PAM-PRACTICE NOTES 3-2020, MY POINT OF VIEW…

​PAM-PRACTICE NOTES 3-2020, MY POINT OF VIEW…

Update: I wrote this article way back in January 2021, as a response to PAM’s Practice Advisory No.3 on Contract Administration by the Architect should also include ultra vires obligation such as re-negotiating contracts for the parties. The findings of KL Eco City Sdn Bhd v Tuck Sin Engineering & Construction Sdn Bhd & Anor[1], ultimately seals the fate of the Architect not to move beyond its obligation under the contract.

YA Dato Lim Chong Fong holds:

“[46] Unless actual authority is conferred, the architect as agent of the employer in a construction contract generally does not have the ostensible authority to waive the contractual rights of the employer in respect of conditions precedent such as on notice requirement as held in City Inn Ltd v Shepherd Construction Ltd (supra). Actual authority can be specifically conferred where expressed in the construction contract; see Tropicon Contractors Pte Ltd v Lojan Properties Pte Ltd [1989][2]. There is however no waiver provision found in clause 23 of the PAM Conditions.”

“[47] In the premises, I find and hold from the evidence adduced that the Architect did not have either actual or ostensible authority to waive the condition precedent set out in clause 23.1(a) of the PAM Conditions.”

On this instance, the HC held that the Architect must always maintained its role as the Employer’s Agent and an impartial certifier to the Contractor and must never attempt to change the conditions of the contract, i.e. by acting ‘lenient’, to waive and by any means that will be taken  or construed as changing the terms of the contract breaching the fundamental of parole evident rules. Under this basis, PAM’s Practice Advisory No.3 has ‘grossly erred’ and required immediate retraction and amendment.

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[1] [2021], second trench judgement to KL Eco City Sdn Bhd v Tuck Sin Engineering & Construction Sdn Bhd & Anor [2020] 1 LNS 360
[2] 3 MLJ 126 and [1991] 2 MLJ 70 CA



PAM has taken a bold step to invite both current presiding judges of the High Court and Federal Court, YA. Dato’ Lim Chong Fong (HCJ) and YA. Dato’ Mary Lim Thiam Suan (FCJ) to moderate a public forum - ‘Surviving Post Covid-19 – A Common Sense Approach’.[1] In the said forum, I am attracted by the PAM Past President, Datuk Ar. Tan Pei Ing’s revelation on the ‘PAM-Advisory’, now made available to members as PAM-Practice Notes 3-2020.[2] The question remain is whether such an advisory, mandating the Architect as contract administrator CA, to facilitate parties to the contract to ‘alter’ their contract, doubling up as a ‘contract-negotiator’ to re-negotiate their existing-contract, to account for the Covid-19 scenario?
 
Let’s investigate further what the ‘advisory’ says. One, PAM contract has existing ADR clauses that parties can utilise. What is most surprising is – ‘the mediation process can be lengthy and costly’ … it means to say, PAM’s mediation are ‘lengthy and costly’? Or mediation, in general are ‘lengthy and costly’?[3] Both the Covid-19 Mediation Scheme and the AIAC is offering pro-bono mediation scheme, how costly can that be? Furthermore, it usually takes a few days (the most, 2-days), to sort out a mediation session, beyond that is simply futile. There must be basis and justification to state as to why mediation are ‘lengthy and costly’?
 
Second, in the ‘advisory’, the CA/Architects should (rather meaning, shall being mandatory), ‘take a practical approach to mitigate dispute’. What is mean by ‘practical approach’? An ‘illegal-approach’, i.e. ultra-vires approach, can also be practical. What is ‘mitigating-dispute’? Dispute-avoidance or dispute-resolution? The latter is provided for in the contract, while the former is entirely something-else, implied rather than expressly provided for in the contract. When read together with BIPC joint advisory notes, ‘consultants are encouraged to […] facilitate […] explore options […] balance their respective interest […]’, meaning to assist parties in ‘renegotiating’ their contracts on a ‘good-faith’ basis. Also note the use of the word ‘encourage’, i.e. non-mandatory, as compared to PAM-Advisory, uses of the term ‘should’. Again, the PAM-Advisory mandated that ‘Architects should encourage contractual parties […] with the objective of preserving common-interest as opposed to insisting on strict contractual-rights’.[4] As to how one defines, ‘objective of preserving common-interest’ as ‘good-faith’ is a matter of parties’ discretion but to insist on Architects to ‘opposed to insisting on strict contractual-rights’, is absolutely, uncalled-for, or to put it in another words, architect ‘must’ unilaterally act ultra-vires as a matter of ‘practicality’? This is where the ‘trouble will arise’, for architects …

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[1]<https://www.facebook.com/events/391034642337065/?acontext=%7B%22event_action_history%22%3A[%7B%22mechanism%22%3A%22search_results%22%2C%22surface%22%3A%22search%22%7D]%7D>
[2] <https://drive.google.com/file/d/1b4q4fNC3gj3godY9XZdtBqSZicVZGD2q/view>
[3] PAM-Practice Notes 3/2020, p.1
[4] PAM-Practice Notes 3/2020, p.2

The position in law is Good faith, best endeavours and fair dealing - In many legal system, law of obligation recognises that contract has to be formed in bona fide i.e. ‘good faith’, but not with the English law.[1] Some cases may have been held against mala fide i.e. ‘bad faith’.[2] English law do not recognise, the contracting party has to act in good faith.[3] As to the reason why, traditionally, contract starts from ‘rugged individualism’, parties had to look after themselves in striking a bargain.[4] English law prefers to develop incrementally and a ‘broad general principle’ would generate too much uncertainty. Effect should therefore be given to expressly assumed obligations to act in good faith.[5] Such as an ADR clause requiring party to seek resolution in good faith.[6] A duty of good faith has to be expressly stated to be enforceable.[7] With court support.[8] However, in recent cases, English law has been seen to be ‘hostile’ towards the doctrine of good faith, although attempt to recognise such doctrine is intrinsically driven. [9] Without reliance to such doctrine, some cases are ‘difficult to reconcile’.[10] To put effect on this doctrine, the term of good faith has to be expressly stated.[11] Alternatively, court may imply a term comprising good faith.[12] Sometimes, not possible to imply such term.[13] In situation of a reduction in obligation[14], unduly onerous obligation[15], creating redundancy clauses[16] and with unintended consequences[17]. Thus the meaning of good faith will depend on its context.[18] This was the case in where a long-term PFI contract contained an express obligation of good faith, the court held that the trust has be in ‘material’.[19] Similarly, a term requiring the parties to “co-operate with each other in good faith” was interpreted as requiring a party not to exercise its discretion in an arbitrary, capricious or irrational manner.[20] Unlike the NEC contract, PAM Form has no basis on ‘good-faith’.

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[1] Interfoto v Stiletto [1989] Q.B. 433
[2] Arcos v EA.Ronaasen[1933]AC470
[3] Walford v Miles[1992]2AC128
[4] Gold Group v BDW[2010]EWHC1632(TCC)
[5] Compass v MidEssex Hospital[2013]EWCACiv200
[6] Emirates v Prime Mineral[2014]EWHC2104(Comm)
[7] Shaker v Vistajet[2012]EWHC1329
[8] Petromec v Petroleo[2005]EWCACiv891
[9] YamSeng v International-Trade Corp.[2013]EWHC111(QB)
[10] First Energy v Hungarian Bank[1993]2Lloyd’sRep194,196
[11] Chelsfield v Qatari Diar[2015]EWHC1322(Ch)
[12] Fujitsu v IBM[2014]EWHC752(TCC)
[13] Myers v Kestrel[2015]EWHC916
[14] Greeclose v National Westminster Bank[2014]EWHC1156(Ch)
[15] Hamsard v Boots[2013]EHC3251(Pat)
[16] Portsmouth v Ensign[2015]EWHC1696(TCC)
[17] MSC Med.Shipping v Cottonex Anstalt[2016]EWCACiv789
[18] Walford v Miles [1992] 2 A.C. 128: Whether and to what extent the law of contract recognises enforceable obligations as to the way in which the parties are to behave? Where the parties act in a manner which conveys an intention to be bound, can there be an enforceable obligation to negotiate in good faith?
[19] Medirest v Mid Essex NHS Trust [2012] EWHC 781 QB
[20] Mid Essex v Compass Group [2013] B.L.R. 265 at 280

Three, the ‘advisory’ expressly mandated, ‘Architect should […] in guiding the negotiation between parties […] fair-resolution [meaning, good-faith basis]’, emphasis added. It is crystal clear that the ‘advisory’ mandated the Architect to facilitate parties to renegotiate their contract, in its capacity as a ‘para-legal’ professional, failing which, could the Architect be sued as legal-advisors, in this context of discharging its role?  
 
Fourth, the law holds that Immunity of certifier – in earlier case, certifier has immunity[1] only to be overturned later, that certifier has no immunity[2] as he holds a duty of care both as the agent to the employer and an impartial certifier to the contractor. Immunity only applies where there was dispute which called for a judicial decision such as adjudication[3] and arbitration. When the ‘advisory’ calls for ‘Architects are encouraged to be more lenient […]’[4], and ‘leniency’ is never an expressed ‘jurisdiction’ of the CA, it placed the Architects in very awkward ‘illegal’ positions, as to mean, having to consider that the PAM form has not taken a foreseeable circumstances of a pandemic, Architect could now take a ‘more lenient’ view to grant EOT, even when such is against the provision of the contract? How, sensible is such with regards to all the other roles as an impartial certifier, now subjected to challenge?

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[1] Chambers v Goldthorpe[1901]KB624
[2] Sutcliffe v Thackrah[1974]AC727
[3] S.108(4)HGCRA
[4] PAM-Practice Notes 3/2020, p.2, item 1

​Fifth, Loss and Expenses in the ‘advisory’ is stated that if on the basis of force-majeure, it cannot be granted, but and again, contradicted by the following, ‘parties agree that the costs […] should be shared’[1], meaning the entire contract has to be rewritten and Architect has this role to renegotiate the term for the parties … and the same can be said, to the rest of the contractual procedural-terms, if not taken with extreme-care, would rendered the architect acting ultra-vires as both an impartial-certifier and an agent of the employer.

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[1] PAM-Practice Notes 3/2020, p.2, item 2

​Concluding, given the prima-facie meaning of the ‘advisory’ now, architects are empowered to facilitate parties of a PAM-Form Contract to renegotiate their contractual terms; and failing to exercise this ‘new-positions’ with care, will opens up ‘new-avenue’ for the architects to be sued and hopefully, with the current position of L3 Architects Sdn Bhd v PCP Construction Sdn Bhd [2019] 1 LNS 1321, Architects in Malaysia can be spared and have ‘immunity’ to do what it wishes …[1]    

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[1] < http://www.davidyek.com/adr/architect-has-no-duty-of-care-to-the-contractor-the-malaysian-approach>

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Postscript: 

Truly honoured to have senior and well known architectural practitioners to read my opinion on ‘matters affecting the profession’ in https://www.facebook.com/davidyekarchitect/posts/3003622449872587 and it is valuable that the comment given to me really inspiring, especially to younger-practitioners. It is a pity that he did not ‘comment’ directly in the comment section. After much persuasion, he agrees that his comment be made anonymously, and I truly thank him for his generosity and kind gesture:

Hi David.

Read your review of the PAM advisory. I don’t want to comment on the contents because I think you had thought through the issues and while there are areas I might have slightly different take, it is better than a lot of opinions floating around.
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I had one observation to make.
 
In all the publicised force majeure cases that come across before this advisory or indeed this pandemic, one party to the contract declare force majeure and state his basis for doing so. And then state the consequences of his declaration. So far we all assume that because the pandemic occur a force majeure event is in play. My considered opinion is force majeure has to be declared by one or both of the parties to the contract and the other party or indeed parties if more than one contract is involved; can dispute the declaration.
 
I note your scepticism about architects being empowered to help parties to re-negotiate terms of contract and if I read it right, I will also add I agree that it is dangerous grounds we are encouraging architects to go on. Especially if they had not familiar with what they in for. Architects who will intervene as an ad hoc mediator are usually quite sure of what the limits of their contribution should be. I hope we had not encouraged some to bite off more than they can chew. 
 
Truly, hope that younger generations of architect ‘walk this path’ carefully, as the advisory is, in my mentor’s word, ‘not-gospel’ … Have a nice day, folks!