CHAPTER 1
INTRODUCTION
1.1
Research Background
Delay is a common occurrence in construction industry. 1 This is essentially
because of the nature of construction works. Particularly, construction projects take a
long period of time to complete. The construction operations involve many parties2
and workmen of various trades. The construction contracts contain many clauses and
documents. If the construction works are not properly managed, delays may occur.
There are many causes that may cause delays to construction works. The
delays may basically be classified into two main categories; one, excusable delays
and the other, non-excusable delays.3 Excusable delays are those that are caused by
the employer4 or his agents5 and by some neutral events that are beyond the control
1
Abd. Majid, M.Z. and McCaffer, R., “Factors of Non-excusable Delays that Influence Contractors’
Performance”. Journal of Management in Engineering. ASCE, May/June (1998) 42-49.
2
Employers, consultants, main contractors, subcontractors, suppliers, etc.
3
Kenneth C. Gibs, Gordon Hunt. California Construction Law. Aspen Publishers. New York. (2000)
4
Employer’s requirements for variations
2
of the parties.6 For delays that come within this category, the contractor is normally
entitled to extension of time.7 Non-excusable delays are those that are caused by the
contractor’s own faults or non-performance. 8 Naturally, the contractor is not entitled
to extension of time; and instead, the contractor is liable to the employer in the form
of liquidated damages.9
Relating to excusable delays, the causes may be further classified into two
sub-categories: one, cause by the employer or his agents/consultants and, the other,
cause by neutral events that are outside the contractor’s control and they are
unforeseeable.10 Examples of excusable delays of the first category are variation
orders,11 delay in giving possession of site,12
delay by consultants in issuing
instructions,13 etc. Examples of employer’s caused delays of the second sub-category
are unusually severe weather condition,14 strike,15 unavailability of materials,16 etc.
Excusable delays basically entitled the contractor to an extension of time.17 As in the
case of Ellis Don v The Parking Authority of Toronto,18 the contractor was granted
17½ weeks extension of time due to winter season which had delayed the concreting
works.
Non-excusable delays are those that are due to the contractor’s lack of
performance or simply or breach of contract.
There are multiple causes under
contractor’s caused delays. Some obvious examples of contractor’s caused delays are
5
Delay in issue instructions or drawings, etc
Force majeure, statutory authorities, outbreak of war or hostilities
7
Clause 23.0 PAM (2006), Clause 24.0 CIDB (2000), Clause 43.0 PWD 203A (2010)
8
Timothy R. Hughes. A Layperson’s Guide to Delay Claims. Masonry Magazine. Hughes &
Associates. (2003).
9
Clause 22.1 PAM (2006), Clause 26.2 CIDB (2000), Clause 40.1 PWD 203A (2010)
10
Cushman, R. F., Myers, J. J. Construction Law Handbook. New York. Aspen Law & Business.
(1999)
11
Clause 24.1(l) CIDB 2000, Clause 23.8(g) PAM 2006, Clause 43.1(e) PWD 2010
12
Clause 24.1(i) CIDB 2000, Clause 23.8 (f) PAM 2006, Clause 43.1(h) PWD 2010,
13
Clause 24.1(e) CIDB 2000, Clause 23.8(e) PAM 2006, Clause 43.1(f) PWD 2010
14
Clause 24.1(b) CIDB 2000, Clause 23.8(b) PAM 2006, Clause 43.1(b) PWD 2010
15
Clause 24.1(c) CIDB 2000, Clause 23.8(d) PAM 2006
16
Clause 23.8(k) PAM 2006
17
Clause 24.0 CIDB (2000), Clause 23.0 PAM (2006), Clause 43.0 PWD 203A (2010)
18
(1978) 28 BLR 98
6
3
defective works, subcontractors’ related caused delays,19 poor communication,
financial related delays and improper planning.20 This category of delay does not
entitle the contractor to get extension time. Usually, the contractor is liable to pay the
employer liquidated damages.21
Since delay is a normal occurrence, particularly when it is within the
excusable delay category, time for completion may become at large and the employer
may not be able to deduct the liquidated damages.22 It is submitted that all standard
forms of contract contain express provisions relating to granting contractors
extension of time caused by excusable delays.23 Generally these provisions give
power to the contract administrator24 to grant the extension of time, set out the
conditions and procedure for the application.
One of the normal conditions required of contractors to fulfil for the purposes
of granting the extension of time is that the contractor must have used his best
endeavours to reduce or prevent delay. For example, in clause 23.6 of the PAM 2006
standard form of contract, states that:
“The contractor shall constantly use his best endeavour to prevent or reduce
delay in the progress of the works, and to do all that may reasonably be required to
the satisfaction of the Architect to prevent and reduce delay or further delay in the
completion of the Works beyond the completion date”.
19
Westminster CC v. Jarvis & Sons [1970] 7 BLR 64
Afshari, H., et. al. Identification of Causes of Non-Excusable Delays of Construction Projects. 2010
International Conference on E-Business, Management and Economics. Vol. 3. Hong Kong. (2011)
21
Clause 22.1 PAM (2006), Clause 26.2 CIDB (2000), Clause 40.1 PWD 203A (2010)
22
Rapid Building Group Ltd v Ealing Family Housing Association Ltd [1984] 29 BLR 5
23
Clause 23.0 PAM (2006), Clause 24.0 CIDB (2000), Clause 43.0 PWD 203A (2010)
24
A neutral term that refers to S.O. in PWD and CIDB, Architect in PAM and Engineer in IEM
20
4
Another example is as in clause 25.3.4 of the Joint Contract Tribunal (JCT)
standard form of contract 199825 provides that:
“the Contractor shall use constantly his best endeavours to prevent delay in
the progress of the Works…’
Based on the provisions above, one of the requirements in granting the
contractor with an extension of time is that the contractor must use his best
endeavour to avoid the delay of the works.
However, there are other standard forms, for examples, the PWD 201026 and
CIDB 200027 that use the term ‘taken all reasonable steps’ instead of ‘best
endeavours.’ It is submitted that, the courts have interpreted these two terms, both of
them having no material distinctions.28
Clause 43.1 in PWD 203A Standard Form of Contract (Rev 2010)29 states
that:
“…Provided always that the Contractor has taken all reasonable steps to
avoid or reduce such delay and shall do all that may reasonably be required to the
satisfaction of the S.O. to proceed with the Works”.
CIDB Standard Form of Contract 2000 in its Delay and Extension of Time
Clause, Clause 24.1 mentions that:
25
JCT Standard Form of Contract. (1998)
Clause 43.1
27
Clause 24.1
28
Slaughter and May. Best endeavours v. reasonable endeavours, what do they mean? Does either
mean anything? London. (2007)
29
Public Works Department. PWD 203A Standard Forms of Contract. (2010)
26
5
“Provided that the Contractor has carried out the Works or any section of the
Works with due diligence and has taken all reasonable steps to avoid or reduce such
delays,”
According to Chappell (2011) the term best endeavours used in the JCT 98
standard forms imposes on contractors two express duties: one, to take remedial
actions to prevent the occurrence of delay and, two, also a duty to mitigate the loss
incurred from the potential delay.30
1.2
Problem Statement
Contractors have an obligation to carry out their works regularly and
diligently in order to make sure that they meet the agreed completion date.
Accordingly, when delay occurs or when delay is likely to occur, this duty to carry
work regularly and diligently may include a duty to take any positive action which
can reduce the consequences of delay and of potential delays in future. It is submitted
that such an interpretation may also be made with respect the term “best
endeavours” and “taken all reasonable steps” in relation to the duty to prevent and
reduce delay.
Hence, it is important for contractor to understand what is meant by both
terms so that they can act appropriately in order to avoid the delay and put the loss at
a minimum level. In addition, the fulfilment of this duty is important for the purpose
of applying for extension of time. The contractor is under a legal and moral
obligation to prove that he has taken mitigation steps against the overall damages.31
30
Chappell, D. Building Contract Claims. Wiley-Blackwell. UK. (2011)
Simon, M.S. Construction Contracts and Claims. McGraw-Hill Book Company. United States.
(1979)
31
6
It is submitted that the courts have not been consistent in construing the term
best endeavours. In the case of Midland Land Reclamation Ltd v. Warren Energy
Ltd,32 the court held that the term best endeavour did not mean the next best thing to
an absolute obligation or guarantee. According to this interpretation, the contractor
has a heavy duty to discharge because according to the judge, it was an absolute
obligation and second best was simply insufficient.
In another case, Terrell v Mabie Todd and Co.33, the judge in this case had
construed the term best endeavours as just requiring the contractor to do what was
commercially practicable and what is considered as reasonable in that circumstances.
It is submitted that this standard of duty is less burdensome than that under Midland
Land Reclamation case.
Furthermore, according to Slaughter and May (2007) there was no exact and
certain meaning to the terms “best endeavour” and “taken all reasonable steps”.34
This leads to a conflict relating to the correct construction of the term “best
endeavours” used in the standard form of contract.
Keating considers the contractor’s duty to do his best endeavours to prevent
delay is an important proviso for the granting of extension of time. He states in his
book ‘Keating on Building Contracts’ (2003):
“The proviso is an important qualification to the right to an extension of
time. Thus, for example, in some cases it might be the contractor’s duty to reprogramme the works either to prevent or reduce delay. How far the contractor
must take other steps depends upon the circumstances of each case, but it is thought
32
[1997]
[1952] 69 RPC 234
34
Slaughter and May. Best endeavours v. reasonable endeavours, what do they mean? Does either
mean anything? London. (2007)
33
7
that the proviso does not contemplate the expenditure of substantial sums of
money.35”
Relating to the extent of the contractor’s duty to prevent delay under the best
endeavours proviso, Keating suggests that, the contractor may re-programme his
works. However, the actions must not involve the incurring of substantial amount of
money.
Despite the above statement, it is submitted that there is no clear guidelines or
established benchmark to what extent a contractor is needed to act in order to put the
delay risk at the minimum level. Due to this uncertainty, the contractors are facing
difficulties in deciding when it is necessary to carry out such mitigation action, to
what extent and also at what cost. Even in the contractor’s opinion, they had taken
some reasonable steps to avoid the delay, they are still not being granted with the
extension of time from the employer36.
1.3
Objective of Research
Based on the above problem statement, the objective of this research is
essentially to identify the requirements in performing the duty of best endeavours for
the purpose of compliance with the proviso for the granting extension of time.
35
Mokhtar Azizi Mohd Din. The Extent of The Contractors Effort to Mitigate Delay. PMINZ
Conference. Auckland. (2011)
36
Keane, P.J., Caletka, A.F. Delay Analysis in Construction Contracts. Blackwell Publishing Ltd.
United Kingdom. (2008)
8
1.4
Scope of Research
The scope of this research is confined to the both Malaysian and international
main standard forms of contract. The Malaysian main standard form of contract here
refers to PWD 2010, PAM 2006, and CIDB 2000 while for international main
standard form of contract is refer to JCT 1998.
Relating to the case law analysis, the cases are mainly those that are reported
in the law reports provided by the Lexis Malaysia online data base. The cases
retrieved were only from common law jurisdiction or Commonwealth countries.
1.5
Significance of Research
The books on construction law and construction contracts seem to give little
emphasis on this topic. The contract administrators in Malaysia too do not seem to
put great emphasis on this duty of best endeavours when considering contractors’
applications for extension of time. Although there no reported cases regarding the
issue of mitigating delay in the local construction industry, it is hoped that this
research will give some guidelines and overview to employers, contractors and
contract administrators in the local construction industry on the issue of mitigation
duty.
9
1.6
Research Methodology
In order to achieve the objective of this research and successfully complete it
in the stipulated time, there is a need to a proper plan for its implementation.
Basically, this research is carried out in four main stages, they are: initial study stage,
data collection stage, data analysis stage and completion stage. All of these stages
will be explained further.
1.6.1
Initial Study
Initial study is important as at this stage the issue or the problem is identified.
This stage requires extensive readings from various sources of literature materials in
order to get a clear view on the topic chosen. This stage also involves discussion
with lecturers to get more ideas relating to the topic and feasible issues of the subject
matter. After all the issue and objective as well as the scope are identified, the next
stage is the collection of data.
1.6.2
Data Collection
The data or information required for this research are mainly relating to the
clauses in the standard forms, commentaries about those clauses. The sources for
those commentaries are in the various articles, seminar papers, books and journals.
The other main information require for the research is of course the relevant case law
collected from the law journals available from the Lexis Malaysia online database.
The data collection stage is in fact being carried continuously beginning from the
initial stage. All data related to the research topic is valuable even though it is not
being cited in the research writing.
10
The commentaries on the clauses are considered as the secondary data. The
primary data are the relevant clauses and the case law. The relevant landmark and
important cases are important for the purpose of achieving the objective of the
research. The relevant cases are retrieve from Lexis Malaysia online database the
University’s Library, (Perpustakaan Sultanah Zanariah) subscribes.
1.6.3
Data Analysis
This is the final stage of the whole research process where researcher needs to
compare and discuss all the law cases in order to achieve the objective. Data analysis
is very crucial because this part requires fine analytical and critical thinking. It
appraises the researcher’s mental and intellectual ability to analyse and synthesise the
legal principles, the contract provisions and legal arguments collected.
1.6.4
Conclusion and Recommendation
After the analysis and review of all the cases, this is the stage that the
researcher will make the conclusion and summary what is basically the purpose of
this. This stage will summarise the research findings. I will set out in summary what
actions amount to and what action do not amount to best endeavours. The researcher
will also make suggestion as to the possible future research topic in relation to this
area of research. There will also an explanation on the problems, weaknesses and
limitations in carrying out this research.
11
1.7
Research Flow Process
Initial Study
Statement of Problem
Scope of Study
Objective
Literature Review
Data Collection
Documentation Review
Case Review
Data Analysis
Report Writing
CHAPTER 2
EXTENSION OF TIME
2.1
Introduction
A contractor’s obligation under a construction contract is, generally, to carry
out and complete the construction works either before or on the agreed date of
completion.37 However, due to the unique features of construction works, there are
many influencing factors that may affect the progress of the works and thereby cause
delay in the completion. The causes of delays in construction works can be classified
into excusable and non-excusable delays.
Generally excusable delays are those that are caused by the employer or his
consultants and some neutral events beyond the control of the parties.38 In other
words, the contractor is not liable to the employer for those delays. The contractor is
normally granted with extension of time.39 In addition, in relation to employer’s
37
Clause 1.0 PAM (2006), Clause 7.0 CIDB (2000), Clause 2.0 PWD 203A (2010)
M.Z. Abd Majid and Ronald McCaffer. Factors of Non-Excusable Delays that Influence
Contractor’s Performance. Journal of Management in Engineering. May/June. (1998).
39
Clause 23.0 PAM (2006), Clause 24.0 CIDB (2000), Clause 43.0 PWD 203A (2010)
38
13
caused delays, the contractor may also be compensated for any direct loss and
expense,40 but not in relation to excusable delays caused by neutral events.
Non-excusable delays are those delays that are caused by the contractor’s
own faults. They are essentially the contractor’s breaches of contract. The contractor
is not granted with extension of time. Moreover, the contractor will be liable for the
delay in the form of liquidated and ascertained damages.41
Hence, this chapter specifically focuses on extension of time granted due to
the occurrence of compensable excusable delay events.
The discussion is
substantially based on the express extension of time provisions contained in the
standard forms. The discussion also includes the reasons for extension of time clause,
requirement for granting extension of time, duties of contract administrator, time for
granting extensions and finally is summary for the whole chapter.
2.2
Purpose of Extension of Time Provision
Hudson’s Building and Engineering Contracts, 11th Edition, p 624 (2010)
explains the rationale for such clauses:
“It has been seen that, for the purpose of treating the contract as
repudiated, in the rare cases where time is of the essence, the contract
time for completion may cease to be applicable for a variety of reasons,
including the ordering of extras or other interference or prevention by
40
41
Clause 24.0 PAM (2006), Clause 31.0 CIDB (2000), Clause 44.0 PWD 203A (2010)
Section 75 of the Contract Act 1950; Clause 22.1 PAM (2006), Clause 26.2 CIDB (2000),
Clause 40.1 PWD 203A (2010)
14
the employer. In the case of damages, it is equally obvious that where the
reason is some act of the employer or his architect or engineer
preventing completion by the due date, it cannot be the intention of the
parties that liquidated or other damages should be calculated from that
date even if the act, such as ordering extras, is not a breach of contract.
Liquidated damages stipulated for at a rate for each day or week of delay
in completing the works must begin to run from some definite date. It
follows, therefore, that if the date in the contract has for some such
reason ceased to be the proper date for the completion of the works, and
no contractual provision exists for the substitution of a new date, there is
such a case no date from which liquidated damages can run and the right
to liquidated damages will have gone. This, rather than solicitude for the
contractor, is the reason for the provision usually known as the extension
of time clause.”
By and large every standard form of construction contract provides a clause
on extension of time.42 It is an important provision in the sense that it can
continuously maintain time as of the essence of the contract when the progress of the
work is hindered by factors under excusable delays. Without the power to extend the
time for completion, the time for completion becomes at large, the contractor is only
required to carry out and complete the work within reasonable time. The effect is that
the employer is not entitled for liquidated damages.43 It is submitted that the
extension of time clause is chiefly for the employer’s benefit and not so much for the
contractor.44
It is now settled law that if the employer causes the delay, wholly or partly he
is not entitled recover liquidated damages.45 Denning L.J. in the House of Lords had
42
Clause 24.0 PAM (2006), Clause 31.0 CIDB (2000), Clause 44.0 PWD 203A (2010)
Rapid Building Group Ltd v Ealing Family Housing Association [1985] 29 BLR 5
44
Oon Chee Kheng. Extension of Time and Liquidated Damages in Construction Contracts. Seminar
on Construction Contracts and Arbitration. Institution of Engineers, Malaysia. Perak. (2003).
45
Peak Construction (Liverpool) Pty Ltd v. McKinney Foundation Ltd [1970] 1 BLR 111
43
15
in the case of Amalgamated Building Contractors Ltd v. Waltham Holy Cross
UDC,46 said:
“I would also observe that on principle there is a distinction between
cases where the cause of delay is due to some act or default of the building
owner, such as not giving possession of the site in due time, or ordering
extras, or something of that kind. When such things happen the contract
time may well cease to bind the contractors, because the building owner
cannot insist on a condition if it is his own fault that the condition has not
been fulfilled.”47
Later, in the case of Peak Construction (Liverpool) Pty Ltd v. McKinney
Foundation Ltd,48 Salmon L.J. futher said
“The liquidated damages clause contemplates a failure to complete on
time due to the fault of the contractor. It is inserted by the employer for his
own protection; for it enables him to recover a fixed sum as compensation
for delay … If the failure to complete on time is due to the fault of both the
employer and the contractor, in my view, the clause does not bite. … I
consider that unless the contract expresses a contrary intention, the
employer … is left to his ordinary remedy … No doubt if the extension of
time clause provided for a postponement of the completion date on
account of delay caused by some breach or fault of on the part of the
employer, the position would be different. This would mean that the parties
had intended that the employer could recover liquidated damages
notwithstanding that he was partly to blame for the failure to achieve the
46
[1952] 2 All ER 452
Ibid., at p. 455
48
Supra, n. 46
47
16
completion date, and the contractor would be liable to pay liquidated
damages for delay as from the extended date. …”49
In this case the plaintiff was the main contractor and the defendant was the
nominated subcontractor for piling. The project was a housing project owned by
Liverpool Corporation.
After the completion of the project in 1964 and the
contractors had left the site, defects were discovered in one of the building’s
perimeter piles. The owner delayed in engaging the expert to examine and prepare
the report. The main contractors reported to the parties in late May 1965.
The following day Peak wrote to the corporation asking for an instruction to
carry out the work recommended by the expert. Peak heard nothing and so wrote to
the corporation in late June. It was not until 30 July 1965 that the expert’s
recommendations were approved by the corporation. The remedial work was
commenced by Peak on 12 August 1965 and completed in early November 1965 –
some 58 weeks after the works had been suspended. As a result of the delay, the
corporation sought Liquidated Damages from Peak. Peak, in turn, sought Liquidated
Damages for that entire period from McKinney Foundation. The issues was whether
Peak was entitled to Liquidated Damages.
The Court of Appeal held that main contarctor was not entitled to recover
liquidated damages from subcontractor as the corporation was not entitled to recover
those liquidated damages from Peak. The Court of Appeal found that at least part of
the 58-week delay had been caused by the corporation itself, and the extension of
time clause in the main contract did not enable the corporation to extend time for its
own delays. Further, no attempt had been made by the corporation to extend time.
Accordingly, there was no date from which liquidated damages under the head
contract could commence.
49
[1970] 1 BLR 111 at p.121
17
The principle enunciated in Peak Construction case is known as the
prevention principle. It simply demonstrates that an employer is not entitled to rely
on a liquidated damages clause where the reason for late completion is an act of
hindrance or prevention by the employer, at least in the absence of a suitable
extension of time clause.
The application of this prevention principle may be found in the an Australian
case of Gaymark Investments Pty Limited v. Walter Construction Group Limited,50
Due to prevention acts by Gaymark, the employer, the contractor (Walter) was
delayed in completing the work. According to the standard form of contract, the
contractor was not either able to be granted with extension of time or even to set a
new completion date. Hence, the court held that time had become at large and the
contractor was obliged to perform and complete the works within a reasonable time.
2.3
Extension of Time Provision
The essence of the extension of time clause is to confer to the contract
administrator power to grant extension of time to the contractor. This is because the
contract administrator basically has no inherent power to extend time for completion
without express provision to that effect.51 In the case of Rapid Building Group Ltd v
Ealing Family House Association,52 it was held that without such an express term the
architect was not able to grant extension of time to the contractor. In this case the
court held that the architect had no power to grant the contractor extension of time
for delays caused by employer’s late in giving site possession because the extension
of time clause in the contract did not include such cause in its relevant events.
50
[1999] NTSC 143
Lim Chong Fong, The Malaysian PWD form of Construction Contract, Sweet and Maxwell Asia,
Kuala Lumpur, 2004, at page 92
52
Supra, n.43
51
18
Another aspect of the clause is that there is always a list of relevant events
that entitle the contract administrator to grant extension of time.53 It simply shows
that the power of the contractor administrator to grant extension of time is limited to
delays caused by those events and no other.54 Usually the relevant events are causes
of delays bring about by the employer or his agents and neutral events beyond the
control of the parties.
Examples of relevant events cause by employer include delay in giving
instructions,55 delay in supplying information,56 delay in nominating nominated
subcontractors,57 etc. Examples of neutral events are exceptionally inclement weather
condition,58strike by workers,59 etc. The standard forms normally have long list of
relevant events principally, it is submitted, to maintain the employer’s entitlement to
liquidated damages.60
The extension of time clauses also specifies the procedure for making the
application. One important procedure is that the contractor must serve the contract
administrator two notices. First notice is intention to claim the extension of time.61
This notice is described as condition precedent for the granting of the extension of
time. The court has interpreted it literally and held that the notice is mandatory.62
Specifically, PAM 2006 provides:63
53
Clause 23.0 PAM (2006), Clause 24.0 CIDB (2000), Clause 43.0 PWD 203A (2010)
Rapid Building Group Ltd v Ealing Family Housing Association [1985] 29 BLR 5
55
Clause 24.1(e) CIDB 2000, Clause 23.8(e) PAM 2006, Clause 43.1(f) PWD 2010
56
Clause 24.1(e) CIDB 2000, Clause 23.8(e) PAM 2006, Clause 43.1(d) PWD 2010
57
Clause 24.1(e) CIDB 2000, Clause 23.8(e) PAM 2006, Clause 43.1(j) PWD 2010
58
Clause 24.1(b) CIDB 2000, Clause 23.8(b) PAM 2006, Clause 43.1(b) PWD 2010
59
Clause 24.1(c) CIDB 2000, Clause 23.8(d) PAM 2006
60
The detail of the relevant events is discussed in section 2.4 below
61
Clause 23.1 PAM (2006), Clause 24.2 CIDB (2000), Clause 43.1 PWD 203A (2010)
62
Smith, H. Notice Requirements in Construction Contracts – A Southeast Asia Perspective. (2012);
Oon Chee Kheng. Standard Construction Contracts in Malaysia: Issues and Challenges.
Innovations in Construction Contracts. Malacca. Pp 8-9. (2002)
63
Clause 23.1 (a) PAM Standard Form of Contract 2006, Clause 43.1 PWD Standard Form of
Contract 2010, Clause 24.2 (a) CIDB Standard Form of Contract 2010.
54
19
“the Contractor shall give written notice to the Architect his intention to
claim for such extension of time…”64
Based on a plain meaning in interpreting the clause, it seems that the notice is
a condition precedent before a contractor can be entitled with the time extension.
However, there are many literature stated that failure to comply with this notice
requirements does not make the contractor not qualified for the extension of time.65
One of the cases that illustrated this opinion is the case of Maidenhead
Electrical Services v. Johnson Controls.66 The contract provision stated that any
claim for an extension of time must be made within 10 days from the event which the
claim arises.
The court held that the contractor’s failure to comply with the
provisions did not bring the claim as an invalid document. Similarly in another case
of London Borough of Merton v Stanley Hugh Leach,67 the court held that a written
notice was not consider as a condition precedent in granting an extension of time
whereby it was under duty of an independent architect.
Therefore, it is suggested that if the employer intends to make this notice a
condition precedent for claiming time extension, there must a clear term to that effect
and non-compliance with this notice leads to waiver of contractor’s right in getting
the extension of time.68
The second notice is served after the end of the delay event. The notices
should supply the contract administrator the delay event, the estimated period of
64
PAM Standard Form of Contract. Clause 23.1 (a). (2006)
Smith, H. Notice Requirements in Construction Contracts – A Southeast Asia Perspective. (2012);
Oon Chee Kheng. Standard Construction Contracts in Malaysia: Issues and Challenges.
Innovations in Construction Contracts. Malacca. Pp 8-9. (2002)
66
[1996]
67
[1985] 32 BLR 51
68
Knowles Commercial Services. Delays, Extensions of Time and Liquidated Damages. (n.d)
65
20
delay and other relevant information and documents to enable him to assess the
extension of time the contractor should be granted with.
CIDB (2000) Standard Form of Contract requires contractor to provide any
appropriate contract references as supporting document in applying extension of
time.69 This reference can be a construction programme in the form of a bar chart or
network programme showing the critical path of the project. There are two types of
information can be obtained from this programme, namely duration of work and
sequence of the works.
A good work programme will provide information on actual start dates,
durations, and also completion date. By referring to this, the contract administrator
can evaluate the planned works with the as-built works and at least it can help him in
assessing the extension application. There are requirements provided in establishing
an extension of time as in the case of Balfour Beatty Construction Ltd v The London
Borough of Lambeth70:
i)
The original programme and substantiation to show its validity and
reliability as a contractual starting point, or
ii)
Revised programmes on the occurrence of the event which can give
convincing relationship of cause and effect71.
The contractor’s failure to provide an effective programme may put himself
at a risk on proof of entitlement to the time extension72.
69
Clause 24.2 (a)
[2002] BLR 288
71
Price D. Delay and Disruption Claims under FIDIC Contracts-Procedural Issues, Evidence and
Assessment. Hill International. (n.d)
72
Eggleston, B. Liquidated Damages and Extensions of Time. Blackwell Publishing. United
Kingdom. Pp 248-249. (2009)
70
21
Thereafter the administrator may grant the contractor the extension of time by
issuing the certificate of extension of time.73 This power to grant extension of time is
extended beyond the date of certificate of non-completion if the relevant event
occurs after the issuance of the certificate.74 The contract administrator may also
review the extension of time granted after the practical completion that may result
that the total extension of time may be reduced or increased.75
One particular condition that the contractor must also include in his
application of extension is the proviso that he must have taken actions to prevent or
reduce delay. In clause 23.6 of PAM 2006, it is stated that:
“The Contractor shall constantly use his best endeavours to prevent or
reduce delay in the progress of the Works and to do all that may
reasonably be required to the satisfaction of the Architect ....”
Clause 43.1 PWD 2010 specifies:
“…Provided always that the Contractor has taken all reasonable steps to
avoid or reduce such delay and shall do all that may reasonably be required to the
satisfaction of the S.O. to proceed with the Works”.
Clause 24.1 of CIDB provides:
“Provided that the Contractor has carried out the Works or any section of the
Works with due diligence and has taken all reasonable steps to avoid or reduce such
delays.”
73
Clause 23.4 of PAM 2006
Clause 23.9 PAM 2006
75
Clause 23.10 PAM 2006
74
22
2.4
Relevant Events
Clause for extension of time in standard forms of contract provide long list of
relevant events that entitled contractor to get extension of time from the employer in
order to complete the works. Basically, an extension of time will be granted if the
delay occurred on the employer’s default which is categorized as compensable
excusable delays76.
Besides getting time extension, the contractor also will be
entitled with recovery of any increasing of costs incurred due to the default 77. There
are several events under this type of delay and each will be discussed further next.
2.4.1
Force Majeure
It is common to have force majeure as one of the listed events which entitled
the contractor for an extension of time.78 In order to have understanding what is
meant by force majeure, most writers or researchers interpret it as any unforeseen act
of God. However, not all events that make performance impossible are considered as
force majeure and plus, in construction contract it is normal to have event that must
inclusive “man-made” factors.
Robinson et. al. (1996) henceforth classified force majeure into two areas
which are act of God and ‘vis major’79. Act of God is referred to a natural causes
event which could not be foreseen and does not involved human intervention such as
earthquake, extraordinary flood or death. Whilst a vis major are circumstances
which may or may not inclusive human factor but including an act of God. For the
76
Thomas, J. Kelleher and G. Scott Walters. Smith, Currie & Hancock’s Common Sense Construction
Law. John Wiley & Sons. United States of America. Pp 281 – 283. (2009).
77
Thomas, J. Kelleher and G. Scott Walters. Smith, Currie & Hancock’s Common Sense Construction
Law. John Wiley & Sons. United States of America. Pp 281 – 283. (2009).
78
Pertubuhan Arkitek Malaysia. PAM Standard Form of Contract. (2006)
79
Robinson, N.M. et.al. Construction Law in Singapore and Malaysia. 2nd Edition. Singapore. (1996)
23
example is war, strikes, terrorism, actions of governing authorities and Act of
Parliament.
Based on the explanation above, force majeure is considered as any action
which uncontrollable and unavoidable by both parties that makes a performance to
be impossible.80 The contractor does not have any liability on the effect occurs from
the force majeure events and hence he is entitle for extension of time.
2.4.2
Failure to Provide Access
Access to the site is very important in order to allow the contractor to
commence his works on time. The employer has implied obligation to provide an
adequate access to the contractor.
This is very important since it allows the
transportation and delivery of materials, plant, labours and equipment to reach the
site. Besides provide ease to get access, the route also must be suitable for the type
of vehicle required and available at the appropriate time81.
The employer is also being responsible if the access to the site required local
permissions as in the case of Penvidic Contracting Co Ltd v International Nickel Co.
of Canada Ltd.82. The plaintiff was a contractor in the contract for laying of track
and top ballasting on a railroad. He had been delayed because of failure by other
contractor to properly grade and sub-ballast the right of way.
Somehow, the
defendant failed to obtain necessary permissions to cross various hydro lines and
highways.
Hence, the defendant was under breach of contract and entitled the
plaintiff for damages.
80
Denise L. Nestel. Force Majeure Clause: The Basics. Executive Magazine. (2006)
Daniel Atkinson. Access to Site. Atkinson Law. (2000)
82
[1975] 53 DLR 748
81
24
Under PAM 2006, breach due to failure in provide access to works giving the
contractor time extension under the Clause 23.8 (u).
2.4.3
Late Possession of Site
Delay or failure in giving possession of site makes the employer breach for
implied duties. As Megarry J. said in London Borough of Hounslow v Twickenham
Garden Developments83 Ltd:
“The contract necessarily requires the building owner to give the contractor
such possession, occupation and use as is necessary to enable him to perform
the contract…”
In the case of The Rapid Building Group Ltd v Ealing Family Housing
Association Ltd84, the defendant who was the employer was clearly in breach of
Clause 21 of the contract for failure in giving possession of site. There were some
squatters occupying the north-east corner of the land. The defendant had conducted
eviction action, but it was only succeed after 19 days effort before enable the
contractors to take whole possession of the site.
In interpreting the whole site possession terms, Whittal Builders v Chester-leStreet District Council85 case explains the phrase for possession of the whole site
does not include the action for giving possession in piecemeal or portion of the site.
If the employer does so, he is in breach of contract and entitles the contractor for
damages.
83
[1970] 7 BLR 81
[1984] 1 Con LR 1
85
[1987] 40 BLR 82
84
25
All those cases shows that failure to give possession is a fundamental breach
from the side of the employer, but recently the architect’s power seems getting
wider and enable him to postpone the giving of possession. Latest Standard Forms
of Contract provide provision for contractor’s entitlement to get extension of time in
the event of delay in giving site possession.86
2.4.4
Excessive Change Orders
Change in the context of construction contract means that any aspect of
contractor’s performance which is different with what had been agreed in original
contract87. Once employer had identified the area of changes, his agent on behalf of
him, need to issue change orders so that the contractor can comply with it.
Under variation clause in standard form of contract, the employer is permitted
to give change orders against the project’s design either in terms of quantity or
specification. There are many aspects of change orders made by the employer. For
example, change in project’s scope, change in design, and substitution of materials.
Poor planning and management may be the main reason of employer’s change order.
However, excessive change orders can damage the sequence and planning of the
project88. It does not only add the labour and material cost, but also affect a job’s
productivity89 which contributes to delay.
Leonard C. A. had conducted a study on The Effects of Change Orders on
Productivity and he concluded that the accumulation of change orders results many
86
Clause 43.1 (h) PWD 203A 2010, Clause 23.8 (f) PAM 2006, Clause 24.1 (i) CIDB 2000.
Michael T. Callahan. Construction Change Order Claims. Aspen Publishers. United States of
America. Pp 3-10. (2005)
88
Michael T. Callahan. Construction Change Order Claims. Aspen Publishers. United States of
America. Pp 471-472. (2005)
89
William Ibbs and Caroline Vaughan. Change and the Loss of Productivity in Construction: A Field
Guide. (2012)
87
26
causes of loss of productivity such as stop-and-go operations, out-of-sequence work,
loss of productive rhythm, unbalancing of successive operations and lack of
management and engineering support90. The board in Ingalls Shipbuilding Division,
Litton System91 case allowed the cumulative impact claim where three contracts had
affected by several thousand change orders and also additional 58% of the contract
price and 70% increase in project duration.
Another case which proves that excessive change orders may contribute to
delay is the case of Bell BCI Co. v. United States.92 The contractor was responsible
to construct a five-story laboratory for the National Institutes of Health (NIH).
During the construction works, the NIH decided to add another additional floor to the
existing design which produced thousand change orders. Due to this modification,
the contractor incurred extra $2 million and the whole project was delayed for 4
years.
All cases mentioned above shows that excessive change orders issued from
employer can result in delay for few years and big additional expenses. Hence, the
employer must be careful in giving orders on changes to ensure that the contractor
able to execute it without consuming extra time.
2.4.5
Delay in Issuing Drawings and Instructions
Certainty in issuing drawings can resolve many disputes within construction
industry. This is due to problems arise because of the uncertain information given
and late in giving instructions which at the end give additional works to contractor
and affect the sequence of works as well.
90
91
92
Charles A. Leonard. The Effects of Change Orders on Productivity. Concordia University. (1988)
[1978] ASBCA No. 17579
[2008] 81 Fed Cl 617
27
Referred to the case of Roberts v Bury Improvement Commissioners93, it
stressed on the importance of plans and drawings for contractors to commence their
works on site and all of those documents need to be supplied within the reasonable
time. Similarly in Wells v army & Navy Co-operative Society94, it was said that:
“The plaintiffs (the contractors) must within reasonable limits be allowed to
decide for themselves at what time they are to be supplied with detail”.
In another case, J and J Fee Ltd. v. The Express Lift Company Ltd95, Bowsher
J. held that the main contractor is under implied term to supply correct information
on the works within reasonable times to enable the sub-contractors to fulfil its
obligations under the sub-contract.
2.5
Requirement for Granting Extension of Time
When submitting the application for extension of time, contractors need to
follow the procedures that have been set out in the construction contracts and also
several other conditions to ensure that the application will be granted.
2.6
Burden of Proof
The contractor is responsible to proof that he is entitled to the extension of
time. He must show proof that the employer causes the delay or it is caused by a
neutral event. The contractor must be able to produce the relevant records of events.
The decision to grant the extension will be based fully on the quality of the records.
93
[1870] LR 5 CP 310
[1902] 86 LT 764
95
[1993] 34 Con LR 147
94
28
If the contractors experienced delay because of variation orders or excessive orders,
the contractor can produce the wages sheet for labours, extra usage for plant and
equipment. Or if the contractor has record on loss of productivity, this can help him
in successfully get the time extension.
Besides that, the minutes of the monthly progress meeting can be a valid
supporting documents since they record the actual progress on site besides any
problems encountered by every parties involved in the project.96
2.7
Duties of Contract Administrator
A contract administrator (CA) is required to act impartially and reasonably
when dealing with application for extension of time. This is very important so that
the contractor will not be harmed by the power of the CA. This obligation is
expressly stated in the standard form of contract as follows:
i)
PWD 2010 Form of Contract mentioned that the S.O must make a fair
reasonable extension of time;97
ii)
CIDB 2000 Form of Contract requires the Superintending Officer to
grant such extension of time after making fair, reasonable and
necessary opinion;98 and
iii)
PAM 2006 Form of Contract gives power to Architect to make fair
and reasonable decision in granting extension of time.99
96
Eggleston, B. Liquidated Damages and Extensions of Time. Blackwell Publishing. United
Kingdom. Pp 248-249. (2009)
97
PWD 203A Standard Form of Contract. (2010).
98
CIDB Standard Form of Contract. (2000).
99
PAM Standard Form of Contract. (2006).
29
The general rule in determining a fair and reasonable decision to grant an
extension of time is that there should be a thorough analysis and a proper application
of the provisions of the contract. This rule was stated in John Barker Construction v
London Portman Hotel Ltd.100 It cannot be denied that the architect was concern
with the cost and time overrun on the contract, but the architect failed in making a
fair and rational judgment. The court held that even if the architect was acting in
good faith or not in ultra vires, the determination in giving extension of time was not
a fair decision and hence made the certificate invalid.
As a certifier, a CA is not only bound to act based on his own passive role,
but also must take the employer’s right into consideration since he is also acting as
an agent for the employer. This is well explained in the case of Holland Hannan &
Cubitts (Northern) Ltd v Welsh Health Technical Services Organisation.101. The
architect in this case had failed to issue a variation order and an extension of time to
the contractor for the design defects in window supplied by a nominated subcontractor.
The architect believed that the problem only involved the main
contractor and the subcontractor; hence he opposed issue either variation order or
extension of time. Newey J in giving his judgment stated that:
“However, I find it impossible to believe that architects in charge of a great
building project, which has been brought to a stop by an unexpected
difficulty, are entitled to adopt a passive attitude, as PTP did in this case.
PTP’s failures were ones of omission rather than of commission, but I think
that they nonetheless amounted to a breach of contract.
The same conclusion as I have reached in regard to the issue of a variation
instruction applies, I think, to the grant to Cubitts of an extension of time…”
100
101
[1996] 12 Const. L.J. 277
[1981] 18 BLR 80
30
If an extension of time certificate is not valid, there will be no initial date to
run liquidated damages from and hence, the employer can sue for every general
damages that he can prove. The invalid certificate can falls either in any one of
follows:
a) Not given on time,
b) Not in a right form,
c) It is given by a wrong person,
d) It does not have certifier’s name,
e) The decisions taken is not carrying out properly,
f) Unfair issuance of certificate,
g) Contractual machinery not applied.102
2.8
Time for Granting Extensions
In discussing the issue of timing for granting extension of time, the general
rule is that, it must be not too late so that:
i)
The liquidated damages provision will still be effective, and
ii)
The contractor has sufficient time to re-programme his works.
In order to get better understanding of this rule, the case of Miller v London
County Council103 is the best example to look at. The contract provided an extension
of time clause that allowed the engineer to give it via retrospectively as follows:
102
103
Brian Eggleston. Liquidated Damages and Extensions of Time. Blackwell Publishing. United
Kingdom. Pp 219-227. (2009)
[1934] 151 LT 425
31
“It shall be lawful for the Engineer, if he thinks fit, to grant from time to time,
at any time or times, by writing under his hand such extension of time for
completion of the work and that either prospectively or retrospectively and to
assign such other time or times for completion as to him may seem
reasonable”.
The original completion date was on 15 November 1931 while the
contractor successful completed all the works on 25 July 1932. The Engineer issued
the Certificate of Extension of Time on 17 November and the extension period was
until 7 February 1932. Even though the express provisions allowed the Engineer to
back-dated the time for extension, but the court held that it did not give him the
power to fix a new completion date after all works have been completed.
Due to negligent of the Engineer not to exercise his power in a reasonable
time, hence the contractor did not have a sufficient time to re-programme his works
in order to achieve the new completion date and this made the employer lost the
benefits of the clause to recover liquidated damages from the contractor.
Different decision was held in the case of Amalgamated Building Contractors
Ltd v Waltham Holy Cross UDC.104 The contractors experienced difficulties in
getting available materials and labours and hence failed to complete the works on the
original agreed date, 7 February 1949. The contractors fully completed all works on
28 August 1950. On 19 January 1949, the contractors applied for 12 months
extension and the architect only replied by giving letters on 20 December 1950,
stated that the extension of time was from 7 February 1949 until 23 May 1949. The
employer henceforth claimed for liquidated damages at £50 per week for period of
23 May 1949 until 28 August 1950.
104
[1952] 2 All ER 452
32
The contractors opposed the liquidated damages claimed and relied on Clause
18 which stated that:
“The architect shall make a fair and reasonable extension of time for
completion of the works”.
Whereby, the contractors understand this provision as duties for architect to
give them a date which they can aim in the future, not a date which had passed and
claimed that the extension certificate was invalid.
Lord Denning and other members of the Court of Appeal in giving judgment
on this case did not agree with what had been understood by the contractors. The
judges interpreted the retrospective power of the architect as giving him authority to
give a certificate of extension even after the works had already been completed and
the date had been passed. As a result, the contractors were liable to pay liquidated
damages of £50 a week from 23 May 1949 to 28 August 1950.
Both results show contrary interpretation on timing for granting extension. In
order to resolve this problem, it is better if the standard form can have proper and
clear wording so that the parties become clear on this matter. In Malaysia, CIDB
Standard Form of Contract is the only contract form provided on this provision105.
105
CIDB Standard Form of Contract. Clause 24.7 (2000)
33
2.9
Conclusion
Extension of time is the extended time granted to contractors in any
circumstances which beyond of their control. Standard form of contracts normally
provide a provision on this matter since construction is an industry with many
uncertainties and expose to many external risk which can delay the completion. In
order to make sure that the contractors can get the extension of time, they must be
able to proof that the event lead to delay in performing the works and hence entitled
them for the extra period. They can use any contract particulars or their own records
as the supporting documents for their application.
The contract administrator who acts as a certifier and as an agent as well, has
big responsibility in either to allow or reject the contractor’s application. He needs to
make impartial decision and grant a fair and reasonable time extension to the
contractors. Besides, he also has duty to make sure that the time for granting the
extension is not too late so that the contractors has sufficient and adequate period to
re-programme their works so they able to complete all the works according to the
new completion date as granted by the contract administrator.
CHAPTER 3
BEST ENDEAVOURS
3.1
Introduction
Best endeavours terms are widely used in various contracts and it goes the
same in construction contract. Thus, it is not unique to find this phrase in standard
forms of construction contract, particularly in the extension of time clauses. The
word ‘shall’ in the provisions indicate that the contractor’s duty to use best
endeavours is a condition precedent. It also means that the contractor must perform
this duty before he can be granted with an extension of time and also as a relief from
being imposed with liquidated and ascertained damages.
Hence, this clause is
provided to remind the contractor to put his best effort in preventing delay or put the
delay losses as minimum as possible.
Referring to The Official Journal of the Law Society of Hong Kong (2004),
best endeavours and best efforts terms are used interchangeably in the court. This is
also supported by the case of Corporate Development International Ltd v The
35
Hartstone Group plc,106 where the court held that ‘best efforts’ undertaking
amounted to a ‘best endeavours’ obligation.
Best endeavours have been used as an indicator for contractor’s standard of
duty in preventing the occurrence of delay. Besides best endeavours, there are
several other terms also being used to show the standard of duty, which are:
i)
Reasonable endeavours,
ii)
Reasonable care and skill,
iii)
Absolute duty.
It is submitted that the contractor’s duty to use his best endeavours to prevent
delay is similar to duty to mitigate losses under the general law of contract.
Mitigation is a duty of an innocent party when claiming damages against the party in
breach. In order to make sure he is entitled for the damages, he must prove that he
has carried out mitigation measures to reduce the consequences of that breach event.
Otherwise, his entitlement towards the damages may be reduced or totally loss.
Based on the brief introduction on best endeavours, thus this chapter will
provides an overview of what is meant by best endeavours, the contractual provisions
and also other types of standard of duty applicable in mitigating delay in order for the
contractor to be granted with an extension of time.
106
QBD November 1992
36
3.2
Principles of Mitigation
If a party does not carry out his obligations to the standard required as stated
in the contract, the party is in breach of contract. Section 74 Contract Act 1950 sets
out the guidelines for compensation entitled to the innocent party for loss or damage
caused by breach of contract107.
Any loss suffered by the innocent party is
compensable with condition that it is not too remote. Thus, the basis of law for
recoverable damages is contained in the judgment of Alderson B. in the case of
Hadley v. Baxendale108, where it is limited to:
i)
Damage which naturally arose in the usual course of things from the
breach; and
ii)
Damage which in the contemplation of both parties, at the time they
entered into the contract, is likely to be occur if they are in breach.109
The measure of damages does not include losses caused by the failure of
innocent parties to take reasonable steps to mitigate the loss. Mitigation can be
defined as to make less rigorous or penal110.
There are three rules relating to
mitigation for breach of contract. They are:
i)
Damages that can be avoided by taking reasonable steps
- The injured party is not entitled to damages that could be avoided by taking
reasonable steps, if he fails to carry out them.
107
Contract Act 1950 (Act 136). International Law Book Services. Selangor. (2008)
[1854] 9 Exch. 341
109
Section 74(1) Contract Act 1950.
110
The Free Dictionary by Farlex. Retrieved from http://legal-dictionary.thefreedictionary.com.
August. (2012).
108
37
ii)
Damages that cannot be recovered by unreasonable steps
- If the injured party takes any unreasonable steps in order to mitigate the
losses, and he succeeds, he is not entitled for that loss incurred.
iii)
Damages that can be recovered by reasonable steps
- If the injured party taking any reasonable steps to mitigate the losses, he is
entitled for the expenses incurred during the mitigation actions.
- Even if the mitigation action fails to reduce the loss or in the opposite, it
just increases the loss, he is entitled for the damages.111
These principles had been applied in the case of Kabatasan Timber
Extraction Co. v. Chong Fah Shing112. In this case, the Federal Court held that it was
the duty of the respondent to take reasonable steps to mitigate the damages caused by
the appellant when he failed to deliver logs to the mill but left them some 500 feet
away. The court held that there was ‘no need for the respondent to have gone to the
expense and trouble of buying logs from elsewhere when the logs were lying a few
hundred feet away and all that was required was additional expense for hauling them
up to the sawmill’. The respondent had instead purchased timber from other sources
to make good the shortage. The damages awarded to the respondent for failing to
mitigate were reduced accordingly.
In the case of Dunkirk Colliery Co. v. Lever113, James LJ emphasised that this
principle does not impose on the plaintiff an obligation to take any step which a
reasonable and prudent men would not ordinarily take in the particular
circumstances.114
111
See British Westinghouse v. Underground Electric Railway [1912] A.C. 673
[1969] 2 MLJ 6.
113
[1878] 9 Ch. D. 20
114
Thomas Lundmark. Common Law Tort & Contract. LIT Verlag Munster. London. (1998)
112
38
“The person who has broken the contract is not to be exposed to additional
cost by reason of the plaintiffs having done what they ought to have done as
reasonable men, and the plaintiffs not being under any obligation to do anything
otherwise than in the ordinary course of business.”
3.3
Definition of Best Endeavours
Best endeavours is a standard of duty115 in order to mitigate loss occurred
from delay caused by the employer or neutral event. Standard forms of contract
provide this requirement as one of the express provisions which make it a condition
precedent before an extension of time can be granted to the contractor.116 Even
without this express provision, section 74 of Contract Act 1950 and under common
law as well, the contractor, by implication is under the duty to reduce or prevent the
delay:
“In estimating the loss or damage arising from a breach of contract, the
means which existed of remedying the inconvenience caused by the non-performance
of the contract must be taken into account”.117
In order to get brief idea of what endeavour is, it seems useful to have a look
at the definition given by The Free Dictionary by Farlex. It defines ‘endeavour’ as:
115
116
117
Aleka Mandaraka-Sheppard. Modern Admiralty Law 2nd Edition. Routledge-Cavendish. New
York. (2007).
Clause 25.3.4 JCT (1998), Clause 23.1 CIDB (2000), Clause 23.8 PAM (2006), Clause 43.1 PWD
(2010)
Explanation, Section 74 Contract Act 1950 (Act 136). (2008)
39
i)
A purposeful or industrious undertaking (especially one that requires effort or
boldness);
ii)
Earnest and conscientious activity intended to do or accomplish something;
iii)
Give the best shot; or
iv)
The supreme effort one can make118.
Hence, from those definitions, even without the ‘best’ phrase, it is clear that
the meaning of ‘endeavour’ is stronger and dominant than the simple comparison of
a ‘good try’.
From the view of case law, it can be understood from the decision in Pips
(Leisure Productions) Limited v. Walton119 that:
“Best endeavours are something less than efforts which go beyond the
bounds of reason but are considerably more than casual and intermittent
activities. They must at least be the doing of all that reasonable persons
could do in the circumstances.”
3.4
Standard of Duty to Reduce Delay
The standard forms require the contractor to take steps to reduce the effects of
delays, to mitigate the delay, but the extent of the obligation differs. It appears that,
it is submitted; failure to comply with the obligation may reduce or even extinguish
the contractor’s entitlement to extension of time. Thus this section will discuss the
118
The Free Dictionary by Farlex. Retrieved from http://legal-dictionary.thefreedictionary.com.
August. (2012).
119
[1982] P&CR 450
40
extent of obligation in mitigating the delay and each of them will relate with the
requirement of best endeavours.
3.4.1
Best Endeavours and Absolute Duty
An absolute requirement is the highest obligation in order to achieve a
particular outcome. Absolute obligations impose a heavy burden to the contractor as
he is liable to do all that is required by contract, by what method it is120. This may
come with the wording of ‘shall’ or ‘procure’ in the standard form of contract.
In a UK recent case Sweet (UK) Ltd. v. Michael Wight Homes Ltd121, the
quantity surveyor (QS) was obliged by its appointment to ‘prepare contract
documentation and arrange for such documents to be executed by the parties
thereto’. The contractor became insolvent before providing the performance bond in
favour of the employer. The court rejected the employer’s argument that the QS was
under an absolute obligation to procure the bond from the contractor.
The QS was subject to the implied test of reasonable skill and care and had
satisfied its duty in these circumstances. The lesson from this case is if a party wants
to imply an absolute obligation on another party to achieve something, a clear
wording to that effect should be used122.
However, according to Charles Boundy (2010), obligation to use best
endeavours is not a proper substitution for an absolute obligation123.
120
This is
Arnheim & Co. Solicitors. Contractual Drafting. Retrieved from
http://www.arnheimsolicitors.co.uk. (2012)
121
[2012] EW Misc 3 (CC)
122
Suzanne Reeves. 2012 Construction Case Law Summary (January-June). Wedlake Bell. London.
2012.
123
Charles Boundy. Business Contract Handbook. Gower Publishing Company. USA. (2010).
41
supported by the case of Midland Land Reclamation Ltd. v. Warren Energy Ltd.124,
where the court held that best endeavours obligation was not the next best thing to an
absolute obligation or guarantee. While in Terrell v Mabbie Todd and Co.125, it was
held that a best endeavours obligation only required a party to do what was
commercially practicable and what it could reasonably do in the circumstances.126
As referred to the case of Victor Stanley Hawkins v. Pender Bros Pty
Queensland127, the term best endeavours should be construed objectively. The test is
relied on the compliance of prudence and reasonableness elements.
3.4.2
Best Endeavours and Reasonable Endeavours
The court had for long time tried to draw a line between best endeavours and
reasonable endeavours phrases as there is no affirmative legal definition on them.
Mustill J. in the case of Overseas Buyers v. Granadex128 said that:
“Perhaps the words best endeavours in a … contract mean something
different from doing all that can reasonably be expected - although I cannot
think what the difference might be”.
A recent guidance regarding this issue can be obtained from the decision of
Mr Julian Flaux QC sitting as a judge in the case of Rhodia International Holdings
Ltd. v. Huntsman International LLC,129 where he made it clear that those best and
reasonable endeavours placed the contractor at two different levels of obligations:
124
[1997]
[1952] 69 RPC 234
126
Vivian Ramsey and Thomas Telford. Construction Law Handbook. Thomas Telford. London.
(2007).
127
[1994] 10 BCL 111
128
[1980] 2 Lloyd’s Rep 608
129
[2007] EWHC 292
125
42
“There may be a number of reasonable courses which could be taken in a
given situation to achieve a particular aim.
An obligation to use reasonable
endeavours to achieve the aim probably only requires a party to take one reasonable
course, not all of them, whereas an obligation to use best endeavours probably
requires a party to take all the reasonable courses he can.”
The recent guidance regarding this issue can be obtained from the case of
Rhodia International Holdings Ltd. v. Huntsman International LLC130. Mr J Flaux
QC made it clear the border line between best and reasonable endeavours by placed
them at different levels of obligation upon the obliged party. Best endeavours is the
most onerous obligation need to be fulfilled by the party, while reasonable
endeavours is less stringent compared to best endeavours. In order to describe in
details the difference between best and reasonable endeavours, he further said that:
“There may be a number of reasonable courses which could be taken in a
given situation to achieve a particular aim. An obligation to use reasonable
endeavours to achieve the aim probably only requires a party to take one
reasonable course, not all of them, whereas an obligation to use best
endeavours probably requires a party to take all the reasonable courses he
can.”
David Chappel thought that reasonable endeavours placed less stringent
standard of duty upon the contractor than best endeavours.131 This opinion is similar
to a court decision in the case of UBH (Mechanical Services) Limited v. Standard
Life Assurance Co.132 where it was held that the reasonable endeavours was
appreciably less than best endeavours.
130
[2007] EWHC 292
David Chappell, Michael Dunn and Michael Cowlin. Building Law Encyclopaedia. John Wiley and
Sons. UK. (2009)
132
[1990] BCLC 895
131
43
It is understandable that if a party is under reasonable endeavours obligation,
he may carry out at least one course of action until it is exhausted but if the same
party is under best endeavours obligation, he must performs all reasonable actions
until they are exhausted.
In the case of Jolley v Carmel Ltd.133 the court held that best and reasonable
endeavours are placed at opposite ends of a spectrum of obligations, while all
reasonable endeavours may be placed somewhere in the middle of those two
endeavours.134
Hence, it can be concluded that reasonable endeavours offer less burden of
obligation than best endeavours and this can be measured from the duty in
performing number of steps in achieving the outcome.
3.4.3
Best Endeavours and Mitigation
Extension of time is a type of remedy provided for the contractor in the event
of delay caused by employer’s breach or neutral event.135
Here, the contract
administrator is under a duty to consider the contractor’s duty to mitigate the delay
when granting the extension of time. According to Robinson (2004), there are two
situations when discussing duty to mitigate, they are:
133
i)
Shall take reasonable steps to minimise its loss, and
ii)
Shall not take unreasonable steps that increase its loss.136
[2000] 2 EGLR 154
Slaughter and May. Best endeavours v. reasonable endeavours, what do they mean? Does either
mean anything? London. (2007)
135
Clause 25.3.4 JCT (1998), Clause 24.1 CIDB (2000), Clause 23.8 PAM (2006), Clause 43.1 PWD
(2010)
136
Allens Arthur Robinson. Delay and Disruption Protocol. Construction Breakfast Seminar. The
Society of Construction Law. (2004).
134
44
The first situation may show the steps taken by contractor against the delay
event. It may come in the form of acceleration of work, re-scheduling of work
programme, or even by requiring working overtime. In order to determine whether
the contractor is entitled to recover the losses incurred by these actions, it is referred
to the basic principles of damages.137 The general principle is that every party is
under a legal and moral obligation not to build up the damages after there has been a
default by the other party; instead the injured party is required to take reasonable
steps to try to keep potential damages as low as reasonably possible.138 Thus, as long
as the contractor’s actions to mitigate delay are reasonable, he can recover the losses
involved.
In the second situation, it means that duty to mitigate does not extend the
party to carry out any change in scope than the original scope, or spend more money
to reduce the effect of the delay event.139 In the other situation, there may be some
limited actions that are stipulated in the contract that shall be taken by the contractor;
the contractor’s non-performance of those actions may taken as failure in taking
mitigation action. .
This can be seen from the case of Motherwell Bridge Construction Limited v.
Micafil Vakuumtecchnik,140 where the condition of contract had stated that if
unexpected delays and difficulties occurred, Motherwell was required to provide
additional personnel at no extra cost at the request of Micafil to meet the completion
date. However, Motherwell had carried out acceleration and has incurred some costs
along the activities. Thus, the contractor’s claim for the extra cost was dismissed.
Similar to the principle of best endeavours, as long as the contractor has taken
any reasonable steps to prevent the delay or put the losses to as minimum as possible,
137
Michael S. Simon. Construction Contracts and Claims. McGraw-Hill Book Company. United
States. pp 240-241. (1979)
138
See Maraldo Asphalt Paving Inc. v. Harry D. Osgood Co. Inc. [1974] 220 N.W. 2d 50
139
Allens Arthur Robinson. Delay and Disruption Protocol. Construction Breakfast Seminar. The
Society of Construction Law. (2004).
140
[2002] TCC 81 CONLR 44
45
hence he has rights to claim what had been loss. This had been specified in the case
of Terrell v Mabie Todd & Co. Ltd.141 whereby the judge held that best endeavours
obligation only required a party to do what could reasonably be done in the
circumstances.
“Best endeavours are something less than efforts which go beyond the bound
of reason, but are considerably more than casual and intermittent activities.
There must be at least be the doing of all that reasonable persons reasonably
could do in the circumstances.”
Thus, from the discussion, it can be concluded that mitigation refers to any
action taken to prevent the delay but it must be carried out within a standard of duty
known as reasonableness whilst best endeavours refers to the level of requirement in
performing mitigation action. So, in short, best endeavours is one of the subset of
standard of duty to fulfil mitigation obligation and the combination of these two
terms subjected the contractor to execute all reasonable steps which a prudent and
reasonable person may take in a such circumstances.
3.5
Contractual Provisions
It is submitted that even in the absence of express provisions in the standard
form of contract, the contractor is still under an implied duty to mitigate his loss.
The fact that the construction contract include express clauses in order for contractor
to reduce delay, make that duty as an important one and in fact is a condition
precedent before an extension of time can be granted.
141
[1952] 69 RPC 234
46
For example, in clause 23.6 of the PAM 2006 standard form of contract,
states that:
“The contractor shall constantly use his best endeavour to prevent or reduce
delay in the progress of the works, and to do all that may reasonably be required to
the satisfaction of the Architect to prevent and reduce delay or further delay in the
completion of the Works beyond the completion date”.
Another provision is as in clause 25.3.4 of the Joint Contract Tribunal (JCT)
standard form of contract 1998142 provides that:
“the Contractor shall use constantly his best endeavours to prevent delay in
the progress of the Works…’
Another terms being used to describe best endeavours for other standard
forms as found in PWD 203A Standard Form of Contract (Rev 2010)143, Clause 43.1
mentions that:
“…Provided always that the Contractor has taken all reasonable steps to
avoid or reduce such delay and shall do all that may reasonably be required to the
satisfaction of the S.O. to proceed with the Works”.
While in Clause 24.1 in CIDB Standard Form of Contract 2000, Clause 24.1
states that:
142
143
JCT Standard Form of Contract. (1998)
Public Works Department. PWD 203A Standard Forms of Contract. (2010)
47
“Provided that the Contractor has carried out the Works or any section of the
Works with due diligence and has taken all reasonable steps to avoid or reduce such
delays,”
Regardless of what terms being used in the standard forms of contract, all of
them have the same intention to instruct the contractor, in order to be granted with an
extension of time, they must prove that they have used their best effort in mitigating
the delay or put the delay losses as minimum as possible.
3.6
Summary
As a conclusion, best endeavours can be easily understandable by equating it
with the word reasonableness whereby it is one of the benchmark to measure the
standard of duty.
Besides best endeavours, there are various standard of duty
available, for example absolute obligation which holds the highest and greatest
burden on the contractor’s shoulder.
Other than that is reasonable endeavours
obligation which is less stringent than best endeavours. In order to mitigate the
delay, the contractor must comply with the standard of duty required by the standard
form of contract.
CHAPTER 4
ANALYSIS OF CASES FOR BEST ENDEAVOURS
4.1
Introduction
The main focus of this chapter is the analysis and reviews those cases relating
to the issues of best endeavours. The selected cases are English cases and not limited
to construction contract only since best endeavours are not a crucial issue in
construction contract. There are cases relating to sale and purchase of property and
sale and purchase of shares where all of them contained best endeavours clauses.
Based on the nine cases reviewed and analysed, the findings can be summarized as
follows:
4.1.1
Planning Permission
Case 1 : IBM UK Ltd v Rockware Glass [1980] FSR 335
This case related to duties to obtain planning permission and whether action
not to appeal is considered as breach of best endeavours. The obligations on best
endeavours are:
49
i)
Not to expend large sums of money,
ii)
The responsibility is under the party who has interest on that matter.
Case 2 : Obagi v Stanborough (Developments) Ltd [1993] EGCS 205
This case related to duties in obtaining planning permission from local
authority. The issue was again whether action not to appeal was considered as
breach of best endeavours. The obligation on best endeavours is:
i)
Carry out all reasonable steps available.
Case 3 : Yewbelle and Knightsbridge Green Ltd. v. London Green
Developments [2006] EWHC 3166
This case related to duties in obtaining planning permission for a land
development. The issue was whether a party is considered as having taken all
reasonable endeavours once all efforts had been performed but still did not succeed.
The obligation on best endeavours is:
i)
4.1.2
Required to perform all reasonable steps even it ends up with a failure.
Sale and Purchase of Shares
Case 1 : Rackham & Anor. v. Peek Foods Ltd & Ors. [1990] BCLC 895
This case related to sale and purchase agreement of shares in a company. The
issue was whether the decision to not proceed with the business transaction caused
50
that party to breach the best endeavours duty, indirectly breaching the agreement.
The obligation on best endeavours is:
i)
Does not require the party to sacrifice his own interests and put his
position at risk.
Case 2 : Rhodia International Holdings Ltd v Huntsman International LLC
[2007] EWHC 292
This case related to a sale and purchase agreement of a chemical
manufacturing company. The issue was whether failure to carry out a particular
action required in the contract was considered as failure to carry out reasonable
endeavours. The obligation on best endeavours is:
i)
4.1.3
Carry out the particular steps as specified in the contract form.
Defective Works
Case 1 : Terrell v. Mabie Todd [1952] WN 434
This case related to a license agreement to manufacture and sell fountain
pens. The issue here is whether non-compliance with plaintiff’s instruction was
considered the defendant in breach of best endeavours. The obligations on best
endeavours are:
i)
The defendant should comply with plaintiff’s instruction,
ii)
The defendant must not cause losses to plaintiff.
51
Case 2 : Midland Land Reclamation Ltd, Leicestershire CC v. Warren Energy
Ltd [1995] ORB No 254
This case related to responsibility in handling the generation of electricity
using methane gas. The issue was whether the defendant had failed use its best
endeavours in preventing the loss. The obligation on best endeavours is:
i)
Not to spend large amount of money.
Case 3 : Sandhu v Sidhu [2010] EWCA Civ 531
This case related delivering of share certificates as instructed by the court.
The issue was whether the defendant had use his best endeavours to comply the
order. The obligation on best endeavours is:
i)
Must perform the action as early as possible.
Case 4 : Walter Lilly & Co Ltd v. Mackay & Anor. Company [2012] EWHC
1773
This case related to the excessive delay and extension of time issued by the
architect. The issue was what amounted to best endeavours under the contract. The
obligations on best endeavours are:
i)
Giving notice regarding the delay event or likely to be delayed,
ii)
Estimate the time extension period.
52
4.2
Analysis of Relevant Cases - Planning Permission
4.2.1
IBM UK Ltd v Rockware Glass [1980] FSR 335
Rockware agreed to sell IBM some land for development, and the sale was
conditional upon planning permission being obtained, with a further proviso that
IBM ‘will make an application for planning permission and use its best endeavours
to obtain the same’. The local authority refused to grant the planning permission.
IBM did not appeal against that decision to the Secretary of State. The issue was
whether, by not appealing, IBM had failed to use its best endeavours to obtain
planning permission. Under the Planning Act, an unsuccessful applicant may make
an appeal but the seller did not make the appeal. It was accepted that making an
appeal to the Secretary of State would cost a significant amount of money.
The issue that arose here was whether IBM had failed to perform its best
endeavours in obtaining the planning permission when it did not appeal to the
Secretary of State.
The court held that, taking into account the facts of the case and the amount
of money involved, it was not likely that the parties would have considered a refusal
of planning permission at a local level to be the end of the matter, but that they must
have had in mind the prospect of an appeal to the Secretary of State. The test of ‘best
endeavours’ which was approved was that the purchasers of land were bound to take
all those steps in their power which were capable of producing the desired results,
namely the obtaining of planning permission, being steps which a prudent,
determined and reasonable owner, acting in his own interests and desiring to achieve
that result, would take.
53
The court further said:
“ It was expressly stated that the criterion was not that of someone who was
under a contractual obligation, but someone who was considering his own
interests.”
A sale and purchase agreement of a land usually can only be purchased after
the purchaser has obtained the planning permission. It was in the purchaser’s interest
to make sure that the planning permission obtained allowed the purchaser to develop
the land according to his plans.
Therefore, in this case, the contract had provided
that the developer needed to use his ‘best endeavours’ in getting the planning
permission. Failure at the first stage of application should drive them to make an
appeal since that was considered as an action which another comparative person
would take.
When considering best endeavours, it was not about complying with the
contractual requirement, but the compliance was subject to the interest of the parties.
Whilst it seemed clear that a contractor or subcontractor may be required to expend
some money to meet the obligation to ‘use constantly his best endeavours’ to prevent
delay, the intention was not to expend large sums, particularly where the delay has
been caused by the engineer or the architect.
However, the liability to take that action which was appealed against the
decision did not entitle the developer to spend large sums of money. This was not
the principles in fulfilling ‘best endeavours’ obligations. Hence, the developers were
not subjected to make an appeal against the local authority’s decision even though
they were the interested parties in the subject matter of the sale if the effort to do that
required them to spend substantial sums of money.
54
From this case, not making the appeal to the Secretary of State for failure in
getting planning permission from the local authority is considered as not a breach of
the ‘best endeavours’ obligation.
4.2.2
Obagi v Stanborough (Developments) Ltd [1993] EGCS 205
The plaintiff claimed that, pursuant to a contract entered into by him with the
defendants on 8 March 1984, the defendants were obliged to apply to Windborne
District Council, the local planning authority, as soon as reasonably practicable for
planning permission for the erection at least 125 residential units and to use their best
endeavours to obtain such permission within a period of five years from 8 March
1984. No permission of any kind for the development of the site was obtained within
the five year period.
Further, the plaintiff claimed that the defendants failed, in breach of their
obligations under clause 12 of the contract, to use their best endeavours to obtain
such planning permission and that had they used their best endeavours such planning
permission could have been obtained or, at the very least, there was a reasonable
chance that such permission could have been obtained.
If the requisite planning permission had been obtained within the five year
period the contract entitled the plaintiff to acquire one half of the site for £200,000
plus half of all planning fees and charges incurred by the defendant in obtaining the
requisite planning permission. Accordingly the plaintiffs seek damages for the
defendants’ breach.
The defendants argued that they were not obliged to apply for, much less
obliged to use their best endeavours to obtain the planning permission. But even if
55
they were, they were under no obligation to appeal any refusal by the local planning
authority.
It was a fact that the defendants did indeed apply for the permission and that,
the application was refused. The application was made in late February 1988 and was
refused by the local planning authority on 9 May 1988. The defendant said that at no
stage during the five year period was there ever any reasonable prospect of the site
receiving planning permission whether from the local planning authority or on appeal
to the Secretary of State. It therefore resisted the plaintiff's claim. They also disputed
the plaintiff's approach to the assessment of damages.
There were two issues arose here. First, did the clause oblige the defendants
to use their best endeavours to obtain within five years the planning permission?
Second, did the clause oblige the vendor to appeal any refusal of the local planning
authority to grant such permission?
It was a fact that the defendants took no further action on the process for local
plan apart from sending to the District Council in June 1984 a copy of feasibility
study of the site and sending to the Council on 8 February 1985 a letter of
representation on the consultative draft plan. Besides, the defendants refused to give
any assistance to the plaintiff, or to those who represented him, in their attempts,
given the defendants’ unwillingness to get further involvement, to challenge the
density levels for the site set out in the deposit plan.
The judge stated that the use of best endeavours by the defendants to obtain
the requisite planning permission included involving itself in the local plan process
by objecting to the deposit plan policies for the site and by seeking at the inquiry to
argue for a greater density and by taking steps to interest officers in, and persuade
them of the merits of the subsequent planning application. By failing to do these
things the defendants were in breach of their obligation to use their best endeavours.
56
The judge with assistance from the similar case in IBM United Kingdom Ltd v.
Rockware Glass Ltd said that :
“In my judgment, the obligation to use best endeavours to obtain the requisite
planning permission required the defendant to take all such reasonable steps to
obtain the requisite planning permission which a prudent and determined man,
acting in his own interest and anxious to obtain such planning permission, would
have taken.”
This is another case related to planning permission besides IBM UK Ltd v
Rockware Glass.144 The present case showed that defendant had taken his reasonable
action in order to obtain the planning permission for the proposed project by
submitting the report of feasibility study and letter of representative on draft plan
within the time frame of 5 years. After around one month from the submission date,
the local planning authority rejected the application.
By sending those documents to the authority, it showed defendant’s
endeavours in getting the planning approval. However, this was not adequate to
described what best endeavours meant in the contract. The defendants still had other
alternative ways to obtain the planning approval since the time duration left was still
long. This is the point where this present case is different from IBM’s case.
Defendant in this case can make an appeal against the decision by involving
in the local plan process as required by the local authority, besides expressing his
objection against the plan policies for the site and try to convince the authority
regarding his 125 units plan. All of this effort would not affect defendants’ position
or financial interest or commercial interest. Contrast this with what happened in
144
[1980] FSR 335
57
IBM’s case whereby the defendant needed to spend substantial amount of money in
order to appeal the decision.
Hence, what can be concluded here is that the responsible party need to put
all effort in obtaining the planning permission as stated in the contract, to use best
endeavours. Obligations for performing best endeavours can come in various actions
and ways, depending on the situation as long as all the steps required do not put the
party into a disadvantage position.
4.2.3
Yewbelle and Knightsbridge Green Ltd. v. London Green Developments
[2006] EWHC 3166
Knightsbridge Green Ltd entered into an agreement for the sale of a property
in South London for £13.75 million to London Green Developments Limited (LGD).
Under the agreement, LGD was not obliged to complete the purchase until an
agreement under Section 106 of the Town and Country Planning Act 1990 for
planning permission had been entered into with the planning authority, London
Borough of Merton. The sale agreement provided that Knightsbridge was obliged to
use all reasonable endeavours to secure a completed Section 106 agreement
substantially in the form of the draft attached to the sale agreement.
Soon after the sale agreement was entered into the requirements of the
planning authority changed in relation to the Section 106 agreement. To compound
the situation and crucial to this case, it turned out that a small parcel of land, known
as the third party land, at the south-east corner of the property which was needed for
its proposed development did not belong to Knightsbridge but was in fact owned by
an entirely independent company. This impacted on the obtaining of the requisite
Section 106 agreement.
58
Subsequently, Knightsbridge transferred the property to Yewbelle Ltd subject
to the sale agreement with LGD.
In February 2006, Yewbelle/Knightsbridge’s
solicitor informed LGD’s solicitor that it would not be possible to obtain the Section
106 agreement in the form attached to the sale agreement and asked if the sale could
be completed without the Section 106 agreement being in place. If it could not be,
the solicitor stated that Yewbelle would have no option but to treat the sale
agreement as at an end. Subsequently, Yewbelle’s solicitor told LGD’s solicitor that
since LGD had stated it did not wish to complete the purchase without the Section
106 agreement, the sale agreement should be treated as at an end because the Section
106 agreement could not be obtained.
In June 2006, LGD came to an agreement with the owner of the third party
land in relation to the Section 106 agreement. Importantly, however, LGD did not
inform Yewbelle that it was aiming to do this, nor was Yewbelle told that it had done
it until sometime later during the course of the subsequent proceedings.
Proceedings were issued in June with LGD seeking to require Yewbelle to
complete the sale of the property, even though there was no Section 106 agreement.
Yewbelle argued that by then the sale agreement had already come to an end.
The issue here is there any implied term under the contract that allows the
seller to rescind the contract whereby the buyer not having an option to proceed with
the transaction if the seller had use his all reasonable endeavours in obtaining
planning permission but seems it end with a failure? Besides, to what extent the
seller is required to put effort regarding ‘all reasonable endeavours’ terms?
The judges in the Court of Appeal judge agreed that the seller did not need to
sacrifice its own interest but only had to use all reasonable endeavours until it had
exhausted all the possibilities.
Impliedly, it meant that the contract will
59
automatically terminate because the seller failed to obtain the planning permission
from the local authority.
Yewbelle case shows that even ‘best endeavours’ term does not being used in
the contract, where the present case substitute it with ‘all reasonable endeavours’, but
the party was still obliged to carry out all reasonable steps which a prudent and
determined person will take. Besides, both terms using the same principle whereby
any effort in fulfil the obligation does not required the party to sacrifice his own
interest as in Yewbelle’s case, it did not mean to go as far as buying the third party’s
land so that he could get the planning permission.
4.3
Analysis of Relevant Cases – Sale and Purchase of Shares
4.3.1
Rackham & Anor. v. Peek Foods Ltd & Ors. [1990] BCLC 895
On 9 November 1973 the plaintiffs entered into an agreement to sell their
shares in Roeday Ltd to the defendant (formerly known as Consolidated Commercial
Co. Ltd. (Consolidated)) and Consolidated's merchant bankers, Edward Bates & Sons
Ltd (Bates). The sale was conditional upon the approval of the shareholders of
Consolidated, and Consolidated and Bates covenanted to use their best endeavours to
procure the fulfilment of that condition.
On 5th December 1973 the directors of Consolidated issued a circular to their
shareholders recommending that they vote in favour of the acquisition of Roeday at
an extraordinary general meeting convened for 28 December 1973. Bates supported
the recommendation. On 17 December 1973 the government announced measures
designed to restrain lending to property companies and to increase the tax on profits
from property transactions.
60
On 19 December 1973 at a meeting between the plaintiffs, the managing
director and few shareholders from Consolidated, a reduction in the purchase price
was discussed and G was asked and he agreed to vote his shares irrevocably in
favour of the Roeday acquisition. The extraordinary general meeting was postponed
until 28 January 1974 and the Consolidated board issued press releases and a second
circular stating that it could no longer recommend the Roeday acquisition. In the
second circular the directors asked shareholders to return the blank proxies.
At the extraordinary general meeting the Consolidated directors and Bates
used their votes and the open proxies to ensure that the resolution for the approval of
the Roeday acquisition was not put to the meeting. The plaintiffs brought an action
claiming damages for the breach of the 'best endeavours' covenant by Consolidated
and Bates, alleging that at the meeting on 19 December 1973 a reduction of the
purchase price had been agreed and Consolidated’s Director had agreed to vote in
favour of the Roeday acquisition.
Both Consolidated and Bates are subjected to carry out ‘best endeavours’ to
procure the fulfilment of condition in this sale and purchase agreement. Finally
Consolidated’s Director drew their intention to not purchase Roeday from the
plaintiff. The issue here is whether the action taken by Consolidated’s Director and
their shareholders not to purchase Roeday considered as breach of ‘best endeavours’.
The approval to acquire Roeday would have been passed at the extraordinary
general meeting of the consolidated shareholders if Consolidated and Bates had
recommended it. However, there was no breach of the 'best endeavours' covenant
since that covenant did not oblige the directors of Consolidated or Bates to give bad
advice.
The directors of Consolidated and Bates no longer believed that the
acquisition could benefit Consolidated because of the government measures to
restrain lending to property companies, and accordingly they were under a duty to
advise Consolidated shareholders against the acquisition and to use their powers to
ensure that it was not approved.
61
Furthermore, in the case of Bates there was a possible conflict between its
interests as a banker (under an obligation to supply finance for the acquisition) and
its duty as an adviser, and in those circumstances, Bates was also not in breach of the
'best endeavours' covenant, as an independent merchant banker would have
condemned the acquisition. Hence, the plaintiff’s application for the damages had
been dismissed by the court.
The plaintiff tried had referred to one previous case which was almost similar
to the present. Northern Countries Securities Ltd v. Jackson & Steeple Ltd145 case
was about a company which had entered into an unconditional contract to issue
shares sough to evade obedience to a decree of specific performance by encouraging
its shareholders to vote against the issue of the shares. It was held that the company
was under a duty to comment the issue. While in the present case, the contract was
conditional on the approval of the shareholders of Consolidated. The vendors at all
times accepted the risk that the shareholders, properly advised that the contract was
not in their best financial interests, would reject the contract.
As stated in the contract, both Consolidated and Bates were obliged to use
their best endeavours to get approval from all shareholders before they could
purchase Roeday’s company. This meant that only if they really want to purchase
the shares, so they were subjected to carry out their best endeavours. The general
meeting held can be considered as one of the steps taken to show their endeavours to
take over the shares.
Unfortunately, the government announced on lending restriction and
imposing increase tax on any property transaction. This brought them to lose interest
in purchasing the shares anymore since it was no longer financially attractive.
145
[1974] 2 All ER 625, [1974] 1 WLR 1133
62
Hence, in another general meeting, the director of Consolidated issued circulars to
the shareholders informing that the business transaction was not recommended.
Even the director did not proceed with the transaction, but his action to stop the
transaction was considered as in breach of the best endeavour covenant.
From this case, it shows that for just a little action, it can be considered as
taking best endeavours. The important main point here is that best endeavours must
bring benefit to the party. The negative advice from the director to the shareholders
not to vote in favour of the acquisition is not a breach of that duty. This is because,
that action had protect the company from sacrificing their financial interests and
indirectly give a better future to the organization.
4.3.2
Rhodia International Holdings Ltd v Huntsman International LLC
[2007] EWHC 292
By a Sale and Purchase Agreement dated 27 February 2001 (‘the SPA’),
Rhodia agreed with Huntsman to sell its chemical manufacturing business in
Whitehaven to a recently incorporated subsidiary of Huntsman. One of the assets of
the business was an energy supply contract with National Power (Co-Generation)
Limited (‘Cogen’) under which Cogen supplied power and steam from an on-site
Combined Heat and Power Facility (the ‘CHP’ Plant) to Rhodia’s business. The
energy supply contract contained ‘take-or-pay’ provisions.
Clause 15.1.2 of the SPA imposed obligations on both parties to use
reasonable endeavours to obtain Cogen’s consent to the novation of the energy
supply contract so that the Huntsman subsidiary would become the contracting place
of Rhodia. It also required Huntsman to supply to Cogen all information reasonably
requested by Cogen (including information about the financial position of the
Huntsman Group) and, if Cogen reasonably required, to enter into a direct covenant
63
with Cogen to perform and observe the terms of the energy supply contract, in other
words to guarantee its subsidiary obligations.
Pending novation, Huntsman undertook to perform Rhodia’s obligations as
agent under the energy supply contract (and did in fact do so between March 2001
and March 2004) and to pay all liabilities arising under, or in connection with, the
energy supply contract as a result of the non-performance or negligent performance
of its obligations.
If the novation had still not been completed within six months, Huntsman was
entitled to serve notice on Rhodia to exclude the energy supply contract from the sale
of the business assets and terminate its obligations to Rhodia in relation to that
contract. Under the terms of the energy supply contract, Rhodia could assign, novate
or otherwise transfer any of its rights and obligations under that contract if it could
satisfy Cogen that the proposed assignee was capable of fulfilling Rhodia’s
obligations and duties under that contract.
Huntsman was initially proactive and approached Cogen for its consent to the
novation. Shortly afterwards, Cogen confirmed that, while it had no objection in
principle to the proposed novation, since the company accounts for the Huntsman
subsidiary were not available at that time (it being a special purpose vehicle recently
incorporated to take over the chemicals business with no trading history or financial
accounts), Cogen would require a parent company guarantee or similar security from
Huntsman.
Huntsman refused to provide any such security.
When Huntsman
provided Cogen with financial information in respect of its subsidiary, the accounts
showed a significant inter-company debt, including a £14 million loan secured on the
assets of the business. Cogen refused to consent to the novation until the Huntsman
subsidiary substantially improved its financial results.
64
By this stage, Huntsman was considering closing the Whitehaven site and
was looking at ways to minimize its liability under its principal/agency relationship
with Rhodia with respect to the energy supply contract. Negotiations were not taken
further by Huntsman and the novation was not completed.
In March 2004, Huntsman formally withdrew its application to Cogen and
gave notice to Rhodia that it no longer intended to perform its obligations under the
energy supply contract. At that time, Rhodia had no operational presence at the
Whitehaven site and so was not in a position to perform the obligations under the
energy supply contract itself. A few days later, the CHP Plant was shut down and
had not been in operation since. Later that year, Huntsman announced its intention
to close the chemical manufacturing plant.
The issue here is whether Huntsman had failed to carry out reasonable
endeavours by failing to fulfil what had been stated in the contract term.
Mr Julian Flaux QC concluded that the qualification of reasonable endeavour
only required the performing party to take one reasonable course and not all of those
courses available. It was considered that there may be a number of reasonable
courses which could be taken in a given situation to achieve a particular aim. An
obligation to use reasonable endeavours to achieve the aim probably only required a
party to take one reasonable course, not all of them, whereas an obligation to use best
endeavours probably required a party to take all the reasonable courses he could.
The High Court decided that, by refusing to provide the guarantee reasonably
required by Cogen or to explore with Cogen what form of security would be
acceptable, Huntsman had failed to use its reasonable endeavours to obtain Cogen’s
consent and so was not entitled to exercise the right to terminate its obligations under
the SPA in respect of the energy supply contract.
65
The court then turned to consider what reasonable endeavours might entail.
While the judge accepted that a reasonable endeavours obligation would not, in
general, require a party to sacrifice its own commercial interests, the position was
different where a party agreed (as Huntsman did here, to the provision of a direct
covenant to Cogen) to take certain specific steps as part of the exercise of reasonable
endeavours. In those circumstances, those steps would have to be taken, even if that
could be said to involve the sacrificing of a party’s commercial interests. Indeed, the
judge indicated that had it not been for the specific obligation for a direct covenant
from Huntsman, he would probably have found that Huntsman had in fact used
reasonable endeavours to procure the novation.
From this case, it shows that ‘reasonable endeavours’ is less stringent than
‘best endeavours’. ‘Reasonable endeavours’ require the party to take at least one
reasonable action but in ‘best endeavours’, the party needs to carry out all possible
actions.
However, in the event that ‘reasonable endeavours’ sets out any specific
action to be taken by the party, that party is required to follow those steps as what a
party in ‘best endeavours’ obliged to do. Even if the action will sacrifice the party’s
commercial interest, he or she still bound to performed it. As what happen to
Huntsman, he is in default since the contract had provided what steps should be taken
by the contractual party for the novation. If this term is absence, Huntsman may be
considered as had taken ‘reasonable endeavours’ after he provide Cogen with his
financial information.
66
4.4
Analysis of Relevant Cases – Defective Works
4.4.1 Terrell v. Mabie Todd [1952] WN 434
The plaintiff (seller) entered into an agreement with the defendant
(manufacturer) dated 3rd May 1948 whereby the plaintiff should grant the defendant
a license to manufacture and sell fountain pens. They together agreed that the
defendants should make their best endeavours to promote the sale of as many
fountain pens made as reasonably possible in and should with all diligence place the
said invention on the market and proceed to exploit it in accordance with the license
scheduled to the agreement.
The plaintiff alleged that the defendants had broken their obligations which
that they had not used their best endeavours to promote the sale of either the fountain
pens or the ink bottles as agreed and had failed to use all diligence to place the said
inventions on the market or to exploit them.
The defendants claimed that the contracts need to be read as a whole,
required them to do only that which was commercially practicable, and this was
interpreted to mean that the defendants were to sell the goods to the extent which was
consistent with running the company efficiently and prudently and in the interests of
the company and to no greater extent. The issue that arose in this case was the
measure of best endeavours obligation by the defendants; to determine whether or
not they were in breach of the best endeavours covenant.
In delivering the decision, the judge referred to a few cases in defining the
best endeavours term. In the case of Sheffield District Railway Co. v. Great Central
67
Railway Co.146, the court held that ‘best endeavours’ means what the words say, does
not mean second-best endeavours.
The defendants in fact were making a loss on their ink sales by not producing
the ink according to the plaintiff’s design, but justified it as an advertisement.
Referring to what the defendants had done, the court concluded that the defendants
did not use their diligence and their best endeavours to promote the sale of either of
the inventions.
This case equates the best endeavours with due diligence action.
The
defendant shall take all reasonable steps in order to reach the objective of the
agreement. Even though production of ink does not indicate the sales revenue but
failure to follow plaintiff’s instruction automatically brings the defendant as breach
of best endeavours.
4.4.2 Midland Land Reclamation Ltd and Leicestershire CC v. Warren Energy
Ltd [1995] ORB No 254
Warren Quarry was a disused granite quarry which had been used since about
1981 for the disposal of waste by landfill and generated electricity from one of the
gas produced through the disposal, methane gas. Formerly it was in the ownership of
Leicestershire County Council (the Council). Since 26 July 1991 it had been in the
ownership of Midland Land Reclamation Limited.
By a written Deed of Assignment dated 8th April 1992 between the Council
and Midland Land Reclamation Limited, the Council assigned absolutely to Midland
Land Reclamation Limited with effect from the Completion Date (26th July 1991), all
146
[1911] 27 TLR 451
68
the benefit of its interest in the Warren Energy Agreement and Midland accepted
absolutely all of the obligations of the Council to supply landfill gas for period of 15
years to the defendant and the defendant would purchase the gas which they would
use to generate electricity for onward sale to the East Midlands Electricity Board.
The parties included “best endeavours” clauses in the contract as follow:
“4.
COUNCIL’S OBLIGATIONS
4.11
The Council will use its best endeavours during the contract period to
maintain, develop and operate at its own cost the gas extraction…”
At one time, the gas which delivered to the generating engines was found to
have been supplied at inadequate pressure and as a result less electricity had
generated than might have been generated. The defendant claimed that the plaintiff
did not take its best endeavours regarding to the problem. One step that the plaintiff
could have taken was to install a system to overcome pressure losses which cost
about £10,000 and this was the most expensive of the possible solutions.
The issue arose in this case was whether the plaintiff was in breach of
contract by failing to use its best endeavours required by the contract in improving
the gas system and whether the plaintiff was subjected to spend money for that most
expensive solution.
In delivering the decision, the court also referred to some other cases in
defining ‘best endeavours’. As in the case of Terrell v Mabie Todd & Co.147:
147
[1952] WN 434
69
“ ‘Best endeavours’ imposes a duty to do what can reasonably be done in the
circumstances and the standard of reasonableness is that of a reasonable and
prudent board of directors acting properly in the interests of their company.”
The court rejected the submission made by the defendant that a ‘best
endeavours’ obligation is the next best thing to an absolute obligation. The court
held that the plaintiffs in this case had acted accordingly to the advice of competent
consultants and hence it cannot be said that they had failed to use their best
endeavours. Besides, the plaintiffs had installed a dewatering tanks costing £2,500
each. The court examined these actions as fulfilling the best endeavours obligation.
Meanwhile for the installation of a system to overcome pressure losses which
cost about £10,000, the court held that a party was not required to take action which
would lead to its financial ruin or incur such expenditure. Hence, the court dismissed
the counterclaim by the defendant and awarded the judgment to the plaintiffs.
This is another case which strengthens the requirement of a party not to take
steps which would give disadvantages in terms of financial or company’s interest as
in IBM UK Ltd v Rockware Glass. Best endeavours obligation only requires the
party to take action which is commercially practicable in both aspect of costs and
degree of difficulty. Hence, regarding to the present case, the plaintiffs were not in
breach to use best endeavours obligations even though they did not spend £10,000 to
install the system because it was a big investment and the most expensive solution.
Besides it was technically unsatisfactory. Furthermore, the plaintiffs had already
taken other few steps which had put the loss into a minimum and referring to the
court, this already considered as fulfilling the best endeavours obligation.
70
4.4.3 Sandhu v Sidhu [2010] EWCA Civ 531
This was an application for the striking out of an appeal, to a hearing on 27
November 2009, which had several applications named: application for permission to
appeal, application to amend grounds of appeal, an application for security for costs
of the appeal and an application to stay the appeal pending compliance with the order
for security and, in the event of non-compliance of the Appellant’s Notice. By 4
February 2012, the respondent issued an application to strike the appeal out by
reason of non-compliance with undertakings given in the order of 27 November
2009.
The order made by the judge was to proceed on three undertakings by Mr
Sidhu, the appellant. The first was that by 4.00 p.m. on 14 December 2009, he
would deliver to the respondent’s solicitors, Messrs Masseys, to be held by them
pending the determination of the appeal or further order an executed stock transfer
form in respect of his 79,328 shares in the capital of a company called Orbit Resources Private Limited (Orbit).
The second was to use his best endeavours to deliver the share certificates in
respect of those shares to Masseys by 4.00 p.m. on 15 January 2009. The third was if
he did not deliver the share certificates in respect of such shares to Masseys by that
date and time, he was required to inform them by letter from his solicitors by 4.00
p.m. on 20 January of all steps by way of such best endeavours.
As the first requirement, Mr Sidhu did deliver an executed stock transfer form
by 14 December 2009. His solicitors did write on 20 January to explain what he had
done because he had not succeeded in getting the share certificates into the hands of
Masseys by 15 January. In the letter the solicitors said among other things was that:
71
"...we are instructed that our client has telephoned the Company to chase the
issue of the duplicate share certificates. Once he gave his name he was asked
to leave a message so that someone may return his call, but this has not
occurred."
On 11 February 2010 Orbit wrote a letter to Masseys, the respondent's
solicitors, on the subject of duplicate share certificates, which referred implicitly to
an email sent by Masseys in July 2009. The letter gave some details as to the
documents and the procedure to be followed for the issue of duplicate share
certificates and it said:
"Once we receive the above papers we will issue duplicate share certificates
in the name of Mr Sidhu."
That letter, to whomsoever it was sent, did not get directly to Masseys. It did
however come to the attention of Pitmans (representative for respondent), who on 15
February sent a copy to Masseys. In that letter they also said:
"In the meantime we are instructed that Mr Sidhu is using his best
endeavours to take the necessary steps to obtain the issue of duplicate share
certificates relating to the shares."
The issue to be determined here was whether Mr Sidhu had use his best
endeavours to comply with his undertakings as regards to procuring the share
certificates.
The judge, after the hearing concluded that Mr Sidhu did not, on the
evidence, use his best endeavours to comply with his undertaking as regards to
72
procuring the share certificates. The undertaking was given on 27 November 2009
while the order was sealed on 3 December, and it may be said that that was the date
when the undertaking became effective. As against that, Mr Greenwood on behalf of
the respondent was perfectly entitled to say that the undertaking was offered in a
witness statement of 26 November, was given on the 27th and there was no doubt at
that stage as to its terms. So Mr Sidhu should have got on with it immediately.
The evidence as to what Mr Sidhu did was concrete but, all that he was said
to have been done was to make a phone call to Orbit at some unspecified date before
8 January. It was reasonable to assume that this was not long before 8 January and
that accordingly at least a whole month had gone by between the date when the
undertaking was given and the date when he did for the first time, and indeed the
only time, so far as his personal efforts are concerned, anything to comply with the
undertaking.
The judge, before delivering his decision, he cited the best endeavours
principle used in previous cases. In IBM UK v Rockware Glass’s,148 the agreement
being construed was an obligation to make an application for planning permission
and to use its best endeavours to obtain the same. The judges in the Court of Appeal:
Buckley LJ, Geoffrey Lane LJ, and Goff LJ, had to consider whether best
endeavours had been used and Buckley LJ in particular formulated the test of best
endeavours as being:
“ In this context, what an owner of the property with which we are concerned
in this case, who is anxious to obtain planning permission, would do to achieve that
end. And later he said he was bound to take all those steps in his power which are
capable of producing the desired results, namely the obtaining of planning
permission, being steps which a prudent, determined and reasonable owner, acting
in his own interests and desiring to achieve that result, would take.”
148
[1980] FSR 335
73
Besides, he also referred to another case of Rhodia International Holdings v
Huntsman International149, the decision of Mr Julian Flaux QC where the question
was an obligation to use reasonable endeavours, and he made the fairly self-evident
comment that that was less demanding than an obligation to use best endeavours.
Hence, the judge in this present case did not consider Mr. Sidhu’s actions
amounted to best endeavours. Best endeavours involved not only what a party
needed to do but also the time to do it. Mr Sidhu should have approached Orbit in
the first week of December, even before the order was sealed and at any rate in the
week after the order was sealed. Hence, the court held that Mr Sidhu did not comply
with the undertaking because he did not use his best endeavours even he hardly used
any endeavours but he did nothing and used no endeavours at all for at least a month.
This case gives a new paradigm in interpreting what best endeavours are. If
in the previous case of IBM UK Ltd v Rockware Glass stressed on the steps should be
taken as a determined, prudent and reasonable person, this case highlighted on the
importance of time in fulfilling the obligation of best endeavours. Basically, any
action needs to be carried out within reasonable time unless the contract had stated
specific dates for each action. What is define as reasonable time will depend on the
type of transaction or duty undertaken.
As in this case, Mr Sidhu was in default since he did not take any reasonable
action to fulfil his best endeavours obligation for a month.
4.4.4 Walter Lilly & Co Ltd v. Mackay & Anor. Company [2012] EWHC 1773
The plaintiff, Walter Lilly & Company Limited (WLC) was a contractor for
the proposed building project in London. DMW was a purpose designed vehicle for
149
[2007] EWHC 292
74
the acquisition of the land at Nos. 1, 2 and 3 Boltons Place and was formed by three
people, Mr Mackay, Mr Daniel and Mr West. This was a sophisticated and big
project since the employer DMW Developments Ltd had high expectation on it.
However, little if any design had been completed prior to the involvement of WLC.
There were substantial delays, much of which initially at least were not the
responsibility of WLC, and as time went on DMW fell out seriously with its
Architect.
Separate contractors having been engaged to carry out the demolition work,
four contractors, including WLC, were invited to tender for the main building works.
WLC described itself as having particular and extensive experience of working on
high-quality residential and new building projects. On 26 March 2004, WLC
submitted its tender in the sum of £15,476,970.99 for construction of all three plots.
It referred to there being limited information and how difficult it was to conclude an
actual programme; although the stated completion period was 78 weeks, WLC's
experience suggested 80 to 90 weeks, notwithstanding the enclosed programmes
showing a 78 week period and some 23 work packages.
The first major element of the works to be constructed was the piling and it
was made clear to WLC that it was to be responsible for the design. This was
confirmed at a project meeting on 4 May 2004. WLC negotiated with several piling
contractors and on 28 June 2004 recommended that the piling package was awarded
to Stent Foundations. By 10 September 2004, WLC reported that the contract was in
delay by some four months. Some delay and disruption was caused by the presence
on site of trees subject to tree preservation orders and over the following few months
permission was secured for the felling of such trees.
By early 2005, WLC had given notifications under Clause 25 of delays
caused by tree removal problems, additional piling works and the late instruction of
Keltbray, contractor for concrete works. Day by day, the submission of notice
regarding time extension getting higher and the project was already experienced
75
delay from the original completion date. The project could only be completed after
one year extended from the actual completion date.
Since this project involved lots of delay and issuance of extension of time, the
issue that the court had to decide was what amounted to ‘best endeavours’ as stated
in clause 25.3.4 of the contract in order to prevent or at least minimize the delay and
also the roles of Architect in granting an extension.
The court held that, in defining the extension of time clause, it means:
(a) The contractor should give notice if the works were being delayed or
were likely to be delayed. This notice could relate therefore to actual
delays being experienced or to future likely delays.
(b) The notice should be accompanied or be followed as soon as practicable
by particulars of expected effects and an estimate of the expected delay.
(b)
What was at least initially envisaged was that the architect would carry
out a prospective exercise; this is because the Contractor can give notice
when progress is likely to be delayed and the Architect has to assess what
the likely delay will be. This makes sense so that the contractor and the
architect could plan for the rest of the job.
Of course, notice could be given when the works had actually been
delayed but actual overall delay had not happened until after the original
date for completion has passed. The clause did not describe the exercise
of working out how much future delay would result from the relevant
events in question. The architect would have to do the best that he or she
could, this might well be assisted by programming exercises done by the
contractor.
76
(d) Once the notice, particulars and estimate under Clauses 25.2.1 and 25.2.2
had been given, the architect was required to grant the appropriate
extension of time. This is not an optional exercise: the word "shall" is
clearly and intended to be mandatory.
(e) No later than 12 weeks after Practical Completion, the Architect must
carry out the final extension of time exercise, irrespective of whether
notices and the particulars have been provided. This will necessarily be a
retrospective exercise because Practical Completion will have passed and
all the delays (whatever the causes) will have occurred. Again, the way in
which this exercise is to be done is not defined.
Referring to this case, the court had outlined steps that should be taken by the
contractor in defining ‘best endeavours’ term as stated in the contract. For the initial
step, the contractor should give the notice if in his opinion the works are being
delayed or may be delayed. This notice needs to be attached together with the
expected effect and also the estimated period of delay. It is better if the contractor
can submit the notice before the delay becomes real because the contractor can have
ample time to re-programme his works and put effort to finish it before the new
completion date. As in the present case, some of the notices were given after the
delay had happened, and when there are subsequent delays, the works still cannot be
complete on time.
Once notice had been given, the architect may assess it and grant the
appropriate extension of time to the contractor. Architect’s judgment in this matter is
really important because it determines whether the contractor can complete it on the
given period of time or else he will be imposed with Liquidated and Ascertained
Damages (LAD).
As what happened in the present case, the architect granted less time
extension compared to what had been applied by the contractor. By January 2006,
77
the contractor, Walter Lilly & Company Limited (WLC) reported that 27 weeks and
three days extension of time was requested, however only four weeks had been
awarded. Unreasonable granted of time extension can affect the whole progress of
works, in addition this present project already had conflict at early stage on duration
to complete whereby the contractor suggest it to be 80 to 90 weeks works compared
to 78 works as in contract.
Hence, from this case it can be concluded that best endeavours obligations
includes the contractor’s compliance with extension of time clause, the determined
procedure and also timing for giving notice.
4.5
Conclusion
This chapter forms the most important part in achieving the research
objective. The objective is to identify the requirements in performing the duty of
best endeavours for the purpose of compliance with the proviso for the granting
extension of time.
There were altogether nine major cases that have been identified and
presented in this chapter. Even though the selected cases are English cases and not
within construction contract scope, however the principles in best endeavours were
found to be applicable into Malaysian construction contract cases.
The next chapter will conclude the discussion of those analysed cases and the
relation with the addressed objective.
CHAPTER 5
CONCLUSION AND RECOMMENDATIONS
5.1
Introduction
The previous chapter had discussed and analysed the case law in relation to
the obligation of parties that had been expressly imposed with a duty to use their best
endeavours to achieve certain specific objectives. Hence, this final chapter will
summarize the overall findings of the research according to the research objective.
The research objective is to identify the requirement in performing the duty of best
endeavours for the purpose of compliance with the proviso for the granting extension
of time. In addition, this chapter will also discuss the problems that had occurred in
the course of conducting this research.
This chapter ends with some
recommendations for future research which can be carried out by other researchers.
79
5.2
Relation with Extension of Time
It should be noted that the majority of the cases analysed were not those that
related to extension of time issue. Nevertheless it is submitted that, the general nature
of the principles that arose from those cases make it possible for them to be
considered as equally applicable to the contractors’ duty of best endeavours to
prevent or reduce delay in an application for extension of time. Hence this section
will particularly define the best endeavours obligation in terms of extension of time.
Under construction contracts, it is an overriding requirement for contractors
and the subcontractors to constantly use their best endeavours to avoid or minimise
delay. In the course of discharging that requirement, they must adopt the appropriate
approach. Generally, they should be able to recognise when delay would possibly
occur and manage and respond quickly to the occasion so as to minimise disruption
to the works.
Below are the lists of requirements in performing the duty of best endeavours
as retrieved from the examination of the cases law. It is suggested that they are
equally applicable to construction contract, particularly in extension of time.
i)
The contractor should carry out all possible steps in order to prevent
or put the losses at a minimum level.
ii)
Should the contractor need to expend money the expenses incurred
must not be substantial.
iii)
The steps taken should not bring the contractor to sacrifice his own
interest.
80
iv)
The contractor should comply with all contractual procedures as
stated and agreed at the time he entered the contract.
v)
The contractor should comply with any instructions from the contract
administrator relating to reducing the delay.
In relation to the above five main principles, below are some suggestions that
contractors may take to minimise delay:
i)
Weather factor (e.g. : raining season)
-
The contractor can execute part of works that are not affected by the
weather, for example, doing internal work such as plastering and
painting, fixing internal doors and windows, tiling and others.
ii)
Delay in supply of materials
-
The contractor can remind/notify the suppliers to deliver the materials
as what had been scheduled.
-
If this continues, the contractor can find alternative suppliers that can
supply the equally standard quality materials.
iii)
Delay in giving instructions and getting approvals
-
The contractor must make confirmation regarding the oral instructions
given by the contract administrator, if relevant.
-
This procedure to obtain verification regarding oral instructions is
normally stated in the standard form of contract, and the contractor
shall comply with the procedures.
81
-
The contractor may reschedule his work programme according to the
contract administrator’s requirement, if necessary150.
iv)
Delay by nominated subcontractors
-
The contractor may instruct the subcontractor to work regularly and
diligently.
-
If this continues, the contractor may give notice of failure to perform
works in a good manner.
-
The contractor can give another notice to the subcontractor and ask for
their cooperation in performing the obligations.
-
Discuss with contract administrator regarding this problem and if
necessary request to reappoint another sub-contractor (NSC).151
v)
Delay in giving possession of or access to the site
-
The contractor can send a request letter to the employer, ask for
possession of site.152
-
Several notices submitted by contractor as request can be considered as
best endeavours.
150
Andrew Noble. Contractors’ and sub-contractors’ constant best endeavours to prevent delay.
Construction Law Journal. (1997)
151
Andrew Noble. Contractors’ and sub-contractors’ constant best endeavours to prevent delay.
Construction Law Journal. (1997)
152
Rapid Building v Ealing Family House Association [1984] 29 BLR 5
82
vi)
Variations
-
The contractor has rights to request for information related to the variation
order given by the contract administrator.153
-
If necessary, the contractor may rearrange his works programme and fit in
those variation works within the work structure.
-
The contractor may reschedule his material deliveries since the works had
been added or omitted by the variation orders.154
-
In order to complete those variation works, the contractor may require
making some reasonable expenses which later these expenses can be
claimed under loss and expense to the employer.155
5.3
Problems Encountered during Research
There are few constraints faced by the researcher in order to complete this
research. They are:
153
Andrew Noble. Contractors’ and sub-contractors’ constant best endeavours to prevent delay.
Construction Law Journal. (1997)
154
Andrew Noble. Contractors’ and sub-contractors’ constant best endeavours to prevent delay.
Construction Law Journal. (1997)
155
Andrew Noble. Contractors’ and sub-contractors’ constant best endeavours to prevent delay.
Construction Law Journal. (1997)
83
5.3.1
Duration of the Research
The main problem encountered during the conduct of this research is the
limited time frame.
This research is carried out within a limited period of
approximately five weeks.
5.3.2
Lack of Cases related to ‘Best Endeavours’ in Construction Contract
While conducting this research, the researcher faced difficulties in finding
law cases regarding to ‘best endeavours’ in respect of construction contract
especially focusing on extension of time. As a result, the researcher widened the
scope of cases selected to be review to all types of contract and make comparative
analysis with construction industry practice.
5.4
Further Studies
There are rooms for improvement regarding to this research topic. Based on
this research, the following could be the possible areas for future research that may
also be beneficial for the construction industry:
5.4.1
The Modification of ‘Best Endeavours’
Best endeavours term recently comes with other modification on it such as
‘reasonable endeavours’ and ‘all reasonable endeavours’. Future research in detail
84
regarding these two terms will be appreciate if our construction industry in the future
may embedded these words in our standard form of contract.
5.4.2
Practicality of Best Endeavours
This research is mainly focusing on best endeavours obligation in terms of
extension of time.
Construction contract is very wide.
The principle of best
endeavours may be suitable to be used in other aspect of construction contract.
Hence, future researcher is suggested to carry out a study on best endeavour in other
area of construction industry.
85
REFERENCES
Abd. Majid, M.Za. and McCaffer, R., (1998). “Factors of Non-excusable Delays that
Influence Contractors’ Performance”. Journal of Management in Engineering.
ASCE, May/June. pp. 42-49.
Afshari, H., et. al. (2011). Identification of Causes of Non-Excusable Delays of
Construction Projects. 2010 International Conference on E-Business,
Management and Economics. Vol. 3. Hong Kong.
Aleka Mandaraka-Sheppard. (2007). Modern Admiralty Law 2nd Edition.
Routledge-Cavendish. New York.
Allens Arthur Robinson. (2004). Delay and Disruption Protocol. Construction
Breakfast Seminar. The Society of Construction Law.
Andrew Noble. (1997). Contractors’ and sub-contractors’ constant best endeavours
to prevent delay. Construction Law Journal.
Chappell, D. (2011). Building Contract Claims. Wiley-Blackwell. UK.
Charles A. Leonard. (1988). The Effects of Change Orders on Productivity.
Concordia University.
Charles Boundy. (2010). Business Contract Handbook. Gower Publishing Company.
USA.
CIDB Standard Form of Contract for Building Works. (2000). Lembaga
Pembangunan Industri Pembinaan Malaysia.
86
Contract Act 1950 (Act 136). (2008). International Law Book Services. Selangor.
Cushman, R. F., Myers, J. J. (1999). Construction Law Handbook. New York.
Aspen Law & Business.
Daniel Atkinson. (2000). Access to Site. Atkinson Law.
David Chappell, Michael Dunn and Michael Cowlin. (2009). Building Law
Encyclopedia. John Wiley and Sons. UK.
Denise L. Nestel. (2006). Force Majeure Clause: The Basics. Executive Magazine.
Eggleston, B. (2009). Liquidated Damages and Extensions of Time. Blackwell
Publishing. United Kingdom. Pp 248-249.
JCT Standard Form of Contract. (1998)
Keane, P.J., Caletka, A.F. (2008). Delay Analysis in Construction Contracts.
Blackwell Publishing Ltd. United Kingdom.
Kenneth C. Gibs, Gordon Hunt. (2000). California Construction Law. Aspen
Publishers. New York.
Knowles Commercial Services. (n.d). Delays, Extensions of Time and Liquidated
Damages.
Lim Chong Fong. (2004) The Malaysian PWD form of Construction Contract, Sweet
and Maxwell Asia, Kuala Lumpur, p. 92.
M.Z. Abd Majid and Ronald McCaffer. (1998). Factors of Non-Excusable Delays
that Influence Contractor’s Performance.
Engineering. May/June.
Journal of Management in
87
Michael S. Simon. (1979). Construction Contracts and Claims. McGraw-Hill Book
Company. United States. pp 240-241.
Michael T. Callahan. (2005). Construction Change Order Claims. Aspen Publishers.
United States of America. Pp 3-10.
Mokhtar Azizi Mohd Din. (2011). The Extent of The Contractors Effort to Mitigate
Delay. PMINZ Conference. Auckland.
Oon Chee Kheng. (2003). Extension of Time and Liquidated Damages in
Construction Contracts. Seminar on Construction Contracts and Arbitration.
Institution of Engineers, Malaysia. Perak.
PAM Standard Form of Contract. (2006). Pertubuhan Arkitek Malaysia.
Price D. (n.d). Delay and Disruption Claims under FIDIC Contracts-Procedural
Issues, Evidence and Assessment. Hill International.
PWD 203A Standard Forms of Contract. (2010). Public Works Department.
Robinson, N.M. et.al. (1996). Construction Law in Singapore and Malaysia. 2nd
Edition. Singapore.
Simon, M.S. (1979). Construction Contracts and Claims. McGraw-Hill Book
Company. United States.
Slaughter and May. (2007). Best endeavours v. reasonable endeavours, what do they
mean? Does either mean anything? London.
Smith, H. Notice Requirements in Construction Contracts – A Southest Asia
Perspective. (2012); Oon Chee Kheng. Standard Construction Contracts in
Malaysia: Issues and Challenges. Innovations in Construction Contracts.
Malacca. Pp 8-9. (2002)
88
Suzanne Reeves. 2012 Construction Case Law Summary (January-June). Wedlake
Bell. London. 2012.
The
Free
Dictionary
by
Farlex.
(2012).
Retrieved
from
http://legal-
dictionary.thefreedictionary.com.
Thomas Lundmark. (1998). Common Law Tort & Contract. LIT Verlag Munster.
London.
Thomas, J. Kelleher and G. Scott Walters. (2009).. Smith, Currie & Hancock’s
Common Sense Construction Law. John Wiley & Sons. United States of
America. Pp 281 – 283.
Timothy R. Hughes. (2003). A Layperson’s Guide to Delay Claims. Masonry
Magazine. Hughes & Associates.
Vivian Ramsey and Thomas Telford. (2007). Construction Law Handbook. Thomas
Telford. London.
William Ibbs and Caroline Vaughan. (2012). Change and the Loss of Productivity in
Construction: A Field Guide.
89
BIBLIOGRAPHY
Edwards Angell Palmer & Dodge. (2008). The Expanding Spectrum of ‘endeavours’
clauses. Retrieved from eapdlaw.com
Entrusty Group (2006). Is The Contractor Still Entitled to Extension of Time When
There is Concurrent Delay?. Master Builders.
Marsden, J. and Scott, N. (2008). Much Effort, Much Prosperity? Best and
Reasonable Endeavours Obligations and Relevants Commercial Differences.
Memery Crystal. UK.
Norhana Danial. (2007). Contractor’s Application for An Extension of Time. Master
in CCM. Universiti Teknologi Malaysia.
Rosenthal, A. & Fitzgerald. Do I have to Complete? Issues which arise when
contracting parties change their mind about the sale/purchase of land. Falcon
Chambers.
Rush S. (2007). Are your best endeavours always reasonable?A recent case on
‘reasonable’ versus ‘best endeavours’. International Bar Association.
Seltzer E.M & Gross A. M. (1956). Federal Government Construction Contracts:
Liability for Delays Caused by the Government. Fordham Law Review.