the defects and omissions, and as the
cost of completing the contract work and repairing work unsatisfactorily done
overtopped the balance claimed by the plaintiff, the plaintiff's claim dismissed and
judgment given for damages on the counterclaim. The honourable judge had also
referred to the case of Hoenig v Isaacs [1952] 2 All ER 176.
112
Joseph Chitty (1968). Chitty on Contracts: Volume 1. 23rd Edition. UK: Sweet & Maxwell.
Lord MacKay of Clashfern (editor) (1991). Halsbury's Laws of England, Volume 4. 4 th Edition.
UK: LexisNexis Butterworths.
113
61
4.3.4
Ming & Co v Leong Ping Ching
In the case of Ming & Co v Leong Ping Ching [1964] 1 MLJ 312, is a claim
on the basis of quantum meruit for the value of work done by the plaintiffs for the
defendant in relation to a contract for the erection of certain additional floors to the
back portion of premises No. 319, Batu Road, Kuala Lumpur, at which the defendant
was running a maternity home.
In this case, the court found that the plaintiffs did not abandon the work and
this was not an entire contract. The court also found that the defendant conduct
shows that she herself was responsible for the stoppage of work and therefore the
Gill J hold that the defendant wrongfully terminated the contract on 6th June, 1961.
As the defendant prevented the whole of the work from being carried out, the
plaintiffs have a remedy either on a quantum meruit for what they have done or by
way of damages. They have elected to base their claim on quantum meruit, and on
this they are entitled to succeed.
In this case Gill J defined an entire contract as follows:
“The main defence to the claim is that this was a lump sum or an entire
contract which was abandoned after a part of the work had been done and that
consequently on the authority of Sumpter v Hedges [1898] 1 QB 673 the
plaintiffs have no right to sue on quantum meruit. The answer to that is that
in the first place the plaintiffs did not abandon the work, and, in the second
place, this was not an entire contract. An entire contract is one in which the
entire completion of the work by the contractor is a condition precedent to
payment. A contract in respect of which progress payments are made from
time to time is not an entire or lump sum contract.”
62
4.3.5
Nirwana Construction Sdn Bhd v Pengarah Jabatan Kerja Raya Negeri
Sembilan Darul Khusus & Anor
In the local case Nirwana Construction Sdn Bhd v Pengarah Jabatan Kerja
Raya Negeri Sembilan Darul Khusus & Anor [2008] 4 MLJ 15, on 2 March 1993, the
appellant/plaintiff, a building contractor entered into a contract using the Standard
PWD (JKR) form with the respondent/defendant to build a school. The contract was
to be completed by the appellant on or before 29 August 1994. It was not in dispute
that the appellant failed to complete the building of the school within the time
stipulated. The respondent was granted an extension of time for nine weeks till 31
October 1994. This was the first of several extensions. Finally, on 12 September
1995, the respondent issued a notice of intention to terminate the contract pursuant to
cl 51 of the contract giving the appellant 14 days within which to complete the
contract.
However, the appellant had not been able to execute the contract
satisfactorily.
Thus on 7 October 1995, notice to terminate the contract pursuant to cl 51(a)
was issued to the appellant.
However, despite various notices, the respondent
allowed the appellant, upon its request, to continue to complete the construction of
the school.
The construction of the school was duly completed and officially
accepted by the Ministry of Education on 5 June 1996. The appellant accordingly
contended that the Ministry accepted the construction of the school. But the
respondent's position was that despite this, the appellant had failed to complete the
construction of the school due to the non-compliance of the terms in that the grass
turfing was not planted according to the specifications in the contract.
The
respondent further reiterated that the construction was in fact not completed within
the period allowed to the appellant, since the grass turfing was incomplete as at 20
May 1996.
Consequently the respondent by letter dated 5 July 1996 revived the former
notice of termination and informed the appellant that the contract was now
terminated in accordance with the said notice of 7 October 1995. The letter of 5 July
1996 (terminating the contract) stated that the reason for termination was that the
63
grass turfing was not done within the period allowed i.e. on or before 20 May 1996.
The appellant claimed that the respondent owed the appellant a balance of
RM501.817.66 and the appellant also claimed the sum of RM2.8m for loss of future
contract as a result of this dispute, since it jeopardised its status in that the appellant
was blacklisted by PWD. The respondent contended that the amount claimed by the
appellant in the sum of the RM501,817.66 was not paid by them to the appellant,
since this amount was taken and considered as a set off payment towards the
liquidated ascertained damages (LAD) imposed, due to the appellant's failure and
delay in completing the contract.
Gopal Sri Ram LJ referred to statement of the law in the judgment of Lord
Justice Denning in Hoenig v Isaacs [1952] 2 All ER 176, where His Lordship said,
inter alia:
“When a contract provides for a specific sum to be paid on completion of
specified work, the courts lean against a construction of the contract which
would deprive the contractor of any payment at all simply because there are
some defects or omissions. The promise to complete the work is, therefore,
construed as a term of the contract, but not as a condition.”
In the course of his judgment, Goal Sri Ram LJ said:
“…my view is that the contract was an entire or lump sum contract but since
the doctrine of substantial performance has not been excluded by an express
provision in the agreement, it would also be necessary to examine whether
the appellant had substantially performed its contract …in considering
whether there had been substantial performance, it was relevant to take into
account both the nature of the defect and the proportion between the cost of
rectifying them and the contract price.”
In this case, it was held that the plaintiff had substantially completed the
contract except for grass turfing not planted according to the contract and not done
within the stipulated period and allows the contractor claimed amount the sum of the
RM501, 817.66.
64
4.3.6
Tong Aik (Far East) Ltd. v Eastern Minerals & Trading (1959) Ltd.
In the case of Tong Aik (Far East) Ltd. v Eastern Minerals & Trading (1959)
Ltd. [1963] 1 MLJ 322, the plaintiffs claim a sum of $65,268.54 being the balance
due to them from the defendants as their agreed remuneration under a contract for
work and labour carried out and materials supplied at the defendants manganese
mine at Gual Periok, Kelantan. The contract inter alia stipulated that the plaintiffs
should be able to supply the defendants with a minimum of 5,000 tons per month.
The defendants deny liability on the ground that this is a lump sum contract and that
the plaintiffs were in breach of the contract as they did not supply the defendants
with the manganese ore as stipulated in the contract. The defendants then claimed to
set-off various sums said to be due to them and counterclaimed for $800,000 being
loss of profits and penalties incurred by them as a result of the plaintiffs' breach.
Lawyer for the defendants reiterated that on the authority of Sumpter v
Hedges [1898] 1 QB 673 the plaintiffs' claim was misconceived and that they could
not recover from the defendants in respect of work done as upon a quantum meruit
for they had abandoned the contract without producing 5,000 tons of manganese ore
per month as promised, there being no evidence of a fresh contract to pay for the
same.
In the case cited (Sumpter v Hedges [1898]1 QB 673), a builder had
contracted to erect certain buildings for a lump sum. When work was only partly
done he abandoned the contract. In the course of his judgment, Chitty L.J. said at
page 675:
"The position therefore was that the defendant found his land with unfinished
buildings upon it, and he thereupon completed the work. That is no evidence
from which the inference can be drawn that he entered into a fresh contract to
pay for the work done by the plaintiff. If we held that the plaintiff could
recover, we should in my opinion be overruling Cutter v Powell, and a long
series of cases in which it has been decided that there must in such a case be
some evidence of a new contract to enable the plaintiff to recover on a
quantum meruit. There was nothing new in the decision in Pattinson v
Luckley [1875] L.R. 10 Ex. 330, but Bramwell B. there pointed out with his
65
usual clearness that in the case of a building erected upon land the mere fact
that the defendant remains in possession of his land is no evidence upon
which an inference of a new contract can be founded. He says: 'In the case of
goods sold and delivered, it is easy to show a contract from the retention of
goods; but that is not so where work is done on real property'. I think the
learned judge was quite right in holding that in this case there was no
evidence from which a fresh contract to pay for the work done could be
inferred."114
It was held that it was a divisible contract and that the plaintiffs must be paid
for the tonnages of ore actually produced and/or transported to the stockpile; and
even if the contract was not divisible in the circumstances of this case the contract
carried with it a right on the part of the plaintiffs to payment upon a quantum meruit
for the services actually rendered.
4.3.7
Yong Mok Hin v United Malay States Sugar Industries Ltd
This was an appeal from the judgment of Raja Azlan Shah J. ([1966] 2 MLJ
286). The appellant a building contractor claimed the sum of $90,585 against the
respondent.
The particulars of the claim were (a) amount due on account of
appellant's materials used and damaged by the respondent company while erecting
machinery in factory ...$13,800; (b) alteration to original construction of office and 2
stores on lots Nos. 249, 250 and 979 at $13,595 each ... $40,785; (c) 5th progress
payment recommended by architect etc. ... $36,000.
The respondents denied owing the amount claimed and counterclaimed for
damages for breach of contract. In the court below the learned trial judge held that
the appellant was entitled to $79,355 in respect of his claim on the above items with
interest thereon at 6% per annum from December 24, 1964 to June 22, 1966 and the
respondents were entitled to damages for breach of contract in the sum of
114
Sumpter v Hedges [1898] 1 QB 673
66
$105,135.75 with costs of the claim and counterclaim.
The learned judge then
purporting to act on the authority of Hanvale v Green [1958] 2 WLR 775 dismissed
the appellant's claim and entered judgment for the respondents for $25,780.75 and
costs. On appeal, the case was held as follows:
(i)
as the parties were aware at the trial that the claim for $ 13,800 under
item (a) included the claim for costs of leveling, and documentary
evidence in support thereof was admitted without objection, the
finding of the trial judge allowing the full amount claimed under that
item should stand;
(ii)
the decision of the trial judge to allow the appellant's claim for
$13,595 in respect of one of the stores (store A) was in accordance
with the evidence but the reason behind his decision to allow $7,980
each in respect of the other two stores was incomprehensible and the
claim in respect of the said two stores should be disallowed;
(iii)
as the contracts were lump sum or entire contracts the appellant was
not entitled to progress payment under item (c); however the learned
judge was right in allowing the full amount of $36,000 under item (c)
because of sections 40, 65 and 66 of the Contracts (Malay States)
Ordinance;
(iv)
the judgment of the trial judge should be set aside and judgment
entered for the appellant for $63,395 with interest at 6% per annum
from December 24, 1964 to the date of realisation and costs of the
suit. There will be judgment for the respondents on the counter-claim
for delay and loss of use of two stores for $5,001 and costs.
4.4
Judicial Interpretations of the Term ‘Lump Sum’ In Construction Contracts
The table below shows the judicial interpretation of the term lump sum and judgment on the related cases being research:
Table 2: Judicial Interpretations of the Term ‘Lump Sum’ In Construction Contracts
No.
1
Cases
Interpretations of the
Employers and Contractors interpretation
Term ‘Lump Sum’
on the contract
Judgment
Sapiahtoon v Lim Siew
No interpretations
It was an agreement for the sale of a house to
Ø There was sufficiently substantial compliance with the terms of
Hui [1963] 1 MLJ 305
given
be erected by the defendant (contractor) for a
the contract to entitle the defendant (contractor) to claim for the
lump sum.
balance of the contract price against which the plaintiff
Employer: refused to pay the balance of the
purchase price as the erection of the house
was not completed, that much of the work was
defective and of inferior quality and that the
timber used was not in accordance with the
terms of the contract. Further claims special
damages incurred in having the house
completed and the defects remedied,
including an architect's fee.
(employer) may set up the defects and omissions in diminution
thereof. The measure being the amount which the work is
worth, less by reason of such defects and omissions calculated
by the cost of making them good.
Ø In a lump sum building contract it does not necessarily mean
that the entire performance is a condition precedent to payment.
It is not every breach of the promise to complete the work
which absolves the employer from his promise to pay the price
but only a breach which goes to the root of the contract, such as
an abandonment of the work when it is only half done. If it is
Contractor: Denies the allegations and
not one which goes to the root of the matter, the employer must
counter-claims being the balance of the
pay the price and bring a cross-claim for defects and omissions
purchase price.
or alternatively set them up in diminution of the price.
68
No.
2
Cases
Interpretations of the
Employers and Contractors interpretation
Term ‘Lump Sum’
on the contract
Judgment
Building & Estates Ltd
No interpretations
Employer: Claimed that since this is lump sum Ø Promisor who has substantially performed his side of the
v AM Connor [1958] 1
given.
contract, refuse to pay balance of the purchase
contract may sue on the contract for a lump sum but remains
price because much of the work was defective
liable in damages for his partial failure to fulfill his contractual
and inferior quality.
obligations.
MLJ 173
Contractor: Claimed works is completed and
accepted since employer already moved into
Ø The defendant was liable for the balance sued for, less a
deduction based on the costs of making good the defects and
omissions proved.
the dwelling house and has the right to be paid
the balance.
3
KP Kunchi Raman v
Goh Brothers Sdn Bhd
[1978] 1 MLJ 89
Ø No interpretations
given.
Supplier: Claimed that the contract is divisible
Ø As the plaintiff (supplier) had substantially completed the
has the right to be paid all balance due to
contract he was entitled to claim for any balance due to him for
him.
work done.
Contractor: Claimed that the contract is entire
i.e. Clauses in the parties agreement show
clear intention that the contract should be
entire. Retention money for specified work
for a specific sum to be ascertained in
accordance with schedule of rates found in
the agreement, on its true construction, an
entire contract.
Ø The defendant was also entitled to cross-claim for the defects
and omissions, and as the cost of completing the contract work
and repairing work unsatisfactorily done overtopped the balance
claimed by the plaintiff, the plaintiff's claim should be
dismissed and judgment given for damages on the counterclaim.
69
No.
4
Cases
Ming & Co v Leong
Interpretations of the
Employers and Contractors interpretation
Term ‘Lump Sum’
on the contract
Ø Lump sum contract is Employer: Claimed that since this is a lump
Ping Ching [1964] 1
also referred to as
sum or entire contract, refuse to pay balance of
MLJ 312
entire contract.
value of work done because contractor
abandons the work.
Contractor: Claimed for the basis of quantum
meruit for value of work done since employer
instruct him to stop working on the work.
Judgment
Ø A contract in respect of which progress payments are made from
time to time is not an entire or lump sum contract.
Ø The plaintiffs (contractor) did not abandon the work and this
was not an entire contract. The plaintiff claim on the basis of
quantum meruit for the value of work done is allowed.
70
No.
5
Cases
Interpretations of the
Employers and Contractors interpretation
Term ‘Lump Sum’
on the contract
Judgment
Nirwana Construction Ø Lump sum contract is Employer: Claimed that since this is lump sum Ø There is nothing on record to indicate that there are defects in
Sdn Bhd v Pengarah
also referred to as
contract, refuse to pay balance of the contract
the appellant's work, of which notice had been issued by the
Jabatan Kerja Raya
entire contract.
sum because contractors’ non compliance of
respondent to the appellant.
Negeri Sembilan Darul
the terms (grass turfing was not planted
Khusus & Anor [2008]
according to specifications) in the contract).
4 MLJ 157
Contractor: claimed he had completed the
building of the school. He assumed that in the
absence of any complaint or notices of like
effect from the respondent, the school was built
according to specification.
Ø There was no abandonment of the work by the appellant, nor
had the appellant done anything to jeopardise the completion of
the work.
Ø the respondent reason to terminate the contract, for 'noncompliance with grass turfing by the appointed due date' was
not so great as to frustrate the entire contract, nor was the breach
regarded as a condition, going to the root of the contract which
would entitle the other party at once to treat the contract as at an
end.
Ø in view of the various extensions given by respondent and the
fact that there was substantial performance thereof, the
respondent is not entitled to impose LAD on the appellant;
Ø The various extensions given the appellant be viewed that the
respondent had given indulgence and had waived the imposition
as to time and strict compliance with the terms of the contract;
Ø When the respondent allowed the appellant continued
performance of the contract on more than one occasion, and
even entering into a supplementary contract, the respondent had
thereby elected to affirm the contract to run its course. As such
the appellant is entitled to treat as the respondent having waived
its right to terminate.
Ø It was not open to the defendant (employer) to put an end to the
contract. Employers’ act of terminating the contract amounted
71
No.
6
Cases
Tong Aik (Far East)
Interpretations of the
Employers and Contractors interpretation
Term ‘Lump Sum’
on the contract
Ø Lump sum contract is Employer: Deny liability on the ground of
Judgment
Ø this was a divisible contract and that the plaintiffs (contractor)
Ltd v. Eastern Minerals
also referred to as
lump sum or entire contract to pay balance for
must be paid for the tonnages of ore actually produced and/or
& Trading (1959) Ltd.
entire contract
work done because contractor were in breach
transported to the stockpile;
[1963] 1 MLJ 322
of the contract as they did not supply the
Ø Even if the contract was not divisible, in the circumstances of
employer with the manganese ore as stipulated
this case the contract carried with it a right on the part of the
in the contract. Claimed to set-off various
plaintiffs to payment upon a quantum meruit for the services
sums said to be due to them and
actually rendered.
counterclaimed being loss of profits and
penalties incurred by them as a result of the
plaintiffs' breach.
Contractor: On the ground of divisible
contract, claimed for balance due to them for
work and labour carried out and materials
supplied at the employer manganese mine upon
a quantum meruit.
7
Ø Lump sum contract is
Employer: denied owing the amount claimed
United Malay States
also referred to as
by contractor and counterclaimed for damages
on account of the non-payment of the 5th progress payment,
Sugar Industries Ltd
entire contract
for breach of contract.
repudiated the contract. The appellant (contractor) is not
Yong Mok Hin v
[1967] 2 MLJ 9
Ø The appellant (contractor) by his refusal to complete the work
entitled as of right to receive any advances on the contract price
Contractor: claimed against the respondent
before the completion of the work unless the respondent
72
No.
Cases
Interpretations of the
Employers and Contractors interpretation
Term ‘Lump Sum’
on the contract
being appellant's materials used and damaged
Judgment
(employer), in the exercise of their discretion, paid any.
by the employer company while erecting
Ø The respondents, if they had been paying advances, may
machinery in factory. He claimed that the
suspend payment if they thought fit to do so. The contracts are
time of the alleged repudiation was not a lump
therefore lump sum or entire contracts and the appellant is not
sum or entire contract but one in respect of
entitled to progress payments.
which the price was payable by installments
on quantum meruit less 10% retention money.
He contends that even if the contract was a
lump sum or entire contract, the respondents
were still liable to pay for the value of the
work done, since they had rescinded the
contract
4.5
Conclusion
From the seven cases being research, none had showed any detailed
interpretation of the term ‘lump sum’. Four cases in this research referred lump sum
as entire contract namely Ming & Co v Leong Ping Ching, Nirwana Construction
Sdn Bhd v Pengarah Jabatan Kerja Raya Negeri Sembilan Darul Khusus & Anor,
Tong Aik (Far East) Ltd v. Eastern Minerals & Trading (1959) Ltd. and Yong Mok
Hin v United Malay States Sugar Industries Ltd.
The learned trial judge for four cases namely Building & Estates Ltd v AM
Connor, Nirwana Construction Sdn Bhd v Pengarah Jabatan Kerja Raya Negeri
Sembilan Darul Khusus & Anor, KP Kunchi Raman v Goh Brothers Sdn Bhd and
Sapiahtoon v Lim Siew Hui has referred to Lord Justice Dennings’ doctrine of
substantial performance enunciated in the case of Hoenig v Isaacs [1952] 2 All ER
176.
The research found that there are two types of lump sum contract namely
entire contract and divisible contract. Out of the seven cases analysed, only one case
is held to be a divisible contract (Tong Aik (Far East) Ltd v. Eastern Minerals &
Trading (1959) Ltd. [1963] 1 MLJ 322) way by the contractor must be paid for the
goods actually produced and/or transported to the stockpile. It was also held that
even if the contract was not divisible, based on the circumstances of the case, the
contractor is to be paid upon a quantum meruit for the services actually rendered.
From this case, there is an explanation on the distinction between “entire” or
“indivisible” contract and “divisible” contract.
In conclusion, based on the case KP Kunchi Raman v Goh Brothers Sdn Bhd
[1978] 1 MLJ 89, the court mentioned that every lump sum contract, there is an
implied term that no part of the price to be recovered without complete performance.
However, lump sum is itself subject to adjustment because the court leans against a
construction of the contract which would deprive the contractor of any payment at all
simply because there are some defects or omissions. For example, the obvious cause
of an adjustment is the standard contractual provisions that allow for progress
74
payment and retention money and the existence of the doctrine of substantial
performance.
4.5.1
Judicial Positions on Lump Sum Contract
From the selected seven cases, there are positions of court when dealing with lump
sum contract which are summarized as follows:
On True Construction of Contract, Entire Performance is a Condition to Payment
·
On the true construction of the contract, entire performance was a condition
precedent to payment.
·
Where the contractor undertakes to complete the works and the contract on its
true construction is entire, the employer is entitled to insist on completion before his
obligation to pay arises. If the building contractor leaves the work unfinished to a
substantial degree he cannot claim a corresponding percentage of the contract sum or
recover on a quantum meruit basis for that part of the work he has completed;
moreover, he will be liable in damages to the employer for breach of contract.
Nevertheless, if he can show that he has substantially completed the works (even
though some minor items might remain unfinished) he will be entitled to claim
payment.
Lump Sum is Referred to as Entire Contract.
·
Lump sum contract are also referred to as entire contract.115 In an entire
contract, failure on the part of the contractor to complete the work will disentitle him
from making any claim whatsoever against the employer. Even a claim on quantum
meruit for the value of the work done cannot be sustained by the contractor.
115
Ming & Co v Leong Ping Ching [1964] 1 MLJ 312, Nirwana Construction Sdn Bhd v Pengarah
Jabatan Kerja Raya Negeri Sembilan Darul Khusus & Anor [2008] 4 MLJ 157, Tong Aik (Far East)
Ltd v Eastern Minerals & Trading (1959) Ltd. [1963] 1 MLJ 322
75
·
An entire contract is one where the complete performance of one party is a
condition precedent to his right to call for the performance of the other party’s
obligation.
Clear Language that Entire Completion Arise Before Obligation to Pay
·
Clear words are needed to bring an entire contract into existence.116 In the
absence of such words, the ordinary lump sum contract cannot be an entire contract,
for the courts construe the promise to complete as a term and not a condition.117
However, whether a contract is an entire one is a matter of construction as, for
example, the standard form of building contracts is held not to be entire contract.118
·
The parties may if they choose, by clear language show that they intended
that the contractor should be entitled to nothing, until he has completed the contract
in every detail, or that he should not be entitled to the retention money, until he has
so completed the contract.
Standard Form of Building Contracts is Not an Entire Contract.
·
However, whether a contract is an entire one is a matter of construction.119
As, for example, the standard form of building contracts is held not to be entire
contract.120
The Law on Entire Contracts is Not Often Relevant to Contracts Nowadays
·
In every lump-sum contract there is an implied term that no part of the price
is to be recovered without complete performance. In most modern contracts of any
size, however, payments by installments are specified, so that the law on entire
contracts is not often relevant to contracts nowadays.121
116
Appleby v Myers [1867] LR 2 CP 651
Hoenig v Isaacs [1952] 2 All ER 176
118
Tern Construction Group v RBS Garages [1992] 34 Con LR 137
119
Hoenig v Isaac [1952] 2 All ER 176 (CA)
120
Tern Construction Group v RBS Garages [1992] 34 Con LR 137
121
KP Kunchi Raman v Goh Brothers Sdn Bhd [1978] 1 MLJ 89
117
76
·
In a lump sum contract, it does not necessarily mean that entire performance
is a condition precedent to payment. It depends upon the terms and conditions of the
contract. Where a contract provides for a specific sum to be paid on completion of
specific work, the courts lean against a construction of the contract which would
deprive the contractor of any payment at all, simply because there are some defects.
Progress Payment and Retention Money
·
When the contract provides for progress payments to be made as the work
proceeds, but for retention money to be held until completion, then entire
performance is usually a condition precedent to payment of the retention money, but
not, of course, to the progress payments. The contractor is entitled to payment pro
rata as the work proceeds, less a deduction for retention money. But he is not
entitled to the retention money until the work is entirely finished, without defects or
omissions.
·
A contract which gives the contractor an enforceable right to installments
cannot be an entire contract because the contractor has the right to call for fulfillment
of part of the employer’s promise before he has entirely completed his own promise.
·
Where a contractor agrees to do work for a lump sum he cannot recover any
part of the sum until the work is complete, unless there is provision in the contract
for payment by installments.
Progress Payment is Held to be Divisible and Not Entire Contract
·
For an entire or lump sum contract, complete performance is a prerequisite
for payment, whereas in a divisible contract, the party is entitled to payment for the
work done.122 The question whether the contract is entire or divisible depends on the
construction of the contract.
Where payments are made at different stages in
accordance with the work done at each stage, the contract will be considered to be a
divisible contract. Therefore where in a building contract, the contractor is paid at
each stage of the construction upon a certificate being issued by an architect to
122
Halsbury’s Laws of England. 4 th Edition. Para 1146
77
certify that progressive work had been completed, the contract will clearly be held to
be divisible and not entire.
·
An entire contract is one in which the entire completion of the work by the
contractor is a condition precedent to payment. A contract in respect of which
progress payments are made from time to time is not an entire or lump sum contract.
The Promise to Complete Work is a Term of Contract, Not a Condition.
·
When a contract provides for a specific sum to be paid on completion of
specified work, the courts lean against a construction of the contract which would
deprive the contractor of any payment at all simply because there are some defects or
omissions. The promise to complete the work is, therefore, construed as a term of
the contract, but not as a condition.
·
It is not every breach of that term which absolves the employer from his
promise to pay the price, but only a breach which goes to the root of the contract,
such as an abandonment of the work when it is only half done. Unless the breach
does go to the root of the matter, the employer cannot resist payment of the price. He
must pay it and bring a cross-claim for the defects and omissions, or alternatively, set
them up in diminution of the price. The measure is the amount which the work is
worth less by reason of the defects and omissions and is usually calculated by the
cost of making them good
Doctrine of Substantial Performance.
·
A promisor who has substantially performed his side of the contract may sue
on the contract for the agreed sum, although he remains liable in damages for his
partial failure to fulfill his contractual obligations.
·
In the ordinary lump sum contract123 the employer cannot refuse to pay the
contractor merely because there are a few defects and omission, if there is substantial
123
Denning LJ said of the contract in Hoenig v Isaacs “I think this contract should be regarded as an
ordinary lump sum contract”.
78
completion he must pay the contract price124 subject to a deduction by way of set-off
or counter claim for the defects.125
·
If contractor fails to complete, either substantially in the ordinary case, or in
every detail in the special case of a clear term in the contract, he is not entitled to
anything unless he shows either:
(i)
A contractual right to unpaid installments; or
(ii)
Prevention of completion by employer; or
(iii)
Implied promise to pay for the work done by way of waiver or acceptance; or
(iv)
Impossibility or frustration.
4.5.2
Instances Where Lump Sum is not considered as Entire Contract
The essence of a building contract is a promise by the contractor to carry out
work, in consideration of a promise by the building owner to pay for it. Even when
there is an express word that the agreed contract is a lump sum or entire contract,
there are situations that may arise via express or implied that makes the contract no
longer considered as entire contract.
Payment by Installment is Not Lump Sum or Entire Contract.
·
Where a contractor agrees to do work for a lump sum he cannot recover any
part of the sum until the work is complete, unless there is provision in the
contract for payment by installments.
·
A contract which gives the contractor an enforceable right to installments
cannot be an entire contract because the contractor has the right to call for
fulfillment of part of the employer’s promise before he has entirely completed
his own promise.
124
125
Subject to some unfulfilled condition precedent imposed by the contract.
Hoenig v Isaacs [1925] 2 All ER 176
79
Progress Payment is Held to be Divisible and Not Entire Contract
·
The question whether the contract is entire or divisible depends on the
construction of the contract. Where payments are made at different stages in
accordance with the work done at each stage, the contract will be considered
to be a divisible contract.
Therefore where in a building contract, the
contractor is paid at each stage of the construction upon a certificate being
issued by an architect to certify that progressive work had been completed,
the contract will clearly be held to be divisible and not entire.
·
An entire contract is one in which the entire completion of the work by the
contractor is a condition precedent to payment. A contract in respect of
which progress payments are made from time to time is not an entire or lump
sum contract.
·
For an entire or lump sum contract, complete performance is a prerequisite
for payment, whereas in a divisible contract, the party is entitled to payment
for the work done.126
126
Halsbury’s Laws of England. 4 th Edition. Para 1146.
CH A P T E R 5
CO N CL US IO N
CHAPTER 5
CONCLUSION
5.1
Introduction
A contract is an agreement that is intended to have legal consequences
whether or not an agreement is intended to have such consequences is not always
easily determined.127
As a general rule, performance of a contract must be exact and precise and
should be in accordance with what the parties had promise. It is, however, often a
difficult task to determine with exactitude what the parties had promised to perform.
Would a variation or a slightly imprecise performance discharge the other party of
his liability? The imprecise answer to this question would depend on the intention of
the parties which can only be ascertained from the contract itself.128
Upon completion on discussion of literatures, standard forms of contract,
common law and cases in relation with lump sum, this chapter will summarize all the
findings gathered and reported in organized manner. The constraints faced while
carrying out the research will be reported as the conclusion to the entire research.
127
David Barker & Colin Padfield (1992). Law. 8th Edition. Oxford, England: ButterworthHeinemann Ltd.
128
Dato’ Visu Sinnadurai (1987). The law of Contract in Malaysia and Singapore: Cases and
Commentary. 2nd Edition. Singapore: Butterworths Asia. Page 546.
81
5.2
Summary of Research Findings
Many of the problems likely to arise under a building contract are concerned
with the meaning to be given to words in a written contract. The process by which
the courts arrive at this meaning is termed construing a contract, and the meaning, as
determined by the court, the construction of the contract.
Where the contract terms are set out in more than one document, as is the
case with many construction contracts, then the approach is that “the four corners of
the contract” must be construed as a whole and, as far as possible, every part of the
contract must be given the effect intended by the parties. 129
There are variety types of contracts used in the construction industry.130 The
contractor’s right to payment depends on the terms of the contract. Assuming the
normal case of payment in money, building contracts are generally entered into on
the basis either of a lump sum, unit price, or a cost plus basis, or some
combination.131
A construction contract, like any contract, is formed when an offer made by
one party is accepted by the other and the whole is supported by consideration.132
The fundamentals of any contractual relationship are primarily conditioned by the
pre-contract availability of design detail for the project. The presumed ‘project
management’ goal of having a ‘lump sum’ contract in which clear definitions of the
mutual obligations can be stated and predictability of outcome is maximized, is
attainable only when the project design work is done at a time which permits of its
transcription into a specification and/or a schedule of measured quantities for
adoption as the basis of pricing by the contractors.
129
Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition. Singapore:
Sweet & Maxwell Asia. Page 35.
130
Edward R. Fisk and James R. Negele (1988). Contractor’s Project Guide to Public Agency
Contracts. Canada: John Wiley & Sons, Inc.
131
Stephen Brickford-Smith, Norman Palmer & Ruth Redmond-Cooper (1993). Butterworths
Construction Law Manual. London: Butterworth & Co.
132
Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition. Singapore:
Sweet & Maxwell Asia. Page 6.
82
“In the case of goods sold and delivered, it is easy to show a contract from the
retention of goods; but that is not so where work is done on real property133.” Chitty
L.J. said that on the authority of Sumpter v Hedges [1898] 1 QB 673. As such, the
decision made based on the findings and scenario of cases must be right as there are
certain features in construction contract way by this lump sum principle that
normally use in sale and good contract is not applicable to the construction contract
scenario.
In order to determine the law position in dealings with construction
contract, the features in construction contract in terms of its comparison from the
sales of goods transaction and the contract the provisions in terms of payment and
variation have to be taken into consideration.
Where a contract is made in writing, a court will seek to give effect to the
intention of the parties as expressed in the written documents. The general rule is
that a written contract cannot be varied by parol (i.e. oral) evidence, either by the
parties thereto or by others.134 This means that, in general, oral evidence is not
admissible to contradict, vary, add to or subtract from the written terms. However,
oral evidence may be brought to explain the customary or technical meaning of a
particular word in the contract, or to establish the background circumstances in
which the contract was made.135
Only one out of three standard forms of contract being studied has given clear
definition the term ‘lump sum’; PAM Contract 2006 (With Quantities): Agreement
and Conditions, which is lump sum is fixed price and is not subject to remeasurement
or recalculation except for provisional quantities and variations. As such, any error
in description, quantity or omission of item should not be used to invalidate the
contract.
133
Sumpter v Hedges [1898] 1 QB 673
Collin F. Padfield (1978). Law Made Simple. 4th Edition. London: A Howard & Wyndham
Company. Page 191.
135
Pigott Foundations Ltd v. Shepherd Construction Ltd [1993] 67 BLR 48.
134
83
Research in the selected literature had given the following findings:
(i)
Lump sum is where the contractor agrees in advance to undertake a
specified amount of work for a fixed price.136
(ii)
A lump sum contract is one to complete the whole work for a lump
sum. The satisfactory completion of the work for the stated number of
dollars remains the obligation of the contractor, regardless of the
difficulties and troubles he may experience in the course of his
construction activities, even though the total cost of the work may
turn out to be greater than the contract price.137
(iii)
‘Lump sum’ contract may mean a ‘fixed priced’ contract in the first of
the above senses, or it may be used in its legal sense to mean an
‘entire’ contract in which the law will not imply any term for stage
payment.138
There are other aspects in the literatures which are related to performance and
payment of parties in construction industry that can assist to explain the law of lump
sum.
These aspects are the basis for consideration and judgment of contract
litigation to determine whether a contractor have the right to be paid lump sum due to
failure to complete the whole project or not.
Whether a contract is an entire one is a matter of construction.139 Clear words
are needed to bring an entire contract into existence.140 In the absence of such words,
the ordinary lump sum contract cannot be an entire contract, for the courts construe
the promise to complete as a term and not a condition.141 However, whether a
contract is an entire one is a matter of construction as, for example, the standard form
136
Bob Greenstreet, David Chappell, Michael Dunn (2003). Legal and Contractual Procedures for
Architects. 5th Edition. Oxford: Architectural Press.
137
Michael Furmstone (2000). Building Contract Casebook. 3rd Edition. London: Powell-Smith &
Furmston’s. Page 170.
138
Duncan Wallace (1970). Hudson’s Building and Engineering Contracts. 10th Edition. London:
Sweet & Maxwell. Page. 201.
139
Hoenig v. Isaac [1952] 2 All ER 176 (CA)
140
Appleby v Myers [1867] LR 2 CP 651
141
Hoenig v Isaacs [1952] 2 All ER 176
84
of building contracts is held not to be entire contract.142
As such, subject to
provisions for installments:
(i)
Most lump sum contracts are entire contracts in the sense that “the
builder can recover nothing on the contract if he stops work before the
work is completed in the ordinary sense – in other words abandons the
contract”143; but
(ii)
Most lump sum contracts are not entire contracts in the sense that they
are construed as excluding the principle of substantial performance.
From the seven cases being research, none had the judge himself given firm
judicial interpretation of the term ‘lump sum’. Four cases in this research referred
lump sum as entire contract namely Ming & Co v Leong Ping Ching, Nirwana
Construction Sdn Bhd v Pengarah Jabatan Kerja Raya Negeri Sembilan Darul
Khusus & Anor, Tong Aik (Far East) Ltd v. Eastern Minerals & Trading (1959) Ltd.
and Yong Mok Hin v United Malay States Sugar Industries Ltd.
The learned trial judge for four cases namely Building & Estates Ltd v AM
Connor, Nirwana Construction Sdn Bhd v Pengarah Jabatan Kerja Raya Negeri
Sembilan Darul Khusus & Anor, KP Kunchi Raman v Goh Brothers Sdn Bhd and
Sapiahtoon v Lim Siew Hui has referred to Lord Justice Dennings’ Doctrine of
Substantial Performance enunciated in the case of Hoenig v Isaacs [1952] 2 All ER
176.
The research found that there are two types of lump sum contract namely
entire contract and divisible contract. Out of the seven cases analysed, only one case
is held to be a divisible contract (Tong Aik (Far East) Ltd v. Eastern Minerals &
Trading (1959) Ltd. [1963] 1 MLJ 322) way by the contractor must be paid for the
goods actually produced and/or transported to the stockpile. It was also held that
even if the contract was not divisible, based on the circumstances of the case, the
contractor is to be paid upon a quantum meruit for the services actually rendered.
142
143
Tern Construction Group v RBS Garages [1992] 34 Con LR 137
Hoenig v Isaacs [1952] 2 All ER 176
85
From this case, there is an explanation on the distinction between “entire” or
“indivisible” contract and “divisible” contract.
Based on the case KP Kunchi Raman v Goh Brothers Sdn Bhd [1978] 1 MLJ
89, the court mentioned that every lump sum contract, there is an implied term that
no part of the price to be recovered without complete performance. However, lump
sum is itself subject to adjustment because the court leans against a construction of
the contract which would deprive the contractor of any payment at all simply because
there are some defects or omissions.
For example, the obvious cause of an
adjustment is the standard contractual provisions that allow for progress payment and
retention money and the existence of the Doctrine of Substantial Performance.
From these cases, there are positions of court when dealing with lump sum
contract which are summarized as follows:
On True Construction of Contract, Entire Performance is a Condition to Payment
·
On the true construction of the contract, entire performance was a condition
precedent to payment.
·
Where the contractor undertakes to complete the works and the contract on its
true construction is entire, the employer is entitled to insist on completion before his
obligation to pay arises. If the building contractor leaves the work unfinished to a
substantial degree he cannot claim a corresponding percentage of the contract sum or
recover on a quantum meruit basis for that part of the work he has completed;
moreover, he will be liable in damages to the employer for breach of contract.
Nevertheless, if he can show that he has substantially completed the works (even
though some minor items might remain unfinished) he will be entitled to claim
payment.
86
Lump Sum is Referred to as Entire Contract.
·
Lump sum contract are also referred to as entire contract.144 In an entire
contract, failure on the part of the contractor to complete the work will disentitle him
from making any claim whatsoever against the employer. Even a claim on quantum
meruit for the value of the work done cannot be sustained by the contractor.
·
An entire contract is one where the complete performance of one party is a
condition precedent to his right to call for the performance of the other party’s
obligation.
Clear Language that Entire Completion Arise Before Obligation to Pay
·
Clear words are needed to bring an entire contract into existence.145 In the
absence of such words, the ordinary lump sum contract cannot be an entire contract,
for the courts construe the promise to complete as a term and not a condition.146
However, whether a contract is an entire one is a matter of construction as, for
example, the standard form of building contracts is held not to be entire contract.147
·
The parties may if they choose, by clear language show that they intended
that the contractor should be entitled to nothing, until he has completed the contract
in every detail, or that he should not be entitled to the retention money, until he has
so completed the contract.
Standard Form of Building Contracts is Not an Entire Contract.
·
However, whether a contract is an entire one is a matter of construction.148
As, for example, the standard form of building contracts is held not to be entire
contract.149
144
Ming & Co v Leong Ping Ching [1964] 1 MLJ 312, Nirwana Construction Sdn Bhd v Pengarah
Jabatan Kerja Raya Negeri Sembilan Darul Khusus & Anor [2008] 4 MLJ 157, Tong Aik (Far East)
Ltd v Eastern Minerals & Trading (1959) Ltd. [1963] 1 MLJ 322.
145
Appleby v Myers [1867] LR 2 CP 651
146
Hoenig v Isaacs [1952] 2 All ER 176
147
Tern Construction Group v RBS Garages [1992] 34 Con LR 137
148
Hoenig v Isaac [1952] 2 All ER 176 (CA)
149
Tern Construction Group v RBS Garages [1992] 34 Con LR 137
87
The Law on Entire Contracts is Not Often Relevant to Contracts Nowadays
·
In every lump-sum contract there is an implied term that no part of the price
is to be recovered without complete performance. In most modern contracts of any
size, however, payments by installments are specified, so that the law on entire
contracts is not often relevant to contracts nowadays.150
·
In a lump sum contract, it does not necessarily mean that entire performance
is a condition precedent to payment. It depends upon the terms and conditions of the
contract. Where a contract provides for a specific sum to be paid on completion of
specific work, the courts lean against a construction of the contract which would
deprive the contractor of any payment at all, simply because there are some defects.
Progress Payment and Retention Money
·
When the contract provides for progress payments to be made as the work
proceeds, but for retention money to be held until completion, then entire
performance is usually a condition precedent to payment of the retention money, but
not, of course, to the progress payments. The contractor is entitled to payment pro
rata as the work proceeds, less a deduction for retention money. But he is not
entitled to the retention money until the work is entirely finished, without defects or
omissions.
·
A contract which gives the contractor an enforceable right to installments
cannot be an entire contract because the contractor has the right to call for fulfillment
of part of the employer’s promise before he has entirely completed his own promise.
·
Where a contractor agrees to do work for a lump sum he cannot recover any
part of the sum until the work is complete, unless there is provision in the contract
for payment by installments.
Progress Payment is Held to be Divisible and Not Entire Contract
·
For an entire or lump sum contract, complete performance is a prerequisite
for payment, whereas in a divisible contract, the party is entitled to payment for the
work done.151 The question whether the contract is entire or divisible depends on the
150
151
KP Kunchi Raman v Goh Brothers Sdn Bhd [1978] 1 MLJ 89
Halsbury’s Laws of England. 4 th Edition. Para 1146.
88
construction of the contract. Where payments are made at different stages in
accordance with the work done at each stage, the contract will be considered to be a
divisible contract. Therefore where in a building contract, the contractor is paid at
each stage of the construction upon a certificate being issued by an architect to
certify that progressive work had been completed, the contract will clearly be held to
be divisible and not entire.
·
An entire contract is one in which the entire completion of the work by the
contractor is a condition precedent to payment. A contract in respect of which
progress payments are made from time to time is not an entire or lump sum contract.
The Promise to Complete Work is a Term of Contract, Not a Condition.
·
When a contract provides for a specific sum to be paid on completion of
specified work, the courts lean against a construction of the contract which would
deprive the contractor of any payment at all simply because there are some defects or
omissions. The promise to complete the work is, therefore, construed as a term of
the contract, but not as a condition.
·
It is not every breach of that term which absolves the employer from his
promise to pay the price, but only a breach which goes to the root of the contract,
such as an abandonment of the work when it is only half done. Unless the breach
does go to the root of the matter, the employer cannot resist payment of the price. He
must pay it and bring a cross-claim for the defects and omissions, or alternatively, set
them up in diminution of the price. The measure is the amount which the work is
worth less by reason of the defects and omissions and is usually calculated by the
cost of making them good
Doctrine of Substantial Performance.
·
A promisor who has substantially performed his side of the contract may sue
on the contract for the agreed sum, although he remains liable in damages for his
partial failure to fulfill his contractual obligations.
89
·
In the ordinary lump sum contract152 the employer cannot refuse to pay the
contractor merely because there are a few defects and omission, if there is substantial
completion he must pay the contract price153 subject to a deduction by way of set-off
or counter claim for the defects.154
·
If contractor fails to complete, either substantially in the ordinary case, or in
every detail in the special case of a clear term in the contract, he is not entitled to
anything unless he shows either:
(v)
A contractual right to unpaid installments; or
(vi)
Prevention of completion by employer; or
(vii)
Implied promise to pay for the work done by way of waiver or acceptance; or
(viii)
Impossibility or frustration.
5.3
Study Constraints
The main constraint is insufficiency of legal textbooks and construction
contract books available in the local library. This limitation led to less references and
literatures to support the cases being analysed. If more references can be made
available then more analysis can be done and presented in a very comprehensive
manner.
5.4
Conclusion
In conclusion, the research found that the term ‘lump sum’ is interpreted as
‘fixed priced’155 in the legal textbook. It is also interpreted as ‘a lump sum contract is
152
Denning LJ said of the contract in Hoenig v Isaacs “I think this contract should be regarded as an
ordinary lump sum contract”.
153
Subject to some unfulfilled condition precedent imposed by the contract.
154
Hoenig v Isaacs [1925] 2 All ER 176
155
Duncan Wallace (1970). Hudson’s Building and Engineering Contracts. 10th Edition. London:
Sweet & Maxwell. Page. 201.
90
one to complete the whole (sometimes termed as “entire” or a “specific” work) work
for a lump sum’.156
The study had shown that none of the relevant cases in Malaysia, Singapore
and Brunei had the judge himself given firm judicial interpretation of the term ‘lump
sum’. Occasionally the term ‘lump sum contract’ is referred to as ‘entire contract’.
This misleading157 term is commonly use in standard form of contract. The rigours
of the common law (complete performance by promisor as a condition precedent to
his right of recovery under an entire contract158) had since been modified.
Where the contractor undertakes to complete the works and the contract on its
true construction is entire, the employer is entitled to insist on completion before his
obligation to pay arises. If the building contractor leaves the work unfinished to a
substantial degree, he cannot claim a corresponding percentage of the contract sum
or recover on a quantum meruit basis for that part of the work he has completed;
moreover, he will be liable in damages to the employer for breach of contract.
Nevertheless, if he can show that he has substantially completed the works (even
though some minor items might remain unfinished) he will be entitled to claim
payment. Whether a contract is an entire one is a matter of construction.159
Clear words are needed to bring an entire contract into existence.160 In the
absence of such words, the ordinary lump sum contract cannot be an entire contract,
for the courts construe the promise to complete as a term and not a condition.161
However, whether a contract is an entire one is a matter of construction as, for
example, the standard form of building contracts is held not to be entire contract
156
Donald Keating (1969). Law and Practice of Building Contracts. 3rd Edition. London: Sweet &
Maxwell. Page 48.
157
Duncan Wallace (1970). Hudson’s Building and Engineering Contracts. 10th Edition. London:
Sweet & Maxwell. Page. 171.
158
See Appleby v Myers [1867] LR 2 CP 651; Whitaker v Dunn [1887] 3 TLR 602
159
Hoenig v. Isaac [1952] 2 All ER 176 (CA)
160
Appleby v Myers [1867] LR 2 CP 651
161
Hoenig v Isaacs [1952] 2 All ER 176
91
This research also found that there are misinterpretations of the term among
contracting parties as shown in Table 2. This may be due to in availability of the
definition of the term lump sum itself in the standard form of contract i.e. JKR
Standard Forms of Contract. Only one out of three standard forms of contract being
studied has given clear definition the term ‘lump sum’; PAM Contract 2006 (With
Quantities): Agreement and Conditions, which is ‘lump sum is fixed price and is not
subject to remeasurement or recalculation except for provisional quantities and
variations. As such, any error in description, quantity or omission of item should not
be used to invalidate the contract.’
Based on analysis through selected literatures and cases, there are judicial
positions when dealings with lump sum contract based on circumstances of the cases.
“The doctrine that a lump sum contract has to be completed in practically all respects
in order to qualify the contractor to get any money at all is, I think, very out of
date.”162 Every lump sum contract, there is an implied term that no part of the price
to be recovered without complete performance. However, lump sum is itself subject
to adjustment because the court leans against a construction of the contract which
would deprive the contractor of any payment at all simply because there are some
defects or omissions.
162
Sir Roger Ormrod noted this in his judgement in Finlayson v James [1986] BTLC 163
RE FE R E N CE S
REFERENCES
Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition.
Singapore: Sweet & Maxwell Asia.
Legal Research Board (1995).
Contracts Act 1950 (Act 136), Contracts
(Ammendment) Act 1976 (A329) & Government Contract Act 1949 (Act
120). As at 10th March 1995.
Kuala Lumpur: International Law Book
Services.
Dato’ Visu Sinnadurai (1987). The law of Contract in Malaysia and Singapore:
Cases and Commentary. 2nd Edition. Singapore: Butterworths Asia.
David Barker & Colin Padfield (1992).
Law.
8th Edition.
Oxford, England:
Butterworth-Heinemann ltd.
Dennis F Turner (1971). Building Contracts: A Practical Guide. London: George
Godwin Ltd.
Donald Keating (1969). Law and Practice of Building Contracts. 3rd Edition.
London: Sweet & Maxwell.
K. Gajria (1999). Law Relating to Building and Engineering Contracts in India. 4th
Edition. India: Butterworths.
Henry Henkin (1988). Drafting Engineering Contracts. England: Elsevier Applied
Science Publishers Ltd.
Hudsons’ (2004). Building And Engineering Contracts. 11th Edition. London:
Sweet & Maxwell.
93
John Murdoch & Will Hughes (1998).
Construction Contract (Law and
nd
Management). 2 Edition. London: Taylor & Francis.
John Murdoch & Will Hughes (2008). Construction Contract. 2nd Edition. London:
Taylor & Francis.
Joseph Chitty (1968). Chitty on Contracts: Volume 1. 23rd Edition. UK: Sweet &
Maxwell
L.B. Curzon (2003). Dictionary of Law. 6th Edition. Malaysia: International Law
Book Services.
Lord MacKay of Clashfern (editor) (1991). Halsbury's Laws of England, Volume 4.
4th Edition. UK: LexisNexis Butterworths.
Michael Furmstone (2000). Building Contract Casebook. 3rd Edition. London:
Powell-Smith & Furmston’s.
Nigel M Robinson, Anthony P. Lavers, George KH Tan and Raymond Chan (1996),
Construction Law in Singapore and Malaysia. 2nd Edition. Singapore:
Butterworth.
Sundra Rajoo (1999). The Malaysian Standard Form of Building Contract (The
PAM 1998 Form). 2nd Edition. Malaysia: Malayan Law Journal Sdn Bhd.
Universiti Teknologi Malaysia. Lexis.com/118Q6J. Perpustakaan Sultanah Zanariah,
UTM Skudai.
V. Ramsey & S. Furst (2003). Keating on Building Contract. 6th Edition. London:
Sweet & Maxwell.
AP PE N D IC ES
A
JKR 203B: JKR Standard Form of Tender
B
JKR 203B: Standard Form of Tender (Design & Build or Turnkey
Contracts)
C
Appendix Q: JKR Sarawak Standard Quotation Form
D
JKR 203B: JKR Standard Form of Tender Rev. 2007): JKR Standard
Form of Contract
E
PWD 75 (Rev. 12/06): JKR Sarawak Standard Form of Contract
F
PAM Contract 2006 (With Quantities): Agreement and Conditions
G
Contracts Act 1950 (Act 136)
H
Nirwana Construction Sdn Bhd v Pengarah Jabatan Kerja Raya
Negeri Sembilan Darul Khusus & Anor [2008] 4 MLJ 157
APPENDIX A
JKR 203B: JKR Standard Form of Tender
95
JKR 203B: JKR Standard Form of Tender (continue)
96
APPENDIX B
JKR 203B: Standard Form of Tender (Design & Build or Turnkey Contracts)
97
APPENDIX C
Appendix Q: JKR Sarawak Standard Quotation Form
98
APPENDIX D
PWD Form 203A (Rev. 2007): JKR Standard Form of Contract
99
APPENDIX E
PWD 75 (Rev. 12/06): JKR Sarawak Standard Form of Contract
100
APPENDIX F
PAM Contract 2006 (With Quantities): Agreement and Conditions
101
PAM Contract 2006 (With Quantities): Agreement and Conditions (continue…)
102
APPENDIX F
PAM Contract 2006 (With Quantities): Agreement and Conditions (continue…)
103
APPENDIX G
Contracts Act 1950 (Act 136)
104
Contracts Act 1950 (Act 136) (continue…)
105
Contracts Act 1950 (Act 136) (continue…)
106
Contracts Act 1950 (Act 136) (continue…)
107
Contracts Act 1950 (Act 136) (continue…)
108
Contracts Act 1950 (Act 136) (continue…)
109
Contracts Act 1950 (Act 136) (continue…)
110
Contracts Act 1950 (Act 136) (continue…)
111
APPENDIX H
24 of 31 DOCUMENTS
© 2008 LexisNexis Asia (a division of Reed Elsevier (S)
Pte Ltd)
The Malayan Law Journal
PDF Print Format
Nirwana Construction Sdn Bhd v Pengarah Jabatan Kerja
Raya Negeri Sembilan Darul Khusus & Anor
[2008] 4 MLJ 157
CIVIL APPEAL NO N-01-9 OF 2005
COURT OF APPEAL (PUTRAJAYA)
DECIDED-DATE-1: 21 APRIL 2008
GOPAL SRI RAM, ZALEHA ZAHARI AND ZAINUN
ALI JJCA
CATCHWORDS:
Contract - Breach - Building contract - Non-completion of grass turfing even
though building was completed - Whether amounted to a breach of fundamental
terms of contract, going to its root - Whether appellant had performed its obligation
under contract, both principal and supplementary - Doctrine of substantial
performance
Contract - Building contract - Delay - Respondent had acquiesced several times
to extensions of time - Whether a waiver
Contract - Damages - Assessment - Damages claimed for being blacklisted by
PWD - Difficulty of proof - Standard required in such circumstances
HEADNOTES:
On 2 March 1993, the appellant/plaintiff, a building contractor entered into a
contract using the Standard PWD (JKR) form with the respondent/defendant to build
a school. The contract was to be completed by the appellant on or before 29 August
1994. It was not in dispute that the appellant failed to complete the building of the
school within the time stipulated. The respondent was granted an extension of time
for nine weeks till 31 October 1994. This was the first of several extensions. Finally,
on 12 September 1995, the respondent issued a notice of intention to terminate the
contract pursuant to cl 51 of the contract giving the appellant 14 days within which to
complete the contract. However, the appellant had not been able to execute the
contract satisfactorily. Thus on 7 October 1995, notice to terminate the contract
pursuant to cl 51(a) was issued to the appellant. However, despite various notices,
the respondent allowed the appellant, upon its request, to continue to complete the
construction of the school. The construction of the school was duly completed and
officially accepted by the Ministry of Education on 5 June 1996. The appellant
112
accordingly contended that the Ministry accepted the construction of the school. But
the respondent's position was that despite this, the appellant had failed to complete
the construction of the school due to the non-compliance of the [*158] terms in that
the grass turfing was not planted according to the specifications in the contract. The
respondent further reiterated that the construction was in fact not completed within
the period allowed to the appellant, since the grass turfing was incomplete as at 20
May 1996. Consequently the respondent by letter dated 5 July 1996 revived the
former notice of termination and informed the appellant that the contract was now
terminated in accordance with the said notice of 7 October 1995. The letter of 5 July
1996 (terminating the contract) stated that the reason for termination was that the
grass turfing was not done within the period allowed ie on or before 20 May 1996.
The appellant claimed that the respondent owed the appellant a balance of
RM501.817.66 and the appellant also claimed the sum of RM2.8m for loss of future
contract as a result of this dispute, since it jeopardised its status in that the appellant
was blacklisted by PWD. The respondent contended that the amount claimed by the
appellant in the sum of the RM501,817.66 was not paid by them to the appellant,
since this amount was taken and considered as a set off payment towards the
liquidated ascertained damages ('LAD') imposed, due to the appellant's failure and
delay in completing the contract.
Held, allowing the appeal with costs here and below:
(1) (per Zainun Ali JCA) There appeared to be non-compliance with the
requirement of cl 51, in that the notice did not contain the precise
ground of termination. Thus, in itself the notice was bad. The
respondent's attempt at rectifying this failed, and in fact it worsened
the situation when it said that it was justified to terminate the
contract on account of the numerous extensions given to the appellant
to perform the contract (see paras 66-67).
(2) (per Zainun Ali JCA) The several delays caused by the appellant
were not so dire as to frustrate the entire consideration for the
contract. There was nothing in the contract that had placed any
condition, the breach of which would entitle the innocent party to
repudiate the contract. If delay by the appellant was to be the main
factor for termination (quite apart from unsatisfactory work, defective
workmanship etc) that particular reason could not be said to be a
condition or warranty going to the root of the contract. Although a
period of time for completion was necessarily in place here, one had to
construe the entire contractual terms and conduct of parties for its
effect and consequence. Time was a factor but in the court's view time
no longer became the essence and in fact was vitiated when the
respondent had acquiesced several times to the extensions of time asked
for by the appellant (see paras 69-70).
113
[*159]
(3) (per Zainun Ali JCA) The inability of the appellant to complete
the contract within the time frame was not a particular stipulation
which was regarded as condition, going to the root of the contract,
that it was clear that the parties contemplated that a breach of which
entitled the other party at once to treat the contract as at end. In
fact no such condition existed in the principal or supplementary
contract. On the facts, there was firstly substantial performance of
the contract by the appellant and secondly there was acquiescence on
the part of the respondent to vary the contractual terms, even if that
acquiescence was grudging. It is now established by the doctrine of
substantial performance that a promisor who has substantially performed
his side of the contract may sue on the contract for the agreed sum,
though he remained liable in damages for his partial failure to fulfill
his contractual obligations (see paras 77-78 & 80-84).
(4) (per Zainun Ali JCA) The only 'defect' if it could be termed as
such, was the planting of 'hydro seeding' instead of 'cow grass' on the
football field. Although the respondent objected to this non-compliance
of the terms of the contract, no notice was sent out by the respondent
to the appellant. The respondent instead, took the drastic step of
terminating the contract on the ground that the grass turfing was not
completed within the time specified (see para 95).
(5) (per Zainun Ali JCA) In view of the various extensions given by
respondent and the fact that there was substantial performance, the
respondent was estopped from imposing LAD on the appellant. The
respondent was barred by the doctrine of estoppel from denying the
indulgence granted to the appellant, which in any case amounted to
variation of the terms of the contract. And as both parties had acted
on the basis of the said varied terms of agreement, the respondent was
now estopped by conduct from denying it (see para 112); Boustead
Trading Sdn Bhd v Arab Malaysia Merchant Bank Bhd [1995] 3 MLJ 31
referred.
(6) (per Gopal Sri Ram JCA) It was not open to the defendant to rely
on the letter of 7 October 1995. If, as the defendant alleged, the
plaintiff had committed a fundamental breach of the contract, the
defendant had two mutually exclusive options open to him. He could
accept the plaintiff's repudiation and treat the contract as at an end.
Or he could waive the repudiatory conduct and treat the contract as
subsisting. These options were given to him by s 40 of the Contracts
Act 1950. The defendant having made his election to affirm the
contract, his right to put an end to it was forever lost (see para 5);
Lim Ah Moi v AMS Periasamy Suppiah Pillay [1997] 3 MLJ 323 referred.
(7) (per Gopal Sri Ram JCA) There was no doubt that the blacklisting
of a contractor by the PWD could have serious financial ramifications
for the appellant. It is an established principle that breach of contract is
114
[*160] actionable per se. In other words, damage,
that is to say, injuria, need not be separately established as an
ingredient of the wrong. Neither is a plaintiff in an action for breach
of contract required in law to prove that the defendant acted
intentionally or negligently in committing the breach. Once a breach of
contract is established a plaintiff is entitled to recover damages.
What follows is an exercise in the assessment of those damages. If at
that stage he or she is unable to evidentially establish the measure of
damage suffered, nominal damages will be awarded (see paras 11-12).
Pada 2 Mac 1993, perayu/plaintif, kontraktor bangunan memasuki kontrak
dengan responden/defendan menggunakan borang standard PWD (JKR) untuk
membina sekolah. Kontrak tersebut mesti disiapkan oleh perayu pada atau sebelum
29 Ogos 1994. Ia tidak dipertikaikan bahawa perayu gagal untuk menyiapkan
bangunan dalam masa yang ditetapkan. Responden diberikan pelanjutan masa untuk
sembilan minggu sehingga 31 Oktober 1994. Ini adalah pelanjutan masa pertama
daripada beberapa pelanjutan. Akhirnya, pada 12 September 1995, responden
mengeluarkan notis niat untuk menamatkan kontrak, berikutan klausa 51 kontrak,
memberikan perayu 14 hari dalam mana untuk menyiapkan kontrak. Walau
bagaimanapun, perayu tidak dapat melaksanakan kontrak dengan memuaskan. Oleh
itu, pada 7 Oktober 1995, notis untuk menamatkan kontrak berikutan klausa 51(a)
dikeluarkan kepada perayu. Walau bagaimanapun, walaupun berbagai notis
diberikan, responden membenarkan perayu, atas permintaannya, untuk menyiapkan
pembinaan sekolah tersebut. Pembinaan sekolah siap dan telah secara rasmi diterima
oleh Kementerian Pelajaran pada 5 Jun 1996. Perayu oleh itu berhujah bahawa
Kementerian menerima pembinaan sekolah tersebut. Tetapi pandangan responden
adalah walaupun begini, perayu gagal untuk menyiapkan pembinaan sekolah kerana
tidak mematuhi terma-terma di mana penanaman rumput tidak ditanam mengikut
spesifikasi di dalam kontrak. Responden selanjutnya mengulangi bahawa pembinaan
sebenarnya tidak siap dalam tempoh masa yang dibenarkan kepada perayu,
memandangkan penanaman rumput tidak siap pada 20 Mei 1996. Akhirnya,
responden melalui surat bertarikh 5 Julai 1996 memberi notis penamatan asal dan
memberitahu perayu bahawa kontrak tersebut telah ditamatkan menurut notis
bertarikh 7 Oktober 1995. Surat bertarikh 5 Julai 1996 (kontrak penamatan)
menyatakan bahawa alasan penamatan adalah bahawa penanaman rumput tidak
dibuat dalam tempoh yang dibenarkan iaitu pada atau sebelum 20 Mei 1996. Perayu
mendakwa bahawa responden berhutang dengan perayu baki sejumlah
RM501.817.66 dan perayu juga menuntut jumlah RM2.8j sebagai kerugian kontrak
masa depan akibat daripada pertikaian ini, memandangkan ia telah menjejaskan
115
[*161] statusnya yang mana perayu telah disenaraihitamkan oleh PWD.
Responden menegaskan bahawa jumlah yang dituntut oleh perayu sejumlah
RM501,817.66 tersebut tidak dibayar oleh mereka kepada perayu, memandangkan
jumlah ini telah diambil dan dianggap sebagai bayaran set off terhadap ganti rugi
jumlah tertentu ('GJT') yang dikenakan, akibat daripada kegagalan perayu dan
kelewatan menyempurnakan kontrak tersebut.
Diputuskan, membenarkan rayuan tersebut dengan kos di sini dan
di[#xA0]Mahkamah Tinggi:
(1) (oleh Zainun Ali HMR) Terdapat ketidakpatuhan dengan keperluan
klausa 51, di mana notis tersebut tidak mengandungi alasan yang tepat
untuk penamatan. Oleh itu, notis tersebut dengan sendirinya tidak
betul. Percubaan responden untuk membetulkan ini gagal, dan bahkan
memburukkan keadaan apabila ia menyatakan ia mempunyai alasan yang baik
untuk menamatkan kontrak setelah mengambilkira lanjutan masa yang
banyak kali telah diberikan kepada perayu untuk melaksanakan kontrak
(lihat perenggan 66-67).
(2) (oleh Zainun Ali HMR) Beberapa kelewatan yang disebabkan oleh
perayu tidak terlalu mendesak sehingga menghalang keseluruhan balasan
untuk kontrak tersebut. Tidak terdapat apa-apa di dalam kontrak yang
meletakkan apa-apa syarat, kemungkiran yang mana akan membenarkan pihak
yang tidak bersalah untuk membatalkan kontrak. Sekiranya kelewatan oleh
perayu dijadikan faktor utama untuk penamatan (selain daripada kerja
yang tidak memuaskan, kemahiran kerja yang defektif dan lain-lain)
sebab tertentu itu tidak boleh dianggap sebagai syarat atau waranti
yang ke akar umbi kontrak. Meskipun tempoh masa penyiapan sememangnya
wujud di sini, seseorang itu perlu mentafsirkan keseluruhan terma-terma
kontraktual dan perlakuan pihak-pihak untuk mendapat kesan dan
akibatnya. Masa merupakan satu faktor tetapi pada pendapat mahkamah
masa tidak lagi penting dan pada hakikatnya menjadi tidak sah apabila
responden bersetuju beberapa kali terhadap lanjutan-lanjutan masa yang
dipohon oleh perayu (lihat perenggan 69-70).
(3) (oleh Zainun Ali HMR) Ketidakupayaan perayu untuk menyiapkan
kontrak dalam rangka masa bukan ketetapan tertentu yang diambilkira
sebagai syarat, punca kontrak tersebut, bahawa ia adalah jelas bahawa
pihak-pihak mempertimbangkan bahawa kemungkiran yang membenarkan pihak
yang satu lagi terus menganggap kontrak tersebut sebagai tamat.
Sebenarnya, syarat sebegitu tidak wujud di[#xA0]dalam kontrak utama ataupun
tambahan. Atas fakta, pertamanya terdapat pelaksanaan substansial
kontrak oleh perayu dan keduanya terdapat
116
[*162] persetujuan di
pihak responden untuk mengubah terma-terma kontraktual, meskipun
persetujuan itu diberikan dengan berat hati. Adalah ditetapkan oleh
doktrin pelaksanaan substansial bahawa orang yang berjanji yang telah
melaksanakan sebahagian besar kontrak di[#xA0]pihaknya boleh menyaman atas
kontrak itu untuk jumlah yang dipersetujui, meskipun dia masih
bertanggungjawab untuk ganti rugi kerana sebahagian daripada
kegagalannya untuk memenuhi tanggungjawab kontraktualnya (lihat
perenggan 77-78 & 80-84).
(4) (oleh Zainun Ali HMR) Satu-satunya 'defect' jikapun ia dianggap
sedemikian, adalah penanaman 'hydro seeding' dan bukan 'cow grass' atas
padang bola sepak itu. Meskipun responden membantah terhadap
ketidakpatuhan terma-terma kontrak ini, tiada notis dihantar keluar
oleh responden kepada perayu. Responden sebaliknya, telah mengambil
langkah drastik menamatkan kontrak tersebut atas alasan bahawa
penanaman rumput itu tidak disiapkan dalam tempoh yang ditetapkan
(lihat perenggan 95).
(5) (oleh Zainun Ali HMR) Berdasarkan beberapa lanjutan masa yang
telah diberikan oleh responden dan hakikat bahawa terdapat pelaksanaan
substansial, responden diestopkan daripada mengenakan GJT ke atas
perayu. Responden telah dihalang oleh doktrin estopel daripada
menafikan persetujuan yang diberikan kepada perayu, yang mana dalam apa
keadaan membentuk perubahan terma-terma kontrak. Dan memandangkan
kedua-dua pihak telah bertindak berdasarkan terma-terma perjanjian yang
diubah, responden kini diestopkan daripada menafikannya (lihat
perenggan 112); Boustead Trading Sdn Bhd v Arab Malaysia Merchant
Bank Bhd [1995] 3 MLJ 31 dirujuk.
(6) (oleh Gopal Sri Ram HMR) Ia tidak terbuka kepada defendan untuk
bergantung kepada surat bertarikh 7 Oktober 1995. Jika, sepertimana
yang didakwa oleh defendan, plaintif telah melakukan perlanggaran
penting kontrak, defendan mempunyai dua pilihan yang terbuka untuknya.
Dia boleh menerima penamatan plaintif dan menganggap kontrak tersebut
telah tamat. Ataupun dia boleh mengenepikan tindakan penamatan itu dan
menganggap kontrak tersebut masih wujud. Pilihan-pilihan tersebut telah
diberikan di bawah s 40 Akta Kontrak 1950. Defendan yang telah membuat
pilihan untuk mengesahkan kontrak tersebut, melupuskan haknya untuk
menamatkan kontrak itu (lihat perenggan 5) Lim Ah Moi v AMS Periasamy
Suppiah Pillay [1997] 3 MLJ 323 dirujuk.
(7) (oleh Gopal Sri Ram HMR) Tidak diragukan bahawa
menyenaraihitamkan kontraktor oleh PWD akan menyebabkan kesan kewangan
yang serius untuk perayu. Ia adalah prinsip tetap bahawa pelanggaran
kontrak boleh diambil tindakan per se. Dalam erti kata lain, kerugian,
yang dikatakan, injuria, tidak perlu dibuktikan secara
117
[*163] berasingan sebagai suatu faktor yang salah. Plaintif juga
bukan dalam tindakan kerana pelanggaran kontrak yang dikehendaki di
sisi undang-undang untuk membuktikan bahawa defendan telah bertindak
dengan sengaja atau cuai dalam melakukan pelanggaran itu. Setelah
pelanggaran kontrak dibuktikan plaintif berhak mendapat ganti rugi.
Selanjutnya adalah pelaksanaan dalam penaksiran ganti rugi tersebut.
Sekiranya di peringkat itu dia tidak boleh membuktikan dengan
keterangan ukuran ganti rugi yang dialami, ganti rugi nominal akan
diawardkan (lihat perenggan 11-12).
Notes
For a case on breach of building contract, see 3(2) Mallal's Digest (4th Ed, 2006
Reissue) para 2548.
For cases on assessment of damages, see 3(2) Mallal's Digest (4th Ed, 2006 Reissue)
para 3240-3245.
For cases on delay under building contract, see 3(2) Mallal's Digest (4th Ed, 2006
Reissue) para 2830-2844.
Cases referred to
Appleby v Myers (1867) LR 2 CP 651
Berry v Hodson [1988] 1 Qd R 361
Bolton v Mahadeva [1972] 3 All ER 1322
Boustead Trading (1985) Sdn Bhd v Arab-Malaysia Merchant Bank Bhd [1995] 3
MLJ 331
Central Provident Fund Board v Ho Bock Kee [1981] 2 MLJ 162
Champtaloup v Thomas [1976] 2 NSWLR 264
Chaplin v Hicks [1911] 2 KB 786
Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305
Hadmor Productions Ltd v Hamilton [1983] 1 AC 191
Hoenig v Isaacs [1952] 2 All ER 176
Holland v Wiltshire (1954) 90 CLR 409
Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26
KP Kunchi Raman v Goh Brothers Sdn Bhd [1978] 1 MLJ 89
Kiely & Sons Ltd v Medcraft (1965) 109 Sol Jo 829 CA
Lim Ah Moi v AMS Periasamy a/l Suppiah Pillay [1997] 3 MLJ 323
Pepper v Hart [1993] AC 593
Photo Production Ltd v Securicor Transport Ltd [1980] 1 All ER 556
Simpson v The London and North Western Railway Co [1876] 1 QB 274
Sony Electronics (M) Sdn Bhd v Direct Interest Sdn Bhd [2007] MLJ 229
Stern v McArthur (1988) 165 CLR 489
Tham Cheow Toh v Associated Metal Smelters Ltd [1972] 1 MLJ 171
Whitaker v Dunn (1887) 3 TLR 602
118
[*164]
Legislation referred to
Contracts Act 1950s 40
Sale of Goods Act 1893 [UK]
Appeal from: Civil Suit No 22-97 of 1997 (High Court, Seremban)
Aris Rizal Christopher Fernando (Raftfizi bin Zainal Abidin with him) (Aris Rizal
Christopher Fernando & Co) for the appellant.
Noramilia Mohd Saad (Senior Federal Counsel, Attorney General's Chambers) for
the respondent.
Gopal Sri Ram JCA::
[1] There is only one issue in this case. It is whether the plaintiff (appellant
before us) is entitled to recover damages for breach of a building contract he had
entered into with the defendant (respondent before us). The relevant facts are as
follows.
[2] The plaintiff is a building contractor. On 2 March 1993, it entered into a
contract for the construction of a school for the defendant. The contract was in the
standard PWD (JKR) form with which we are all quite familiar. The contract price
was RM1,956,126. The contract period was 78[#xA0]weeks, that is to say, the
plaintiff had to complete construction of the school and hand it to the defendant
within that period. It is not on dispute that the 78 weeks expired on 29 August 1994.
As it happened, the plaintiff did not complete construction by the agreed date.
However, there is abundant evidence to show that the plaintiff was granted several
extensions by the defendant. It is also beyond dispute -- indeed it is conceded by the
defendant that as at 12 September 1995 (which is the date of his letter) the plaintiff
had completed 93% of the work. What was left undone was certain remedial work in
respect of some of the partitions in the building and the planting of grass on the hill
slopes and the football field. The former was completed. As to the latter, the
defendant accepted the turfing that was done on the hill slopes but he rejected the
turfing of the football field which he wanted turfed with cow grass which is not the
kind of grass that the plaintiff had used. Despite the aforesaid state of affairs, the
defendant took the position that the work contracted for had not been completed. So,
by his letter of 12[#xA0]September 1995, to which I have referred, the defendant
warned the plaintiff to complete all works within 14 days. The defendant warned that
if the plaintiff should make default then cl 51 of the contract would be invoked and
the contract terminated. Later, by his letter of 7 October 1995, the defendant
terminated the contract, purporting to act under cl 51(a) thereof. In essence what that
clause says is this: without prejudice to any other remedies the Government (in the
present instance the defendant) may have,
119
[*165] in the event of the plaintiff commits any of the breaches specified by
sub-cll (i)-(v) of cl[#xA0]51, the superintending officer ('SO') administering the
contract may issue a notice to the contractor (the instant plaintiff) calling upon him to
remedy the breach and if the breach persists for 14 days then the SO may terminate
the contract.
[3] There are three matters relating to the letter of 7 October 1995 that require
mention. First, on 11 October 1995, some four days after the letter was written, a
meeting was held between the parties. It was agreed that the defendant will be
granted a further extension. Nothing was said about the letter itself. Second, the State
Engineer, after a review of the facts, recommended that the plaintiff be excused for
17 weeks of delay. Despite this the defendant only permitted the plaintiff only 9
weeks. The defendant did not at any time reserve his rights under the letter of 7
October. How could he? The 9 weeks extension he gave the plaintiff far exceeded the
14 days the SO had prescribed under the letter. The irresistible inference to be drawn
from all these actings is that the parties regarded the notice of 7 October 1995 as a
dead letter intended to have no effect whatsoever. It therefore ceased, for all
purposes, to have any effect whatsoever. Further, there is cogent evidence from the
plaintiff to show that at the meeting of 11 October 1995 the defendant had waived his
right to claim liquidated ascertained damages ('LAD') from the plaintiff for the delay
in completing construction. Third, if you look at the 7 October 1995 letter, you will
find that it does not accord with the terms of cl 51. I will deal with this part of the
case at the appropriate place in this judgment.
[4] Let me now conclude the factual narrative. On 5 June 1996, the school
constructed by the plaintiff was officially handed over to the Ministry of Education
which accepted it. Then, on 5 July 1996, the defendant wrote to the plaintiff alleging
that the latter had not completed the works under the contract and on that basis
sought to reinstate and rely upon the letter of 7[#xA0]October 1995 which by this
time was, of course, dead as a doornail. The plaintiff refused to accept the
termination. It issued writ. The defendant delivered his defence and counterclaim.
The judge who tried the action found for the defendant. He dismissed the claim and
entered judgment on the defendant's counterclaim. The plaintiff has now appealed to
us.
[5] In my respectful view, this appeal must succeed for the following reasons. In
the first place, it is not open to the defendant to rely on the letter of 7 October 1995.
If, as the defendant alleges, the plaintiff had committed a fundamental breach of the
contract, the defendant had two mutually exclusive options open to him. He could
accept the plaintiff's repudiation and treat the contract as at an end. Or he could
waive the repudiatory
120
[*166] conduct and treat the contract as subsisting. These options are given to
him by s 40 of the Contracts Act 1950 which reads:
When a party to a contract has refused to perform, or disabled himself
from performing, his promise in its entirety, the promisee may put an
end to the contract, unless he has signified, by words or conduct, his
acquiescence in its continuance.
The defendant's conduct in granting the plaintiff extensions of time does in my
judgment fairly support the plaintiff's case that there was acquiescence on the part of
the defendant in the continuance of the contract. There is also the fact that the
Ministry of Education accepted without any reservation the handing over of the
school to it on 5 June 1996. The defendant having made his election to affirm the
contract, his right to put an end to it was forever lost. See, Lim Ah Moi v AMS
Periasamy a/l Suppiah Pillay [1997] 3 MLJ 323.
[6] In the second place, the notice of termination which the defendant sought to
issue pursuant to the terms of clause 51 of the contract does not accord with the
terms of the clause. For it does not specify the breach in question as required by the
clause. It is settled law that clauses such as the one under discussion will be
construed strictly, that is to say, their strict compliance will be sought by the courts.
As Wee Chong Jin CJ said in Central Provident Fund Board v Ho Bock Kee [1981] 2
MLJ 162, 'a forfeiture clause in a building contract will be strictly construed to see
whether the operative event has occurred or not'. In my judgment the notice dated 7
October 1995 was null and void and of no effect because it does not comply with the
terms of cl 51. It is also my judgment that the defendant's attempt to reinstate the said
notice by way of its letter dated 5 July 1996 was ineffective. You cannot reinstate
something that is utterly void.
[7] In the third place, the defendant's contention that the plaintiff had committed
a fundamental breach of the contract cannot succeed on the facts of this case. There
is the defendant's own admission that as at 12 September 1995, 93% of the work was
completed. There was no demand made by the defendant of the plaintiff to remedy
any defect in the school building itself despite the fact that it was, as conceded by
DW2 in his evidence, that it was open for the defendant to have done so. The only
real complaint which the defendant had was in relation to the laying of the cow grass
on the playing field. This in my judgment is a trivial breach for which the defendant
would not be entitled to put the contract to an end. This is because the plaintiff did
not refuse to perform or disable itself from performing the contract in its entirety. In
short, there is not here a state of affairs where -- to borrow the language of Lord
Diplock in Photo Production Ltd v Securicor Transport Ltd [1980] 1 All ER 556 -'the failure by one party to perform a primary obligation has the effect of depriving
the other party of substantially the
121
[*167] whole benefit which it was the intention of the parties that he should obtain
from the contract'. Accordingly, it was not open to the defendant to put an end to the
contract. It follows that his act of terminating the contract amounted to a breach of
contract.
[8] There is one further matter I must mention. In the court below it was part of
the plaintiff's case that the defendant's witness ('DW1 ') had acted in bad faith in the
dealings he had with the plaintiff. The learned judge who tried the case however
refused to permit the plaintiff to cross examine DW1 on the point. Yet when he came
to write his judgment he said that the plaintiff had failed to establish mala fides
against the defendant. This, with respect, is a serious misdirection. Having denied
counsel for the plaintiff the opportunity to cross examine DW1 on the issue of mala
fides, it was not open to him, as a matter of natural justice, to make a finding on the
very point against the plaintiff. There is, so far as I am advised, no decided case
directly in point. The closest analogy that comes to mind is Hadmor Productions Ltd
v Hamilton [1983] 1 AC 191. It was a case that was decided at a time when it was the
rule that courts should not seek assistance from Hansard to interpret a statute. There
is no such bar now. See, Pepper v Hart [1993] AC 593. In Hadmor Productions, at
the hearing before the Court of Appeal, counsel on both sides, in obedience to the
rule, refrained from making any reference to Hansard. During argument, Lord
Denning MR who presided gave no indication to counsel that he intended to rely on
Hansard. However, when he came to write his judgment the Master of the Rolls
when interpreting the relevant provision in the statute before the court referred to the
speech of Lord Wedderburn in the House of Lords reported in Hansard when
moving an unsuccessful opposition amendment to the relevant Bill. When the matter
went on further appeal to the House of Lords, Lord Diplock criticised this approach.
He said:
Under our adversary system of procedure, for a judge to disregard the
rule by which counsel are bound has the effect of depriving the parties
to the action of the benefit of one of the most fundamental rules of
natural justice: the right of each to be informed of any point adverse
to him that is going to be relied upon by the judge and to be given an
opportunity of stating what his answer to it is. In the instant case
counsel for Hamilton and Bould complained that Lord Denning MR had
selected one speech alone to rely upon out of many that had been made
in the course of the passage of what was a highly controversial Bill
through the two Houses of Parliament; and that if he, as counsel, had
known that the Master of the Rolls was going to do that, not only would
he have wished to criticise what Lord Wedderburn had said in his speech
in the House of Lords, but he would also have wished to rely on other
speeches disagreeing with Lord Wedderburn if he, as counsel, had been
entitled to refer to Hansard.
122
[*168]
[9] In the present case, when the learned trial judge disallowed counsel for the
plaintiff from pursuing the line of cross examination on the issue of DW1 's mala
fides counsel was entitled to assume that no adverse comment would be made against
his client on that point. Unfortunately, the learned judge after having made his
decision nevertheless went on to comment adversely on the plaintiff's case. This is a
clear breach of the rules of natural justice. If this be the only point before us, I would
have been minded to direct a retrial of the action. However, there are, as I have
shown, other areas in which the learned judge had misdirected himself both on the
facts and the law.
[10] I now come to the issue of damages. In its statement of claim, the plaintiff
claimed the balance due to it on the contract. This is a sum of RM501,817.66. It is
entitled to have this. It is also the plaintiff's case that following the termination of the
contract it was blacklisted in so far as Government contracts are concerned. It said
that it suffered general damages. It put these at RM2.8m.
[11] There is no doubt that the blacklisting of a contractor by the PWD can have
serious financial ramifications for him. He will not ever be considered in the
execution of Government projects. Even work in the private sector may be difficult
to come by. These are matters of public notoriety. It follows that the plaintiff must
have suffered some damage from the blacklisting. Perhaps not to the extent it has
claimed. It may be difficult to assess the damage. But that is no reason for refusing to
make an award in its favour. In Tham Cheow Toh v Associated Metal Smelters Ltd
[1972] 1 MLJ 171, Ali J (as he then was) cited with approval the following passage
in the judgment of Cockburn CJ in Simpson v The London and North Western
Railway Co [1876] 1 QB 274 at p 277:
... as to the supposed impossibility of ascertaining the damages, I think
there is no such impossibility; to some extent, no doubt, they must be
matter of speculation, but that is no reason for not awarding any
damages at all.
[12] There is a further point which is in the plaintiff's favour. It is an established
principle that breach of contract is actionable per se. In other words, damage, that is
to say, injuria, need not be separately established as an ingredient of the wrong.
Neither is a plaintiff in an action for breach of contract required in law to prove that
the defendant acted intentionally or negligently in committing the breach. Once a
breach of contract is established a plaintiff is entitled to recover damages. What
follows is an exercise in the assessment of those damages. If at that stage he or she is
unable to evidentially establish the measure of damage suffered, nominal damages
will be awarded. As my learned sister Zainun Ali JCA said when delivering
123
[*169] the judgment of this court in Sony Electronics (M) Sdn Bhd v Direct
Interest Sdn Bhd [2007] MLJ 229 (at p 242):
Nominal damages may be awarded where the fact of a loss is shown but
the necessary evidence as to its amount is not given.
[13] Acting on these well settled principles, I would award the plaintiff general
damages for breach of contract and direct the assessment of such damages by the
senior assistant registrar of the High Court. I would also direct an early hearing of the
assessment.
[14] For the reasons already given I would allow this appeal and set aside the
order of the learned judge. I have had the advantage of reading my learned sister
Zainun Ali JCA's judgment in draft and agree with the orders she proposes to make
in this appeal.
Zainun Ali JCA::
[15] On 2 March 1993, the appellant, a building contractor (plaintiff in the court
below,) entered into a contract using the standard PWD (JKR) form with the
respondent (defendant) to build a school. The contract price was RM1,956,126 and
the contract was for a period of 78 weeks. This means that the construction of the
school was to be completed by the appellant on or before 29 August 1994. It was not
in dispute that the appellant failed to complete the building of the school within the
time stipulated.
[16] The respondent then granted an extension of time for nine weeks till 31
October 1994. This was the first of several extensions. The appellant was still unable
to complete it and on 5 November 1994, the appellant requested another extension.
There is no evidence on record that another extension was granted but the conduct of
parties show that an extension was in fact granted. On 26 October 1994, a certificate
of non-compliance was issued to the appellant by the superintending officer ('SO').
On 24 November 1994, the respondent issued a final warning letter to the appellant
to complete the construction of the school and stated the appellant liable for
liquidated ascertained damages ('LAD') at RM630 per day.
[17] The appellant responded by requesting for a further extension of time on 9
February 1995. Thus on 23 June 1995, the respondent had a meeting with the
appellant to discuss other incomplete works including the construction of the school,
and instructed the appellant to complete the same.
124
[*170]
[18] On 12 September 1995, the respondent issued a notice of intention to
terminate the contract, followed by its letter of 7 October 1995, where the respondent
gave formal notice of termination of the contract to the appellant.
[19] However, notwithstanding the above, the respondent allowed the appellant,
upon its request, to continue to complete the construction of the school.
[20] A further meeting was held between the parties on 11 October 1995. The
appellant submitted that it was during this meeting that one Dato' Nordin Yunus, the
then Director of PWD (PW1) promised to waive the LAD which the respondent had
initially imposed on 24 November 1994. It was at this meeting too, that another
extension was given to the appellant.
[21] On 27 April 1996, the respondent had another meeting with the appellant.
By that time another officer, Ir Zamri bin Darus ('PW2 ') had taken over the post of
Dato' Nordin ('PW1 '). The extension of the construction of the school was allowed
until 20 May 1996 for the purpose of grass turfing and changing the partition to a
thicker dimension.
[22] PW2 then informed the appellant that in the event the appellant was unable
to complete the construction within the stipulated date, the termination notice of 7
October 1995 will be invoked. According to the evidence, the construction of the
school was duly completed and officially accepted by the Ministry of Education on 5
June 1996.
[23]
The appellant accordingly contends that the Ministry accepted the
construction of the school. But the respondent's position is that despite this, the
appellant had failed to complete the construction of the school due to the noncompliance of the terms in that the grass turfing was not planted according to the
specifications in the contract.
[24] The respondent further reiterated that the construction was in fact not
completed within the period allowed to the appellant, since the grass turfing was
incomplete as at 20 May 1996.
[25] Consequently the respondent by letter dated 5 July 1996 revived the former
notice of termination and informed the appellant that the contract was now
terminated in accordance with the said notice of 7 October 1995.
[26] The letter of 5 July 1996 (terminating the contract) states that the reason for
termination was that the grass turfing was not done within the period allowed ie on or
before 20 May 1996.
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[27] In response, the appellant claimed that the respondent owed the appellant a
balance of RM501.817.66 (the balance of the contract sum) and the appellant also
claimed the sum of RM2.8m for loss of future contract as a result of this dispute,
since it jeopardised its status in that the appellant was blacklisted.
[28] The respondent, in reply, said that due to the appellant's breach, it had to
appoint another contractor to complete the work with regards to the grass turfing.
THE APPELLANT'S CASE
[29] In so far as the main part of the project goes, the appellant emphasised that
it had completed it, ie the building of the school itself. It can thus be assumed that in
the absence of any complaint or notices of like effect from the respondent, the school
was built according to specification. In fact during the cross-examination of SD2, he
acknowledged that the only work not done as at 27 April 1996, was the planting of
the grass and the thickening of the partition.
[30] The appellant indicated that they did plant the grass by 5 June 1996 but
conceded that it was not done in accordance with the specifications required by the
respondent in the contract.
[31] 'Cow grass' was supposed to have been used (as per the specification), but
the appellant had instead used 'hydro-seeding' at the initial stage of the project, to
which the appellant said the respondent did not object.
[32] The respondent only objected when 'hydro-seeding' was also used for the
football field, since the respondent wanted 'cow grass' to be planted there. However,
it is the appellant's case that if it is merely on this account, the respondent is not
entitled to regard that the appellant had thereby breached the contract.
[33] It is the appellant's position that the respondent had in any case, reneged on
this issue, since the respondent had, at the meeting of 27 April 1996, stated that they
are willing to accept the school even without the grass turfing.
[34]
In short, it is the appellant's case that the respondent had not been
consistent in its approach as regards its decision made at meetings regarding this
particular term of the supplementary contract.
126
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[35] The appellant submitted that the respondent's act of terminating the whole
contract, only on account of the grass turfing being 'incomplete' as at 20 May 1996 as
it were, was bad and wrongful.
[36] The appellant further contended that the non-completion of the grass
turfing (which appellant denied) did not go to the root of the contract, as to entitle the
respondent to terminate the whole contract. There is no total failure of consideration
which would justify such a course of action.
[37] The appellant's parting shot was that the respondent at most, was only
entitled to damages ie the portion of the non-completion of the grass turfing which
amounted to RM20,000.
[38] The appellant claimed that the respondent owed them the balance of
RM501,817.66 (balance of the contract sum) and RM2.8m loss of future contracts,
since as a result of this dispute its status in the 'Pusat Khidmat Kontraktor' was
seriously jeopardised, in that it was 'blacklisted'.
THE RESPONDENT'S CASE
[39] The respondent said that they entered into a contract on 2 March 1993 to
build a school at Felda Palong Negeri Sembilan ('the project') with the appellant. The
said construction was to be completed on or before 29[#xA0]August 1994, ie 78
weeks after the date of the contract.
[40]
date.
However, the appellant failed to complete the contract on the appointed
[41] On the appellant's appeal to extend time to complete the contract, the
respondent allowed an extension of nine weeks ie from 30 August 1994 till 31
October 1994.
[42]
However, on the agreed day of completion ie 31 October 1994, the
appellant was still unable to complete the project.
[43] Invoking cl 40 of the contract, the respondent issued a warning letter to the
appellant and stated that a 'Perakuan Kerja Tidak Siap' will be issued whereby LAD
of RM640 per day will be imposed on the appellant.
[44] On 26 October 1994 the said 'Perakuan Kerja Tidak Siap' was issued to the
appellant and the appellant was informed that LAD would commence on 1
November 1994.
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[45] On 12 September 1995 the 'Notis Tujuan Penamatan Kerja' pursuant to cl
51 of the contract was issued to the appellant giving the appellant 14[#xA0]days
within which to complete the contract. The respondent found that the appellant had
not been able to execute the contract satisfactorily within the 14 days period allowed
it. Thus on 7 October 1995, the 'Notis Untuk Penamatan Pengambilan Kerja
Kontraktor' pursuant to cl 51(a) of the contract, was issued to the appellant.
[46] However, despite the various notices mentioned above, the respondent was
approached by the appellant for a further extension of the contract period.
[47]
The respondent allowed appellant its request to extend time. In its
submission the respondent said that it did this in its exercise of its discretion to allow
the appellant its application to extend time to complete the contract.
[48] In fact a 'Perakuan Persetujuan' dated 27 April 1996 was given by the
respondent, allowing the appellant the work of planting grass and work to thicken the
partition to be completed on 20 May 1996.
[49] In the said 'Perakuan' of 27 April 1996, it was categorically stated that in
the event the appellant failed to complete the said assignments (planting grass and
thickening of the partition) a notice called 'Notis Untuk Penamatan Pengambilan
Kerja Kontraktor' which was issued earlier on 7 October 1995, would take effect.
[50] The appellant failed to complete the planting of grass on the due date ie on
20 May 1996 and consequently, the respondent invoked the termination notice of 7
October 1995, which was communicated to the appellant.
[51] In answer to the appellant's submission that it had completed the contract
save for the grass-turfing, the respondent contended that the Ministry of Education
was 'compelled' to accept the contract even though it was not fully completed, since
it was imperative that the students from the said area had to be placed there after
having been temporarily placed in another school.
[52] The respondent contended that due to the appellant's failure to complete the
contract, the respondent had no alternative but to appoint another contractor to do the
same, at a cost of RM450,000.
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[*174]
[53]
This amount also represented the major portion of the respondent's
counterclaim, supported by the respondent's final confirmation issued by the
respondent. This was served on the appellant.
[54] The respondent contended that the amount claimed by the appellant in the
sum of the RM501,817.66 was not paid by them to the appellant, since this amount
was taken and considered as a set off payment towards the LAD imposed, due to the
appellant's failure and delay in completing the contract.
[55] The learned High Court judge found in favor of the respondent on the
ground that:
(a) it was undisputed that the appellant failed to complete the contract on
or before 31 October 1994;
(b) that even after an extension of time till 31 October 1994 granted by
the respondent to complete the contract, the appellant failed to do so
and was given a further extension. Even when the contract was
terminated on 5 July 1996, the contract still remained uncompleted; The
learned judge ruled that the appellant's failure to complete the
contract despite the extensions of time arose from the appellant's
inability or incompetence to do the same;
(c) The appellant's application to dispense with the LAD is untenable, in
view of its inability to complete the contract;
(d) the learned judge rejected the appellant's contention that it had
completed the contract on 5 June 1996, in the light of the minutes of a
meeting held on 18 November 1996 which spoke of a new contract to build
and complete a school and other related works at Felda Palong 8,
Jempol, Negeri Sembilan (ie the same site of the contract between the
appellant and the respondent), at a cost of RM450,000.
[56] On the whole, the learned judge was of the view that the appellant had not
complied with the specifications in the contract and there was nothing in evidence to
suggest that the respondent had allowed any deviation or variation from the said
specifications; that in terminating the said contract and imposing the LAD, the
respondent had not been actuated by malice or mala fides, since they had acted well
within the scope of the contract.
[57] In view of the above, the learned judge dismissed the appellant's claim and
allowed the respondent's counterclaim.
129
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[58] My view of this appeal is this. The facts as narrated above are clear
enough. There are several issues in the instant case which can be distilled into just
two posers. They are:
(1) Did the non-completion of the grass turfing on the due date/delay by
the appellant in completing the contract, amount to a breach of the
fundamental terms of the contract, going to its root, entitling the
respondent to terminate the contract and claiming damages?
(2) Had the appellant performed its obligation under the contract (both
principal and supplementary)?
[59]
Let us see what would be the position in the light of the notice of
termination pursuant to cl 51(a) and letters and notices substantiating the same.
[60] Clause 51 of the contract which reads as follows:
51. PENAMATAN PENGAMBILAN KERJA KONTRAKTOR
(a) Tanpa menjejas apa-apa hak atau remedi lain yang dipunyai oleh
Kerajaan, jika Kontraktor melakukan kemungkiran mengenai
mana-mana satu atau lebih daripada perkara-perkara yang berikut,
iaitu:
(i) ...
(ii) ...
(iii) ...
(iv) jika dia mungkir atau berulang kali cuai mematuhi suatu
notis bertulis daripada PP untuk menukar dan mengganti
apa-apa kerja yang cacat atau bahan atau barang-barang yang
tidak sesuai, atau
(v) ...
maka PP boleh memberi kepadanya suatu notis yang dihantar dengan pos
berdaftar atau dengan serah-hantaran yang direkodkan menyatakan
kemungkiran itu, dan jika Kontraktor samada meneruskan kemungkiran itu
selama empat belas (14) hari selepas penerimaan notis itu atau pada
bila-bila masa selepas itu mengulangi kemungkiran itu (samada pernah
diulangi dahulunya atau tidak), maka Kerajaan boleh dengan demikian itu
melalui suatu notis yang dihantar dengan pos berdaftar atau dengan
serah-hantaran yang direkodkan menamatkan pengambilan kerja Kontraktor
di bawah Kontrak ini.
[61] In view of the above clause, let us see what was the nature of the purported
notice given to the appellant.
130
[*176]
[62] By letter dated 5 July 1996, the respondent sent a notice by registered post
to the appellant. It reads thus:
Adalah didapati pihak tuan telah gagal mematuhi Perakuan Persetujuan
yang telah ditandatangani oleh Mesyuarat Khas pada 27 April 1996 yang
lalu, di mana kerja-kerja penanaman rumput di padang telah tidak
disiapkan pada tarikh yang ditetapkan iaitu 20 Mei 1995.
Dengan yang demikian, PENAMATAN PENGAMBILAN KERJA
KONTRAKTOR yang telah
dikeluarkan pada 07 Oktober 1995 dikekalkan.
[63] Since the respondent invoked the 'notis penamatan pengambilan kerja
kontraktor' dated 7 October 1995 to effectuate the said termination of the contract,
the said notice needs looking into. It reads thus:
... Dukacita diperhatikan bahawa tuan didapati masih tidak menjalankan
kerja dengan lebih pesatnya dalam tempoh EMPAT BELAS (14) HARI yang
diberi dalam surat kami tersebut. Tiada juga sebarang jawapan atau
alasan yang menasabah yang diterima daripada tuan. Maka sejajar dengan
Fasal 51(a) Syarat-Syarat Kontrak, pengambilan kerja adalah dengan ini
DITAMATKAN.
Kerja akan disiapkan sejajar dengan Fasal 51(c) Syarat-Syarat Kontrak,
dan tuan adalah dikehendaki menanggung segala perbelanjaan berlebihan
yang akan timbul.
[64] It is noted that, an earlier notice dated 12 September 1995 was sent to the
appellant by the respondent, warning them to complete the contract within 14 days
upon receipt of the said notice, failing which cl 51 of the contract (to terminate the
contract) will be invoked.
[65] It was due to the appellant's apparent failure to complete the project within
the period of 14 days that the notice of 7 October 1995 was served on them on 5 July
1996.
[66] There appears to be non-compliance with the requirement of cl 51, in that
the notice did not contain the precise ground of termination.
[67] Thus, in itself the notice was bad. The respondent's (through the senior
federal counsel) attempt at rectifying this failed, and in fact it worsened the situation
when it said that it was justified to terminate the contract on account of the numerous
extensions given to the appellant to perform the contract.
[68] In this regard it is my view that the respondent themselves had, unwittingly
or otherwise, admitted in their letter of 12 September 1995, that the appellant had, at
that date, completed 93% of the contract.
The said letter of 12 September 1995 reads, inter alia:
131
[*177]
... kerja tuan sepatutnya sudah siap tetapi kemajuan yang dicapai setakat
ini adalah 93%[#xA0]...
[69] In view of the above, and as case laws have shown, the several delays
caused by the appellant were not so dire as to frustrate the entire consideration of the
contract. I find nothing in the contract that had placed any condition, (special or
otherwise) the breach of which would entitle the innocent party to repudiate the
contract.
[70] If delay by the appellant is to be the main factor for termination (quite apart
from unsatisfactory work, defective workmanship etc) that particular reason cannot
be said to be a condition or warranty going to the root of the contract. Although a
period of time for completion is necessarily in place here, one has to construe the
entire contractual terms and conduct of parties for its effect and consequence. Time
was a factor but in my view time no longer became the essence and in fact was
vitiated when the respondent had acquiesced several times to the extensions of time
asked for by the appellant.
[71] My view is that the breach if there was any in this case, was merely
inconsequential or 'trifling' as suggested by Lord Upjohn in Hongkong Fir Shipping
Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26.
The brief facts in the Hongkong Fir Shipping case is as follows:
By a time charterparty dated 26 December 1956, the shipowners of MV
Hongkong Fir let, and charterers hired the said ship for twenty four
(24) calendar months.
Clause 3 of the charterparty provided that the owners should '...
maintain her in a thoroughly efficient state in hull and machinery
during service ...'.
The vessel was delivered to the charterers on 13 February 1957 and on
that day, sailed from Liverpool to Newport News, Virginia to pick up a
cargo of coal and carry it to Osaka. The vessel's machinery was in
reasonably good condition at Liverpool but by reason of its age, needed
to be maintained by an experienced, competent, careful and adequate
engine room staff. When she sailed, the chief engineer was inefficient,
the engine room complement insufficient and chiefly for that reason,
there were many serious breakdowns in the machinery. She was not seen
eight and half weeks, off hire for about five weeks and had about [#xA3]21,
400 spent on her for repairs. She reached Osaka on 25 May when a
further period of about 15 weeks and additional monies were required to
make her ready for sea.
[72] In fact when the vessel sailed from Osaka on 15 September, there was
adequate and competent engine room staff and was then admittedly in all respects,
seaworthy.
[73]
However the charterers repudiated the charterparty in June 1957.
132
[*178]
[74] In an action by the owners for damages for wrongful repudiation of the
charterparty in which the charterers contended, inter alia, that they were entitled to
repudiate by reason of a breach by the owners of their obligation to deliver a
seaworthy vessel and that the charterparty was frustrated by the delays and
breakdowns, Salmon J held that although the shipowners were in breach of their
obligation to deliver a seaworthy ship, seaworthiness was not a condition precedent
to their rights under the charterparty and, as the charterparty had not been frustrated,
they were entitled to damages.
[75] It was held on appeal by the charterers, that although the shipowners were
in breach of cl I of the charterparty, the vessel being unseaworthy on delivery by
reason of an insufficient and incompetent engine room staff, seaworthiness was not a
condition of the charterparty a breach of which entitled the charterer at once to
repudiate. Lord Diplock held that the express or implied obligation of seaworthiness
is neither a condition nor a warranty but one of that large class of contractual
undertakings one breach of which might have the effect ascribed to a breach of
'condition' under the Sale of Goods Act 1893, and a different breach of which might
have not only the same effect as that ascribed to a breach of warranty.
[76] His Lordship also held that the delays caused by the breakdowns and
repairs were not so great as to frustrate the commercial purpose of the charterparty;
and that accordingly the charterers' claim failed and the appeal was dismissed.
[77] Likewise, in the instant appeal my view is that the inability of the appellant
to complete the contract within the time frame is not a particular stipulation which is
regarded as a condition, going to the root of the contract, that it is clear that the
parties contemplate that a breach of which entitles the other party at once to treat the
contract as at an end.
[78] In fact no such condition exists, either in the principal or supplementary
contract.
[79] As stated by Lord Upjohn:
... the remedies open to the innocent party for breach of a stipulation
which is not a condition strictly so called, depend entirely upon the
nature of the breach and its foreseeable consequence. Breaches of
stipulation fall, naturally into two classes. First, there is the case
where the owner by his conduct indicates that the considers himself no
longer bound to perform his part of the contract; in that case, of
course, the charterers may accept the repudiation and treat the
contract as at an end. The second class is, of course the more usual
one and that is where, due to misfortune such as the perils of the sea,
engine failures, incompetence of the crew and so on, the owner is
unable to perform a particular stipulation precisely in accordance
with
133
[*179]
the terms of the contract try he never so hard to
remedy it. In that case, the question to be answered is, does the
breach of the stipulation go so much to the root of the contract that
it makes further commercial performance of the contract impossible, or
in other words is the whole contract frustrated? If yea, the innocent
party may treat the contract as at an end. If nay, his claim sounds in
damages only.
[80] Apart from the fact that the appellant's inability in completing the contract
within the stipulated time does not go to the root of the contract, two other factors go
towards showing that this failure did not frustrate the entire contract for it to be
completely incapable of being performed. Firstly there was substantial performance
of the contract by the appellant and secondly there was acquiescence on the part of
the respondent to vary the contractual terms, even if that acquiescence was grudging.
[81] From the evidence of parties, could it be said in all honesty, that the
appellant had completely failed in performing his side of the bargain, or that the
defects were of such magnitude that the appellant could not be said to have
substantially performed his contract?
[82] Or put in another way: On a true construction of the contract, is entire
performance a condition precedent to payment, it being a lump sum contract?
[83] The older reported cases such as Appleby v Myers (1867) LR 2 CP 651 and
Whitaker v Dunn (1887) 3 TLR 602 require complete performance by a promisor as
a condition precedent to his right of recovery under an entire contract.
[84] However the rigours of the common law has since been modified by later
judicial pronouncements. It is now established by the doctrine of substantial
performance that a promisor who has substantially performed his side of the contract
may sue on the contract for the agreed sum, though he remains liable in damages for
his partial failure to fulfill his contractual obligations.
[85] The statement of the law on this matter can be found in the judgment of
Lord Justice Denning in Hoenig v Isaacs [1952] 2 All ER 176, at p 181, where His
Lordship said, inter alia:
... When a contract provides for a specific sum to be paid on completion
of specified work, the courts lean against a construction of the
contract which would deprive the contractor of any payment at all
simply because there are some defects or omissions. The promise to
complete the work is therefore, construed as a term of the contract,
but not as a condition ...
134
[*180]
[86] In the instant appeal, my view is that the contract was an entire or lump
sum contract, but since the doctrine of substantial performance has not been
excluded by an express provision in the agreement, it would also be necessary to
examine whether the appellant had substantially performed its contract.
[87] It is my view, following the observation of the English Court of Appeal in
Bolton v Mahadeva [1972] 3 All ER 1322, that where a contract (such as in the
instant appeal) has been substantially performed, the test was substantial
performance rather than whether the defects were of such a trivial nature that they
could be disregarded under the de minimis rule.
[88] Following also what Gunn Chit Tuan J observed in KP Kunchi Raman v
Goh Brothers Sdn Bhd [1978] 1 MLJ 89 in considering whether there had been
substantial performance, it was relevant to take into account both the nature of the
defect and the proportion between the cost of rectifying them and the contract price.
[89] In the instant appeal, it is undisputed that the appellant had, as at 12
September 1995 completed 93% of the contract works (as admitted by the
respondent itself in their letter dated 12 September 1995.
[90]
contract.
The appellant had clearly shown it had substantially performed the
[91] Is the appellant then, entitled to payment due to it with regard to both the
principal and supplementary contracts for work done?
[92] In the instant appeal, the contract was worth RM1,956,126. However
authorities such as Kiely & Sons Ltd v Medcraft (1965) 109 Sol Jo 829 CA and
Bolton v Mahadeva [1972] 2 All ER 1322 found that substantial performance is not
to be measured by rigid financial calculation. Both Justices Salmon and Wilmer in
Kiely & Sons Ltd v Medcraft took the view that it is for the court to consider the
defects and see whether the work was substantially completed. So for every case, it is
a question of fact and degree.
[93] Firstly, there is nothing on record to indicate that there are defects in the
appellant's work, of which notice had been issued by the respondent to the appellant.
[94] Should there be any defect, the respondent would have issued its notice of
defect to allow the appellant or any contractor for that matter, to
135
[*181]
rectify the said defect. The respondent confirmed that they had not found any
defect nor had they issued any notice of like effect. As testified by SD2:
Adalah prosidur JKR sebarang kecacatan bangunan/projek akan dikeluarkan
notis kepada Kontraktor berkenaan untuk membaiki. Di dalam kes ini,
tiada senarai kecacatan dikeluarkan kepada plaintiff (appellant).
[95] The only 'defect' if it could be termed as such, was the planting of 'hydro
seeding' instead of 'cow grass' on the football field. Although the respondent objected
to this non-compliance of the terms of the contract, no notice was sent out by the
respondent to the appellant. The respondent instead, took the drastic step of
terminating the contract on the ground that the grass turfing was not completed
within the time specified.
[96] It might be reminded that the appellant had in any event, completed all the
contract works except the football field grass turfing and had handed over the school
on 5 June 1996.
[97]
Yet, the respondent terminated the contract only on account of the
appellant's non-compliance with the specification to use 'cow grass' for the football
field as at 20 May 1996. This was confirmed when SD2 testified that:
Masalah hanya timbul apabila rumput padang yang ditanam tidak mengikut
spesifikasi. Dan hanya berdasarkan masalah rumput ini sahaja
keseluruhan kontrak plaintiff telah dibatalkan. ...
[98] Given the above, it is my view that taking all factors into consideration, the
respondent's termination of the contract amounted to a forfeiture, in view of the
severity of the consequence. In my view, the respondent had not acted reasonably
and in good faith. In fact 'bad faith' was imputed by the appellant against SD2. The
appellant had tried to introduce evidence of 'bad blood' between it and SD2 during
the trial. But the trial judge disallowed the issue to be raised at all. Yet, in his
judgment the trial judge held that even if there was 'bad blood' as imputed by the
appellant, the appellant had not established it. After having disallowed the appellant
to submit on this point, it is not open for the trial judge to now make this perverse
observation. It is my view that there was a misdirection on the trial judge's part on
this point.
[99] By the time the project was handed over to the respondent on 5 June 1996,
the appellant had been paid a total sum of RM1,362,501.40.The balance of
RM501,817.66 remained unpaid.
136
[*182]
[100] Considering the nature of the 'defect' which was merely that of replacing
'hydro seeding' with 'cow grass' and the cost of rectifying the same being only
RM20,000 as quoted by the appellant, the question is whether the respondent is
entitled to claim damages as claimed.
[101] The respondent said that because of the error of the appellant in not using
'cow grass', they had to employ another contractor to do the same at the cost of
RM450,000.
[102] From the evidence led, the respondent had asked the new contractor
Syarikat Azaman bin Abdul Samad to redo certain things (apart from putting the
'cow grass') which were clearly outside the scope of the appellant's contract with the
respondent.
[103] In my view, the act of the respondent, incurring extra expenses re-doing
certain works by the new contractor, was not within the contemplation of nor
contained in the original contract. As DW3 had given the breakdown of all the works
done by the new contractor it is clear that new items were added and even the grass
turfing had extra works to be done to it. The question now is: Is the respondent
entitled to claim RM450,000 from the appellant as damages for non-completion of
the contract? This will be answered latterly.
[104]
Turning now to the issue of the LAD, the question is this: Is the
respondent entitled to impose LAD on the appellant, in these circumstances?
[105] First, it was undisputed that the contract was 93% complete. There was
substantial performance of the contract by the appellant. There was no abandonment
of the work by the appellant, nor had the appellant done anything to jeopardise the
completion of the work.
[106] Second, the various extensions given the appellant could only be viewed
that the respondent had given indulgence and had waived the imposition as to time
and strict compliance with the terms of the contract.
[107] However the respondent made an untenable choice for its reason to
terminate the contract, when it terminated the contract on account of 'non-compliance
with grass turfing by the appointed due date'.
[108] This reason works against the respondent in view of the principle found in
Hongkong Fir Shipping Co Ltd v Kawasaki Kaisha Ltd, where it is clear that the
breach if at all, was not so great as to frustrate the entire
137
[*183] contract, nor was the breach regarded as a condition, going to the root of
the contract which would entitle the other party at once to treat the contract as at an
end.
[109] Third, it must not be lost sight of that the respondent, through PW1, had
promised to waive the LAD for the contract.
[110] This is fortified by the evidence of PW3, Lee Hoch Long, a contractor
where PW3 said in his testimony that PW1 will waive the LAD for the Project.
[111] PW1 in his evidence also stated in a meeting held on 11 October 1995
with PW2 and one Puan Natisah, the quantity surveyor for JKR, that he had the
authority to waive LAD if the appellant completed the project. PW1 also allowed the
extension of time for the project to be completed.
[112] Even if PW2 disclaimed the dispensation of LAD, the fact was that PW2
had said that dispensation of LAD was conditional upon the appellant completing the
work on time. However, in view of the various extensions given by respondent and
the fact that there was substantial performance thereof, my view is that it is not open
for the respondent to now ignore the consequence of the waiver in this regard. In so
doing the respondent is now estopped from imposing LAD on the appellant. The
respondent is barred by the doctrine of estoppel from denying the indulgence granted
to the appellant, which in any case amount to variation of the terms of the contract.
And as both parties had acted on the basis of the said varied terms of Agreement, the
respondent is now estopped by conduct from denying it (Boustead Trading (1985)
Sdn Bhd v Arab-Malaysia Merchant Bank Bhd [1995] 3 MLJ 331). It is not open for
the respondent to now help themselves to the balance sum due to the appellant by
contending that the amount is to account for LAD. In short, the respondent is not
entitled to impose LAD on the appellant (which was calculated to be RM218,400).
[113] Taking the facts before me and considering the obligations of parties and
their conduct in this contract, what seems clear is this:
[114] Although the right to terminate for breach of contract applies to all
contracts, it has long been subject to certain restrictions.
[115] To begin with I find that in this appeal, the notice to terminate was bad in
law, for being devoid of the precise ground for termination.
138
[*184]
[116] Secondly, the respondent's conduct in allowing extensions of time to
perform the contract, entering into a supplementary contract and finally accepting the
contract from the appellant on 5 June 1996, is not consistent with that of an innocent
party whose right to terminate remains intact.
[117] Although an extension of time for performance does not of itself amount
to an abandonment of the right to terminate for failure to perform on time, more so if
granted as a matter of grace (see Holland v Wiltshire (1954) 90 CLR 409), other
factors in this appeal indicate otherwise.
[118]
In my view, when the respondent allowed the appellant continued
performance of the contract on more than one occasion, and even entering into a
supplementary contract, the respondent had thereby elected to affirm the contract to
run its course. The appellant is entitled to regard it as such especially when the
respondent accepted the contract from the appellant on 5 June 1996, which the
appellant is entitled to treat as the respondent having waived its right to terminate.
Nothing would be more clear and equivocal than this conduct of the respondent (see
Berry v Hodson [1988] 1 Qd R 361; Craine v Colonial Mutual Fire Insurance Co Ltd
(1920) 28 CLR 305).
[119] In any case, even if the respondent still had the right of election, the
exercise of that right must not be delayed unreasonably (see Champtaloup v Thomas
[1976] 2 NSWLR 264).
[120] In this case, after having accepted the contract from the appellant on 5
June 1996, the respondent, out of the blue served on the appellant the notice to
terminate a month later, ie on 5 July 1996.
[121]
To my mind, for the respondent to take this course of action is
unconscionable, since the termination of the contract for breach results in an unjust
forfeiture of the appellant's propriety interest, a fortiori when there is estoppel by
conduct (see Stern v McArthur (1988) 165 CLR 489).
[122] This unconscionable conduct is exemplified by its claim for LAD and
counterclaim of RM450,000.
[123] It is instructive to remind ourselves that a party having a legal right shall
not be permitted to exercise it in such a way that the exercise amounts to
unconscionable conduct.
[124] Consequently the respondent cannot resist payment due to the appellant
for the unpaid balance of the contract, ie the sum of RM501,817.66.
139
[*185]
[125] Now comes the issue of damages. The appellant pleaded this claim and
led evidence that following on the heels of termination of the contract, it was
blacklisted in so far as Government contracts are concerned.
[126] As a result, the appellant claimed that it suffered damages, which it put at
RM2.8m.
[127] The question is, what would be the consequence of being blacklisted, for
the appellant? For one, it would mean that no contract from the Government would
come its way. It would also mean that no door will be open to it by the private sector
too. This can only mean that the appellant suffered some damages due to being
blacklisted. This is apparent when it is shown that before the blacklisting, several
projects found their way to the appellant company as evident in the submission of
learned counsel for the appellant. However there was none, after the blacklist. But I
do not think that the damages it suffered is to the extent that it had claimed. The
appellant led evidence of previous contracts and tenders which it had won from the
Government. This was not disputed. However the frequency or even certainty of
those contracts were not brought forth. In this regard, the damages claimed may be
difficult to assess, but this should not be an impediment to award an applicant
damages it ought to get. In the words of Vaughan Williams LJ in Chaplin v Hicks
[1911] 2 KB 786:
... The fact that damages cannot be assessed with certainty does not
relieve the wrongdoer of the necessity of paying damages.
[128] In short, my view is that difficulty of proof does not of itself, do away
with the necessity of proof. The only question perhaps is, what is the standard
required in such circumstances?
[129]
Authorities on this subject suggest that the standard of proof only
demands that evidence from which the existence of damage can be reasonably
inferred, which provides adequate data for calculating its amount.
[130] Based on this principle, I would award the appellant general damages for
breach of contract and give direction that the assessment of such damages be done by
the senior assistant registrar of the High Court. An early hearing of the assessment is
also directed.
[131] For the reasons stated in this appeal, I would allow this appeal with costs
here and below. The order of the learned judge is hereby set aside.
140
[*186]
[132] Thus I make the following order:
(a) the appellant is to be paid the unpaid contractual sum claimed, ie the
sum of RM501,817.66 with interest at 8% pa with effect from 5 July 1996
till date of realisation;
(b) general damages for breach of contract, to be assessed by the senior
assistant registrar of the High Court. An early date shall be fixed for
such assessment;
(c) the respondent must pay the costs of this appeal and those incurred in
the court below;
(d) deposit shall be refunded to the appellant; and
(e) the respondent's counterclaim is dismissed with costs.
ORDER:
Appeal allowed with costs here and below.
LOAD-DATE: 07/24/2008