Completion of works is of paramount importance in the construction industry. As the saying goes: “Time is Money”, delay in completion may have serious financial repercussions on the stakeholders in terms of compensation to be paid to end purchasers, loss of income from production, and higher construction costs. Therefore, most construction contracts have a liquidated ascertained damages clause to cater for the amount of agreed compensation to be paid by the contractors in the event the works are delayed beyond the completion date.
Having entered into the contract, Contractors are bound to complete the works within the completion date. However, it is inevitable to encounter events during the currency of the contract that delays the progress of works. In such situations, it is important to examine: (1) what caused the delay (2) whether the delaying events fall under any contractual provision which would entitle the contractors to apply for an extension of time for completion.
Relevant Events in PAM Contract 2018
Most of the construction contracts, be it in a standard form or bespoke contracts would contain an extension of time clause which provides a list of events that empower the Architect / Superintendent Officer (SO) to grant an extension of time for completion. Examples of the events extracted from Clause 23.8 PAM Contract 2018 are as follows: –
- Force Majeure;
- Exceptionally inclement weather;
- Loss and/or damage occasioned by fire, lightning, explosion, earthquake, volcanism, tsunami, storm, cyclone, flood, landslide, theft, ground subsidence, etc.;
- Civil commotion, strike, or lockout which affects the works or the preparation, manufacturing, or transportation of material and goods requires for the works;
- Delay in receiving the contract drawings and unpriced contract bills;
- Delay in receiving the Architect Instruction;
- Delay by the Employer in giving the site possession;
- Delay on the part of Nominated Sub-contractors;
- Re-nomination of Nominated Sub-contractors;
- Delay on the part of other Employer’s contractors;
- Delay or failure by Employer to supply materials and goods;
- The opening up for inspection of any work covered up, testing any materials, goods, or executed works;
- Any act of prevention or breach of contract by the employer;
- War damage;
- Compliance with Architect Instruction issued for variation, postponement, or suspension of works;
- Compliance with any changes to laws, regulations, or by-laws;
- Delay caused by any appropriate authority and service provider; and
- Replacement of Architect, Engineer, Quantity Surveyor, or Specialist consultant.
It is to be noted that the list of events varies in different contracts. Hence, it is pertinent for contractors to examine whether a delaying event that occurred is covered by the list of events in the contract.
Delaying Event Not Covered Under the Contract
It is well established that the Architect has no inherent power to extend the period of completion in absence of an express contractual, and extension of time can only be granted on specific grounds as provided in such clause1. If the delaying event is not covered under the contract although it has an extension of time clause, or if there is no extension of time clause at all, following the “prevention principle”, the occurrence of delay caused by the employer would have the effect of setting the time “at large”. As a consequence, contractors are entitled to complete the works within a reasonable time and the liquidated ascertained damages clause would be rendered unenforceable.
“The essence of the “prevention principle” is that the promisee cannot insist upon the performance of an obligation which he has himself prevented the promisor from performing. In construction law, that means that the employer cannot hold the contractor to a specified completion date if the employer has, by his own act or omission, prevented the contractor from completing by that date.2”
In the case of Thamesa Designs Sdn Bhd & Ors v Kuching Hotels Sdn Bhd [1993] 3 MLJ 25, the issue in dispute was whether the employer is entitled to impose liquidated ascertained damages when it has handed over the site late to the contractor. In that case, late handing over of site is not covered under the extension of time clause in the contract. The Supreme Court held that the employer is not entitled to impose liquidated ascertained damages because the time has been set “at large” with the act of prevention by the employer. The prevention principle was applied in the case of Sim Chio Huat V Wong Ted Fui [1983] 1 MLJ 151 where the contract contains no extension of time clause.
Failure to apply for Extension of Time despite the Express Clause
In the case of Daya CMT Sdn Bhd v Yuk Tung Construction Sdn Bhd [2018] MLJU 871, the Court held that the “prevention principle” is not applicable in the presence of an express clause that covers the employer’s acts or omission. In that case, after reviewing authorities in Australia, Scotland, and England, the Court refused to follow Northern Territory of Australia’s case of Gaymark Investment Pty Limited v Walter Construction Group Limited [1999] NTSC 143 which held that the prevention principle can be invoked even when contractors have not exercised their contractual right to apply for an extension of time. In other words, the “prevention principle” is inapplicable when there is an express clause for extension of time that covers the employer’s act or omission in question. This is understandable because a party to a contract cannot rely on the preventing conduct of the other party where it failed to exercise a contractual right which would have negated the effect of that preventing conduct.3
Conclusion
In summary, it is important for contractors to identify the delaying event when it occurs and to apply for an extension of time in accordance with the contract promptly. Failure to do so would prevent the contractors from relying on the employer’s default in absolving their liability for liquidated ascertained damages.
1 Prof Vincent Powell-Smith, The Malaysian Standard Form of Building Contract (PAM/ISM 69); Thamesa Designs Sdn Bhd & Ors v Kuching Hotels Sdn Bhd [1993] 3 MLJ 25
2 Jerram Falkus Construction Ltd v Fenice Investments Inc [2011] EWHC 1935, quoted in Pembinaan Limbongan Setia Berhad v Josu Engineering Construction Sdn Bhd [2020] MLJU 192
3 Turner Corporation Limited (receiver and manager appointed) v Austotel Pty Limited 1997 1 BCL 378
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