INTRODUCTION
In a construction industry, as it extends over a wide range of projects and involves a
whole array of activities, therefore requires a large number and types of parties involved in
the completion of the project. Apart from those directly involved such as the employers,
professionals, contracts, subcontractors, suppliers, construction specialist and project
managers, there are also those non-technical specialists such as lawyers, financial advisors,
risk managers, and many more, are those that are usually at one time or another involved in a
construction project. In the present case, it is necessary to identify first the parties involved in
the said project in order to decide the obligations owing to each other.
An agreement has been entered between Healthy Oil Co and Maju Construction. Maju
Construction is under the duty for the construction of three stores and two blocks of workers
quarters at Healthy Oil Co’s oil palm estate. As such, we can deduce from this fact that,
Healthy Oil Co is the employer of the said project while Healthy Oil Co has been appointed
as the contractor in completing the project of workers’ quarters. The relationship between the
parties is determined by the doctrine of privity of contract. Where there is a chain of
contracts, between the employer, main contractor, sub-contractors and supplies, the only
contractual relationship which exists is between the actual parties to each of the contracts in
the chain. In other words, only the parties to contract have the right to sue on it, owing to the
obligations being impliedly or expressly mentioned in the contract. Both the employer and
contractor are under a number of obligations to fulfil under the construction agreement that
they have entered into, in which will be translated into an express form and reduced into the
terms of the contract executed by the parties. 1 Wherever those obligations are not being
stipulated, they shoulder a host of implied obligations which address the lacuna. Therefore, in
making sure that the works are completed as far as possible within the contract price and time
as well as to the quality stipulated therein, both sides have to perform the contract and to
discharge their respective obligations.
Construction industry constantly faces payment issue and for that, Construction
Industry Payment and Adjudication Act 2012 (Act 746) (‘CIPAA 2012’) has been enacted to
be a binding dispute resolution procedure for construction and engineering disputes. In our
present case, as the dispute is being referred to an adjudicator, it is therefore relevant to
1
Sundra Rajoo and Harban Singh KS (2012). Construction Law in Malaysia. Subang Jaya: Sweet & Maxwell Asia.
Page 236
1
discuss the scope of application of CIPAA 2012 in order to decide whether the issues arise in
the present case fall within the ambit.
Adjudication is defined in Best Practice Guideline C3 as ‘an accelerated and cost
effective form of dispute resolution that, unlike other means of resolving disputes involving a
third party intermediary, the outcome is a decision by a third party which is binding on the
parties in dispute and is final unless and until reviewed by either arbitration of litigation. 2
The third party here refers to an adjudicator, an intermediary appointed to resolve a dispute
between the parties in dispute. The decision made by adjudicator is binding on the parties
unless it is set aside by the High Court, decided in arbitration or is subject to a settlement
between the parties. Therefore, it can be said that adjudication is a condition precedent to
proceeding to either arbitration or litigation.3.
Not every contract is applicable to this Act. According to Section 2 of the Act, it
applies only to a construction contract. Such contract must be made in writing and to exclude
contracts by conduct and oral contracts. Jackson J in Trustees of the Stratfield Saye Estate
Trustee v AHL Construction Ltd 4emphasised that what mattered was the recording of all
the contract terms was in writing. As such, any construction contract that is not in writing will
not be subject to CIPAA 2012. Under the Act, the party not being paid is only allowed to
refer a ‘payment’ dispute to adjudication. Section 4 defines payment to mean "payment for
work done or services rendered under the express terms of a construction contract 5, therefore
to exclude any extra contractual claims. It is suggested that “the definition does not cover
payments in respect of works done or services rendered which are outside the ambit of the
6
construction contract or arising from common law.” Section 25 provides the very wide
powers of the adjudicator, i.e. from the power to determine the procedure to be employed and
the extend of discovery and production of documents, up to deciding or declaring on any
matter notwithstanding the lack of the issue of any certificate in respect of that matter.
Section 27(1) provides that the jurisdiction of the adjudicator is limited only to the matter
referred to adjudication by the parties pursuant to sections 5 and 6 (which relate essentially to
merely payment). Even though the scope of application of CIPAA 2012 is restrictive to
2
Best Practice Guideline C3: Adjudication (2005). Retrieved from
http://www.cidb.org.za/publications/Documents/Adjudication.pdf
3
ibid
4
(2004) EWHC 3286 (TCC)
5
Ir Harbans Singh KS, The Application of Statutory Adjudication to the Construction Industry, KLRCA Certificate
in Adjudication Training Manual.
6
Lam W. L. and Ivan Y.F.L. (2013). Construction Adjudication in Malaysia, CCH Asia, at page 57.
2
payment disputes under a construction contract however, according to Section 27(2) of the
Act, the parties can still expand the scope of reference of the adjudication to matters other
than ‘payment’ disputes by reducing it in a written agreement agreed by both parties.
As an adjudicator, one has to act impartially in treating both sides equally. This was
emphasised by Edwards-Stuart J in Fileturn Ltd v Royal Garden Hotel Ltd 7 that an
adjudicator must conduct himself in a way that is free from actual bias and also ensure that
his handling of the adjudication is untainted by apparent bias.
Coming back to the present case, it involves a construction contract between Maju
Construction and Healthy Oil Co, in which few disputes have arisen. The followings are the
relevant issues that are to be discussed:
(1) Whether the absent of the details and scope of work for the workers quarters from the
said agreement will be a detrimental to the contractor’s working performance;
(2) Whether the failure by Healthy Oil Co to hand over the construction site for the
balance of the works to Maju Construction contributes to the construction’s delay;
(3) Whether Maju Construction could be liable for the defects appeared in the first store;
and,
(4) Whether Maju Construction is entitled for the payments of the balance of the contract
sum for breach of the said agreement by Healthy Oil Co.
Again, it must be reminded that even though the scope to refer to an adjudicator confines
to the payment dispute, however the provision gives a flexibility to the parties to expand the
subject matter of the adjudication to even non-payment issues, therefore in the present case,
the non-related payment issues can also be discussed.
7
(2010) BLR 512, at 512
3
1ST ISSUE: WHETHER THE ABSENT OF THE DETAILS AND SCOPE OF WORK FOR
THE WORKERS QUARTERS FROM THE SAID AGREEMENT WILL BE A
DETRIMENTAL TO THE CONTRACTOR’S WORKING PERFORMANCE?
The rights and obligations of the parties to a construction contract are defined by the
contracts being entered. So long that the parties follow the law and public policy, they have
the right and are free to decide and allocate the risks, duties and obligations associated with a
construction project. In a contract formation process, the first procedure is to select a type of
construction contract which give the employer various options at his disposal to choose from.
A construction contract can be categorised into two: Firstly, price-based contracts which
comprise mainly the Lump-Sums Contracts, Measure and Value Contracts, Cost
Reimbursement Contracts and other miscellaneous types of contracts 8; Secondly,
procurement-based contracts which can essentially divided into the traditional general
contracts, the management contracts, construction management contracts, ‘package’ deal
types of contract and etc.9 Each categories and types of construction contracts come with
specific benefits and downsides therefore the employer with the help of his professional
advisors has to make a considered decision as to the one that best suits his particular needs
and purposes.
In the present case, as the facts stated that a lump sum price of RM2.5 million has
been stipulated for the construction project at Healthy Oil Co’s oil palm estate, we can then
assume that the employer in this case i.e. the Healthy Oil Co has adopted a lump sum
contract. A lump sum contract also called as stipulate-sum contract , is ‘a construction
contract where the price or contract sum to which the contractor is entitled for undertaking
the work is fixed unless extra work or other variation is ordered.10 The contractor agrees to
perform a stipulated job of work in exchange for a fixed sum of money which he has
estimated in advance of entering into the contract. The lump sum stipulated is based either on
either a contract premised on Bills of Quantities, or if there are no such Bills of Quantities,
can be on drawings and specifications.11
Once the preferred type of contract has been decided, the next step is to make
selection of the particular conditions of contract that need to be employed. The employer has
8
Sundra Rajoo and Harban Singh KS (2012). Construction Law in Malaysia. Subang Jaya: Sweet & Maxwell Asia.
Page 236
9
Ibid page161
10
Chow Kok Fong. Construction Contracts Dictionary, page 239
11
Ibid page 155
4
number of alternatives depending on what types of employer he is and depending on his
needs as well as preferences. If the employer is a public sector employer who is bound by
standard operating procedures, he has to use a specific form of conditions of contract namely
the JKR or PWD form. While those who are in private sector, they can go for an industry
standard form of conditions of contract such as the PAM form, the CIDB Form, the IEM
form and etc. Other than, the employer can generate ‘bespoke’ or ‘custom-made’ forms of
conditions of contract which is specially drafted and fully customised to cater for specific
needs or requirements for the parties. 12
In the present case, nothing mentioned on what type of form and content decided for
the said agreement therefore, it is necessary to discuss in both the position in the standard
operating procedures i.e. PWD form and the specific form of conditions of contracts i.e the
PAM form. Nevertheless, in whichever type of form and content, it is the employer’s
obligation to properly decide the form and content of the tender documentation that he has to
produce before the tender proper can be officially called.
Once the contract formation process has completed, we shall move to the next step
13
which is the contract documentation. According to Vincent Powell-Smith , contract
documents are essentially the formal documents evidencing the agreement reached between
the employer and the contractor pursuant to the acceptance of the tender at the end of
tendering process. Typical contents of a standard construction contracts include but not
limited to the conditions of contract, appendix to the conditions; plan and drawing;
Specifications on the matters such as the scope of work, standard or level of workmanship;
and etc.
In the present case, the details and work scope are absent from the agreement.
In construction, the term ‘scope of work’ is a very general, and sometimes ambiguous term
referring to a general description of the work that is expected to be performed under a
particular construction contract. It may be prepared by the client or their consultants and
included in tender documentation for construction works.14 However, any shortcomings or
compromise in terms of listing down the details and work scope will be likely to lead to
disputes and a watering-down of the achievement of the objectives of the construction project
in the long run. From that, what we can conclude here is that, Healthy Oil Co’s failure to
12
Bowmans (2016). A Guide to Construction Contracts. Page 8. Retrieved from
http://www.bowmanslaw.com/wp-content/uploads/2016/12/Guide-Construction-Contracts.pdf
13
Vincent Powell-Smith. An Engineering Contract Dictionary, p 80
14
Scope of Work. Retrieved from https://www.designingbuildings.co.uk/wiki/Scope_of_work
5
properly listing down the details and work scope in the construction agreement will be a
detrimental to Maju Construction’s working performance, which will lead to confusion and
uncertainty and consequently will cause more disputes in the construction project. Regardless
of that, the contractor still carries a number of implied obligations under a typical
construction contract. For instance, In Sharpe v San Paulo Railway Co 15,it was held that for
the traditional contracts based on drawings and specifications as well as the package deal
types, the contractor is under an implied obligation to undertake all work which is
indispensably necessary for the completion of what is expressly stipulated. Therefore, Maju
Construction having such implied obligation, must always execute their works as a contractor
under the contract in a proper and workmanlike manner using reasonable skill and care.
2ND ISSUE: WHETHER THE FAILURE BY HEALTHY OIL CO TO HAND OVER THE
CONSTRUCTION SITE FOR THE BALANCE OF THE WORKS TO MAJU
CONSTRUCTION IS THE CAUSE OF THE CONSTRUCTION DELAY?
As mentioned in the introduction, the employer shoulders not only host of express
obligations but also implied obligations. In every construction contract, unless expressly
provided, there are two types of implied obligations for the employer. Firstly, the employer is
under the duty not to hinder the contractor in any way from undertaking and completing his
works and secondly to give full cooperation to the contractor in discharging his obligation
prescribed in the construction contract. Such implied obligations were highlighted in the case
of London Borough of Merton v Stanley Leach16 where the court mentions that:
a) The employer will not hinder or prevent the contractor from carrying out all its
obligations in accordance with the terms of the contract and from executing the work in a
regular and orderly manner.
b) The employer will take all steps necessary to enable the contractor to discharge its
obligations and execute the work in a regular and orderly manner.
The non-hindrance obligation may include matters such as the ordering of additional
variation works, failing to give consents or approval in time delay of failure to effect
payment, failure to appoint a contract administrator and many more. 17 As for the obligation to
give full cooperation, one example of it is but not limited to, the giving of possession of the
15
(1873) LR 8 Ch App 597
16
FIDIC MDB 2006
17
Sundra Rajoo and Harban Singh KS (2012). Construction Law in Malaysia. Subang Jaya: Sweet & Maxwell
Asia. Page 237
6
site and access, which is relevant to our present case. Lawton LJ in Martin Grant & Co Ltd v
Sir Lindsay Parkinson & Co Ltd 18 said: “There is … by implication of law, an obligation to
co-operate with one another”.
Possession in Black’s Law Dictionary by Garner 19means the fact of having or holding
property in one’s power, so possession of site could be interpreted as paddies possession
which mean an actual possession of real property, implying either actual occupancy or use.
The site is defined in most construction contracts as “the places where the Permanent Works
are to be executed including storage and working areas and to which Plant and Materials are
to be delivered, and any other places as may be specified in the Contract as forming part of
Site 20
Where nothing is mentioned in the contract about possession of the site, there is an
implied obligation to the effect that the employer must allowed the use and possession of the
site for the purposes of the contractor in carrying out their works. In Freeman & Son v.
Hensler, the contractor undertook to demolish 15 houses and to build 12 new houses on the
same site, however instead of giving the whole sit, the employer only handed over the site in
a piecemeal manner. The court of appeal held that it was an implied term of the contract that
the employer should give possession of the whole site to the contractor within a reasonable
time. The court stated: ‘I think there was an implied condition on the part of the defendant
that he would hand over the land to the plaintiffs to enable them to carry out what they had
contracted to do, and that it applied to the whole area.’ 21. Again, in London Borough of
Hounslow v. Twickenham Garden Developments Ltd, it was said: ‘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, but whether in a given case the contractor in
law has possession must, I think, depend at least as much on what is done as on what the
contract provides . . . ’
The phrase ‘possession of the site’ was considered in Whittal Builders v. Chester-Le-
Street District Council where it was held that the phrase meant possession of the whole site
and that, in giving piecemeal possession, the employer was in breach of contract so as to
entitle the contractor to damages. Further reference can be made in clause 21.1 of the PAM
Contract 2006 and Clause 38.2 of the JKR forms 203 which contain express terms to the
18
(1984) 29 BLR 31 (CA)
19
Garner, Brian A (1999): Black’s Law Dictionary, Seventh Edition, West Group, St.Paul-Minnesota
20
FIDIC MDB 2006
21
(1900) 64 JP 260 at 261 per Collins LJ.
7
effect of the employer’s obligation to give the contractor possession and sufficient access to
the site.
In applying this to our present case, the Healthy Oil Co is generally under the
obligation to permit access to the site as how the contractor's work is, by its very nature, to be
performed at the site. Accordingly, most construction contracts provide, as a standard term,
that the contractor will be able to occupy the site so as to allow the contractor to perform its
obligations accordingly to the contract. even if not written into the contract, a similar term
shall be implied. Therefore, Healthy Oil Co is still obliged to give Maju Construction the
possession and sufficient access to the site. However, Healthy Oil Co in fact fails to do so.
The contractor then cannot proceed with the works in the location when the possession of site
hasn’t been completed yet. This will eventually cause a delay to the completion of the
construction project. If the Health Oil Co fails to give possession of the site to Maju
Construction, and there are no provisions for delay in the contract, then they will be in breach
of contract. Even if the contract does provide for delay in giving possession of the site to the
contractor, the contractor will still be able to claim for an extension of time and perhaps loss
and expense.22
3RD WHETHER MAJU CONSTRUCTION COULD BE LIABLE FOR THE DEFECTS
APPEARED IN THE FIRST STORE?
Most construction contracts make provision for the contractor to be liable for
attending to defect in the works handed over which is called as the Defects Liability Period
following the date for completion, a period during which the contractor may be recalled to
rectify defects which appear for which he is responsible and of which he is duly notified. At
the end of the said period, once the contract administrator certifies the work accordingly by
issuing Certificate of Making Good of Defects, the contractor will then be discharged of his
said liability.
Defects can be defined as an improper condition that may cause impact to the building
23
structure, which lead to low quality and performance of the building . According to the
definition in Webster’s Dictionary, building defect happens when there is missing of
something important to achieve perfectness or in other words, any shortcomings to the said
22
Possession of the site by the contractor. Retrieved from
https://www.designingbuildings.co.uk/wiki/Possession_of_the_site_by_the_contractor
23
Burden, E., 2004. New York: McGraw Hill. Illustrated Dictionary of Architectural Preservation: Restoration,
Renovation, Rehabilition and Reuse
8
construction project. The term ‘defect’ covers any imperfection, shrinkage or any other fault
in the works under the contract for which the contractor is responsible. 24 Chow Kok Fong in
the Construction Contracts Dictionary extends the meaning to include any aspect of the
works “which fails to comply with a contract, code of practice or statute”.
Defects can be generally divided into two categories. The first category looks at the
nature of the defect itself, be it the quality of the material used, standard of workmanship
employed and/or the standard of design as criteria in the classification process. According to
the case of Independent Broadcasting Authority v EMI Electronics Ltd & BICC Construction
Ltd (1980) 14 BLR 1, ‘this method however disregards the fact that there may be distinct
group of defects where there is a blurring of the boundaries so set such that they may involve
any combination or configuration of the above.’.
Moving on to the second category which can be further divided into two groups
namely those classified as patent defects and latent defects. Patent defects are known or
clearly recognised during inspection under construction and Defect Liability Period (DLP),
while latent defects are concealed and are often not readily observable which usually appear
over time when the building is occupied 25 According to the case of Pirelli General Cable
Works Ltd v Oscar Faber & Partners (1983) 2 AC 1, the defects are inherent in the works
themselves and become apparent and noticeable or capable of being discovered only when
they become patent.
The task to determine whether the contractor is responsible for the alleged defects lies
on the contract administrator for which he has to make an in-depth study and investigate
before reaching at a considered decision and to decide whether contractually it does
constitute a defect within the scope of the contractor’s responsibility. Contract administrator
firstly must take into consideration to the method of contract procurement used. In the present
case, as nothing mentions about which method being used, therefore it is necessary to discuss
and to compare all. Firstly, for traditional general contracts, the contractor is responsible
merely for defects in the quality of materials and the standard of workmanship. On the other
hand, if the contracts are partly designed by the employer, the contractor shoulders the
responsibility for defects arising from the quality of materials, standard of workmanship and
24
Sundra Rajoo and Harban Singh KS (2012). Construction Law in Malaysia. Subang Jaya: Sweet & Maxwell
Asia. Page 468
25
Hassan, Z. Ismail, H.M. Isa, R. Takim. (2011). Tracking Architectural Defects in the Malaysian Hospital
Projects.Paper presented at the 2011 IEEE Symposium on Business, Engineering and Industrial Applications
(ISBEIA), Langkawi, Malaysia.
9
the standard of design for elements of the works designed by him. These can be seen in
clause 22 of the JKR Forms 203 and 203. As for the “package deal’ types of contracts, the
contractor is generally responsible for all aspects of the works.
Applying this to our present case, if the Healthy Oil Co alleged defects in the first
store, he then has to report to the contract administer who is obliged to investigate the
complaint. Maju Construction could be held liable for the defects appeared in the first store
provided that such complaint was made before the issuance of certificate of practical
completion. Upon receiving such complaint, Maju Construction shoulder the responsibility to
rectify the defects during the defect liability period. If, however, there still exist outstanding
defects or those that have not been satisfactorily rectified by the contractor, contract
administrator can proceed to carry out a diminution in value for the same and afterwards
issue the Certificate of Making Good of Defects, only if such remaining defects be minor and
not material. If the remaining defects are serious or material, he may only extend the defects
liability period if expressly permitted by the contract.
4TH WHETHER MAJU CONSTRUCTION IS ENTITLED FOR THE PAYMENTS OF THE
BALANCE OF THE CONTRACT SUM FOR BREACH OF THE SAID AGREEMENT BY
HEALTHY OIL CO?
Parties to a construction contract may be culpable of delaying the completion of the
contract works. If the culpable party is the contractors, then he is consequently liable to pay
the employer liquidated and ascertained damages and/or common law damages. On the other
hand, in a situation when the contractor be delayed by the employer through an act of
prevention, may cause the contractor disturbance, hindrance or interruption to his normal
working methods resulting in a loss of productivity. 26 When the employer prevents the
contractor from completing his obligations under the contract in time and/or disrupts his
works in a material way, he is culpable of breach of contract, the consequence of such a
breach is that the contractor can seek the commensurate remedy. A claim for delay and
disruption costs is usually made pursuant to and within the scope of the particular
construction contract itself. For such a claim to be tenable at law, it should arise from the
contract itself and be made under specific provision or term of the contract.
In the present case, as discussed above in the second issue, there was in fact a breach
of the said agreement when Health Oil Co failed to hand over the construction site for the
26
Sundra Rajoo and Harban Singh KS (2012). Construction Law in Malaysia. Subang Jaya: Sweet & Maxwell
Asia. Page 325
10
balance of the works which consequently causes delay to the completion of the construction
project. To pursue the contractual entitlements, Maju Construction must adhere strictly to the
provisions in regard to the same as contained in the particular construction contract. It may be
from the preceding section, being essentially clause 24.0 of the PAM Contract 2006, clause
44.0 of the JKR form 203 and 203A, clause 31.0 of the CIDB form and etc.
Also, as this particular issue concerns on payment dispute and being referred to an
adjudicator, it does fall within the scope of our jurisdiction. And for that, as it has been
established that there was in fact a breach of the said agreement when Health Oil Co failed to
hand over the construction site for the balance of the works which consequently causes delay
to the completion of the construction project, Maju Construction is entitled for the payments
of the balance of the contract sum for breach of the said agreement.
CONCLUSION
In summary, Healthy Oil Co and Maju Construction as the main parties involved in
the construction contract must take the necessary steps to implement the terms and conditions
of such contract to achieve the objectives as envisaged. It is advisable for the employer prior
to commencement of the construction work to list down all the necessary details and work
scope of the workers in order to avoid any confusion and future disputes. For a start, the
employer will have to hand over the site to the contractor who can then commence with his
works in time and proceed with it diligently to achieve completion within the time period
prescribed by the construction contract. the failure of the employer to hand over the site to the
contractor on time will consequently causes delay in the completion of such construction
project. On the issue of the alleged defects appeared on the first store, Maju Maju
Construction could be held liable for provided that such complaint was made before the
issuance of certificate of practical completion and for that Maju Construction carries the
responsibility to rectify the defects during the defect liability period. Finally, on the issue
concerning the payment disputes, as there was a breach of the said agreement when Health
Oil Co failed to hand over the construction site for the balance of the works which
consequently causes delay to the completion of the construction project, Maju Construction is
entitled for the payments of the balance of the contract sum. To sum up, both sides should
have performed the contract to ensure that the works are completed as far as possible within
the contract price and time and to the quality stipulated therein.
11
REFERENCES
Best Practice Guideline C3: Adjudication (2005). Retrieved from
http://www.cidb.org.za/publications/Documents/Adjudication.pdf
Bowmans (2016). A Guide to Construction Contracts. Retrieved from
http://www.bowmanslaw.com/wp-content/uploads/2016/12/Guide-Construction-
Contracts.pdf
Burden, E., 2004. New York: McGraw Hill. Illustrated Dictionary of Architectural
Preservation: Restoration, Renovation, Rehabilition and Reuse
Chow Kok Fong. Construction Contracts Dictionary,
FIDIC MDB 2006
Garner, Brian A (1999): Black’s Law Dictionary, Seventh Edition, West Group, St.Paul-
Minnesota
Hassan, Z. Ismail, H.M. Isa, R. Takim. (2011). Tracking Architectural Defects in the
Malaysian Hospital Projects.Paper presented at the 2011 IEEE Symposium on Business,
Engineering and Industrial Applications (ISBEIA), Langkawi, Malaysia.
Ir Harbans Singh KS, The Application of Statutory Adjudication to the Construction Industry,
KLRCA Certificate in Adjudication Training Manual.
Lam W. L. and Ivan Y.F.L. (2013). Construction Adjudication in Malaysia, CCH Asia, at
Possession of the site by the contractor. Retrieved from
https://www.designingbuildings.co.uk/wiki/Possession_of_the_site_by_the_contractor
Scope of Work. Retrieved from https://www.designingbuildings.co.uk/wiki/Scope_of_work
Sundra Rajoo and Harban Singh KS (2012). Construction Law in Malaysia. Subang Jaya:
Sweet & Maxwell Asia.
Vincent Powell-Smith. An Engineering Contract Dictionary
12
