DISPUTE AVOIDANCE DURING MCO – WHAT ARCHITECT CAN OR CANNOT DO?
The first line of dispute avoidance is and has always been vested upon the shoulder of the ‘contract administrator’, by default such as so provided in the PAM form of building contract, the architect. The Movement Control Order MCO, announced by the government, now entered the 2nd extended weeks had been very challenging to architects. Issuing too much instructions to the contractor may either denying or allowing them to claim for unnecessary ‘loss and expenses’ with regards to having work ‘in remote’. Issuing too little instruction, may eventually deemed to be ‘not administering the contract’ with the duty of care expected from a contract administrator. So, the question is ‘how much’ instruction suffice for this instances of the MCO?
The first instruction is ‘necessary’ to put everyone in the project to ‘unambiguously’ recognize that the work on site has been ‘halted’. This instruction is meant to be a ‘stop work order’, as some architect may consciously wanted to avoid using this term that will eventually bring about the repercussion of ‘loss and expenses’ claim by the contractor and not looking too ‘impressive’ by the employer, who in the first instance, commissioned the architect. Yet, the architect has a ‘fiduciary duty’ to discharge impartially to the parties in the construction contract and ‘being ambiguous’ may not appear to be just in accordance to its ‘quasi-arbitral’ role, risked being sued by the parties in the contract. It is very common for architect to be sued these days for whatever reasons…
In the same instruction, it is ‘highly recommended’ for the architect to instruct the contractor to put in ‘mitigation effort’ foremost, to secure the site. How about ‘avoiding delay’? How do you wish the contractor to avoid delay, when it is foremost not his fault for this MCO? ‘Mitigating delay’ in such instances may come with a ‘cost’ and ‘unsuspecting’ architect may eventually issue the second instruction ordering ‘virtual-site meeting’ as though, ‘work carried on as usual’. In the said virtual meeting, other instructions may set in such as ‘issuance of further detailing’, request for ‘mock up’ approval, materials approval and all sort of things warranted the contractor’s ‘extra effort and equipment’ to provide and to facilitate. When reality sets in after the MCO, with the contractor issuing its ‘loss and expenses’ claim, the architect will further instruct the QS to evaluate and the very common answer as expected, ‘… it is not in the contract, the contractor cannot claim’. As it is, there appear to be a ‘dispute’ arising from an ‘instruction to avoid delay’, the pertinent question is, at whose fault? Employer or the architect? Mitigation of delay now becomes ‘mitigation to accelerate’?
In some contract, a provision maybe allowed for the architect to instruct for a ‘revise work programme’ taking into account the foreseeable delay arising from the MCO. Is it sufficed for the architect to immediately issue a 14 days Extension of Time EOT and reject the contractor’s application for EOT beyond the ‘gazetted’ MCO? Just wonder, if the construction work is like any other manufacturing work where one can have a ‘start button’ to press and everything works like clockwork after a ‘stop work’, therefore the 14 days Extension of Time EOT is sufficient? You may be looking for another ‘dispute’ on this matter. Having said that, with the MCO extended, will the architect has the obligation to issue the second instruction for ‘stop work order’?
It is interesting to note, if the architect would be at liberty to pronounce that the MCO is indeed a ‘force majeure’, so provided in the contract, if any and the contractor has no other means to request for EOT, other than relying on this ‘contributing event of delay’. Looking from the ‘factual matrix’, the situation of Covid19 has warranted the government to declare a MCO, under the Prevention and Control of Infectious Diseases Act 1988 and the Police Act 1967. Arising from such MCO, construction industries were not listed as ‘essential’ thus work on site is deemed to have been ‘delayed’ due to the ‘order’, as in the MCO, or the ‘force majeure’ event, or Covid19? Which ‘contributing event’ is to be considered the ‘causa causans’ to the ‘damages’ incurred? Having said that, do you think the contractor has ‘no right’ to claim for ‘loss and expenses’ due to a ‘neutral event’?
‘Force majeure’, having its root in the ‘civil law’ jurisdiction has not been given a clear definition in the ‘common law’. Chitty on Contracts suggested “it is trite that a party relying upon a force majeure clause must prove the facts bringing the case within the clause. He must therefore prove the occurrence of one of the events referred to in the clause and that he has been prevented, hindered or delayed, as that case may be from performing the contract by reason of the event. He must further prove that his nonperformance was due to circumstances beyond his control and that there were no reasonable steps that he could have taken to avoid or mitigate the event or its consequence”[i] (emphasis added).
Although it is not a statutory right in Malaysia, the PAM 2006 form, in its attempt to clarify, has provided that “any circumstances beyond the control of the contractor caused by terrorist acts, governmental or regulatory action, epidemics or natural disasters” [ii]. The question, now is, relying on both the provision in the PAM form and the pronouncement by the President of PAM via its advisory[iii], do the contractor required to proof to be excused of its obligation under the contract so provided as in Intan Payong Sdn Bhd V. Goh Saw Chan Sdn Bhd [iv]? If so, can the contractor claimed for ‘loss and expenses’, failing which the contractor has the right to seek compensation in the court of law, outside the construe of the ‘neutral event’ so provided in the contract?
The Federal Court held that “the court is not empowered to improve upon the instrument which it is called upon to construct. Further, it is an established principle of law that a party relying upon a force majeure clause must prove the facts bringing the case within the clause”, as in CIMB Bank Bhd v Anthony Lawrence Bourke & Anor [v]. Apparently, PAM may construed to have taken the role of the court or the party of the contract, to proclaim ‘force majeure’ and guided by the ruling of Intan Payong, the contractor may very well unlikely to be successful to claim ‘loss and expenses’ under ‘force majeure’.
By limiting the party in the contract to mount a claim under the proclamation of ‘force majeure’ due to its effect of ‘neutral event’, so provided by the advisory, the architect may choose to advise the party to adopt such advice with discretion and caution as a mean of avoiding dispute. Having said that, it is unadvisable for the architect to issue instruction with ‘force majeure’ prescribed, without a proper understanding of such term and its repercussion that may be brought against the parties.
As to the question of termination under ‘frustration’ arising from the non-performance due to ‘force majeure’, the general accepted legal principle was that if a provision has been allowed in the contract for ‘determination of the contractor’s employment’ due to ‘force majeure’ reason, the contractor has to invoke such provision to determine its contract, otherwise the s.57(2) CA 1950 may be relied upon for termination and s.15 – 16 Civil Law Act 1956 CLA, provided the parties with compensation given for the purposes of the performance or partial performance of the contract.
Authorities as in Pacific Forest Industries Sdn Bhd v Lin Wen-Chih [vi], provided that a contract cannot simply be ‘frustrated’, ‘merely because it becomes difficult to perform’. The Malaysian position as per Guan Aik Moh (KL) Sdn Bhd & Anor v Selangor Properties Bhd [vii] provided the test of ‘termination of contract’ due to frustration but since PAM form has provided for ‘determination of the contractor’s employment’, contractor may not ‘simply’ rely on frustration to terminate under his common law provision.
Care has to be taken with regard to the MCO has resulted in the contractual obligation being made ‘radically different’ from what has been undertaken, and that it would be ‘commercially unjustifiable’ to enforce it. What is such ‘radically different’ that it would be ‘commercially unjustifiable’ to enforce it by the contractor warrant a termination? One month plus of ‘loss and expenses’ not being recognized by the architect or arising from the instruction of the architect, the contractor suffered further ‘unrecognizable loss and expenses’?
The situation here in the construction industries cannot rely upon the classical case as in Krell v Henry [viii] where “an agreement for rental of a flat for two days for the purpose of watching the coronation procession was frustrated in purpose due to the postponement of the coronation”.
Even the HongKong case as in Li Ching Wing v Xuan Yi Xiong [ix] where 10 days isolation order due to the SARS outbreak was construed as ‘insignificant a period’ mirrored against the overall 2 years fixed term period of the tenancy. The 1 month plus of ‘loss and expenses’ due to MCO, in this context, may rolled into a ‘huge quantum’ in ‘unrecognizable loss and expenses’.
Even in the recent UK case of Canary Wharf v. EMA [x], whether a lease held by the European Medicine Agency EMA on a premise in London used as the headquarters is likely to be frustrated as a result of Brexit? The court held that since the effect of frustration is to ‘kill the contract’, the doctrine must not be lightly invoked and must be kept within very narrow limits. It will be very unlikely for the contractor to be successful to ‘kill the contract’ due to the MCO. Such we shall witness in the Malaysian court this very near future.
As the stakeholders in the construction industries generally held on the ‘acceptable common approach’ pertaining to the legal aspect of ‘force majeure’ and ‘frustration’, the Malaysian courts may provide totally ‘unexpected’ judgement, given every contractual scenarios may differed from one another. Therefore, care has to be given by the architect to avoid any dispute from arising between the parties as any ‘unconsidered’ instruction given may, not only increased the risks between the parties, but also subject the architect to be sued for misconduct and non-impartial. Surprised that until today there is no ‘advisory’ issued by the Board of Architect Malaysia LAM, the ‘statutory body’ that is rightly to be seen issuing advisories to the architect in practice in Malaysia.
Having wrote these as a personal reflection or opinion, not as a ‘lawyer’ or a legal counsel, as disclaimer, never take this writing of mine, to be your ‘legal advice’. You should seek appropriate ‘legal advice’ for your own situation. I am not liable for the accuracy of facts and representation on this writing.
[i] Bale H.G. (ed) Chitty on Contracts (28th Ed. Sweet & Maxwell Ltd 1999) vol.1, p.273 – 274.
[iv] 1 LNS 537
[v] 2 MLJ 1
[vi] 6 MLJ 293
[vii] 3 CLJ 695
[viii] 2 KB 740
[ix] 1 HKC 353
[x] EWHC 335
Can the Architect unilaterally grant EOT to the contractor without any notice in accordance to the PAM Form 2006?
Clause 23.1(a) of the said form stated that the giving of such notice shall be condition precedent to an entitlement of EOT. In contract law, a condition precedent is an event which must occur, unless its non-occurrence is excused, before performance under a contract becomes due. Sundra and Harban (2010) opined that the contractor shall on his own volition make such a notification as part of his implied obligation under the contract… citing NJ Carnell’s Causation and Delay in Construction Disputes as an early warning system to alert the parties to some occurrence of a potential EOT and to include such notice shall be a condition precedent, would mean that the employer is circumventing the effects of the ‘prevention principle’ as it benefitted its own breach, relying mostly on London Borough v Stanley Hugh Leach (1985) and Cabinets v Hili Morden Electronics Pty Ltd (1984). Undoubtedly, failure to serve a notice would result in the loss of rights by the contractor for EOT. Such position has been the original intent by the PAM Contract Drafting Committee (2010) citing Hudson’s Ed 4.132.
Reading in tandem with Clause 23.5(b), in assessing EOT the Architect may take into account and any other Relevant Events which in the Architect’s opinion will have an effect on the Contractor’s entitlement to an EOT, apparently this clause empowered the architect to make an opinion taking into account any other Relevant Events which may effect the contractor’s entitlement of EOT. Again, the opinion of the architect is limited to the provision set forth in Clause 23.8 with emphasise on Clause 23.8(x), any other ground of EOT expressly stated in the Contract. The PAM Contract Drafting Committee (2010) stated that the architect may consider any other relevant event which the contractor has not applied as a basis for his EOT. Sundra and Harban (2010) opined that the architect must nevertheless act reasonably and that the relevant event must be those stipulated in Clause 23.8 and no more, citing two Austrialian cases of Peninsular Balmain v Abigroup Contractors (2002) and Graymark Investment v Walter Construction (1999). Apparently, Clause 23.5(b) has been drafted to excuse the compliance of a notice as a condition precedent at the liberty of the architect, upholding the prevention principle that the defaulting party cannot benefits from its own breach.
Reading in tandem with Clause 23.10, the Architect may … after CPC review and fix a completion date later than that previously fixed … upon reviewing a previous decision or otherwise and whether or not a Relevant Event has been specifically notified by the Contractor. The PAM Contract Drafting Committee (2010) view of this clause, the architect is empowered to review EOT previously granted after CPC, taking into consideration all relevant events that may have affected the completion date irrespective of whether or not the relevant event has been considered previously or has been notified by the contractor.
In conclusion, the architect has the power to unilaterally grant EOT to the contractor without any notice in accordance to PAM Form 2006, relying on Clause 23.5(b), to enable the architect, to uphold his opinion that the defaulting party cannot benefits from its own breach and Clause 23.10, to allow the architect a chance to make the non-obligatory final review of his own opinion with regard to the EOT previously granted. With these two clauses in placed, it would also mean that the specific performance of giving of such notice shall be condition precedent to an entitlement of EOT shall only be binding to the contractor as a procedural condition in his application for EOT to give early warning to the architect of the impending delay and not necessarily result in the loss of his rights for EOT and by extension, claims for loss and/or expense.
Postscript-3: UPDATES, it was interesting to note that in this case, the FC held among others, the LD clause in the standard HDA SPA Schedule H, although mirrored s.75, Contract Act 1950, need not necessarily follow the findings of Cubic Electronics v Mars Telecommunication, which referred to forfeiture of deposit; instead warrant proof of actual loss. This findings implied that the Cubic decision cannot be applied across the board, including those of the construction dispute. As it stands, this law is remained unsettled.
 Chong Nge Wei & Ors v Kemajuan Masteron Sdn Bhd  1 LNS 581
  CLJ 723
Postscript-2 [Cubic’s Reversal of Burden of Proof is to be Applied Prospectively]: The Malaysian Federal Court has taken great length again, to contemplate the issue of damages versus penalty clause; revisiting Cubic (supra); in determining that cases decided by the court of first instance, prior to Cubic (supra), will be taken as ‘prospective approach’; and not ‘retrospective in nature’; to apply retrospectively, is to allow parties to prepare and argue their case based on the ‘burden of proof’ in the trial stage.
 Plenitude Drive (M) Sdn Bhd v Tekun Nasional  Civ App. 02(f)-92-10/2018(W)
 Para 38, Plenitude (Supra): Tekun must adduce evidence to prove that the damages claimed by Plenitude is unreasonable.
 Ibid: Selva Kumar (supra) and Johor Coastal (supra) should not be applied […]; Para 33, Plenitude (Supra): Ling Peek Hoe v Ding Siew Ching  7CLJ641
 Sinnaiyah & Sons Sdn Bhd v Damai Setia Sdn Bhd  5MLJ1
 Para 32, Plenitude (Supra)
Postscript: Many things had happened to the application of law pertaining to Liquidated Damages (‘LD’). I take the opportunity to share what has happened since in our local scene:
Provision for late completion damages is common in the construction industry. To avoid dispute on quantum and to allow an accurate estimates on cost, liquidated damages LD was adopted where the quantum is a genuine pre-estimate subject otherwise for court to ascertain. It removes the need to proof ‘actual loss’ only if deemed ‘disproportionate’ it will be taken as penalty clause. This evolves from the fact that penalty clauses are unenforceable. On account that the ‘pre-estimated’ loss bear no relation to the loss that might have occurred.  Difference between LD and penalty clause may be straightforward in theory but difficult in application. LD also puts a limit (cap) on damages that may be considered unfair under UCTA, under the UK’s provision as mentioned in obiter, OfirScheps.
While the Cavendish Square decision was upheld in Malaysia via Cubic Electronics, Singapore’s departed from the Cavendish Square approach, in Leiman v Noble Resources and another, the Appeal Court reaffirmed the principle set out in Dunlop Pneumatic Tyre v New Garage & Motor that LD is not a penalty considering the contractual terms, if the amount of LD did not exceed greatest conceivable loss that arisen from the breach, in contrast to the Cavendish Square approach where the amount of LD exceeded the greatest conceivable loss that arisen from the breach, is still not a penalty clause. This is to protect the “legitimate interest” of the innocent party. The Singapore court viewed such term to be too vague for commercial interests. In a ‘nutshell’, a LD clauses can be considered a “genuine pre-estimate” of loss and not a penalty, if only the employer, during tender, could furnish actual calculations as to how the expected loss is computed, instead of leaving it out to the contractor to figure it, themselves, as implied in Malaysian’s Cubic Electronics approach.
Another, is the question of whether LD clause which is void limits the contractor for general damages? The English court attempts to uphold pre-determined damages agreement between the parties but such LD clauses may tend to be voided under various circumstances such as ‘time at-large’. The question is, will ‘general damages’ also be capped at LD levels? In one-case, it was held that if the LD is void, it shall still act as the cap for general damages. In contrast, a Singapore case a contractual LD cap will not constrain the recovery of general damages. The law on such is yet to be settled.
Yet another case, the UK Supreme Court contemplated the issues, one, whether liquidated damages were payable under this clause in respect of work which had not been completed before the contract was terminated? Two, whether “negligence” in the exception means the tort of negligence or whether it includes breach of the contractual duty of skill and care? And three, whether liquidated damages are subject to a cap in the contract on the amount of recoverable damages? The court held that, for issue one, accrual of liquidated damages comes to an end on termination of the contract; issue two, English law “negligence” covers both the separate tort of failing to use due care and a breach of the contractual provision to exercise care [extra contractual obligation]. Parties must seek damages for breach of contract under the general law; and three, LD clause does not need to provide for it.
 Multiplex Constructions v Abragus(1993-94)33NSWLR504
 Cellulose Acetate Silk v Windes Foundry AC20
 Cavendish Square v Talal ElMakdessi and Parking Eye v Beavis UKSC67
 Dunlop Pneumatic Tyre v New Garage Motor AC79
 Johnson v Johnson 1WLR1026
 Alfred McAlpine v Tilebox EHWC541
 Unfair Contract Terms Act1977
 (2020)SGCA 52
 Denka Advantech v Seraya Energy (2020)SGCA119
 Eco World – Ballymore Embassy Gardens v Dobler EWHC2207TCC
 Crescendas Bionics v Jurong Primewide (2021)SGHC189
 Triple Point Technology, Inc v PTT Public Company Ltd  EWCA Civ 230
Attended a talk by the Society of Construction Law, in AIAC, on the subject matter of Liquidated Damages post Cubic Electronics v Mars Telecommunications. Speakers were mostly lawyers with one representing the contractor, MBAM. Wonder why Architects, QS and Engineers were excluded from giving their views?
Recent Federal Court position on Liquidated Damages (“LD”) clause, under Section 75 of the Contract Act 1950 “CA1950”, has been shifted from the position held in the Selvakumar Murugiah v. Thiagarajah Retnasamy, where the Employer would still have to prove loss to a more inclusive positions where the parties’ freedom of contract were mutually inclusive especially where parties have comparable bargaining power and are properly advised. The court has taken an approach similar to the UK Supreme Court position in Cavendish where proper credence to the parties’ own ability to assess their own commercial position and in doing so, allowing the damages clause to be used as a “permissible risk allocation tool” of the following features: -
Obviously these new sets of “tests” were taken as a purely legal point of view, such as the test of “legitimate interest”, “proportionality” and “reasonableness”. The construction industries, however, posed a different sets of complexities such as:
As at the end of the session, there is no obvious answer as to what constitute these new sets of “tests” of “legitimate interest”, “proportionality” and “reasonableness” for immediate use by the professionals in the construction industries.
A passing remarks was made to PAM 2018 form with regard to Clause 22 but failed to deliberate further on Clause 22.2. A point to note, that Clause 22.2 was drafted to keep in mind that the LD stated in the Appendix is a genuine pre-estimate of loss and or damage which the employer will suffer in the event that the contractor is in breach… the parties agree that by entering into the contract, the contractor shall pay to the employer the said amount, if the same breaches due without the need for the employer to prove his loss and or damage unless the contrary is proven by the contractor.
  CLJ 723
  1 MLJ 817
DYA+C is set up by Ar. DAVID YEK TAK WAI to undertake resolution of commercial disputes through ARBITRATION and ADJUDICATION, specializing in CONSTRUCTION PAYMENT DISPUTES.
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