judicial interpretations of the term 'lump sum' in construction contract

JUDICIAL INTERPRETATIONS OF THE TERM ‘LUMP SUM’

IN CONSTRUCTION CONTRACT

NORWATI BINTI HAJI MOHAMAD ALI

UNIVERSITI TEKNOLOGI MALAYSIA

JUDICIAL INTERPRETATIONS OF THE TERM ‘LUMP SUM’

IN CONSTRUCTION CONTRACT

NORWATI BINTI HAJI MOHAMAD ALI

A thesis submitted in partial fulfilment of the

requirements for the award of

Master of Science in Construction Contract Management

Faculty of Built Environment

University Technology Malaysia

NOVEMBER 2009

iii

To my parents, whose long journey and persistence sacrifice made it all possible.

iv

ACKNOWLEDGEMENT

A research of this nature may not be undertaken without help and support of

others. First and foremost, I would like to extend my sincerest and most heartfelt

appreciation to Mr. Norazam Othman, my main master dissertation supervisor for his

tired less supervision and guidance throughout the whole process of writing this

dissertation. I am also very thankful towards Dr. Rosli Abdul Rashid, Mr. Jamaludin

Yaakob, Dr. Maizon Hashim and Dr. Nur Emma Mustafa for all guidance and

support given.

Most of all, I wish to express my deepest gratitude to all my family, friends

and colleagues in Jabatan Kerja Raya Sarawak for their never-ending support and

encouragement.

Thank you so much.

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ABSTRACT

‘Lump sum’ is a commonly used term in contract since the 18th century. Although

the term is widely used in the construction industry, the interpretations and position

of the lump sum contract in the eyes of the law is lacking which could contribute to

dispute on rights and responsibilities of contracting parties. Failure of contract

conditions to define the term interpretations could impact the overall project

implementation and completion process. As such, the objective of this research is to

investigate the judicial interpretation of the term ‘lump sum’ in construction contract.

In the legal textbook, the term ‘lump sum’ is interpreted as ‘fixed priced’. It is also

interpreted as ‘a lump sum contract is one to complete the whole (sometimes termed

as ‘entire’ or a ‘specific’ work) work for a lump sum’. Based upon PAM Contract

2006 (with quantities), ‘lump sum’ is fixed price and is not subject to remeasurement

or recalculation except for provisional quantities and variations.’ The study had

shown that none of the relevant cases had the judge himself given firm judicial

interpretation of the term ‘lump sum’. Occasionally the term ‘lump sum contract’ is

referred to as ‘entire contract’. The doctrine that a lump sum contract has to be

completed in practically all respects in order to qualify the contractor to get any

money at all is very out of date. Lump sum itself is subject to adjustment because the

court leans against a construction of the contract which would deprive the contractor

of any payment at all simply because there are some defects or omissions. Whether a

contract is an entire one is a matter of construction. Clear words are needed to bring

an entire contract into existence. In the absence of such words, the ordinary lump

sum contract cannot be an entire contract, for the courts to construe the promise to

complete as a term and not a condition.

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ABSTRAK

Istilah ‘wang pukal’ biasa digunakan di dalam kontrak semenjak kurun ke-18 lagi.

Walaupun istilah ini digunakan secara meluas di dalam industri pembinaan,

kefahaman mengenai penafsiran dan kedudukan kontrak wang pukal dalam

kehakiman undang-undang masih kurang yang mana ini boleh menyumbang kepada

pertikaian mengenai hak dan tanggungjawab pihak yang berkontrak. Kegagalan

syarat kontrak untuk menjelaskan panafsiran istilah ini mampu memberi impak

dalam proses perlaksanaan dan penyiapan projek. Oleh itu, objektif kajian ini ialah

untuk menyiasat tafsiran kehakiman ke atas istilah wang pukal di dalam kontrak

pembinaan. Di dalam buku teks undang-undang, istilah wang pukal ditafsirkan

sebagai ‘harga tetap’. Ia juga ditafsirkan sebagai ‘kontrak wang pukal untuk

menyiapkan ‘semua’ (kadangkala diistilahkan sebagai ‘seluruh’ atau ‘tertentu’) kerja

untuk wang pukal. Berdasarkan Kontrak PAM 2006 (dengan kuantiti), wang pukal

ialah harga tetap dan tidak bergantung kepada pengukuran atau pengiraan semula

kecuali kuantiti sementara dan variasi. Kajian ini menunjukkan tiada kehakiman

yang memberikan panafsiran sendiri yang kukuh untuk istilah ini. Sekali sekala

istilah kontrak wang pukal dirujuk pada kontrak seluruh. Doktrin yang mengatakan

kontrak wang pukal mesti disiapkan dalam semua hal secara praktikalnya bagi

membolehkan kontraktor memperoleh sebarang bayaran adalah setinggalan zaman.

Wang pukal itu sendiri cenderung pada pengubahsuaian kerana mahkamah enggan

bersandar pada kontrak pembinaan yang mampu melucutkan hak kontraktor untuk

sebarang bayaran hanya kerana terdapat sebarang kerja yang ditinggalkan atau

kecacatan. Perkataan yang jelas diperlukan untuk mewujudkan kontrak seluruh.

Dengan ketiadaan perkataan ini maka kontrak wang pukal biasa bukanlah kontrak

seluruh yang membolehkan mahkamah menafsirkan yang janji untuk penyiapan

adalah terma dan bukannya syarat.

vii

TABLE OF CONTENTS

CHAPTER TITLE PAGE

DECLARATION ii

DEDICATION iii

ACKNOWLEDGEMENT iv

ABSTRACT v

ABSTRAK vi

TABLE OF CONTENTS vii

LIST OF FIGURES xi

LIST OF TABLES xii

LIST OF APPENDICES xiii

LIST OF ABBREVIATIONS xiv

TABLE OF CASES xvi

1 INTRODUCTION 1

1.1 Introduction 1

1.2 Background of Research 1

1.3 Statement of Issues 3

1.4 Objective of Research 4

1.5 Scope of Research 5

1.6 Significance of Research 5

1.7 Research Methodology 6

1.8 Research Structure 6

viii

2 THE CONSTRUCTION CONTRACT 9

2.1 Introduction 9

2.2 Placement of Contract 10

2.3 Contractual Arrangements in Construction Contracts 10

2.3.1 Drawings and Specification-based Packages 12

2.3.2 Work Schedule or Bill of Quantities Based

Packages 12

2.3.3 ‘Package Deal’ or ‘Design and Build’

Arrangements 13

2.3.4 ‘Measure and Value’ or ‘Schedule’ Contracts 13

2.4 Features of Construction Contract 13

2.4.1 Comparison with a Sale of Goods Transaction 14

2.4.2 Provisions for Progress Payments 15

2.4.3 Provisions for Variation of Works 16

2.5 Contract Documents 16

2.5.1 Articles of Agreement 17

2.5.2 Conditions of Contract 17

2.5.3 Plans and Drawings 17

2.5.4 Bills of Quantities 18

2.5.5 Schedule of Rates 18

2.5.6 Specifications 19

2.6 Interpretation of the Contracts 19

2.6.1 Rules of Interpretation of the Contracts 20

2.6.1.1 Literal Interpretation 21

2.6.1.2 The Contra Proferentum Principle 21

2.6.1.3 The Ejusdem Generis Rule 22

2.7 Conclusion 23

3 ’LUMP SUM’ IN CONSTRUCTION CONTRACT 26

3.1 Introduction 26

3.2 The Term ‘Lump Sum’ in Construction Contract 27

ix

3.2.1 Standard Form of Contract 27

3.2.1.1 JKR 203A (Rev. 2007) Form 28

3.2.1.2 JKR 75 (JKR Sarawak Form of

Contract) 29

3.2.1.4 PAM Contract 2006 (with Quantities) 30

3.2.2 Contract Act 1950 (Act 136) 30

3.3 Interpretation from Literature 31

3.4 Other Aspects of Construction Contract Related to

‘Lump Sum’ Interpretations 36

3.4.1 Lump Sum Tender 36

3.4.2 Lump Sum Contract 37

3.4.3 Entire v Divisible Contracts 40

3.4.4 Substantial Completion 42

3.4.5 Non-Completion 43

3.4.6 Valuation of Variations 44

3.4.7 Contract to Do Whole Work is Lump Sum

Contract 45

3.4.8 Quantum Meruit 45

3.5 Conclusion 47

4 JUDICIAL INTERPRETATIONS OF THE TERM

’LUMP SUM’ IN CONSTRUCTION CONTRACT 49

4.1 Introduction 49

4.2 The Law of Lump Sum or Entire Contract 50

4.3 Law Cases in Relation with the Term Lump Sum 53

4.3.1 Sapiahtoon v. Lim Siew Hui 54

4.3.2 Building & Estates Ltd v AM Connor 56

4.3.3 KP Kunchi Raman v Goh Brothers Sdn Bhd 58

4.3.4 Ming & Co v Leong Ping Ching 61

4.3.5 Nirwana Construction Sdn Bhd v Pengarah

Jabatan Kerja Raya Negeri Sembilan Darul

x

Khusus & Anor 62

4.3.6 Tong Aik (Far East) Ltd v. Eastern Minerals

& Trading (1959) Ltd. 64

4.3.7 Yong Mok Hin v United Malay States Sugar

Industries Ltd 65

4.4 Judicial Interpretations of the Term

‘Lump Sum’ In Construction Contracts 67

4.5 Conclusion 73

4.5.1 Judicial Positions on Lump Sum Contract 74

4.5.2 Instances Where Lump Sum is not

considered as Entire Contract 78

5 CONCLUSION 80

5.1 Introduction 80

5.2 Summary of Research Findings 81

5.3 Study Constraints 89

5.4 Conclusion 89

REFERENCES 92

APPENDICES 94

xi

LIST OF FIGURES

FIGURE TITLE PAGE

Figure 1 Design Detailing and Contractual Arrangement 11

xii

LIST OF TABLES

TABLE TITLE PAGE

Table 1 Interpretations of the Term ‘Lump Sum’

from Literature 29

Table 2 Judicial Interpretations of the Term

‘Lump Sum’ In Construction Contracts 64

xiii

LIST OF APPENDICES

APPENDIX TITLE PAGE

A JKR 203B: JKR Standard Form of Tender 94

B JKR 203B: Standard Form of Tender

(Design & Build or Turnkey Contracts) 96

C Appendix Q: JKR Sarawak Standard Quotation Form 97

D JKR 203B: JKR Standard Form of Tender Rev. 2007):

JKR Standard Form of Contract 98

E PWD 75 (Rev. 12/06): JKR Sarawak Standard Form

of Contract 99

F PAM Contract 2006 (With Quantities): Agreement

and Conditions 100

G Contracts Act 1950 (Act 136) 103

H Nirwana Construction Sdn Bhd v Pengarah Jabatan Kerja Raya

Negeri Sembilan Darul Khusus & Anor [2008] 4 MLJ 157 111

xiv

LIST OF ABBREVIATIONS

AC - Appeal Cases

ALL ER - All England Law Reports Reprint

App. Cas. - Appeal Cases

B. & Ad - Barnewall & Adolphus

BLR - Building Law Reports

Camp - Campbell

CP - Carrington & Payne

CIDB - Construction Industry Development Board

DLP Defects Liability Period

ER - English Reports

FC - Federal Court

FIDIC - Federation Internationale de Inginieurs Conseils

HL - House of Lords

IBID - (in the same)

ICE - The Institution of Civil Engineers, UK

J - Judge

JKR - Jabatan Kerja Raya

KB - King’s Bench

LGR - Local Government Reports

LJ - Lord Justice

LJ Ex. - Law Journal Exchequer

LR - Law Report

LT - Law Times Report

LTD - Limited

MLJ - Malayan Law Journal

PAM - Pertubuhan Arkitek Malaysia

xv

PWD - Public Works Department

RIBA - Royal Institute of British Architects

SC - Session Cases

SCR - Supreme Court Report

SO - Superintending Officer

Term Rep. - Term Reports

TLR - Times Law Report

VO - Variation Order

VOL - Volume

WLR - Weekly Law Report

xvi

TABLE OF CASES

CASES PAGE

Aisla Craig Fishing Co Ltd v. Malvern Fishing Co [1983] 1 All ER 101……….….21

Appleby v Myers [1867] LR 2 CP 651…………………………………35,36,40,43,46

Bolton v. Mahadeva [1972] 1 WLR 1009……………………………...………...38,39

Boone v Eyre [1779] 126 ER 160……………………………..…………………….52

British Steel Corporation v. Cleveland Bridge and Engineering

[1984] 1 All ER 504...………………………………………………………….41

Building & Estates Ltd v AM Connor [1958] 1 MLJ 173……..………...……51,62,66

Collins v Godfrey [1831]1 B. & Ad. 950…………………………………..……..…34

Cutter v Powell [1795] 6 Term Rep. 320…………………………….……….36,42,59

Dakin v. Lee [1916] 1 KB 566………………………………………………..……..42

Farnsworth v. Garrard [1807] 1 Camp 38……………………………....………….37

Forman & Co Pty Ltd v. The Liddlesdale [1900] AC190…………………………..37

Forrest v Scottish County Investment Co Ltd [1915] SC 115………………………40

Gilbert-Ash v Modern Engineering [1974] AC 689 (HL)…………………..…..13,23

Gilbert & Partners v. Knight [1968] 2 All ER 248 (CA)…………….……..………41

H Dakin & Co. Ltd v. Lee [1916] 1 KB 566……………………………………...…37

Hanvale v Green [1958] 2 WLR 775…………………………………..……………60

Hoenig v. Issacs [1952] 2 All ER 176………..……13,23,36,37,38,43,44,50,51,55,58

Holland Hannen & Cubitts v. W.H.T.S.O. [1981] 18 BLR 80………………..….….41

Hollier v. Rambler Motors (AMC) Ltd [1972] 1 All ER 399…………………….….20

Interpro Engineering Pte Ltd v. Sin Heng Construction Co Pte Ltd

[1998] 1 SLR 694………………………………………………….……...……20

KP Kunchi Raman v Goh Brothers Sdn Bhd [1978] 1 MLJ 89…….…...46,52,63,66

Ming & Co v Leong Ping Ching [1964] 1 MLJ 312…………………...…55,63,65,66

xvii

Newfoundland Government v. Newfoundland Ry.

[1888] 13 App. Case. 199 (PC)………………………………………………..41

Nirwana Construction Sdn Bhd v Pengarah Jabatan Kerja Raya

Negeri Sembilan Darul Khusus & Anor [2008] 4 MLJ 157…………….56,64,66

Pattinson v Luckley [1875] L.R. 10 Ex. 330………………………………………..59

Peak Construction (Liverpool) Ltd v. Mckinney Foundation Ltd

[1970] 69 LGR 1…………..………………….…………………………......…20

Pigott Foundations Ltd v. Shepherd Construction Ltd [1993] 67 BLR 48……...19,23

Rigby v Bristol Corporation [1860] 29 LJ Ex 356…………………..………..…….34

Sapiahtoon v Lim Siew Hui [1963] 1 MLJ 305……..……………...…....…..49,62,66

Stegmann v. O’Connor [1899] 81 LT 627 (CA)……………………………………42

Sumpter v. Hedges [1898] 1 QB 673……………………………………..12,37,56,59

Tern Construction Group v RBS Garages [1992] 34 Con LR 137………...……36,43

Thorn v London Corporation [1876] 1 App.Cas. 120…………………..………34,42

Tong Aik (Far East) Ltd. v Eartern Minerals & Trading

(1959) Ltd. [1963] 1 MLJ 322 ……………………….….……………45,58,65,66

Williams v Fizmaurice [1858] 3 H&N 844……………………………………30,33,34

Williams v Roffrey Brotheres & Nicholls [1990] 1 All ER 512…………………..…14

Wells v. Army & Navy Co-operative Society [1902] 86 LT 764…………………….21

Whitaker v Dunn [1887] 3 TLR 602…………………………………………..……..46

Vigers v Cook [1902] 2 KB 475…………………………………………………...…42

Yong Mok Hin v United Malay States Sugar Industries Ltd

[1967] 2 MLJ 9…………………………………………………………..60,65,66

CHAPTER 1

INTRODUCTION

CHAPTER 1

INTRODUCTION

1.1 Introduction

This chapter will briefly discuss the background, objective, scope and the

methodology of this research.

1.2 Background of Research

Lump Sum is the commonest form of construction contract1 and the term is

used in JKR 203B: Standard Form of Tender; ‘Having examined the Government’s

Requirement including instruction to Tenderers and the Conditions of Contract…we,

the undersigned, offer to design, construct and complete the said Works in

conformity with the said Pre-bid Documents for the Lump Sum of….. in accordance

with the said Conditions of Contract’.

Typically, the construction contract is placed through a tender exercise. This

may be done by inviting tenders from a list of selected contractors, or through a

general invitation. Each contractor submits a tender, sometimes accompanies by

unsolicited offers on the base tender. The general expectation is that the contract

1 Henry Henkin (1988). Drafting Engineering Contracts. England: Elsevier Applied Science Publishers Ltd. Page 120.

2

shall be awarded to the contractor who has tendered the most attractive price and

terms in his bid. Alternatively, the client may decide on a particular contractor in

advance and negotiate the price for the project with the owner pays the contract price

in consideration for the contractor’s obligation to construct and complete the project

in accordance with the requirements as set out in the drawings, Bill of Quantities,

specifications and other contract document. 2

A contract is a legally binding agreement made between two or more parties,

by which rights are acquired by one or more to acts or forbearances on the part of the

other or others. These contractual agreements give rise to rights and obligations

which the law recognizes and enforces. 3 The purpose of Lump Sum projects is to

reduce the costs of design and contract administration associated with quantity

calculation, verification and measurement. This contracting technique requires the

Contractor to submit a lump sum price to complete a project as opposed to bidding

on individual pay items with quantities provided. The Contractor will be provided a

set of bid documents (plans, specifications, etc.) and will develop a Lump Sum bid

for all work specified in the contract drawings.

In a lump sum contract the contractor is paid a predetermined sum for

completing a particular stage or the whole contract works. The sum is not adjusted to

take into account any change in the extent of work from that estimated by the

contractor at the time of contracting. The contractor therefore carries the risk of

correctly estimating, at the time of contracting, the extent of work required to be

carried out. The payment mechanism is easy to administer, provided the Owner does

not vary the Works. If variations are likely contract terms will need to be

incorporated to make provision for establishing an appropriate price on the basis

either of a Schedule of Rates, or by negotiation or by reimbursement at cost.

Inevitably variations on Lump Sum contracts give rise to many disputes and

resolution of the Final Account may take some time.

2 Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition. Singapore: Sweet & Maxwell Asia. Pg. 4 33 David Barker & Colin Padfield (1992). Law. 8th Edition. Oxford, England: Butterworth-Heinemann ltd. Page 112.

3

Lump sum is intensively used term in construction contract and there are

many theories of lump sum available in law dictionaries and literatures. But what

matters is the construction industry parties who are involved and applied this term of

contract which has been used since the 18th century4. Lump sum contracts are the

commonest form in building work and in mechanical and electrical engineering work

and may be used in some civil engineering work where quantities of the various

types of work cannot be fixed or accurately defined initially (at tender stage, where

there is formal tendering).5

Although the term ‘lump sum’ is widely used in the industry, the

understanding among constricting parties on the true interpretation of the term in

construction contract is still lacking. Its subjective nature contributes to constant

misinterpretation and the allocation of responsibility under a contract may not always

be clear. As such, this research is to determine the judicial interpretation the term

‘Lump sum’ in the construction contract. By understanding its true meaning,

contracting parties can avoid unnecessary dispute with clearer understanding on risk

and responsibility involved in accordance with the terms and condition of the

contract.

1.3 Statement of Issue

In today construction contract, ‘lump sum’ is always the starting point where

contractor is normally asked to fill bid of one sum for the cost of the whole tendered

project. It is comparatively rare for the price the contractor is entitled to receive at

the end of the day to be exactly the same as the lump sum. Lump sum to be paid to

the contractor is unrelated to the actual cost to the contractor of completing the

works. The lump sum is usually subject to adjustment for extra work, fluctuations

4 Christopher Hill (1999), Lump Sums: The Essentials. Retrived on 20th June, 2009, from www.building.co.uk 5 Henry Henkin (1988). Drafting Engineering Contracts. England: Elsevier Applied Science Publishers Ltd. Page 120.

4

sub-contractors, and so on. This has been the practice since there usually arise some

inadequacy of the drawings or the contract specification. The position of lump sum

in law is not widely understood.

‘Lump sum’ is a commonly used term in contract since the 18th century.

Although the term ‘Lump sum’ is widely used in the industry, the understanding

among contracting parties on the interpretations and position of the lump sum

contract in the eyes of the law is lacking which could contribute to dispute on rights

and responsibilities of contracting parties. Its subjective nature contributes to

constant misinterpretation and the allocation of responsibility under a contract may

not always be clear. Failure of contract conditions to define the term interpretations

could impact the overall project implementation and completion process.

All these issues have triggered author to conduct the research to identify

issues brought to litigation pertaining to ‘lump sum’ or ‘lump sum contract’. This is

also to clear the misconception of the term in the agreement that supposed signifying

that the parties are agreed together about the same thing. This research will give

some overview on the issue on lump sum contract from the legal point of view.

Hopefully, this research will give contracting parties better understandings of this

commonly use terms. The outcome of the study may be used as lessons learned for

Malaysia in pursuing all its lump sum projects.

1.4 Objective of Research

The objective of this research is to determine the judicial interpretation of the

term ‘Lump sum’ in construction contract.

5

1.5 Scope of Research

The approach adopted in this research is case law based way by literatures

from selected legal textbook will be used in search of the interpretation. Selected

standard forms of contract will also be referred to and they are as follows:

(i) PWD 75 (Rev. 12/06): JKR Sarawak Standard Form of Contract;

(ii) PWD Form 203A (Rev. 2007): JKR Standard Form of Contract;

(iii) PAM Contract 2006 (With Quantities): Agreement and Conditions.

Related law from Contracts Act 1950 (Act 136) will also be used in this

research. Due to time constraint, all related case laws in relation with the subjective

nature of the legal interpretation were searched via Lexis Nexis website6 through its

own search engine and limited to cases reported in Malaysia, Singapore and Brunei

as at 31st July, 2009. The keywords used in the search were ‘lump sum’ and

“construction contract”.

1.6 Significance of Research

This research will investigate the subjective nature of contract interpretation

of the term ‘lump sum’ from the judge interpretation based on the findings of the

case. In addition, the research will also report the interpretations from available legal

textbooks and finally the judicial positions when dealings with lump sum contract.

This research will present findings of the investigation from selected cases

which will show evidence that contracting parties interpret the contract differently.

The intention of this study is to bring forward the actual interpretation of ‘lump sum’.

By knowing this commonly used contracts’ true effect, this will assist contracting

players to have better understanding on obligation under this contract. This will be a

6 http://www.lexisnexis.com.

6

measure to manage potential risk, thus appreciation of the ‘lump sum’ true

interpretation will enable better decision making.

1.7 Research Methodology

This research involved literature review on the legal term ‘lump sum’ in the

construction industry. Initial study will be carried out involving extensive reading

and understanding of the theories involved from legal textbook.

Then data and information collecting will be carried out. Primary source will

be law cases found in Malayan Law Journal through the access of Lexis Nexis

available in the university’s online database. Secondary sources such as articles,

journals, textbooks and related websites will also be studied and referred to in the

course of the whole research.

Analysis will be done on collected information and will be arranged in an

orderly manner and writing up will be carried out, followed by checking and

correction of writing.

1.8 Research Structure

This research consists of five chapters. The brief descriptions of each chapter

are as follows:

7

Chapter 1: Introduction

This chapter presents the overall content on the study and a brief report on the

processes involved in carrying out this research. It introduces the background of the

study, relevant issue, objective and method to achieve the objective.

Chapter 2: The Construction Contract

This chapter concentrates on discussing placement of contract, various type

of contractual arrangements, the features in construction contract and the contract

document that uses the term ‘lump sum’ as part of the formation of the contract

document. The theories and rule of interpretation of in order to understand the

meaning of the term ‘lump sum’ in construction contract will also be discussed in

detail. This involved literature review from books, journals and other reliable

sources to provide true understanding of this contract.

Chapter 3: ‘Lump Sum’ in Construction Contract

This chapter discussed on theories and issues in relation to the law of lump

sum. Topics related to ‘lump sum’ in construction contract from various literatures

will be listed and reported to assist understanding of the subject matter. The terms

normally found in construction document contract in relation with ‘lump sum’ from

relevant sources of information will be archived and analyzed and all findings from

this exercise will be identified and presented in organized manner.

8

Chapter 4: Judicial Interpretations of the Term ‘Lump Sum’ In Construction

Contract

This chapter analyzed selected cases in relation with this research from the

judicial decisions as reported in law reports which are related to the research issue on

‘‘lump sum’’. All cases are discussed in detail, analyzed and present in scheduled

form. Besides that, positions of court when dealing with ‘lump sum’ contract will

also be reported with in depth discussion of the relevant issues.

Chapter 5: Conclusion

This chapter will compare all findings on the relevant ‘lump sum’ theories

and judicial interpretations and judgments from previous chapters. This chapter will

also bring forward findings on judicial positions when dealings with ‘lump sum’

contract. After that, the constraint found during this research will be reported.

CHAPTER 2

THE CONSTRUCTION

CONTRACT

CHAPTER 2

THE CONSTRUCTION CONTRACT

2.1 Introduction

There are variety types of contracts used in the construction industry.7 The

contractor’s right to payment depends on the terms of the contract. Assuming the

normal case of payment in money, building contracts are generally entered into on

the basis either of a ‘lump sum’, unit price, or a cost plus basis, or some

combination.8

Many of the problems likely to arise under a building contract are concerned

with the meaning to be given to words in a written contract. The process by which

the courts arrive at this meaning is termed construing a contract, and the meaning, as

determined by the court, the construction of the contract.

This chapter broadly concerns on the placement of contract, the contractual

arrangements and features of construction contract, brief discussion of the contract

documents and lastly the interpretations of the contract. All these discussion will be

discussed in detail in this chapter.

7 Edward R. Fisk and James R. Negele (1988). Contractor’s Project Guide to Public Agency Contracts. Canada: John Wiley & Sons, Inc. 8 Stephen Brickford-Smith, Norman Palmer & Ruth Redmond-Cooper (1993). Butterworths Construction Law Manual. London: Butterworth & Co.

10

2.2 Placement of Contract

Typically, the construction contract is placed through a tender exercise. This

may be done by inviting tenders from a list of selected contractors, or through a

general invitation. Each contractor submits tender, sometimes accompanied by

unsolicited offers on the base tender. The general expectation is that the contract

shall be awarded to the contractor who has tendered the most attractive contract price

and terms in his bid.9

Alternatively, the client may decide on a particular contractor in advance and

negotiate the price for the project with this contractor. In essence, the transaction in

a construction contract is that the owner pays the contract price in consideration for

the contractor’s obligation to construct and complete the project in accordance with

the requirements as set out in the drawings, Bill of Quantities, specifications and

other contract documents.10

2.3 Contractual Arrangements In Construction Contracts

A construction contract, like any contract, is formed when an offer made by

one party is accepted by the other and the whole is supported by consideration.11 The

fundamentals of any contractual relationship are primarily conditioned by the pre-

contract availability of design detail for the project. The presumed ‘project

management’ goal of having a ‘lump sum’ contract in which clear definitions of the

mutual obligations can be stated and predictability of outcome is maximized, is

attainable only when the project design work is done at a time which permits of its

transcription into a specification and/or a schedule of measured quantities for

adoption as the basis of pricing by the contractors. Thus the scale of information

9 Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition. Singapore: Sweet & Maxwell Asia. Page 4 10 Ibid 11 Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition. Singapore: Sweet & Maxwell Asia. Page 6

11

provision (see Figure 1) is closely related to the scale of risk allocation, but other

factors also are present in the risk spectrum that may produce different orders of

ranking.12

DEGREE

OF CLIENT

PROVISION

OF DESIGN

DETAIL TO

TENDERER

No Detail

Full

detail

Contractor’s design and construct’ package

1. Speculative 2. On response to client’s brief in broad

performance criteria terms Cost reimbursement contract

1. Without target cost 2. With target cost

Contractor’s design and construct’ package – in accordance with client’s outline design Measurement and Value Contract

1. With schedule of rates 2. With approximate Quantities

a. With PC sums b. Without PC Sums

‘lump sum’ contract with drawings and specification

a. With PC and provisional sums b. Without PC and provisional sums

‘lump sum’ contract with bill of quantities

a. With PC and provisional sums b. Without PC and provisional sums

Figure 1: Design Detailing and Contractual Arrangement13

12 Nigel M. Robinson & Anthony P. Lavers (1988). Construction Law in Singapore and Malaysia. The Butterworth Group of Companies. Page 34-43. 13 Ibid

12

2.3.1 Drawings and Specification-based Packages

This is the oldest traditional method by which the scope of work may be

defined and communicated to a tenderer. A full set of detailed drawings is required

and, in theory, a comprehensive and definitive written statement of requirements is

provided. This ‘specification’ sets out the minimum required standards of:14

• Material quality, handing and preparation;

• Workmanship for installation and finishing;

and, in the absence of prepared quantities,

• ‘directives’ or ‘scope of work’ clauses, defining the contractual obligation,

element by element, with reference to the drawings and to design schedules

for finishings, fittings, windows and doors, etc.

2.3.2 Work Schedule or Bill of Quantities Based Packages

In this formats, a provided quantification or schedule of work to be executed

is a contract document. The quantification may be prepared by reference to a

nationally or internationally standardized code of measurement and may incorporate

(or be linked by reference to) material and workmanship specification clauses (in

BQs commonly referred to ‘preambles’). The schedule in its totality may be and

exclusive definition of the scope of the work undertake within the agreed contract

price, or, where that definitive role is cast on the drawings and specifications only,

the schedule becomes merely a vehicle for establishing comparability of tenders and

provides a price breakdown useful only in the valuation of variations and payment

purposes.15

14 Nigel M. Robinson & Anthony P. Lavers (1988). Construction Law in Singapore and Malaysia. The Butterworth Group of Companies. Page 34-43 15 Ibid

13

2.3.3 ‘Package Deal’ or ‘Design and Build’ Arrangements

The design responsibility is passed in varying degrees to the contractor who

(directly or by his consultants) prepares the documentary package on one or other of

the bases already described. The definition of scope of work is presented by the

detailed proposals prepared by the contractor and following the briefing provided by

the client/owner (or his consultants). The contractor’s proposals for the satisfaction

of the client’s requirements normally comprise drawings, a specification of material

and workmanship standards, and a price and payment schedule (not usually

amounting to a bill of quantities).16

2.3.4 ‘Measure and Value’ or ‘Schedule’ Contracts

In ‘measure and value’ contracts where scope of work definition is

impossible except in wide general terms (as is the normal case in the world of civil

engineering), arithmetic precision is expressly excluded. The drawings provide

sufficient indication of the scope and nature of the work to be undertaken to permit

tendering on the basis either a schedule of rates or bill of quantities prepared with

reference to a standardized code of measurement but as to which the quantification is

normally entitled a ‘Bill of Approximate Quantities’.17

2.4 Features of Construction Contract

“In the case of goods sold and delivered, it is easy to show a contract from the

retention of goods; but that is not so where work is done on real property18.” Chitty

16 Nigel M. Robinson & Anthony P. Lavers (1988). Construction Law in Singapore and Malaysia. The Butterworth Group of Companies. Page 34-43. 17 Ibid 18 Sumpter v Hedges [1898] 1 QB 673

14

L.J. said that on the authority of Sumpter v Hedges [1898] 1 QB 673. The decision

must be right. In order to determine the law position in dealings with construction

contract, there are features in construction contract in terms of its comparison from

the sales of goods transaction and the contract the provisions in terms of payment and

variation.

2.4.1 Comparison with a Sale of Goods Transaction

In the case of Gilbert-Ash v Modern Engineering [1974] AC689, Lord

Diplock described a building or construction contract as “an entire contract for the

sale of goods and work and labour for a ‘lump sum’ price: and this price is payable

by installments as the goods are delivered and the work is done”. Reduced to its

simplest terms, the contractor may be considered to be in a position a kin to that of a

seller in a sale of goods transaction whereby in consideration for a sum of money, the

seller agrees to supply specified goods to the buyer.19

However, this analogy cannot be carried too far because of the size of

financial commitments involved in construction contracts and the relatively long time

for the “end product” to be produced. Consequently, the law and practice of

construction contracts have allowed for a number of important modifications to be

made to this simple transactional relationship.

The objective behind most of these modifications is to enable both the risks

and the financial burdens associated with the project to be distributed on a more

commercially efficient basis between the parties. For example, in the absence of

provisions for the contractor to be paid progressively, a construction contract

operates as an “entire contract”.20

19 Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition. Singapore: Sweet & Maxwell Asia. Page 23-25 20 Gilbert-Ash v Modern Engineering [1974] AC 689 (HL).

15

An entire contract is an “indivisible contract”: a party has to complete the

entire performance of his obligations before he can call on the other party to fulfill

his part.21 In essence, this requires a project to be basically completed before the

contractor is entitled to demand that the client fulfils his obligation to pay. If the

contractor fails to complete the works in an entire contract, he cannot even claim a

corresponding percentage of the contract price or recover on a quantum meruit for

the portion of the work which he has completed.22

Hence, except where a project is relatively small, it is necessary in most

situations for a contractor to build a very substantial premium into his price to cover

both the magnitude of risk and the not inconsequential financing costs which an

entire contract will entail. The result can be an expensive end product for the owner.

At any rate, it will not make sense to incur this additional premium in the contract

price where the client’s cost of funds is lower than that of the contractor’s.

2.4.2 Provisions for Progress Payments

The effect of these provisions generally is that the contractor is paid at regular

intervals in accordance with the value of work he has completed. The provision for

progress payments differs from a condition stipulating a schedule of installment

payments which is found commonly in transactions relating to the purchase of

residential apartments. Each progress payment made to a contractor by the developer

is usually preceded by a formal valuation of works for progress payments is made by

the quantity surveyor on the basis of his measurement of the work done.

21 Hoenig v Isaacs [1952] 2 All ER 176 22 Lord Denning MR in Hoenig v Isaacs noted in his judgement that whether the entire performance is a condition precedent to payment depends on the true construction of contract, but “when a contract provides for a specified sum to be paid on completion of specified work, the courts lean against a construction of the contract which would deprive the contractor of any payment at all simply because there are some defects of omissions” (pp 180-181). This statement of principle was cited with approval in Williams v Roffrey Brotheres & Nicholls [1990] 1 All ER 512.

16

In turn, the architect or engineer issues, on the basis of this valuation, a

progress payment certificate for the amount valued subject to the deduction of a sum

(usually 5 percent or 10 percent) to be retained as security for good workmanship and

repairs. This accumulates during the course of the contract as the “retention fund”.

A portion of this fund is usually released on the physical completion of the works

while the remainder is released on the expiry of the maintenance period. The

retention fund thus operates as a “carrot and stick” mechanism to motivate the

contractor to deliver quality components and to properly address issues relating to

workmanship during the construction of the project, particularly in respect or

specialist areas.23

2.4.3 Provisions for Variation of Works

Variations of works have the effect of changing, adding to or subtracting

from the work as originally described by the drawings and specifications at the time

of tender. The legal effect of these powers is that the contractor must comply with

these variation orders and if, as consequences, he incurs additional cost or expense,

he may seek financial compensation in accordance with the provisions set out in the

contract. The power to vary the works thus provides a measure of flexibility in the

contractual dealings between the client and the contractor during the execution of the

works.

2.5 Contract Documents

Contract documents contain the express terms under which a contract is to be

performed ad sets out the obligations of each of the parties. In the case of a

construction contract, the principal parties are of course the employer and the

23 Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition. Singapore: Sweet & Maxwell Asia. Page 23-25

17

contractor, but the provisions also provide for parties like architects and quantity

surveyors to have prescribed administration and certification roles. The major

components of the contract documents in a typical construction contract may be

briefly described.

2.5.1 Articles of Agreement

The articles of agreement contain brief description of the project and its

location, together with the names of the parties and the consultants appointed to the

project. A part of the articles contain preambles, describing in general terms the

obligations of the parties24 and the general contracting philosophy which is intended

to govern the interpretation of the contract. Individual articles then list the

documents which constitute the subject contract, specify the price to be paid by the

employer in consideration for the contractor’s execution and delivery of the works

and stipulate the period within which the works are to be completed.

2.5.2 Conditions of Contract

The conditions of contract refer to the elaborate set of legal terms and

conditions which regulate the contractual relationship between parties to a contract.

They define the duties and rights of the parties and, the same time, address some of

the likely events which may arise during the course of the works. In many modern

contracts, these contract conditions are based on the provisions of standard and

amended to reflect the particular requirements of the employer.

24 Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition. Singapore: Sweet & Maxwell Asia. Page 26.

18

2.5.3 Plans and Drawings

Plans show in graphic form how a construction project is to be built in terms

of the spaces allocated, the principal features and their reference to the site. In a

building project, the more important of these are the floor plans and the elevations.

Drawings provide a cross-section view of various parts of the building as well as the

particulars of major components and finishes.

The purpose of plans and drawings in a construction contract is to enable the

price for the works to be computed. Accordingly, it is sufficient for drawings issued

at the time of tender to be fairly general character, but it should contain sufficient

information for the preparation of estimates and the pricing of the work

2.5.4 Bills of Quantities

The expression “quantities” refers to a quantified description of the extent of

a particular item of work to be executed by the contractor in a construction project.

The quantities of all the items which comprise the construction project are then

collated in what are described as “Bills of Quantities”. In the usual presentation, bills

of quantities consist of three principal parts: the preliminary bill, the trade’s bills and

a schedule of provisional sums.

2.5.5 Schedule of Rates

Schedules of Rate are found in contracts which are expressed to be “‘lump

sum’ contracts” or which are drafted on the basis that they are not subject to re-

measurement of the permanent work. The Schedule of Rates is intended as a basis

for adjusting the contract price where variations and extras have been ordered. Like

19

the bills of quantities, the items on a schedule of rates are usually classified

according to construction work trades.

In general, the rates priced in the Schedule of Rates are usually not subject to

price competition since they are not necessarily the basis on which contractors

compute their final price and as such, do not influence the final price submitted in the

tender. Indeed, contractors may be tempted to insert generous margins in these rates

and use them to compensate for the lower margins in the tender price. For this

reason, in some contracts, the unit prices for individual items in the schedule are pre-

determined by the quantity surveyor and these are usually described as “fixed

Schedule of Rates”. In these cases, the contractor is expected to have allowed in his

contract price for the possibility that the varies work when priced on these rates may

not be profitable.25

2.5.6 Specifications

The place of specifications in a construction contract depends on the terms of

the particular contract. Where the specifications are intended to form a part of the

contract, this should be expressly stated in the contract. Specifications may also be

found in contracts which are based on bills of quantities. In these cases, subject

again to the incorporating provisions, the significance of the specifications reside

largely with the elaboration of the descriptions of the item found in the bills. Where

it is intended that a particular item in the bills of quantities should be elaborated in

the specifications, a better practice is to expressly incorporate in the relevant portion

of the specifications by specific reference in the description of the item in the bills.

25 Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition. Singapore: Sweet & Maxwell Asia. Page 23-25

20

2.6 Interpretation of the Contracts

Although most parties in the construction industry rarely enter into oral

contracts, however the written contracts prevalent in the industry are seldom devoid

of lack of clarity, ambiguities, uncertainties and discrepancies. This is more

especially now as work is being increasingly let out on a so called ‘fast track’ basic

with the pre-contract stage being shrunk to a notional fraction of the overall project

period. Consequently, disputes arise during the post-contract award stage either on

the commencement or during the currency of the contract as to the interpretation of

the contract entered by the parties as to their respective rights, obligations and

liabilities.

Where a contract is made in writing, a court will seek to give effect to the

intention of the parties as expressed in the written documents. The general rule is

that a written contract cannot be varied by parol (i.e. oral) evidence, either by the

parties thereto or by others.26 This means that, in general, oral evidence is not

admissible to contradict, vary, add to or subtract from the written terms. However,

oral evince may be brought to explain the customary or technical meaning of a

particular word in the contract, or to establish the background circumstances in

which the contract was made.27

2.6.1 Rules of Interpretation of the Contracts

In the context of building contracts, issues in relation to express terms relate

mainly to:

(i) Their interpretation; and

26 Collin F. Padfield (1978). Law Made Simple. 4th Edition. London: A Howard & Wyndham Company. Page 191. 27 Pigott Foundations Ltd v. Shepherd Construction Ltd [1993] 67 BLR 48.

21

(ii) Whether the terms found in some other documents have been

incorporated into the subject contract.28

2.6.1.1 Literal Interpretation

The starting point in the construction of any contract term is consider its

literal meaning (the ‘literal rule’) unless such a reading renders an absurd set of

results which the parties could not have possibly intended. Literal rule is where the

language is clear and explicit, it must be given affect whatever the consequences.29

The principle was demonstrated recently in Interpro Engineering Pte Ltd v.

Sin Heng Construction Co Pte Ltd.30, a case concerning a building sub-contract.

Clause 2 of the sub-contract had provided that the only profit which the sub-

contractors were entitled to make five per cent of the builder’s work of $4.65 million.

The court ruled that this should be read literally. Accordingly, it should not be

construed so as to entitle the sub-contractor to claim a percentage of payment in

respect of variation or additional works, even though such works were contemplated

at the time of the contract.

2.6.1.2 The Contra Proferentum Principle

This expression means “against the Profferer”. The contra proferentum rule

applies to a situation where there is doubt as to the meaning and scope of some

excluding clause or provision in a contract. By operation of the rule, the courts will

construe the subject provision against the party who drafted and relied on it. The

classic cases on this subject concern provisions which support to exclude liability on

the happening of some event. In Hollier v. Rambler Motors (AMC) Ltd.31, a clause

which attempts to exclude a party’s liability for damage caused by fire to customer’s

28 Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition. Singapore: Sweet & Maxwell Asia. Page 33. 29 Nigel M Robinson, Anthony P Lavers, George KH Tan and Raymond Chan (1996). Construction Law in Singapore and Malaysia. 2nd Edition. Singapore: Butterworths Asia. Page 26. 30 [1998] 1 SLR 694 31 [1972] 1 All ER 399.

22

cars on its premises was held to be insufficient clear to exclude liability for

negligence. It was suggested that while this rule would apply to construction

contracts which have been drafted by the employer (as would be the case with

contracts produced by government agencies and local authorities32) it should not

apply to construction contracts where the conditions have been drawn up by bodies

which seek to represent substantial constituencies within the industry.

Furthermore, the courts appear to take more moderate approach when

applying the rule to provisions which merely limit liability as opposed to provisions

which totally exclude liability.33

2.6.1.3 The Ejusdem Generis Rule

The ejusdem generis rule applies to the interpretation of words which purport

to describe a class of objects. Where words describe a general class of objects, they

may be interpreted by relying on the words which describe the specific objects. An

example of the kind of situations contemplated here is the extension of time

provision in a construction contracts. An extension of time clause typically lists the

relevant events in respect of which time may be extended under the contract. In

determining whether a particular event comes within the ambit of a particular class of

events provided in the clause, the general words may be read ejusdem generis with

the particular events specified. Thus, in Wells v. Army & Navy Co-operative

Society34, the court held that the words ‘other causes’ in the extension of time clause

in that contract should be read ejusdem generis with preceding words such as

‘strikes’ and ‘default of sub-contractors’.

32 Peak Construction (Liverpool) Ltd v. Mckinney Foundation Ltd [1970] 69 LGR 1 33 Aisla Craig Fishing Co Ltd v. Malvern Fishing Co [1983] 1 All ER 101 34 [1902] 86 LT 764.

23

2.7 Conclusion

Where the contract terms are set out in more than one document, as is the

case with many construction contracts, then the approach is that “the four corners of

the contract” must be construed as a whole and, as far as possible, every part of the

contract must be given the effect intended by the parties.35




the basis either of a ‘lump sum’, unit price, or a cost plus basis, or some

combination.37


one party is accepted by the other and the whole is supported by consideration.38 The

fundamentals of any contractual relationship are primarily conditioned by the pre-

contract availability of design detail for the project. The presumed ‘project





adoption as the basis of pricing by the contractors.39

In order to determine the law position in dealings with construction contract,

there are features in construction contract in terms of its comparison from the sales of

goods transaction and the contract the provisions in terms of payment and variation.

35 Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition. Singapore: Sweet & Maxwell Asia. Page 35. 36 Edward R. Fisk and James R. Negele (1988). Contractor’s Project Guide to Public Agency Contracts. Canada: John Wiley & Sons, Inc. 37 Stephen Brickford-Smith, Norman Palmer & Ruth Redmond-Cooper (1993). Butterworths Construction Law Manual. London: Butterworth & Co. 38 Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition. Singapore: Sweet & Maxwell Asia. Page 6. 39 Nigel M. Robinson & Anthony P. Lavers (1988). Construction Law in Singapore and Malaysia. The Butterworth Group of Companies. Page 34-43.

24

In the case of Gilbert-Ash v Modern Engineering (1974) AC689, Lord Diplock

described a building or construction contract as “an entire contract for the sale of

goods and work and labour for a ‘lump sum’ price: and this price is payable by

installments as the goods are delivered and the work is done”. However, this analogy

cannot be carried too far because of the size of financial commitments involved in

construction contracts and the relatively long time for the “end product” to be

produced. Consequently, the law and practice of construction contracts have allowed

for a number of important modifications to be made to this simple transactional

relationship.

The objective behind most of these modifications is to enable both the risks

and the financial burdens associated with the project to be distributed on a more

commercially efficient basis between the parties. For example, in the absence of

provisions for the contractor to be paid progressively, a construction contract

operates as an “entire contract”.40 An entire contract is an “indivisible contract”: a

party has to complete the entire performance of his obligations before he can call on

the other party to fulfill his part.41 In essence, this requires a project to be basically

completed before the contractor is entitled to demand that the client fulfils his

obligation to pay. If the contractor fails to complete the works in an entire contract,

he cannot even claim a corresponding percentage of the contract price or recover on a

quantum meruit for the portion of the work which he has completed.42





40 Gilbert-Ash v Modern Engineering [1974] AC 689 (HL) 41 Hoenig v Isaacs [1952] 2 All ER 176 42 Lord Denning MR in Hoenig v Isaacs noted in his judgement that whether the entire performance is a condition precedent to payment depends on the true construction of contract, but “when a contract provides for a specified sum to be paid on completion of specified work, the courts lean against a construction of the contract which would deprive the contractor of any payment at all simply because there are some defects of omissions” (pp 180-181). This statement of principle was cited with approval in Williams v Roffrey Brotheres & Nicholls [1990] 1 All ER 512.

25






oral evidence may be brought to explain the customary or technical meaning of a



43 Collin F. Padfield (1978). Law Made Simple. 4th Edition. London: A Howard & Wyndham Company. Page 191. 44 Pigott Foundations Ltd v. Shepherd Construction Ltd [1993] 67 BLR 48.

CHAPTER 3

’LUMP SUM ’ IN

CONSTRUCTION

CONTRACT

CHAPTER 3

’LUMP SUM’ IN CONSTRUCTION CONTRACT

3.1 Introduction

Generally, a lump sum contract is one to complete the whole work for a

‘lump sum’45. The contractor’s primary duty in a lump sum contract is to do work as

defined and as required by the contract documents within the contract period stated

in the agreement. There is an important characteristic of lump sum contracts that

affects a contractor’s duty: the legal concept of a fixed sum for a complete job of

work.46

As such, this chapter will discuss this commonly use term ‘‘lump sum’’ based

on the selected standard form of contract available in the country namely PWD 75

(Rev. 12/06): JKR Sarawak Standard Form of Contract, PWD Form 203A (Rev.

2007): JKR Standard Form of Contract and PAM Contract 2006 (With Quantities):

Agreement and Conditions. Related law from Contracts Act 1950 (Act 136) and

some interpretation from selected construction contract literature available in the

Perpustakaan Sultanah Zanariah, University Teknologi Malaysia (UTM Library)

will also be discussed to aid the understanding on this term.

45 Michael Furmstone (2000). Building Contract Casebook. 3rd Edition. London: Powell-Smith & Furmston’s. 46 Henry Henkin (1988). Drafting Engineering Contracts. England: Elsevier Applied Science Publishers Ltd. Page 60.

27

3.2 The Term ‘Lump Sum’ in Construction Contract

It is not unusual for smaller projects to be tendered for without bills, and there

is little doubt that the use of bills of quantities on many projects may have effect of

increasing the total cost. Thus standard form of contract available for such works,

which is commonly but misleadingly referred to as a ‘lump sum’ contract, and which

referred to as the specification form of contract, or the form without quantities.47

3.2.1 Standard Form of Contract

There are several types of standard form of contract available in Malaysia,

such as PWD 75 (Rev. 12/06): JKR Sarawak Standard Form of Contract, JKR 203B:

JKR Standard Form of Tender Rev. 2007): JKR Standard Form of Contract and PAM

Contract 2006 (With Quantities): Agreement and Conditions. These standard forms

of contract is use to explain the term of delivery and payment of the goods or

services being quoted by contractor or supplier provided by the contract

administrator.

So far as construction activity is concerned, standard forms of contract help to

relate two facets: the general law in its effect on contracting parties and the detailed

interaction of the contract documents in the production of the finished physical

result. In so doing it does not, however, solve all problems – indeed it may create

fresh ones and so there is also the need for interpretation.48

47 Duncan Wallace (1970). Hudson’s Building and Engineering Contracts. 10th Edition. London: Sweet & Maxwell. Page 171. 48 Dennis F Turner (1971). Building Contracts: A Practical Guide. London: George Godwin Ltd. Page 3.

28

3.2.1.1 PWD Form 203A: JKR Standard Form of Contract

In this form, the term lump sum is use in its standard Form of Tender.

“Having examined the Government’s Requirement including Instruction to

Tenderers and the Condition of Contract and the Appendices annexed thereto

(hereinafter referred to as the Pre-bid Document) we, the undersigned, offer

to design, construct and complete the said Works in conformity with the said

Pre-bid Documents for the Lump Sum of Malaysia Ringgit: (State the Lump

Sum bid here) or such other sum as may be ascertained in accordance with

the said conditions of Contract.”

Provisions covering ‘lump sum’ is also shown in Clause 26.0 on the summary

of tender.

Clause 26.1: …the Summary of Tender, drawings and specification shall

form part of this contract and shall be the basis of the Contract Sum.

Clause 26.3: …any adjustment of prices in the Summary of Tender… shall

before signing of this Contract be so adjusted and rectified that the total

amount in the Summary of Tender shall correspond to the Lump Sum amount

tendered by the Contractor in the Form of Tender. Provided always the

Lumps Sum amount shown in the Form of Tender shall remain unaltered.

Clause 26.4: … the quality and quantity of the works included in the

Contract Sum shall be that which is shown upon the Contract Drawings or

described in the Specification and/or the Summary of Tender. Where

quantities of work are given in the Contract Drawings and/or Specification

and/or the Summary of Tender for the purpose of tendering, unless otherwise

stated, these shall be deemed to form part of this Contract and method of

measurement of and payment for the same shall be made in accordance with

the rules as set down in the Contract Drawings and/or the Specification

and/or Summary of Tender.

Although the term ‘lump sum’ is use in the form of tender as indicated at the

above clause, its definition and interpretation are not available in any part of the

contract document.

29

3.2.1.2 PWD 75 (Rev. 12/06): JKR Sarawak Standard Form of Contract

In this form, the term ‘lump sum’ is exemplified in its Agreement and

Condition. The term is used in Appendix ’Q’ (Government of Malaysia, Treasury

Instruction No.170), and the instruction is as follows;

‘Please quoted for the supply of the goods/service listed below subject to the

terms and condition prescribed.

1. Term of delivery: (the part to be filled by contract Administrator,

whether Lump Sum or as and when required basis). Description of

Good/Services &

Special Condition

Quantity Rate Amount

(RM)

State the description

here

As per summary of Quotation

or state the quantity of

Goods/services here

Lump sum

Or

state the rate here

This appendix is later become part of the project Contract Document.

In this form, the term ‘lump sum’ is also exemplified in Clause 8.2, Contract

based on Drawings and Specifications:

Clause 8.2(a):

(i) Subject to Clauses 2, 3 and 4, the quality and quantity of the Works

included in the Contract Sum shall be deemed to be that which is

shown in the Contract Drawings or described in the Specifications

and the Summary of Tender.

(ii) Where items of work are shown or implied on the drawings or in the

Specifications as being a requirement under the contract, or are

obviously required to satisfactorily complete the Works, but are not

specifically covered by the item descriptions in the Summary of

Tender, such work shall be deemed to be covered by related items in

the Summary of Tender, and in any event in the tendered lump sum.

The term ‘lump sum’ is use in the form of tender and indicated at the above

clause. The definition and interpretation of the term are not available in any part of

30

the contract document for reference of the contracting parties and this could

contribute to parties making their own interpretation to suit the situation, position and

interest.

3.2.1.3 PAM Contract 2006 (With Quantities): Agreement and Conditions

In this form, the term ‘lump sum’ is indicated in Article 7: Definitions (ah) of

the Articles of Agreement and Clause 12.2: The Conditions of Contract.

Article 7 (ah): Lump Sum Contract means a fixed price Contract and is not

subject to remeasurement or recalculation except for Provisional Quantities

and Variations which shall valued under Clause 11.0 (clause on Variations,

Provisional and Prime Cost Sums).

Clause 12.2: unless otherwise expressly provided, the contract is a Lump

Sum Contract. Any error in description, quantity or omission of items in the

Contract Bills shall not vitiate the Contract and shall be corrected by the

Architect of Consultant.

The definition of the term ‘lump sum’ is clearly given in this agreement

which is ‘lump sum’ is ‘fixed price’ and is not subject to remeasurement or

recalculation except for provisional quantities and variations. As such, any error in

description, quantity or omission of item should not be used to invalidate the

contract.

3.2.2 Contract Act 1950 (Act 136)

In this act, there is no provision specifically on ‘lump sum’ term or lump sum

contract but there are provisions discussing the performance of project which

31

indirectly related to this term in the contract. The Contract Act makes detailed

provisions covering performance.

Section 38(1) provides that ‘the parties to a contract must either perform or

offer to perform their respective promises, unless such performance has been

dispensed with or excused under this Act, or of any other law’. 49

Section 40 then provides that ‘when a party has refused to perform or

disabled himself from performing, his promise in its entirety, the promisee (other

party) may put an end to the contract, unless he has signified, by words or conduct,

his acquiesced in its continuance.’50

Certain other provisions of the Act deal with the circumstances in which

personal performance by the promisor is necessary,51 the effect of accepting

performance from a third party,52 the time and place for performance.53 Section 51

provides that ‘the performance of any promise may be made in any manner, or at any

time which the promisee prescribes or sanctions’. Sections 52 to 55 deal with the

performance of reciprocal promises.

3.3 Interpretation from Literature

While the parties to a contract will seek to come to an agreed interpretation if

the contract documents and perhaps be guided by the professional person responsible

for drafting or incorporating the documents, this blissful situation may not always be

achieved. It is little consolation for an aggrieved party to be told ‘well, that is what I

49 Contracts Act 1950 (Act 136), Contracts (Ammendment) Act 1976 (A329) & Government Contract Act 1949 (Act 120). Law of Malaysia (2005): International Law Book Services. Legal Research Board. 50 Ibid 51 Section 41 of the Contracts Act 52 Section 42 of the Contracts Act 53 Section 47-50 of the Contracts Act

32

meant it to mean’. Such intentions have no significance; all that counts is what the

wording actually does mean.54

In the light of the widespread use of forms of contract, the term ‘lump sum’

has become commonly used in the construction industry. Hence, the interpretation of

the term ‘lump sum’ plays a very important role in order to provide guidance on the

exact circumstances in which a contractor’s primary duties and right can be

determined.

In this section, the interpretations of the term ‘lump sum’ derived from the

literature review will be reported. The literature review involves reading and

appraising the literature on the subject matter.

Table 1: Interpretations of the Term ‘Lump Sum’ from Literature

No. Literature Related discussion on the interpretations of

the term ’Lump Sum’

1 L.B. Curzon (2003).

Dictionary of Law. 6th

Edition. Petaling Jaya

Selangor: International Law

Book Services.

Lump sum contract: contract by which it is

intended that complete performance shall take

place before payment may be demanded.

Failure to complete performance prevents any

payment being recovered.

2 John S. Scott (1984).

Dictionary of Building. 3rd

Edition. Granada Publishing.

Lump sum contract: A contract in which the

contractor submits a price for construction (and

maintenance for a short period) of the work

shown on the contract drawings. A bill of

quantities is sometimes drawn up by the

engineer or architect to help the contractor, but

not normally. This is a simple type of fixed

54 Dennis F Turner (1971). Building Contracts: A Practical Guide. London: George Godwin Ltd. Page 5.

33



price contract which is suitable for small

buildings but not for large work of any sort.

3 Bob Greenstreet, David

Chappell, Michael Dunn

(2003). Legal and

Contractual Procedures for

Architects. 5th Edition.

Oxford: Architectural Press.

‘lump sum’ is where the contractor agrees in

advance to undertake a specified amount of

work for a fixed price. The inflexible nature of

the price may mean that the contractor could

fall foul of inflation or unforeseen

circumstances and may be inclined to raise

prices as a safeguard.

4 Chow Kok Fong (2004).

Law and Practice of

Construction Contracts. 3rd

Edition. Singapore: Sweet &

Maxwell Asia.

‘Lump Sum’ Contracts: in contrast to bills of

quantities contracts, there is a category of

construction contracts commonly called ‘lump

sum’ contracts. These contracts do not

incorporate the Bills of quantities as part of the

contract documents. Consequently, the

contractor is deemed to have tendered a

contract price for the execution of the works as

described by the contract drawings and

specification. The contractor undertakes, in

consideration for the contract price, to furnish

everything contingently necessary to bring the

works to completion.55 The contractor is

expected to measure and compute the quantities

of work from the drawings and price the work

on the basis of the drawings and the

specification. If, in the process of executing the

works, the contractor finds that the actual

quantity of work executed exceeds that which

55 Williams v Fizmaurice [1858] 3 H&N 844

34



he has computed from the drawings, he has to

bear this expense and cannot recover the

additional expense from the employer. In terms

of risks, therefore, the contractor in a lump sum

contract bears the risks associated with errors in

the measurement and estimation of the quantity

of work required to bring the works to

completion, whereas in a contract based on the

bills of quantities, this risk is essentially borne

by the client.

5 Karl Williams (1992). Civil

Engineering Contracts,

Volume 1: The Law,

Administration, safety.

England: Ellis Horwood.

Page 144.

In essence, a lump sum contract constitutes the

simplest type of construction contract in that

the contractor undertakes to carry out the

specified work for an agreed lump sum. In

cases where the extent of the specified work is

small, this sum will probably be payable in

‘single payment’ form upon satisfactory

completion. This will, of course, require the

contractor to carry the entire cost of the project,

a fact which he will, no doubt, take into

account when evaluating his tender price.

6 JR Lewis (1976). Law for

the Construction Industry.

London: The Macmillan

Press Ltd.

Where the sum payable to the contractor for

building a house is to be payable on

completion, the contract is a lump sum

contract. It follows that if he completes the

work according to the contract, he can claim

the full sum; if he does not complete the whole

work in accordance with the contract, the

situation will depend upon whether the parties

35



have contemplated this possibility or not.

7 Michael Furmstone (2000).

Building Contract Casebook.

3rd Edition. London: Powell-

Smith & Furmston’s. Page

170.

A lump sum contract is one to complete the

whole work for a lump sum. The satisfactory

completion of the work for the stated number

of dollars remains the obligation of the

contractor, regardless of the difficulties and

troubles he may experience in the course of his

construction activities, even though the total

cost of the work may turn out to be greater than

the contract price. However, this contractual

responsibility is subject to contractor relief

because of impossibility of performance and

where there is contract provision for price

adjustment because of changed conditions and

possibly other contingencies.

8 Duncan Wallace (1970).

Hudson’s Building and

Engineering Contracts. 10th

Edition. London: Sweet &

Maxwell. Page. 201.

lump sum contract may mean a ‘fixed priced’

contract in the first of the above senses, or it

may be used in its legal sense to mean an

‘entire’ contract in which the law will not

imply any term for stage payment (a contract

using bills would also be a lump sum contract

in this sense), and in which the obligation to

complete is, subject to the doctrine of

substantial performance, unqualified in the

legal sense.

9 Richard H. Clough (1986).

Construction Contracting. 5th

Edition. USA: John Wiley &

Sons Inc. Page 140.

The lump sum contract is one where the

contractor agrees to perform a stipulated job of

work in exchange for a ‘fixed sum’ of money.

36



10 Donald Keating (1969). Law

and Practice of Building

Contracts. 3rd Edition.

London: Sweet & Maxwell.

Page 48.

A lump sum contract is one to complete the

whole (sometimes termed as ‘entire’ or a

‘specific’ work) work for a lump sum.

3.4 Other Aspects of Construction Contract Related to ‘Lump Sum’

Interpretations

There are others condition in the literatures which related to performance and

payment of parties in construction industry that can assist to explain the law of lump

sum namely Lump Sum Tender, Lump Sum Contract, Entire Contracts, Substantial

Completion, Non-Completion, Valuation of Variations, Contract to Do Whole Work

and Quantum Meruit.

3.4.1 Lump Sum Tender

A lump sum tender is a tender, in which the tenderer quotes a lump sum price

for executing the work according to the plans, drawings, specifications and other

conditions. Acceptance of a lump sum tender creates a lump sum contract, which is

one to complete the work comprised in it for an ascertained and specified sum, or for

a specified sum subject to its being increased and diminished by taking into

consideration the value of extras done and omissions made in accordance with the

contract.

37

A lump sum contract may or may not be an entire contract. The normal

course, however, is to invite a lump sum tender, or tenders, for the satisfactory

completion of the work as defined by the plans, drawings, specifications and the

quantities supplied by the employer or his architect, or available at a time and place

for inspection and consideration of contractors, who propose to send their tenders for

the work in question.56

The question in each case is what was the contract? If the contract is to build

a house complete and fit for occupation, or to complete a bridge or a dock or any

other work, the contractor cannot recover as extra for work which is indispensably

necessary in order to complete the work he has undertaken to do. A contractor who

tenders to execute the entire work must consider whether he can carry it out or not,

so as to enable him to earn the price agreed to be paid to him for the completed work.

In a contract the contractor agreed to complete the house and make it fit for

occupation by a particular date and not that the flooring was not mentioned, it was

necessary implied that the builder who abandoned could not recover on the contract

or in trevor for the flooring seized.57

3.4.2 Lump Sum Contract

A lump sum contract is s contract to complete the work comprised in it, for an

ascertained and specified sum, or for a specified sum subject to it being increased or

diminished by taking into consideration the value of extras done and omissions

made, in accordance with the contract. A lump sum contract may or may not be an

entire contract.58

56 K. Gajria (1999). Law Relating to Building and Engineering Contracts in India. 4th Edition. India: Butterworths. Page 9-10. 57 Williams v Fizmaurice [1858] 3 H&N 844 58 W.T. Creswell (1954). Creswell on Building Contracts. 5th Edition. London: Pittman. Page 5.

38

A lump sum contract is one to complete the whole work for a lump sum.59

Lump sum contract is also “contract by which it is intended that complete

performance shall take place before payment may be demanded. Failure to complete

performance prevents any payment being recovered“60.

In a lump sum contract the contractor agrees to execute a complete work with

all its contingencies in accordance with the drawings and specification for a fixed

sum, the following being the essential characteristic:-

(i) A schedule of rates is specified in order to regulate the amount to be

added to or deducted from the fixed sum on account of additions and

alterations not covered by the contract.

(ii) Except as provided in clause (i), no allusion is made in the contract to

the departmental estimate of work, schedule of rates or quantities of

work to be done.

(iii) Detailed measurements of the work done are not required to be

recorded except in respect of additions and alterations.

In others words, a lump sum contract is incomplete without the essential

drawings and specification.

A lump sum contract, sometimes called stipulated sum, is the most basic form

of agreement between a supplier of services/contractor and a

receiver/customer/employer. The supplier agrees to provide specified services for a

specific price. The receiver agrees to pay the price upon completion of the work or

according to a negotiated payment schedule. In developing a lump sum bid, the

builder will estimate the costs of labor and materials and add to it a standard amount

for overhead and the desired amount of profit.

59 Michael Furmston (2000). Building Contract Casebook. 3rd Edition. Powell-Smith & Furmston’s. 60 L.B. Curzon (2003). Dictionary of Law. 6th Edition. Selangor: International Law Book Services.

39

The obligation to complete the work for the Lump sum is not affected if the

indispensably necessary works are not specified,61 or are not shown on the drawings,

or are calculated wrongly, or even understated, or if their cost is underestimated in

the engineer’s specifications, or are impracticable.62

Where work is not fully described in the contract and has to be one according

to the instruction of an architect or engineer, the builder cannot recover as an extra

for work done in carrying out such instructions, nor where work is to be done to the

satisfaction of an architect or engineer can the builder recover extra payment for

executing work to satisfy him or to obtain his approval.63 There is no consideration

for a promise to pay a contractor extra for that which he is already bound to do.64

A lump sum contract is a contract to complete a whole work for a lump sum,

e.g. to build a house for £60,000. If the house is completed in every detail required

by the contract the contractor is entitled to £60,000, and if extra work was carried out

he may be able to recover further payment. If he does not complete the house,

detailed clauses may provide what amount, if any, he is to receive. But parties

entering into a contract do not always contemplated its breach, and in the absence of

such clauses, and even to some extent when they are present, a difficult problem may

arise as to what payment, if any, the contractor can recover.65

If a contractor agrees to do a whole work according to a specification which

consists of 40 items for a lump sum of £5,000 and fails to carry out 20 of the items, it

is obvious that he is not entitled to recover the whole of the £5,000 and that the

employer may have an action against him for damages. But is the contractor entitled

to recover any of the £5,000? Can the employer say to him, “You agreed to complete

the whole and to be paid when the whole was completed?66 The work is incomplete,

therefore you are entitled to nothing?” and can the employer rely on the same

61 Williams v Fitzmaurice [1858] 3 H&N 844 62 Thorn v London Corporation [1876] 1 App.Cas. 120 63 Collins v Godfrey [1831]1 B. & Ad. 950 64 Rigby v Bristol Corporation [1860] 29 LJ Ex 356 65Stephen Furst and Vivian Ramsey (1991). Keating on Building Contracts. 5th Edition. London:Sweet & Maxwell. Page 69. 66 Appleby v Myers [1867] LR 2 CP 651

40

argument where only two out of the 40 items are omitted? These problems, which

have greatly exercised the courts, require discussion of entire contracts and

substantial performance.

3.4.3 Entire v Divisible Contract

An entire (or indivisible) contract is one in which there is agreement, implicit

or explicit, that neither party may demand performance until he is ready to fulfill, or

has fulfilled his promise.67 The opposite of entire contract is divisible contract. A

divisible contract is a contract in which the parties intend that their promises are to be

independent of each other.68

An entire contract is one where entire performance by one party is a

condition precedent to the liability of the other party and where therefore the

contractor’s right to payment depends on entire performance on his part. In some

contracts, entire completion of the building is a condition precedent to payment.

Such a contract is termed as an ‘Entire contract’, and is an indivisible contract, one

where the entire fulfillment of the promise by either party is a condition precedent to

the right to call for the fulfillment of any part of the promise by the other. 69 The

entire performance by one party is a condition precedent to the liability of the other

party. Under such contracts, the right of the contractor to receive payment depends

on the entire performance on his part.

Whether a contract is an entire one is a matter of construction.70 Clear words

are needed to bring an entire contract into existence.71 In the absence of such words,

the ordinary lump sum contract cannot be an entire contract, for the courts construe

67 L.B. Curzon (2003). Dictionary of Law. 6th Edition. Selangor: International Law Book Services. Page 139. 68 Ibid. 69 Cutter v Powell [1795] 6 Term Rep. 320 70 Hoenig v. Isaac [1952] 2 All ER 176 (CA) 71 Appleby v Myers [1867] LR 2 CP 651

41

the promise to complete as a term and not a condition.72 However, whether a

contract is an entire one is a matter of construction as, for example, the standard form

of building contracts is held not to be entire contract.73

The type of contract which may be entire is that where the contractor

undertakes some simple clear obligation such as to put some broken article or part of

a house in working order and completely fails to do so. In such a case he may be

entitled to nothing although he has expended much work and labour, for the main

purpose of the contract is that the article or part of the house shall work and there is

no scope in the contract for terms collateral to the main purpose. It is perhaps

academically debatable whether or not a lump sum contract is by definition an entire

contract. It is submitted that, subject to provisions for installments:

(i) Most lump sum contracts are entire contracts in the sense that “the

builder can recover nothing on the contract if he stops work before the

work is completed in the ordinary sense – in other words abandons the

contract”74; but

(ii) Most lump sum contracts are not entire contracts in the sense that they

are construed as excluding the principle of substantial performance.

The traditional position in these situations is to regard these contracts as

entire contracts so that a contractor has to necessarily complete the whole of the

works in scrupulous compliance with the prescribed requirements of the underlying

contract before he is entitled to any payment. This position has, through the years,

been gradually modified, so that in the mid 1950s, the English courts were prepared

to rule that a contractor may sue on the lump sum if the contractor has substantially

completed his works, although the building owner may bring a cross-claim for

defects and outstanding works or, alternatively, set these claims in diminution of the

price. In Hoenig v. Isaacs75, Lord Denning MR in delivering his judgment of the

English Court of Appeal in that case stated the position as follows:

72 Hoenig v Isaacs [1952] 2 All ER 176 73 Tern Construction Group v RBS Garages [1992] 34 Con LR 137 74 Hoenig v Isaacs [1952] 2 All ER 176 75 Ibid

42

“Where a contract provides for a specified sum to be paid on completion of

specified work, the courts lean against a construction of the contract which

would deprive the contractor of any payment at all simply because there are

some defects or omissions.”

Thus, in an early case, it has been held that where a contractor did work on a

house under a lump sum contract, he was entitled to receive payment for his work,

notwithstanding that he has departed from the terms of the contract.76 However, this

entitlement to be paid is extinguished where the works were incomplete because the

contractor abandoned the works.77 A contractor also forfeited his entitlement to be

paid where there was a total failure of consideration, as where the works delivered

conferred no benefit whatsoever to the building owner78 and where the work

undertaken was different from which he has contracted to deliver.79

3.4.4 Substantial Completion

At common law, substantial performance is an alternative principle to the

perfect tender rule. This principle is relevant when a contractor's performance is in

some way deficient, through no willful act by the contractor, yet is so nearly

equivalent that it would be unreasonable for the owner to deny the agreed upon

payment. If a contractor successfully demonstrates substantial performance, the

owner remains obligated to fulfill payment, less any damages suffered.

Sachs LJ held (in Bolton v Mahadeva case) that Bolton was entitled to

nothing because there had been no substantial performance at all. He said that, ‘It is

76 H Dakin & Co. Ltd v Lee [1916] 1 KB 566 77 Sumpter v Hedges [1898] 1 QB 673 78 Farnsworth v Garrard [1807] 1 Camp 38 79 Forman & Co Pty Ltd v The Liddlesdale [1900] AC190

http://en.wikipedia.org/wiki/Common_law

http://en.wikipedia.org/wiki/Perfect_tender_rule

http://en.wikipedia.org/wiki/Contractor

http://en.wikipedia.org/wiki/Obligation

43

not merely that so very much of the work was shoddy, but it is the general

ineffectiveness of it for its primary purpose that leads me to that conclusion.’80

In the ordinary lump sum contract the employer cannot refuse to pay the

contractor merely because there are a few defects and omissions. If there is

substantial completion he must pay the contract price subject to a deduction by way

of set-off or counterclaim for the defects.81 One test to be applied is whether the

work was finished or done in the ordinary sense, even though part of it was defective.

Moreover, it is relevant to take into account both the nature if the defects and the

proportion between the cost of rectifying them and the contract price. It will not be

sufficient to consider the cost of rectification alone.82

The general rule in ordinary lump sum contracts is that the contractor is

entitled to be paid the pre-agreed lump sum as and when he substantially completes

the Works.83 Substantial completion does not necessarily entail the perfect execution

of every detail of the Works, and if the contractor is guilty of only comparatively

minor defects and/or omissions then he is entitled to be paid the lump sum less a set-

off in respect of his failings...84

3.4.5 Non-Completion

This may occur by express or implied agreement, because the employer

prevents completion, because the contractor in breach of contract fails to complete or

because the contract is frustrated. If the contractor fails to complete in breach of

contract, his breach will normally amount to repudiation. Prevention by the

employer may amount to repudiation.

80 Bolton v Mahadeva [1972] 2 All ER 1322 81 Hoenig v Isaacs [1952] 2 All ER 176 82Stephen Furst and Vivian Ramsey (1995). Keating on Building Contracts. 6th Edition. London:Sweet & Maxwell. Page 78-79. 83 Hoenig v Isaacs [1952] 2 All ER 176 84 Denning LJ

44

It has been said that the rule that a contractor who has not substantially

completed cannot recover payment does not work hardly upon him if only he is

prepared to remedy the defects before seeking to resort to litigation to recover the

lump sum.85 It seems to follow that ordinarily there is an implied duty upon an

employer to give a willing contractor an opportunity to remedy defects, breach of

which duty amounts to prevention. Such duty does not, it is submitted, arise if the

defects are so grave as to show that the contractor is unable to perform the contract.

3.4.6 Valuation of Variations

In a lump sum contract, the price is a firm price, and any schedule of rates or

bills of quantities which exist are designed solely for the purpose of placing a value

upon the variations, whether by way of omission or addition, which the contract may

empower the employer or his architect to order.

In such contracts, invariably a schedule showing the nature of the variations

or deviations from the original work which is the basis of the lump sum amount is

incorporated containing the price at which such variations or deviations are to be

valued. In case of additions, the price so calculated will be added to the lump sum.

If the variations or deviations are such that they are not mentioned in the schedule,

their price is fixed according to other terms of the contract and failing that, the

contractor will be entitled to claim on quantum meruit.

Where the contract is to erect a specified work for a lump sum and there is no

power to order extras or variations, the builder is bound to do the work as specified

and cannot recover anything by way of extras or variations unless he can establish a

new contract to pay for them either by showing that the employer expressly or

impliedly ordered them or that the architect, acting within the scope of this authority ,

did so, or that the employer accepted the work either personally or by his duly

85 Bolton v. Mahadeva [1972] 1 WLR 1009

45

authorized agent. If the architect or the engineer-in-charge has no authority under the

terms and conditions of the contract, to sanction the deviations, the owner cannot be,

held liable for any such deviations and the builder could only recover the contract

price subject to deductions for such portions of the work as were not in accordance

with the contract.86

3.4.7 Contract to Do Whole Work is Lump Sum Contract

The manner of payment can be arranged in a variety of ways and it is

impossible to attempt any exhaustive classification. A contract to do a whole work

in consideration of the payment of different sums for different parts of the work is

prima facie subject to the same rules about completion as an ordinary lump sum

contract.87 A contract to do a whole work with a provision for payment of each

completed part of the whole may be a divisible contract in the sense that if the whole

is not completed through the default of the contractor, he may be entitled to payment

under the contract for those part he has completed subject to the employer’s right to

counterclaim for non-completion of the whole.88

3.4.8 Quantum Meruit

The expression quantum meruit means “the amount he deserves” or “what the

job is worth” and in most instances denotes a claim for a reasonable sum. It is used to

refer to various circumstances where the courts award a money payment whose

amount at least is not determined by a contract. In some instances, the basis for the

payment also is less than contractual.

86 Forrest v Scottish County Investment Co Ltd [1915] SC 115 87 Appleby v Myers [1867] LR 2 CP 651 88 Newfoundland Government v Newfoundland Ry. [1888] 13 App. Cas. 199 (PC)

46

“A quantum meruit claim (like the old actions for money has and received

and for money paid) straddles the boundaries of what we now call contract

and reinstitution; so the mere framing of a claim as a quantum meruit claim,

or a claim for a reasonable sum, does not assist in classifying the claim as

contractual or quasi-contractual.”89 A claim on a quantum meruit cannot

arise is an existing contract between the parties to pay an agreed sum.90 But

there may be a quantum meruit claim where there is:

(i) An express agreement to pay a reasonable sum

(ii) No price fixed

(iii) A quasi-contract

(iv) Work outside a contract

(v) Work under a void contract

“If it is the kind of additional work contemplated by the contract, the

Contractor must be paid for it and will be paid for it according to the prices regulated

by the contract. If the additional or varied work is so peculiar, so unexpected and so

different from that any person reckoned or calculated upon, it may not be within the

contract at all and he could either refuse to go on or claim to be paid upon quantum

meruit.”91

Where the contract is to complete the entire work and work is increased

without any unlawful act or breach of the contract by the building owner, the builder

cannot recover additional payment.92

When entire completion is a condition precedent to payment, the contractor

cannot recover anything either under the contract or on a quantum meruit if he has

failed to complete in every detail.93 For an ordinary lump sum contract, the

89British Steel Corporation v Cleveland Bridge and Engineering [1984] 1 All ER 504; Holland Hannen & Cubitts v. W.H.T.S.O. [1981] 18 BLR 80 90 Gilbert & Partners v Knight [1968] 2 All ER 248 (CA). 91 Thorn v London Corporation [1876] 92 K. Gajria (1999). Law Relating to Building and Engineering Contracts in India. 4th Edition. India: Butterworths. Page 495. 93 Cutter v Powell [1795]; Sinclair case, supra note 13; Ellis v. Hamlen [1810] 3 Taunt. 52; Dakin v. Lee [1916] 1 KB 566; Stegmann v. O’Connor [1899] 81 LT 627 (CA); Vigers case, supra note 13.

47

contractor cannot recover anything either under the contract or on a quantum meruit

unless he shows substantial completion.

3.5 Conclusion

Only one out of three standard forms of contract being studied has given clear

definition the term ‘lump sum’; PAM Contract 2006 (With Quantities): Agreement

and Conditions, which is lump sum is fixed price and is not subject to remeasurement

or recalculation except for provisional quantities and variations. As such, any error

in description, quantity or omission of item should not be used to invalidate the

contract.

Research in the selected literature had given the following conclusion:

(i) Lump sum is where the contractor agrees in advance to undertake a

specified amount of work for a fixed price.94

(ii) A lump sum contract is one to complete the whole work for a lump

sum. The satisfactory completion of the work for the stated number of

dollars remains the obligation of the contractor, regardless of the

difficulties and troubles he may experience in the course of his

construction activities, even though the total cost of the work may turn

out to be greater than the contract price.95

(iii) ‘Lump sum’ contract may mean a ‘fixed priced’ contract in the first of

the above senses, or it may be used in its legal sense to mean an

‘entire’ contract in which the law will not imply any term for stage

payment.96

94 Bob Greenstreet, David Chappell, Michael Dunn (2003). Legal and Contractual Procedures for Architects. 5th Edition. Oxford: Architectural Press. 95 Michael Furmstone (2000). Building Contract Casebook. 3rd Edition. London: Powell-Smith & Furmston’s. Page 170. 96 Duncan Wallace (1970). Hudson’s Building and Engineering Contracts. 10th Edition. London: Sweet & Maxwell. Page. 201.

48

There are other aspects in the literatures which are related to performance and


sum. These aspects are the basis for consideration and judgment of contract

litigation to determine whether a contractor have the right to be paid lump sum due to

failure to complete the whole project.






of building contracts is held not to be entire contract.100

Lastly, subject to provisions for installments:

(iii) Most lump sum contracts are entire contracts in the sense that “the



contract”101; but

(iv) Most lump sum contracts are not entire contracts in the sense that they


97 Hoenig v. Isaac [1952] 2 All ER 176 (CA) 98 Appleby v Myers [1867] LR 2 CP 651 99 Hoenig v Isaacs [1952] 2 All ER 176 100 Tern Construction Group v RBS Garages [1992] 34 Con LR 137 101 Hoenig v Isaacs [1952] 2 All ER 176

CHAPTER 4

JUDICIAL

INTERPRETATIONS OF

THE TERM ’LUMP SUM ’

IN CONSTRUCTION

CONTRACT

CHAPTER 4

JUDICIAL INTERPRETATIONS OF THE TERM ’LUMP SUM’ IN

CONSTRUCTION CONTRACT

4.1 Introduction

Lump sum is the most common contract system of procurement in building

construction projects. A lump sum contract is one to complete the whole work for a

lump sum102 and the contractor’s right to payment depends upon the wording of the

(lump sum) contract103

Cases are still the most important source of law of contract. This chapter will

address the results of an investigation into the subjective nature of contract

interpretation where appropriate case laws were searched from the Lexis Nexis

website104 through its own search engine and limited to cases originating and decided

in Malaysia, Singapore and Brunei. The keywords used were ‘lump sum’ and

“construction contract”.

Out of 52 cases found by using the selected keywords, only seven cases were

suitable to be used in this research. These seven cases basically discussed the

dilemma whether the contract being disputed was a lump sum contract or not based

102 Michael Furmstone (2000). Building Contract Casebook. 3rd Edition. London: Powell-Smith & Furmston’s. 103 Donald Keating (1969). Law and Practice of Building Contracts. 3rd Edition. London: Sweet & Maxwell. 104 http://www.lexisnexis.com.

50

on oral or written agreement and case findings and, secondly to determine the

positions of court when dealing with lump sum contract.

4.2 The Law of Lump Sum or Entire Contract

Lump sum contract are also referred to as entire contract: see Tong Aik (Far

East) Ltd v. Eastern Minerals & Trading (1959) Ltd. [1963] 1 MLJ 322. In an entire

contract, failure on the part of the contractor to complete the work will disentitle him

from making any claim whatsoever against the employer. Even a claim on quantum

meruit for the value of the work done cannot be sustained by the contractor. The law

on this point relating to building contracts is stated in Volume 4 Halsbury’s Laws of

England (4th Edition) paragraph as follows:

An entire contract is one where the complete performance of one party is a

condition precedent to his right to call for the performance of the other

party’s obligation. Where the contractor undertakes to complete the works

and the contract on its true construction is entire, the employer is entitled to

insist on completion before his obligation to pay arises. If the building

contractor leaves the work unfinished to a substantial degree, he cannot

claim a corresponding percentage of the contract sum or recover on a

quantum meruit basis for that part of the work he has completed; moreover,

he will be liable in damages to the employer for breach of contract.

Nevertheless, if he can show that he has substantially completed the works

(even though some minor items might remain unfinished) he will be entitled to

claim payment. Where a contractor agrees to do work for a lump sum he

cannot recover any part of the sum until the work is complete, unless there is

provision in the contract for payment by installments.

51

In the ordinary lump sum contract105 the employer cannot refuse to pay the

contractor merely because there are a few defects and omission, if there is substantial

completion he must pay the contract price106 subject to a deduction by way of set-off

or counter claim for the defects.107

Where a contractor agrees to do the work for a lump sum he cannot recover

any part of that sum until the work is complete, unless there is provision in the

contract for payment by installments. When the contract provides for progress

payments to be made as the work proceeds, but for retention money to be held until

completion, then entire performance is usually a condition precedent to payment of

the retention money, but not, of course, to the progress payments. The contractor is

entitled to payment pro rata as the work proceeds, less a deduction for retention

money. But he is not entitled to the retention money until the work is entirely

finished, without defects or omissions.

The law of entire contract shown in the older reported cases such as Appleby

v Myers [1867] LR 2 CP 651 and Whitaker v Dunn [1887] 3 TLR 602 which require

complete performance by a promisor as a condition precedent to his right of recovery

under an entire contract has been modified by later decisions, and it is now

established by the so-called doctrine of substantial performance that a promisor who

has substantially performed his side of the contract may sue on the contract for the

agreed sum, although he remains liable in damages for his partial failure to fulfill his

contractual obligations. The authoritative statement of the law on this matter can be

found in the said judgment of Lord Justice Denning in the case of Hoenig v. Isaacs.108

In every lump-sum contract there is an implied term that no part of the price

is to be recovered without complete performance. In most modern contracts of any

size, however, payments by installments are specified, so that the law on entire

105 Denning LJ said of the contract in Hoenig v Isaacs “I think this contract should be regarded as an ordinary lump sum contract”. 106 Subject to some unfulfilled condition precedent imposed by the contract. 107 Hoenig v Isaacs [1925] 2 All E.R. 176 108 KP Kunchi Raman v Goh Brothers Sdn Bhd [1978] 1 MLJ 89

52

contracts is not often relevant to contracts nowadays.109 Where the contractor

undertakes to complete the works and the contract on its true construction is entire,

the employer is entitled to insist on completion before his obligation to pay arises. If

the building contractor leaves the work unfinished to a substantial degree he cannot

claim a corresponding percentage of the contract sum or recover on a quantum

meruit basis for that part of the work he has completed; moreover, he will be liable in

damages to the employer for breach of contract. Nevertheless, if he can show that he

has substantially completed the works (even though some minor items might remain

unfinished) he will be entitled to claim payment.

The question whether the contract is entire or divisible depends on the

construction of the contract. The mere fact that some payments are made at some

stage of the contract does not by itself render the contract a divisible one. Generally

where payments are made at different stages in accordance with the work done at

each stage, the contract will be considered to be a divisible contract. Therefore

where in a building contract, the contractor is paid at each stage of the construction

upon a certificate being issued by an architect to certify that progressive work had

been completed, the contract will clearly be held to be divisible and not entire.

It is an accepted rule that for an entire or lump sum contract, complete

performance is a prerequisite for payment, whereas in a divisible contract, the party

is entitled to payment for work done.

The distinction between ‘entire’ and ‘divisible’ contracts is set out clearly in

Volume 8 of Halsbury's Laws of England, 3rd Edition, at page 166 as follows:

"There is a distinction to be drawn between contracts which are and those

which are indivisible, and the distinction is of importance in regard to

questions of illegality and of payment. Contracts are indivisible where the

consideration one and entire, or where it is stated or can be gathered by

inference that no consideration is to pass from one party the whole of the

109 KP Kunchi Raman v Goh Brothers Sdn Bhd [1978] 1 MLJ 89

53

obligations of the other party have been; but where no such intention can be

gathered, and the resolves itself into a number of considerations for a number

acts, as in the case of periodical payments for a number of services do not

form one complete whole, the contract is divisible. an indivisible or entire

contract the right to payment does not until the contract has been completely

performed; but if there been substantial performance a claim will be allowed

subject to any or set-off for omissions or defects in execution. A contract is

divisible, for example where a seller of goods agrees deliver by installments,

the right to payment arises as each part of contract is performed and where

there has been partial performance proportionate payment may be recovered.

Claim can also be made where it can be inferred from the that there is a fresh

agreement between the parties that shall be made for work already done or

goods already supplied the original contracts, as for example where a buyer

of goods less than the stipulated quantity."

The following passage from Pollock on Contracts, 13th Edition, at page 209

throws further light on this distinction. “A contract which can be fulfilled only as a

whole, so that failure in part is failure in the whole, is said to be entire. A contract of

the performance can be separated, so that failure in one part the parties' rights as to

that part only, is said to be."

4.3 Law Cases in Relation with the Term Lump Sum

As a general rule, performance of a contract must be exact and precise and

should be in accordance with what the parties had promise. It is, however, often a

difficult task to determine with exactitude what the parties had promised to perform.

Would a variation or a slightly imprecise performance discharge the other party of

54

his liability? The imprecise answer to this question would depend on the intention of

the parties which can only be ascertained from the contract itself.110

The parties may if they choose by clear language show that they intend that

the contractor should be entitled to nothing until he has completed the contract in

every detail, or that he should not be entitled to the retention money until he has so

completed the contract.

It is an accepted rule that for an entire or lump sum contract, complete

performance is a prerequisite for payment, whereas in a divisible contract, the party

is entitled to payment for the work done.111 But the rigours application of the general

rule that performance must be complete in an entire contract has felt unacceptable.

The refusal of the courts to grant payment on a pro rata basis or to follow a claim on

quantum meruit led to much injustice. To overcome this undesirable consequence,

the courts introduced certain exceptions to this rule.

4.3.1 Sapiahtoon v Lim Siew Hui

The law excuse failure to completely perform the contract if the failure relate

to an unimportant part of the contractual obligations like in the local case Sapiahtoon

v Lim Siew Hui [1963] 1 MLJ 305. In this action the plaintiff claims from the

defendant, who described himself as a building contractor, damages for breach of

contract in respect of a house at Coronation Road built for her by the defendant for

$8,500 pursuant to an agreement in writing dated the 2nd November 1958.

The plaintiff went into occupation of the house early in April 1959 and has

lived in it ever since but she has refused to pay the balance of the purchase price. She

110 Dato’ Visu Sinnadurai (1987). The Law of Contract in Malaysia and Singapore: Cases and Commentary. 2nd Edition. Singapore: Butterworths Asia. Page 546 111 Lord MacKay of Clashfern (editor) (1991). Halsbury's Laws of England, Volume 4. 4th Edition. UK: LexisNexis Butterworths. Para 1146.

55

alleges that the sum of $7,000 which she has paid to the defendant on account of the

purchase price was paid upon a consideration which has failed and that the erection

of the house was not completed, that much of the work was defective and of inferior

quality and that the timber used was not in accordance with the terms of the contract.

The plaintiff further claims special damages in the sum of $5,840 incurred in having

the house completed and the defects remedied, including an architect's fee. The

defendant denies the allegations and counter-claims the sum of $1,500 being the

balance of the purchase price.

The learned Lord Justice Buttrose expressed himself that the doctrine of

substantial performance is enunciated clearly and conveniently in the case of Hoenig

v Isaacs [1952] 2 All ER 176 by Lord Justice Denning as follows:-

"...the first question is whether, on the true construction of the contract, entire

performance was a condition precedent to payment. It was a lump sum

contract, but that does not mean that entire performance was a condition

precedent to payment. When a contract provides for a specific sum to be paid

on completion of specified work, the courts lean against a construction of the

contract which would deprive the contractor of any payment at all simply

because there are some defects or omissions. The promise to complete the

work is, therefore, construed as a term of the contract, but not as a condition.

It is not every breach of that term which absolves the employer from his

promise to pay the price, but only a breach which goes to the root of the

contract, such as an abandonment of the work when it is only half done.

Unless the breach does go to the root of the matter, the employer cannot

resist payment of the price. He must pay it and bring a cross-claim for the

defects and omissions, or alternatively, set them up in diminution of the price.

The measure is the amount which the work is worth less by reason of the

defects and omissions and is usually calculated by the cost of making them

good".

“The rigour of the common law rule requiring exact performance by the

promisor as a condition precedent to his right of recovery under a lump sum

56

contract has been modified to some extent by judicial decisions during the

course of the last century and it is now well established that in certain

circumstances a promisor who has substantially performed his side of the

contract may sue on the contract for a lump sum but, of course, remains

liable in damages for his partial failure to fulfill his contractual obligations.”

It was held that there was sufficiently substantial compliance with the terms

of the contract to entitle the defendant to claim for the balance of the contract price

against which the plaintiff may set up the defects and omissions in diminution

thereof. The measure being the amount which the work is worth, less by reason of

such defects and omissions and is usually calculated by the cost of making them

good.

4.3.2 Building & Estates Ltd v AM Connor

In the case of Building & Estates Ltd v AM Connor [1958] 1 MLJ 173, the

plaintiffs claimed from the defendant a sum of $4,803 being the amount of the

purchase money which remained unpaid in respect of a house which the plaintiffs

built for the defendant pursuant to an agreement whereby the defendant agreed to

buy a plot of land together with the house to be erected thereon for a lump sum of

$21,492. The defendant went into occupation of the house but refused to pay the

balance of the purchase price on the ground that it was not built according to

specification and much of the work was defective and of inferior quality. She

therefore denied liability for the sum claimed and furthermore counterclaimed for the

sum of $12,063 which she said must be expended on the house to make it correspond

with the specification.

The learned Whyatt C J also refer this case to the doctrine of substantial

performance enunciated in the case of Hoenig v Isaacs [1952] 2 All ER 176 by Lord

Justice Denning.

57

Whyatt CJ said before his judgment of this case is that:

“…the first question to be decided is whether the plaintiffs are entitled to sue

for the balance of the purchase price, assuming for the purpose of argument,

the house has not been built exactly according to specification. The answer

to this question depends upon the construction of the agreement entered into

between the plaintiffs and the defendant in May 1955. It is an agreement for

the sale of a plot of land together with the house to be erected thereon for a

lump sum of $21,492, and if the ordinary rule governing the discharge of

contracts by performance were to be applied it would be necessary for the

plaintiffs to show that they had performed their obligations completely and

precisely before they could recover anything for the work they have done.”

“…the rigour of the common law rule requiring exact performance by the

promisor as a condition precedent to his right of recovery under a lump sum

contract has been modified to some extent by judicial decisions during the

course of the last century and it is now well established that in certain

circumstances a promisor who has substantially performed his side of the

contract may sue on the contract for a lump sum but, of course, remains

liable in damages for his partial failure to fulfill his contractual obligations.

The doctrine of substantial performance, as it has been called, is usually

traced back to Lord Mansfield's judgment in Boone v Eyre [1779] 126 ER

160. It has been re-affirmed in many cases since that date.”

Based on the court findings, it was held that in an action on a contract to build

a dwelling house in accordance with the specification and plans in the contract for a

lump sum payable on completion the defendant cannot refute the liability on the

ground that, the work, though substantially performed, is in some respects not in

accordance with the specifications and plans forming part of the building contract,

and therefore the defendant in this case was liable for the balance sued for, less a

deduction based on the costs of making good the defects and omissions proved.

58

4.3.3 KP Kunchi Raman v Goh Brothers Sdn Bhd

In the local case of KP Kunchi Raman v Goh Brothers Sdn Bhd [1978] 1

MLJ89, the plaintiff, K.P. Kunchi Raman, who was a contractor, originally claimed

that a sum of $16,580.18, which was later reduced to $11,656.81, was due to him

being the balance payable for work performed under an agreement dated the 17th day

of November, 1970. By that agreement, the plaintiff agreed to execute certain works,

namely, to lay water pipes complete with specials and valves between Mak Mandin

and Prai and between Mak Mandin and Jalan Raja Uda in Butterworth. Under the

agreement, the defendant undertook to supply the pipes, etc. at the site of work,

whereas the plaintiff was to supply all labour and other equipment for laying the

pipes. The contract also included work for the reinstatement of a cycle track of a size

and length and at rates detailed in the said agreement.

The plaintiff claimed that he had performed the work of reinstatement of the

cycle track by July 15, 1971 and the other works by September 15, 1971. The

defendant, a company, denied that the plaintiff had completed the works in question

as claimed by him, and averred that it was a term of the contract that the plaintiff

would execute the works to the satisfaction of the defendant and the Chief Resident

Engineer of the River Muda Water Scheme, who was in charge of the contract works,

but in spite of repeated requests by the defendant to comply with the instructions, the

plaintiff failed to complete the works as agreed.

Because of the plaintiff's failure and refusal to complete the contract work

and to carry out repairs in respect of work already completed, the defendant had to

engage other sub-contractors to replace the plaintiff after giving him due notice. The

defendant had to pay the other sub-contractors appointed in place of the plaintiff a

total sum of $22,451.44 to complete the contract work and to carry out the necessary

repairs on works which had been unsatisfactorily completed. It claimed that it had

suffered a loss of $6,047.54 and therefore counter-claimed for the repayment of a

sum of $55,024.23 already paid to the plaintiff or alternatively, damages in the sum

of $6,047.54, and costs.

59

Although the plaintiff commenced work about a week before the date of the

said agreement and he agreed to "complete the whole work within four months of the

starting date of the work", yet it was agreed by the parties concerned and shown by

the events in this case that time was not of the essence of the contract. The

defendant, who was executing the works concerned on behalf of Messrs. Goh Soo

Hean Construction Co. Ltd. which had contracted with the State Government of

Penang, received the specials, etc. late from the State Jabatan Kerja Raya and was in

turn unable to supply them to the plaintiff until about the early part of September

1971. But that did not affect the work of the plaintiff who accepted the situation as

such and carried on other works until he left the site also in September 1971 after the

arrival of the specials, etc. the plaintiff abandoned his contract work with the

defendant and left the site for Kuala Lumpur because he had obtained and started

work there for Messrs. Lim Huck Bee Construction Co. in late August/beginning of

September 1971.

The issue in the case is to determine whether the lump sum contract is entire or

divisible. On entire and divisible contracts, Chitty on Contracts (23rd Edition) Vol. 1

(1968) states as follows in paragraph 1147:

“Entire and divisible contracts. In an entire contract, complete performance by

one party is a condition precedent to the liability of the other; in such a

contract the consideration is usually a lump sum which is payable only upon

complete performance by the other party. The opposite of an entire contract is

a divisible contract, which is separable into parts, so that different parts of the

consideration may be assigned to severable parts of the performance, e.g., an

agreement for payment pro rata. It is a question of construction of the contract

whether it is entire or divisible, but in the reported cases (none of which is of

recent date) the courts have tended to the view that in every lump-sum contract

there is an implied term that no part of the price is to be recovered without

complete performance. In most modern contracts of any size, however,

60

payments by installments are specified, so that the law on entire contracts is

not often relevant to contracts nowadays."112

There is also the following paragraph of the meaning of entire contracts in

paragraph 1145 of Vol. 4 of Halsbury's Laws of England (Fourth Edition):

"An entire contract is one where the complete performance of one party is a

condition precedent to his right to call for the performance of the other party's

obligation. Where the contractor undertakes to complete the works and the

contract on its true construction is entire, the employer is entitled to insist on

completion before his obligation to pay arises. If the building contractor

leaves the work unfinished to a substantial degree he cannot claim a

corresponding percentage of the contract sum or recover on a quantum meruit

basis for that part of the work he has completed; moreover, he will be liable

in damages to the employer for breach of contract. Nevertheless, if he can

show that he has substantially completed the works (even though some minor

items might remain unfinished) he will be entitled to claim payment. Where

a contractor agrees to do the work for a lump sum he cannot recover any part

of that sum until the work is complete, unless there is provision in the

contract for payment by installments."113

In that case, it was held that as the plaintiff had substantially completed the

contract he was entitled to claim for any balance due to him for work done. The

defendant was also entitled to cross-claim for the defects and omissions, and as the

cost of completing the contract work and repairing work unsatisfactorily done

overtopped the balance claimed by the plaintiff, the plaintiff's claim dismissed and

judgment given for damages on the counterclaim. The honourable judge had also

referred to the case of Hoenig v Isaacs [1952] 2 All ER 176.

112 Joseph Chitty (1968). Chitty on Contracts: Volume 1. 23rd Edition. UK: Sweet & Maxwell. 113 Lord MacKay of Clashfern (editor) (1991). Halsbury's Laws of England, Volume 4. 4th Edition. UK: LexisNexis Butterworths.

61

4.3.4 Ming & Co v Leong Ping Ching

In the case of Ming & Co v Leong Ping Ching [1964] 1 MLJ 312, is a claim

on the basis of quantum meruit for the value of work done by the plaintiffs for the

defendant in relation to a contract for the erection of certain additional floors to the

back portion of premises No. 319, Batu Road, Kuala Lumpur, at which the defendant

was running a maternity home.

In this case, the court found that the plaintiffs did not abandon the work and

this was not an entire contract. The court also found that the defendant conduct

shows that she herself was responsible for the stoppage of work and therefore the

Gill J hold that the defendant wrongfully terminated the contract on 6th June, 1961.

As the defendant prevented the whole of the work from being carried out, the

plaintiffs have a remedy either on a quantum meruit for what they have done or by

way of damages. They have elected to base their claim on quantum meruit, and on

this they are entitled to succeed.

In this case Gill J defined an entire contract as follows:

“The main defence to the claim is that this was a lump sum or an entire

contract which was abandoned after a part of the work had been done and that

consequently on the authority of Sumpter v Hedges [1898] 1 QB 673 the

plaintiffs have no right to sue on quantum meruit. The answer to that is that

in the first place the plaintiffs did not abandon the work, and, in the second

place, this was not an entire contract. An entire contract is one in which the

entire completion of the work by the contractor is a condition precedent to

payment. A contract in respect of which progress payments are made from

time to time is not an entire or lump sum contract.”

62

4.3.5 Nirwana Construction Sdn Bhd v Pengarah Jabatan Kerja Raya Negeri

Sembilan Darul Khusus & Anor

In the local case Nirwana Construction Sdn Bhd v Pengarah Jabatan Kerja

Raya Negeri Sembilan Darul Khusus & Anor [2008] 4 MLJ 15, on 2 March 1993, the

appellant/plaintiff, a building contractor entered into a contract using the Standard

PWD (JKR) form with the respondent/defendant to build a school. The contract was

to be completed by the appellant on or before 29 August 1994. It was not in dispute

that the appellant failed to complete the building of the school within the time

stipulated. The respondent was granted an extension of time for nine weeks till 31

October 1994. This was the first of several extensions. Finally, on 12 September

1995, the respondent issued a notice of intention to terminate the contract pursuant to

cl 51 of the contract giving the appellant 14 days within which to complete the

contract. However, the appellant had not been able to execute the contract

satisfactorily.

Thus on 7 October 1995, notice to terminate the contract pursuant to cl 51(a)

was issued to the appellant. However, despite various notices, the respondent

allowed the appellant, upon its request, to continue to complete the construction of

the school. The construction of the school was duly completed and officially

accepted by the Ministry of Education on 5 June 1996. The appellant accordingly

contended that the Ministry accepted the construction of the school. But the

respondent's position was that despite this, the appellant had failed to complete the

construction of the school due to the non-compliance of the terms in that the grass

turfing was not planted according to the specifications in the contract. The

respondent further reiterated that the construction was in fact not completed within

the period allowed to the appellant, since the grass turfing was incomplete as at 20

May 1996.

Consequently the respondent by letter dated 5 July 1996 revived the former

notice of termination and informed the appellant that the contract was now

terminated in accordance with the said notice of 7 October 1995. The letter of 5 July

1996 (terminating the contract) stated that the reason for termination was that the

63

grass turfing was not done within the period allowed i.e. on or before 20 May 1996.

The appellant claimed that the respondent owed the appellant a balance of

RM501.817.66 and the appellant also claimed the sum of RM2.8m for loss of future

contract as a result of this dispute, since it jeopardised its status in that the appellant

was blacklisted by PWD. The respondent contended that the amount claimed by the

appellant in the sum of the RM501,817.66 was not paid by them to the appellant,

since this amount was taken and considered as a set off payment towards the

liquidated ascertained damages (LAD) imposed, due to the appellant's failure and

delay in completing the contract.

Gopal Sri Ram LJ referred to statement of the law in the judgment of Lord

Justice Denning in Hoenig v Isaacs [1952] 2 All ER 176, where His Lordship said,

inter alia:

“When a contract provides for a specific sum to be paid on completion of

specified work, the courts lean against a construction of the contract which

would deprive the contractor of any payment at all simply because there are

some defects or omissions. The promise to complete the work is, therefore,

construed as a term of the contract, but not as a condition.”

In the course of his judgment, Goal Sri Ram LJ said:

“…my view is that the contract was an entire or lump sum contract but since

the doctrine of substantial performance has not been excluded by an express

provision in the agreement, it would also be necessary to examine whether

the appellant had substantially performed its contract …in considering

whether there had been substantial performance, it was relevant to take into

account both the nature of the defect and the proportion between the cost of

rectifying them and the contract price.”

In this case, it was held that the plaintiff had substantially completed the

contract except for grass turfing not planted according to the contract and not done

within the stipulated period and allows the contractor claimed amount the sum of the

RM501, 817.66.

64

4.3.6 Tong Aik (Far East) Ltd. v Eastern Minerals & Trading (1959) Ltd.

In the case of Tong Aik (Far East) Ltd. v Eastern Minerals & Trading (1959)

Ltd. [1963] 1 MLJ 322, the plaintiffs claim a sum of $65,268.54 being the balance

due to them from the defendants as their agreed remuneration under a contract for

work and labour carried out and materials supplied at the defendants manganese

mine at Gual Periok, Kelantan. The contract inter alia stipulated that the plaintiffs

should be able to supply the defendants with a minimum of 5,000 tons per month.

The defendants deny liability on the ground that this is a lump sum contract and that

the plaintiffs were in breach of the contract as they did not supply the defendants

with the manganese ore as stipulated in the contract. The defendants then claimed to

set-off various sums said to be due to them and counterclaimed for $800,000 being

loss of profits and penalties incurred by them as a result of the plaintiffs' breach.

Lawyer for the defendants reiterated that on the authority of Sumpter v

Hedges [1898] 1 QB 673 the plaintiffs' claim was misconceived and that they could

not recover from the defendants in respect of work done as upon a quantum meruit

for they had abandoned the contract without producing 5,000 tons of manganese ore

per month as promised, there being no evidence of a fresh contract to pay for the

same. In the case cited (Sumpter v Hedges [1898]1 QB 673), a builder had

contracted to erect certain buildings for a lump sum. When work was only partly

done he abandoned the contract. In the course of his judgment, Chitty L.J. said at

page 675:

"The position therefore was that the defendant found his land with unfinished

buildings upon it, and he thereupon completed the work. That is no evidence

from which the inference can be drawn that he entered into a fresh contract to

pay for the work done by the plaintiff. If we held that the plaintiff could

recover, we should in my opinion be overruling Cutter v Powell, and a long

series of cases in which it has been decided that there must in such a case be

some evidence of a new contract to enable the plaintiff to recover on a

quantum meruit. There was nothing new in the decision in Pattinson v

Luckley [1875] L.R. 10 Ex. 330, but Bramwell B. there pointed out with his

65

usual clearness that in the case of a building erected upon land the mere fact

that the defendant remains in possession of his land is no evidence upon

which an inference of a new contract can be founded. He says: 'In the case of

goods sold and delivered, it is easy to show a contract from the retention of

goods; but that is not so where work is done on real property'. I think the

learned judge was quite right in holding that in this case there was no

evidence from which a fresh contract to pay for the work done could be

inferred."114

It was held that it was a divisible contract and that the plaintiffs must be paid

for the tonnages of ore actually produced and/or transported to the stockpile; and

even if the contract was not divisible in the circumstances of this case the contract

carried with it a right on the part of the plaintiffs to payment upon a quantum meruit

for the services actually rendered.

4.3.7 Yong Mok Hin v United Malay States Sugar Industries Ltd

This was an appeal from the judgment of Raja Azlan Shah J. ([1966] 2 MLJ

286). The appellant a building contractor claimed the sum of $90,585 against the

respondent. The particulars of the claim were (a) amount due on account of

appellant's materials used and damaged by the respondent company while erecting

machinery in factory ...$13,800; (b) alteration to original construction of office and 2

stores on lots Nos. 249, 250 and 979 at $13,595 each ... $40,785; (c) 5th progress

payment recommended by architect etc. ... $36,000.

The respondents denied owing the amount claimed and counterclaimed for

damages for breach of contract. In the court below the learned trial judge held that

the appellant was entitled to $79,355 in respect of his claim on the above items with

interest thereon at 6% per annum from December 24, 1964 to June 22, 1966 and the

respondents were entitled to damages for breach of contract in the sum of

114 Sumpter v Hedges [1898] 1 QB 673

66

$105,135.75 with costs of the claim and counterclaim. The learned judge then

purporting to act on the authority of Hanvale v Green [1958] 2 WLR 775 dismissed

the appellant's claim and entered judgment for the respondents for $25,780.75 and

costs. On appeal, the case was held as follows:

(i) as the parties were aware at the trial that the claim for $ 13,800 under

item (a) included the claim for costs of leveling, and documentary

evidence in support thereof was admitted without objection, the

finding of the trial judge allowing the full amount claimed under that

item should stand;

(ii) the decision of the trial judge to allow the appellant's claim for

$13,595 in respect of one of the stores (store A) was in accordance

with the evidence but the reason behind his decision to allow $7,980

each in respect of the other two stores was incomprehensible and the

claim in respect of the said two stores should be disallowed;

(iii) as the contracts were lump sum or entire contracts the appellant was

not entitled to progress payment under item (c); however the learned

judge was right in allowing the full amount of $36,000 under item (c)

because of sections 40, 65 and 66 of the Contracts (Malay States)

Ordinance;

(iv) the judgment of the trial judge should be set aside and judgment

entered for the appellant for $63,395 with interest at 6% per annum

from December 24, 1964 to the date of realisation and costs of the

suit. There will be judgment for the respondents on the counter-claim

for delay and loss of use of two stores for $5,001 and costs.

4.4 Judicial Interpretations of the Term ‘Lump Sum’ In Construction Contracts

The table below shows the judicial interpretation of the term lump sum and judgment on the related cases being research:

Table 2: Judicial Interpretations of the Term ‘Lump Sum’ In Construction Contracts

No. Cases Interpretations of the

Term ‘Lump Sum’

Employers and Contractors interpretation

on the contract

Judgment

1 Sapiahtoon v Lim Siew

Hui [1963] 1 MLJ 305

No interpretations

given

It was an agreement for the sale of a house to

be erected by the defendant (contractor) for a

lump sum.

Employer: refused to pay the balance of the

purchase price as the erection of the house

was not completed, that much of the work was

defective and of inferior quality and that the

timber used was not in accordance with the

terms of the contract. Further claims special

damages incurred in having the house

completed and the defects remedied,

including an architect's fee.

Contractor: Denies the allegations and

counter-claims being the balance of the

purchase price.

Ø There was sufficiently substantial compliance with the terms of

the contract to entitle the defendant (contractor) to claim for the

balance of the contract price against which the plaintiff

(employer) may set up the defects and omissions in diminution

thereof. The measure being the amount which the work is

worth, less by reason of such defects and omissions calculated

by the cost of making them good.

Ø In a lump sum building contract it does not necessarily mean

that the entire performance is a condition precedent to payment.

It is not every breach of the promise to complete the work

which absolves the employer from his promise to pay the price

but only a breach which goes to the root of the contract, such as

an abandonment of the work when it is only half done. If it is

not one which goes to the root of the matter, the employer must

pay the price and bring a cross-claim for defects and omissions

or alternatively set them up in diminution of the price.

68


Term ‘Lump Sum’


on the contract

Judgment

2 Building & Estates Ltd

v AM Connor [1958] 1

MLJ 173

No interpretations

given.

Employer: Claimed that since this is lump sum

contract, refuse to pay balance of the purchase

price because much of the work was defective

and inferior quality.

Contractor: Claimed works is completed and

accepted since employer already moved into

the dwelling house and has the right to be paid

the balance.

Ø Promisor who has substantially performed his side of the

contract may sue on the contract for a lump sum but remains

liable in damages for his partial failure to fulfill his contractual

obligations.

Ø The defendant was liable for the balance sued for, less a

deduction based on the costs of making good the defects and

omissions proved.

3 KP Kunchi Raman v

Goh Brothers Sdn Bhd

[1978] 1 MLJ 89

Ø No interpretations

given.

Supplier: Claimed that the contract is divisible

has the right to be paid all balance due to

him.

Contractor: Claimed that the contract is entire

i.e. Clauses in the parties agreement show

clear intention that the contract should be

entire. Retention money for specified work

for a specific sum to be ascertained in

accordance with schedule of rates found in

the agreement, on its true construction, an

entire contract.

Ø As the plaintiff (supplier) had substantially completed the

contract he was entitled to claim for any balance due to him for

work done.

Ø The defendant was also entitled to cross-claim for the defects

and omissions, and as the cost of completing the contract work

and repairing work unsatisfactorily done overtopped the balance

claimed by the plaintiff, the plaintiff's claim should be

dismissed and judgment given for damages on the counterclaim.

69


Term ‘Lump Sum’


on the contract

Judgment

4 Ming & Co v Leong

Ping Ching [1964] 1

MLJ 312

Ø Lump sum contract is

also referred to as

entire contract.

Employer: Claimed that since this is a lump

sum or entire contract, refuse to pay balance of

value of work done because contractor

abandons the work.

Contractor: Claimed for the basis of quantum

meruit for value of work done since employer

instruct him to stop working on the work.

Ø A contract in respect of which progress payments are made from

time to time is not an entire or lump sum contract.

Ø The plaintiffs (contractor) did not abandon the work and this

was not an entire contract. The plaintiff claim on the basis of

quantum meruit for the value of work done is allowed.

70


Term ‘Lump Sum’


on the contract

Judgment

5 Nirwana Construction

Sdn Bhd v Pengarah

Jabatan Kerja Raya

Negeri Sembilan Darul

Khusus & Anor [2008]

4 MLJ 157


also referred to as

entire contract.

Employer: Claimed that since this is lump sum

contract, refuse to pay balance of the contract

sum because contractors’ non compliance of

the terms (grass turfing was not planted

according to specifications) in the contract).

Contractor: claimed he had completed the

building of the school. He assumed that in the

absence of any complaint or notices of like

effect from the respondent, the school was built

according to specification.

Ø There is nothing on record to indicate that there are defects in

the appellant's work, of which notice had been issued by the

respondent to the appellant.

Ø There was no abandonment of the work by the appellant, nor

had the appellant done anything to jeopardise the completion of

the work.

Ø the respondent reason to terminate the contract, for 'non-

compliance with grass turfing by the appointed due date' was

not so great as to frustrate the entire contract, nor was the breach

regarded as a condition, going to the root of the contract which

would entitle the other party at once to treat the contract as at an

end.

Ø in view of the various extensions given by respondent and the

fact that there was substantial performance thereof, the

respondent is not entitled to impose LAD on the appellant;

Ø The various extensions given the appellant be viewed that the

respondent had given indulgence and had waived the imposition

as to time and strict compliance with the terms of the contract;

Ø When the respondent allowed the appellant continued

performance of the contract on more than one occasion, and

even entering into a supplementary contract, the respondent had

thereby elected to affirm the contract to run its course. As such

the appellant is entitled to treat as the respondent having waived

its right to terminate.

Ø It was not open to the defendant (employer) to put an end to the

contract. Employers’ act of terminating the contract amounted

71


Term ‘Lump Sum’


on the contract

Judgment

6 Tong Aik (Far East)

Ltd v. Eastern Minerals

& Trading (1959) Ltd.

[1963] 1 MLJ 322


also referred to as

entire contract

Employer: Deny liability on the ground of

lump sum or entire contract to pay balance for

work done because contractor were in breach

of the contract as they did not supply the

employer with the manganese ore as stipulated

in the contract. Claimed to set-off various

sums said to be due to them and

counterclaimed being loss of profits and

penalties incurred by them as a result of the

plaintiffs' breach.

Contractor: On the ground of divisible

contract, claimed for balance due to them for

work and labour carried out and materials

supplied at the employer manganese mine upon

a quantum meruit.

Ø this was a divisible contract and that the plaintiffs (contractor)

must be paid for the tonnages of ore actually produced and/or

transported to the stockpile;

Ø Even if the contract was not divisible, in the circumstances of

this case the contract carried with it a right on the part of the

plaintiffs to payment upon a quantum meruit for the services

actually rendered.

7 Yong Mok Hin v

United Malay States

Sugar Industries Ltd

[1967] 2 MLJ 9


also referred to as

entire contract

Employer: denied owing the amount claimed

by contractor and counterclaimed for damages

for breach of contract.

Contractor: claimed against the respondent

Ø The appellant (contractor) by his refusal to complete the work

on account of the non-payment of the 5th progress payment,

repudiated the contract. The appellant (contractor) is not

entitled as of right to receive any advances on the contract price

before the completion of the work unless the respondent

72


Term ‘Lump Sum’


on the contract

Judgment

being appellant's materials used and damaged

by the employer company while erecting

machinery in factory. He claimed that the

time of the alleged repudiation was not a lump

sum or entire contract but one in respect of

which the price was payable by installments

on quantum meruit less 10% retention money.

He contends that even if the contract was a

lump sum or entire contract, the respondents

were still liable to pay for the value of the

work done, since they had rescinded the

contract

(employer), in the exercise of their discretion, paid any.

Ø The respondents, if they had been paying advances, may

suspend payment if they thought fit to do so. The contracts are

therefore lump sum or entire contracts and the appellant is not

entitled to progress payments.

4.5 Conclusion

From the seven cases being research, none had showed any detailed

interpretation of the term ‘lump sum’. Four cases in this research referred lump sum

as entire contract namely Ming & Co v Leong Ping Ching, Nirwana Construction

Sdn Bhd v Pengarah Jabatan Kerja Raya Negeri Sembilan Darul Khusus & Anor,

Tong Aik (Far East) Ltd v. Eastern Minerals & Trading (1959) Ltd. and Yong Mok

Hin v United Malay States Sugar Industries Ltd.

The learned trial judge for four cases namely Building & Estates Ltd v AM

Connor, Nirwana Construction Sdn Bhd v Pengarah Jabatan Kerja Raya Negeri

Sembilan Darul Khusus & Anor, KP Kunchi Raman v Goh Brothers Sdn Bhd and

Sapiahtoon v Lim Siew Hui has referred to Lord Justice Dennings’ doctrine of

substantial performance enunciated in the case of Hoenig v Isaacs [1952] 2 All ER

176.

The research found that there are two types of lump sum contract namely

entire contract and divisible contract. Out of the seven cases analysed, only one case

is held to be a divisible contract (Tong Aik (Far East) Ltd v. Eastern Minerals &

Trading (1959) Ltd. [1963] 1 MLJ 322) way by the contractor must be paid for the

goods actually produced and/or transported to the stockpile. It was also held that

even if the contract was not divisible, based on the circumstances of the case, the

contractor is to be paid upon a quantum meruit for the services actually rendered.

From this case, there is an explanation on the distinction between “entire” or

“indivisible” contract and “divisible” contract.

In conclusion, based on the case KP Kunchi Raman v Goh Brothers Sdn Bhd

[1978] 1 MLJ 89, the court mentioned that every lump sum contract, there is an

implied term that no part of the price to be recovered without complete performance.

However, lump sum is itself subject to adjustment because the court leans against a

construction of the contract which would deprive the contractor of any payment at all

simply because there are some defects or omissions. For example, the obvious cause

of an adjustment is the standard contractual provisions that allow for progress

74

payment and retention money and the existence of the doctrine of substantial

performance.

4.5.1 Judicial Positions on Lump Sum Contract

From the selected seven cases, there are positions of court when dealing with lump

sum contract which are summarized as follows:

On True Construction of Contract, Entire Performance is a Condition to Payment

• On the true construction of the contract, entire performance was a condition

precedent to payment.

• Where the contractor undertakes to complete the works and the contract on its

true construction is entire, the employer is entitled to insist on completion before his

obligation to pay arises. If the building contractor leaves the work unfinished to a

substantial degree he cannot claim a corresponding percentage of the contract sum or

recover on a quantum meruit basis for that part of the work he has completed;

moreover, he will be liable in damages to the employer for breach of contract.

Nevertheless, if he can show that he has substantially completed the works (even

though some minor items might remain unfinished) he will be entitled to claim

payment.

Lump Sum is Referred to as Entire Contract.

• Lump sum contract are also referred to as entire contract.115 In an entire



meruit for the value of the work done cannot be sustained by the contractor.

115 Ming & Co v Leong Ping Ching [1964] 1 MLJ 312, Nirwana Construction Sdn Bhd v Pengarah Jabatan Kerja Raya Negeri Sembilan Darul Khusus & Anor [2008] 4 MLJ 157, Tong Aik (Far East) Ltd v Eastern Minerals & Trading (1959) Ltd. [1963] 1 MLJ 322

75

• An entire contract is one where the complete performance of one party is a

condition precedent to his right to call for the performance of the other party’s

obligation.

Clear Language that Entire Completion Arise Before Obligation to Pay

• Clear words are needed to bring an entire contract into existence.116 In the

absence of such words, the ordinary lump sum contract cannot be an entire contract,

for the courts construe the promise to complete as a term and not a condition.117

However, whether a contract is an entire one is a matter of construction as, for

example, the standard form of building contracts is held not to be entire contract.118

• The parties may if they choose, by clear language show that they intended

that the contractor should be entitled to nothing, until he has completed the contract

in every detail, or that he should not be entitled to the retention money, until he has

so completed the contract.

Standard Form of Building Contracts is Not an Entire Contract.

• However, whether a contract is an entire one is a matter of construction.119

As, for example, the standard form of building contracts is held not to be entire

contract.120

The Law on Entire Contracts is Not Often Relevant to Contracts Nowadays

• In every lump-sum contract there is an implied term that no part of the price



contracts is not often relevant to contracts nowadays.121

116 Appleby v Myers [1867] LR 2 CP 651 117 Hoenig v Isaacs [1952] 2 All ER 176 118 Tern Construction Group v RBS Garages [1992] 34 Con LR 137 119 Hoenig v Isaac [1952] 2 All ER 176 (CA) 120 Tern Construction Group v RBS Garages [1992] 34 Con LR 137 121 KP Kunchi Raman v Goh Brothers Sdn Bhd [1978] 1 MLJ 89

76

• In a lump sum contract, it does not necessarily mean that entire performance

is a condition precedent to payment. It depends upon the terms and conditions of the

contract. Where a contract provides for a specific sum to be paid on completion of

specific work, the courts lean against a construction of the contract which would

deprive the contractor of any payment at all, simply because there are some defects.

Progress Payment and Retention Money

• When the contract provides for progress payments to be made as the work

proceeds, but for retention money to be held until completion, then entire

performance is usually a condition precedent to payment of the retention money, but

not, of course, to the progress payments. The contractor is entitled to payment pro

rata as the work proceeds, less a deduction for retention money. But he is not

entitled to the retention money until the work is entirely finished, without defects or

omissions.

• A contract which gives the contractor an enforceable right to installments

cannot be an entire contract because the contractor has the right to call for fulfillment

of part of the employer’s promise before he has entirely completed his own promise.

• Where a contractor agrees to do work for a lump sum he cannot recover any

part of the sum until the work is complete, unless there is provision in the contract

for payment by installments.

Progress Payment is Held to be Divisible and Not Entire Contract

• For an entire or lump sum contract, complete performance is a prerequisite

for payment, whereas in a divisible contract, the party is entitled to payment for the

work done.122 The question whether the contract is entire or divisible depends on the

construction of the contract. Where payments are made at different stages in

accordance with the work done at each stage, the contract will be considered to be a

divisible contract. Therefore where in a building contract, the contractor is paid at

each stage of the construction upon a certificate being issued by an architect to

122 Halsbury’s Laws of England. 4th Edition. Para 1146

77

certify that progressive work had been completed, the contract will clearly be held to

be divisible and not entire.

• An entire contract is one in which the entire completion of the work by the

contractor is a condition precedent to payment. A contract in respect of which

progress payments are made from time to time is not an entire or lump sum contract.

The Promise to Complete Work is a Term of Contract, Not a Condition.

• When a contract provides for a specific sum to be paid on completion of

specified work, the courts lean against a construction of the contract which would

deprive the contractor of any payment at all simply because there are some defects or

omissions. The promise to complete the work is, therefore, construed as a term of

the contract, but not as a condition.

• It is not every breach of that term which absolves the employer from his

promise to pay the price, but only a breach which goes to the root of the contract,

such as an abandonment of the work when it is only half done. Unless the breach

does go to the root of the matter, the employer cannot resist payment of the price. He

must pay it and bring a cross-claim for the defects and omissions, or alternatively, set

them up in diminution of the price. The measure is the amount which the work is

worth less by reason of the defects and omissions and is usually calculated by the

cost of making them good

Doctrine of Substantial Performance.

• A promisor who has substantially performed his side of the contract may sue

on the contract for the agreed sum, although he remains liable in damages for his

partial failure to fulfill his contractual obligations.

• In the ordinary lump sum contract123 the employer cannot refuse to pay the


123 Denning LJ said of the contract in Hoenig v Isaacs “I think this contract should be regarded as an ordinary lump sum contract”.

78



• If contractor fails to complete, either substantially in the ordinary case, or in

every detail in the special case of a clear term in the contract, he is not entitled to

anything unless he shows either:

(i) A contractual right to unpaid installments; or

(ii) Prevention of completion by employer; or

(iii) Implied promise to pay for the work done by way of waiver or acceptance; or

(iv) Impossibility or frustration.

4.5.2 Instances Where Lump Sum is not considered as Entire Contract

The essence of a building contract is a promise by the contractor to carry out

work, in consideration of a promise by the building owner to pay for it. Even when

there is an express word that the agreed contract is a lump sum or entire contract,

there are situations that may arise via express or implied that makes the contract no

longer considered as entire contract.

Payment by Installment is Not Lump Sum or Entire Contract.


part of the sum until the work is complete, unless there is provision in the

contract for payment by installments.


cannot be an entire contract because the contractor has the right to call for

fulfillment of part of the employer’s promise before he has entirely completed

his own promise.

124 Subject to some unfulfilled condition precedent imposed by the contract. 125 Hoenig v Isaacs [1925] 2 All ER 176

79


• The question whether the contract is entire or divisible depends on the


accordance with the work done at each stage, the contract will be considered

to be a divisible contract. Therefore where in a building contract, the

contractor is paid at each stage of the construction upon a certificate being

issued by an architect to certify that progressive work had been completed,

the contract will clearly be held to be divisible and not entire.


contractor is a condition precedent to payment. A contract in respect of

which progress payments are made from time to time is not an entire or lump

sum contract.


for payment, whereas in a divisible contract, the party is entitled to payment

for the work done.126

126 Halsbury’s Laws of England. 4th Edition. Para 1146.

CHAPTER 5

CONCLUSION

CHAPTER 5

CONCLUSION

5.1 Introduction

A contract is an agreement that is intended to have legal consequences

whether or not an agreement is intended to have such consequences is not always

easily determined.127

As a general rule, performance of a contract must be exact and precise and

should be in accordance with what the parties had promise. It is, however, often a

difficult task to determine with exactitude what the parties had promised to perform.

Would a variation or a slightly imprecise performance discharge the other party of

his liability? The imprecise answer to this question would depend on the intention of

the parties which can only be ascertained from the contract itself.128

Upon completion on discussion of literatures, standard forms of contract,

common law and cases in relation with lump sum, this chapter will summarize all the

findings gathered and reported in organized manner. The constraints faced while

carrying out the research will be reported as the conclusion to the entire research.

127 David Barker & Colin Padfield (1992). Law. 8th Edition. Oxford, England: Butterworth-Heinemann Ltd. 128 Dato’ Visu Sinnadurai (1987). The law of Contract in Malaysia and Singapore: Cases and Commentary. 2nd Edition. Singapore: Butterworths Asia. Page 546.

81

5.2 Summary of Research Findings





Where the contract terms are set out in more than one document, as is the

case with many construction contracts, then the approach is that “the four corners of

the contract” must be construed as a whole and, as far as possible, every part of the

contract must be given the effect intended by the parties.129




the basis either of a lump sum, unit price, or a cost plus basis, or some

combination.131


one party is accepted by the other and the whole is supported by consideration.132

The fundamentals of any contractual relationship are primarily conditioned by the

pre-contract availability of design detail for the project. The presumed ‘project





adoption as the basis of pricing by the contractors.

129 Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition. Singapore: Sweet & Maxwell Asia. Page 35. 130 Edward R. Fisk and James R. Negele (1988). Contractor’s Project Guide to Public Agency Contracts. Canada: John Wiley & Sons, Inc. 131 Stephen Brickford-Smith, Norman Palmer & Ruth Redmond-Cooper (1993). Butterworths Construction Law Manual. London: Butterworth & Co. 132 Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition. Singapore: Sweet & Maxwell Asia. Page 6.

82

“In the case of goods sold and delivered, it is easy to show a contract from the

retention of goods; but that is not so where work is done on real property133.” Chitty

L.J. said that on the authority of Sumpter v Hedges [1898] 1 QB 673. As such, the

decision made based on the findings and scenario of cases must be right as there are

certain features in construction contract way by this lump sum principle that

normally use in sale and good contract is not applicable to the construction contract

scenario. In order to determine the law position in dealings with construction

contract, the features in construction contract in terms of its comparison from the

sales of goods transaction and the contract the provisions in terms of payment and

variation have to be taken into consideration.






oral evidence may be brought to explain the customary or technical meaning of a



Only one out of three standard forms of contract being studied has given clear

definition the term ‘lump sum’; PAM Contract 2006 (With Quantities): Agreement

and Conditions, which is lump sum is fixed price and is not subject to remeasurement

or recalculation except for provisional quantities and variations. As such, any error

in description, quantity or omission of item should not be used to invalidate the

contract.

133 Sumpter v Hedges [1898] 1 QB 673 134 Collin F. Padfield (1978). Law Made Simple. 4th Edition. London: A Howard & Wyndham Company. Page 191. 135 Pigott Foundations Ltd v. Shepherd Construction Ltd [1993] 67 BLR 48.

83

Research in the selected literature had given the following findings:

(i) Lump sum is where the contractor agrees in advance to undertake a

specified amount of work for a fixed price.136

(ii) A lump sum contract is one to complete the whole work for a lump

sum. The satisfactory completion of the work for the stated number of

dollars remains the obligation of the contractor, regardless of the

difficulties and troubles he may experience in the course of his

construction activities, even though the total cost of the work may

turn out to be greater than the contract price.137

(iii) ‘Lump sum’ contract may mean a ‘fixed priced’ contract in the first of

the above senses, or it may be used in its legal sense to mean an

‘entire’ contract in which the law will not imply any term for stage

payment.138

There are other aspects in the literatures which are related to performance and


sum. These aspects are the basis for consideration and judgment of contract

litigation to determine whether a contractor have the right to be paid lump sum due to

failure to complete the whole project or not.






136 Bob Greenstreet, David Chappell, Michael Dunn (2003). Legal and Contractual Procedures for Architects. 5th Edition. Oxford: Architectural Press. 137 Michael Furmstone (2000). Building Contract Casebook. 3rd Edition. London: Powell-Smith & Furmston’s. Page 170. 138 Duncan Wallace (1970). Hudson’s Building and Engineering Contracts. 10th Edition. London: Sweet & Maxwell. Page. 201. 139 Hoenig v. Isaac [1952] 2 All ER 176 (CA) 140 Appleby v Myers [1867] LR 2 CP 651 141 Hoenig v Isaacs [1952] 2 All ER 176

84

of building contracts is held not to be entire contract.142 As such, subject to

provisions for installments:

(i) Most lump sum contracts are entire contracts in the sense that “the



contract”143; but

(ii) Most lump sum contracts are not entire contracts in the sense that they


From the seven cases being research, none had the judge himself given firm

judicial interpretation of the term ‘lump sum’. Four cases in this research referred

lump sum as entire contract namely Ming & Co v Leong Ping Ching, Nirwana

Construction Sdn Bhd v Pengarah Jabatan Kerja Raya Negeri Sembilan Darul

Khusus & Anor, Tong Aik (Far East) Ltd v. Eastern Minerals & Trading (1959) Ltd.

and Yong Mok Hin v United Malay States Sugar Industries Ltd.

The learned trial judge for four cases namely Building & Estates Ltd v AM

Connor, Nirwana Construction Sdn Bhd v Pengarah Jabatan Kerja Raya Negeri

Sembilan Darul Khusus & Anor, KP Kunchi Raman v Goh Brothers Sdn Bhd and

Sapiahtoon v Lim Siew Hui has referred to Lord Justice Dennings’ Doctrine of

Substantial Performance enunciated in the case of Hoenig v Isaacs [1952] 2 All ER

176.

The research found that there are two types of lump sum contract namely

entire contract and divisible contract. Out of the seven cases analysed, only one case

is held to be a divisible contract (Tong Aik (Far East) Ltd v. Eastern Minerals &

Trading (1959) Ltd. [1963] 1 MLJ 322) way by the contractor must be paid for the

goods actually produced and/or transported to the stockpile. It was also held that

even if the contract was not divisible, based on the circumstances of the case, the

contractor is to be paid upon a quantum meruit for the services actually rendered.

142 Tern Construction Group v RBS Garages [1992] 34 Con LR 137 143 Hoenig v Isaacs [1952] 2 All ER 176

85

From this case, there is an explanation on the distinction between “entire” or

“indivisible” contract and “divisible” contract.

Based on the case KP Kunchi Raman v Goh Brothers Sdn Bhd [1978] 1 MLJ

89, the court mentioned that every lump sum contract, there is an implied term that

no part of the price to be recovered without complete performance. However, lump

sum is itself subject to adjustment because the court leans against a construction of

the contract which would deprive the contractor of any payment at all simply because

there are some defects or omissions. For example, the obvious cause of an

adjustment is the standard contractual provisions that allow for progress payment and

retention money and the existence of the Doctrine of Substantial Performance.

From these cases, there are positions of court when dealing with lump sum

contract which are summarized as follows:

On True Construction of Contract, Entire Performance is a Condition to Payment

• On the true construction of the contract, entire performance was a condition

precedent to payment.

• Where the contractor undertakes to complete the works and the contract on its



substantial degree he cannot claim a corresponding percentage of the contract sum or

recover on a quantum meruit basis for that part of the work he has completed;




payment.

86

Lump Sum is Referred to as Entire Contract.

• Lump sum contract are also referred to as entire contract.144 In an entire



meruit for the value of the work done cannot be sustained by the contractor.

• An entire contract is one where the complete performance of one party is a

condition precedent to his right to call for the performance of the other party’s

obligation.

Clear Language that Entire Completion Arise Before Obligation to Pay

• Clear words are needed to bring an entire contract into existence.145 In the




example, the standard form of building contracts is held not to be entire contract.147

• The parties may if they choose, by clear language show that they intended

that the contractor should be entitled to nothing, until he has completed the contract

in every detail, or that he should not be entitled to the retention money, until he has

so completed the contract.

Standard Form of Building Contracts is Not an Entire Contract.

• However, whether a contract is an entire one is a matter of construction.148

As, for example, the standard form of building contracts is held not to be entire

contract.149

144 Ming & Co v Leong Ping Ching [1964] 1 MLJ 312, Nirwana Construction Sdn Bhd v Pengarah Jabatan Kerja Raya Negeri Sembilan Darul Khusus & Anor [2008] 4 MLJ 157, Tong Aik (Far East) Ltd v Eastern Minerals & Trading (1959) Ltd. [1963] 1 MLJ 322. 145 Appleby v Myers [1867] LR 2 CP 651 146 Hoenig v Isaacs [1952] 2 All ER 176 147 Tern Construction Group v RBS Garages [1992] 34 Con LR 137 148 Hoenig v Isaac [1952] 2 All ER 176 (CA) 149 Tern Construction Group v RBS Garages [1992] 34 Con LR 137

87

The Law on Entire Contracts is Not Often Relevant to Contracts Nowadays

• In every lump-sum contract there is an implied term that no part of the price



contracts is not often relevant to contracts nowadays.150

• In a lump sum contract, it does not necessarily mean that entire performance

is a condition precedent to payment. It depends upon the terms and conditions of the

contract. Where a contract provides for a specific sum to be paid on completion of

specific work, the courts lean against a construction of the contract which would

deprive the contractor of any payment at all, simply because there are some defects.

Progress Payment and Retention Money

• When the contract provides for progress payments to be made as the work

proceeds, but for retention money to be held until completion, then entire

performance is usually a condition precedent to payment of the retention money, but

not, of course, to the progress payments. The contractor is entitled to payment pro

rata as the work proceeds, less a deduction for retention money. But he is not

entitled to the retention money until the work is entirely finished, without defects or

omissions.


cannot be an entire contract because the contractor has the right to call for fulfillment

of part of the employer’s promise before he has entirely completed his own promise.


part of the sum until the work is complete, unless there is provision in the contract

for payment by installments.



for payment, whereas in a divisible contract, the party is entitled to payment for the

work done.151 The question whether the contract is entire or divisible depends on the

150 KP Kunchi Raman v Goh Brothers Sdn Bhd [1978] 1 MLJ 89 151 Halsbury’s Laws of England. 4th Edition. Para 1146.

88


accordance with the work done at each stage, the contract will be considered to be a

divisible contract. Therefore where in a building contract, the contractor is paid at

each stage of the construction upon a certificate being issued by an architect to

certify that progressive work had been completed, the contract will clearly be held to

be divisible and not entire.


contractor is a condition precedent to payment. A contract in respect of which

progress payments are made from time to time is not an entire or lump sum contract.

The Promise to Complete Work is a Term of Contract, Not a Condition.

• When a contract provides for a specific sum to be paid on completion of

specified work, the courts lean against a construction of the contract which would

deprive the contractor of any payment at all simply because there are some defects or

omissions. The promise to complete the work is, therefore, construed as a term of

the contract, but not as a condition.

• It is not every breach of that term which absolves the employer from his

promise to pay the price, but only a breach which goes to the root of the contract,

such as an abandonment of the work when it is only half done. Unless the breach

does go to the root of the matter, the employer cannot resist payment of the price. He

must pay it and bring a cross-claim for the defects and omissions, or alternatively, set

them up in diminution of the price. The measure is the amount which the work is

worth less by reason of the defects and omissions and is usually calculated by the

cost of making them good

Doctrine of Substantial Performance.

• A promisor who has substantially performed his side of the contract may sue

on the contract for the agreed sum, although he remains liable in damages for his

partial failure to fulfill his contractual obligations.

89

• In the ordinary lump sum contract152 the employer cannot refuse to pay the




• If contractor fails to complete, either substantially in the ordinary case, or in

every detail in the special case of a clear term in the contract, he is not entitled to

anything unless he shows either:

(v) A contractual right to unpaid installments; or

(vi) Prevention of completion by employer; or

(vii) Implied promise to pay for the work done by way of waiver or acceptance; or

(viii) Impossibility or frustration.

5.3 Study Constraints

The main constraint is insufficiency of legal textbooks and construction

contract books available in the local library. This limitation led to less references and

literatures to support the cases being analysed. If more references can be made

available then more analysis can be done and presented in a very comprehensive

manner.

5.4 Conclusion

In conclusion, the research found that the term ‘lump sum’ is interpreted as

‘fixed priced’155 in the legal textbook. It is also interpreted as ‘a lump sum contract is

152 Denning LJ said of the contract in Hoenig v Isaacs “I think this contract should be regarded as an ordinary lump sum contract”. 153 Subject to some unfulfilled condition precedent imposed by the contract. 154 Hoenig v Isaacs [1925] 2 All ER 176 155 Duncan Wallace (1970). Hudson’s Building and Engineering Contracts. 10th Edition. London: Sweet & Maxwell. Page. 201.

90

one to complete the whole (sometimes termed as “entire” or a “specific” work) work

for a lump sum’.156

The study had shown that none of the relevant cases in Malaysia, Singapore

and Brunei had the judge himself given firm judicial interpretation of the term ‘lump

sum’. Occasionally the term ‘lump sum contract’ is referred to as ‘entire contract’.

This misleading157 term is commonly use in standard form of contract. The rigours

of the common law (complete performance by promisor as a condition precedent to

his right of recovery under an entire contract158) had since been modified.

Where the contractor undertakes to complete the works and the contract on its



substantial degree, he cannot claim a corresponding percentage of the contract sum

or recover on a quantum meruit basis for that part of the work he has completed;




payment. Whether a contract is an entire one is a matter of construction.159

Clear words are needed to bring an entire contract into existence.160 In the




example, the standard form of building contracts is held not to be entire contract

156 Donald Keating (1969). Law and Practice of Building Contracts. 3rd Edition. London: Sweet & Maxwell. Page 48. 157 Duncan Wallace (1970). Hudson’s Building and Engineering Contracts. 10th Edition. London: Sweet & Maxwell. Page. 171. 158 See Appleby v Myers [1867] LR 2 CP 651; Whitaker v Dunn [1887] 3 TLR 602 159 Hoenig v. Isaac [1952] 2 All ER 176 (CA) 160 Appleby v Myers [1867] LR 2 CP 651 161 Hoenig v Isaacs [1952] 2 All ER 176

91

This research also found that there are misinterpretations of the term among

contracting parties as shown in Table 2. This may be due to in availability of the

definition of the term lump sum itself in the standard form of contract i.e. JKR

Standard Forms of Contract. Only one out of three standard forms of contract being

studied has given clear definition the term ‘lump sum’; PAM Contract 2006 (With

Quantities): Agreement and Conditions, which is ‘lump sum is fixed price and is not

subject to remeasurement or recalculation except for provisional quantities and

variations. As such, any error in description, quantity or omission of item should not

be used to invalidate the contract.’

Based on analysis through selected literatures and cases, there are judicial

positions when dealings with lump sum contract based on circumstances of the cases.

“The doctrine that a lump sum contract has to be completed in practically all respects

in order to qualify the contractor to get any money at all is, I think, very out of

date.”162 Every lump sum contract, there is an implied term that no part of the price

to be recovered without complete performance. However, lump sum is itself subject

to adjustment because the court leans against a construction of the contract which

would deprive the contractor of any payment at all simply because there are some

defects or omissions.

162 Sir Roger Ormrod noted this in his judgement in Finlayson v James [1986] BTLC 163

REFERENCES

REFERENCES

Chow Kok Fong (2004). Law and Practice of Construction Contracts. 3rd Edition.

Singapore: Sweet & Maxwell Asia.

Legal Research Board (1995). Contracts Act 1950 (Act 136), Contracts

(Ammendment) Act 1976 (A329) & Government Contract Act 1949 (Act

120). As at 10th March 1995. Kuala Lumpur: International Law Book

Services.

Dato’ Visu Sinnadurai (1987). The law of Contract in Malaysia and Singapore:

Cases and Commentary. 2nd Edition. Singapore: Butterworths Asia.

David Barker & Colin Padfield (1992). Law. 8th Edition. Oxford, England:

Butterworth-Heinemann ltd.

Dennis F Turner (1971). Building Contracts: A Practical Guide. London: George

Godwin Ltd. Donald Keating (1969). Law and Practice of Building Contracts. 3rd Edition. London: Sweet & Maxwell. K. Gajria (1999). Law Relating to Building and Engineering Contracts in India. 4th

Edition. India: Butterworths.

Henry Henkin (1988). Drafting Engineering Contracts. England: Elsevier Applied

Science Publishers Ltd.

Hudsons’ (2004). Building And Engineering Contracts. 11th Edition. London:

Sweet & Maxwell.

93

John Murdoch & Will Hughes (1998). Construction Contract (Law and

Management). 2nd Edition. London: Taylor & Francis.

John Murdoch & Will Hughes (2008). Construction Contract. 2nd Edition. London:

Taylor & Francis.

Joseph Chitty (1968). Chitty on Contracts: Volume 1. 23rd Edition. UK: Sweet &

Maxwell

L.B. Curzon (2003). Dictionary of Law. 6th Edition. Malaysia: International Law

Book Services.

Lord MacKay of Clashfern (editor) (1991). Halsbury's Laws of England, Volume 4.

4th Edition. UK: LexisNexis Butterworths.

Michael Furmstone (2000). Building Contract Casebook. 3rd Edition. London:

Powell-Smith & Furmston’s.

Nigel M Robinson, Anthony P. Lavers, George KH Tan and Raymond Chan (1996),

Construction Law in Singapore and Malaysia. 2nd Edition. Singapore:

Butterworth.

Sundra Rajoo (1999). The Malaysian Standard Form of Building Contract (The

PAM 1998 Form). 2nd Edition. Malaysia: Malayan Law Journal Sdn Bhd.

Universiti Teknologi Malaysia. Lexis.com/118Q6J. Perpustakaan Sultanah Zanariah,

UTM Skudai.

V. Ramsey & S. Furst (2003). Keating on Building Contract. 6th Edition. London:

Sweet & Maxwell.

http://www.wildy.com/books?author=The%20Right%20Honourable%20Lord%20MacKay%20of%20Clashfern

APPENDICES

A JKR 203B: JKR Standard Form of Tender

B JKR 203B: Standard Form of Tender (Design & Build or Turnkey

Contracts)

C Appendix Q: JKR Sarawak Standard Quotation Form

D JKR 203B: JKR Standard Form of Tender Rev. 2007): JKR Standard

Form of Contract

E PWD 75 (Rev. 12/06): JKR Sarawak Standard Form of Contract

F PAM Contract 2006 (With Quantities): Agreement and Conditions

G Contracts Act 1950 (Act 136)

H Nirwana Construction Sdn Bhd v Pengarah Jabatan Kerja Raya

Negeri Sembilan Darul Khusus & Anor [2008] 4 MLJ 157

APPENDIX A

JKR 203B: JKR Standard Form of Tender

95

JKR 203B: JKR Standard Form of Tender (continue)

96

APPENDIX B

JKR 203B: Standard Form of Tender (Design & Build or Turnkey Contracts)

97

APPENDIX C

Appendix Q: JKR Sarawak Standard Quotation Form

98

APPENDIX D

PWD Form 203A (Rev. 2007): JKR Standard Form of Contract

99

APPENDIX E

PWD 75 (Rev. 12/06): JKR Sarawak Standard Form of Contract

100

APPENDIX F

PAM Contract 2006 (With Quantities): Agreement and Conditions

101

PAM Contract 2006 (With Quantities): Agreement and Conditions (continue…)

102

APPENDIX F

PAM Contract 2006 (With Quantities): Agreement and Conditions (continue…)

103

APPENDIX G

Contracts Act 1950 (Act 136)

104

Contracts Act 1950 (Act 136) (continue…)

105


106


107


108


109


110


111

APPENDIX H

24 of 31 DOCUMENTS

© 2008 LexisNexis Asia (a division of Reed Elsevier (S) Pte Ltd)

The Malayan Law Journal PDF Print Format

Nirwana Construction Sdn Bhd v Pengarah Jabatan Kerja

Raya Negeri Sembilan Darul Khusus & Anor [2008] 4 MLJ 157

CIVIL APPEAL NO N-01-9 OF 2005 COURT OF APPEAL (PUTRAJAYA) DECIDED-DATE-1: 21 APRIL 2008

GOPAL SRI RAM, ZALEHA ZAHARI AND ZAINUN

ALI JJCA CATCHWORDS:

Contract - Breach - Building contract - Non-completion of grass turfing even though building was completed - Whether amounted to a breach of fundamental terms of contract, going to its root - Whether appellant had performed its obligation under contract, both principal and supplementary - Doctrine of substantial performance

Contract - Building contract - Delay - Respondent had acquiesced several times to extensions of time - Whether a waiver

Contract - Damages - Assessment - Damages claimed for being blacklisted by PWD - Difficulty of proof - Standard required in such circumstances HEADNOTES:

On 2 March 1993, the appellant/plaintiff, a building contractor entered into a contract using the Standard PWD (JKR) form with the respondent/defendant to build a school. The contract was to be completed by the appellant on or before 29 August 1994. It was not in dispute that the appellant failed to complete the building of the school within the time stipulated. The respondent was granted an extension of time for nine weeks till 31 October 1994. This was the first of several extensions. Finally, on 12 September 1995, the respondent issued a notice of intention to terminate the contract pursuant to cl 51 of the contract giving the appellant 14 days within which to complete the contract. However, the appellant had not been able to execute the contract satisfactorily. Thus on 7 October 1995, notice to terminate the contract pursuant to cl 51(a) was issued to the appellant. However, despite various notices, the respondent allowed the appellant, upon its request, to continue to complete the construction of the school. The construction of the school was duly completed and officially accepted by the Ministry of Education on 5 June 1996. The appellant

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accordingly contended that the Ministry accepted the construction of the school. But the respondent's position was that despite this, the appellant had failed to complete the construction of the school due to the non-compliance of the [*158] terms in that the grass turfing was not planted according to the specifications in the contract. The respondent further reiterated that the construction was in fact not completed within the period allowed to the appellant, since the grass turfing was incomplete as at 20 May 1996. Consequently the respondent by letter dated 5 July 1996 revived the former notice of termination and informed the appellant that the contract was now terminated in accordance with the said notice of 7 October 1995. The letter of 5 July 1996 (terminating the contract) stated that the reason for termination was that the grass turfing was not done within the period allowed ie on or before 20 May 1996. The appellant claimed that the respondent owed the appellant a balance of RM501.817.66 and the appellant also claimed the sum of RM2.8m for loss of future contract as a result of this dispute, since it jeopardised its status in that the appellant was blacklisted by PWD. The respondent contended that the amount claimed by the appellant in the sum of the RM501,817.66 was not paid by them to the appellant, since this amount was taken and considered as a set off payment towards the liquidated ascertained damages ('LAD') imposed, due to the appellant's failure and delay in completing the contract.

Held, allowing the appeal with costs here and below: (1) (per Zainun Ali JCA) There appeared to be non-compliance with the requirement of cl 51, in that the notice did not contain the precise ground of termination. Thus, in itself the notice was bad. The respondent's attempt at rectifying this failed, and in fact it worsened the situation when it said that it was justified to terminate the contract on account of the numerous extensions given to the appellant to perform the contract (see paras 66-67). (2) (per Zainun Ali JCA) The several delays caused by the appellant were not so dire as to frustrate the entire consideration for the contract. There was nothing in the contract that had placed any condition, the breach of which would entitle the innocent party to repudiate the contract. If delay by the appellant was to be the main factor for termination (quite apart from unsatisfactory work, defective workmanship etc) that particular reason could not be said to be a condition or warranty going to the root of the contract. Although a period of time for completion was necessarily in place here, one had to construe the entire contractual terms and conduct of parties for its effect and consequence. Time was a factor but in the court's view time no longer became the essence and in fact was vitiated when the respondent had acquiesced several times to the extensions of time asked for by the appellant (see paras 69-70).

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[*159] (3) (per Zainun Ali JCA) The inability of the appellant to complete the contract within the time frame was not a particular stipulation which was regarded as condition, going to the root of the contract, that it was clear that the parties contemplated that a breach of which entitled the other party at once to treat the contract as at end. In fact no such condition existed in the principal or supplementary contract. On the facts, there was firstly substantial performance of the contract by the appellant and secondly there was acquiescence on the part of the respondent to vary the contractual terms, even if that acquiescence was grudging. It is now established by the doctrine of substantial performance that a promisor who has substantially performed his side of the contract may sue on the contract for the agreed sum, though he remained liable in damages for his partial failure to fulfill his contractual obligations (see paras 77-78 & 80-84). (4) (per Zainun Ali JCA) The only 'defect' if it could be termed as such, was the planting of 'hydro seeding' instead of 'cow grass' on the football field. Although the respondent objected to this non-compliance of the terms of the contract, no notice was sent out by the respondent to the appellant. The respondent instead, took the drastic step of terminating the contract on the ground that the grass turfing was not completed within the time specified (see para 95). (5) (per Zainun Ali JCA) In view of the various extensions given by respondent and the fact that there was substantial performance, the respondent was estopped from imposing LAD on the appellant. The respondent was barred by the doctrine of estoppel from denying the indulgence granted to the appellant, which in any case amounted to variation of the terms of the contract. And as both parties had acted on the basis of the said varied terms of agreement, the respondent was now estopped by conduct from denying it (see para 112); Boustead Trading Sdn Bhd v Arab Malaysia Merchant Bank Bhd [1995] 3 MLJ 31 referred. (6) (per Gopal Sri Ram JCA) It was not open to the defendant to rely on the letter of 7 October 1995. If, as the defendant alleged, the plaintiff had committed a fundamental breach of the contract, the defendant had two mutually exclusive options open to him. He could accept the plaintiff's repudiation and treat the contract as at an end. Or he could waive the repudiatory conduct and treat the contract as subsisting. These options were given to him by s 40 of the Contracts Act 1950. The defendant having made his election to affirm the contract, his right to put an end to it was forever lost (see para 5); Lim Ah Moi v AMS Periasamy Suppiah Pillay [1997] 3 MLJ 323 referred. (7) (per Gopal Sri Ram JCA) There was no doubt that the blacklisting of a contractor by the PWD could have serious financial ramifications for the appellant. It is an established principle that breach of contract is

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[*160] actionable per se. In other words, damage, that is to say, injuria, need not be separately established as an ingredient of the wrong. Neither is a plaintiff in an action for breach of contract required in law to prove that the defendant acted intentionally or negligently in committing the breach. Once a breach of contract is established a plaintiff is entitled to recover damages. What follows is an exercise in the assessment of those damages. If at that stage he or she is unable to evidentially establish the measure of damage suffered, nominal damages will be awarded (see paras 11-12).

Pada 2 Mac 1993, perayu/plaintif, kontraktor bangunan memasuki kontrak dengan responden/defendan menggunakan borang standard PWD (JKR) untuk membina sekolah. Kontrak tersebut mesti disiapkan oleh perayu pada atau sebelum 29 Ogos 1994. Ia tidak dipertikaikan bahawa perayu gagal untuk menyiapkan bangunan dalam masa yang ditetapkan. Responden diberikan pelanjutan masa untuk sembilan minggu sehingga 31 Oktober 1994. Ini adalah pelanjutan masa pertama daripada beberapa pelanjutan. Akhirnya, pada 12 September 1995, responden mengeluarkan notis niat untuk menamatkan kontrak, berikutan klausa 51 kontrak, memberikan perayu 14 hari dalam mana untuk menyiapkan kontrak. Walau bagaimanapun, perayu tidak dapat melaksanakan kontrak dengan memuaskan. Oleh itu, pada 7 Oktober 1995, notis untuk menamatkan kontrak berikutan klausa 51(a) dikeluarkan kepada perayu. Walau bagaimanapun, walaupun berbagai notis diberikan, responden membenarkan perayu, atas permintaannya, untuk menyiapkan pembinaan sekolah tersebut. Pembinaan sekolah siap dan telah secara rasmi diterima oleh Kementerian Pelajaran pada 5 Jun 1996. Perayu oleh itu berhujah bahawa Kementerian menerima pembinaan sekolah tersebut. Tetapi pandangan responden adalah walaupun begini, perayu gagal untuk menyiapkan pembinaan sekolah kerana tidak mematuhi terma-terma di mana penanaman rumput tidak ditanam mengikut spesifikasi di dalam kontrak. Responden selanjutnya mengulangi bahawa pembinaan sebenarnya tidak siap dalam tempoh masa yang dibenarkan kepada perayu, memandangkan penanaman rumput tidak siap pada 20 Mei 1996. Akhirnya, responden melalui surat bertarikh 5 Julai 1996 memberi notis penamatan asal dan memberitahu perayu bahawa kontrak tersebut telah ditamatkan menurut notis bertarikh 7 Oktober 1995. Surat bertarikh 5 Julai 1996 (kontrak penamatan) menyatakan bahawa alasan penamatan adalah bahawa penanaman rumput tidak dibuat dalam tempoh yang dibenarkan iaitu pada atau sebelum 20 Mei 1996. Perayu mendakwa bahawa responden berhutang dengan perayu baki sejumlah RM501.817.66 dan perayu juga menuntut jumlah RM2.8j sebagai kerugian kontrak masa depan akibat daripada pertikaian ini, memandangkan ia telah menjejaskan

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[*161] statusnya yang mana perayu telah disenaraihitamkan oleh PWD. Responden menegaskan bahawa jumlah yang dituntut oleh perayu sejumlah RM501,817.66 tersebut tidak dibayar oleh mereka kepada perayu, memandangkan jumlah ini telah diambil dan dianggap sebagai bayaran set off terhadap ganti rugi jumlah tertentu ('GJT') yang dikenakan, akibat daripada kegagalan perayu dan kelewatan menyempurnakan kontrak tersebut.

Diputuskan, membenarkan rayuan tersebut dengan kos di sini dan di[#xA0]Mahkamah Tinggi: (1) (oleh Zainun Ali HMR) Terdapat ketidakpatuhan dengan keperluan klausa 51, di mana notis tersebut tidak mengandungi alasan yang tepat untuk penamatan. Oleh itu, notis tersebut dengan sendirinya tidak betul. Percubaan responden untuk membetulkan ini gagal, dan bahkan memburukkan keadaan apabila ia menyatakan ia mempunyai alasan yang baik untuk menamatkan kontrak setelah mengambilkira lanjutan masa yang banyak kali telah diberikan kepada perayu untuk melaksanakan kontrak (lihat perenggan 66-67). (2) (oleh Zainun Ali HMR) Beberapa kelewatan yang disebabkan oleh perayu tidak terlalu mendesak sehingga menghalang keseluruhan balasan untuk kontrak tersebut. Tidak terdapat apa-apa di dalam kontrak yang meletakkan apa-apa syarat, kemungkiran yang mana akan membenarkan pihak yang tidak bersalah untuk membatalkan kontrak. Sekiranya kelewatan oleh perayu dijadikan faktor utama untuk penamatan (selain daripada kerja yang tidak memuaskan, kemahiran kerja yang defektif dan lain-lain) sebab tertentu itu tidak boleh dianggap sebagai syarat atau waranti yang ke akar umbi kontrak. Meskipun tempoh masa penyiapan sememangnya wujud di sini, seseorang itu perlu mentafsirkan keseluruhan terma-terma kontraktual dan perlakuan pihak-pihak untuk mendapat kesan dan akibatnya. Masa merupakan satu faktor tetapi pada pendapat mahkamah masa tidak lagi penting dan pada hakikatnya menjadi tidak sah apabila responden bersetuju beberapa kali terhadap lanjutan-lanjutan masa yang dipohon oleh perayu (lihat perenggan 69-70). (3) (oleh Zainun Ali HMR) Ketidakupayaan perayu untuk menyiapkan kontrak dalam rangka masa bukan ketetapan tertentu yang diambilkira sebagai syarat, punca kontrak tersebut, bahawa ia adalah jelas bahawa pihak-pihak mempertimbangkan bahawa kemungkiran yang membenarkan pihak yang satu lagi terus menganggap kontrak tersebut sebagai tamat. Sebenarnya, syarat sebegitu tidak wujud di[#xA0]dalam kontrak utama ataupun tambahan. Atas fakta, pertamanya terdapat pelaksanaan substansial kontrak oleh perayu dan keduanya terdapat

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[*162] persetujuan di pihak responden untuk mengubah terma-terma kontraktual, meskipun persetujuan itu diberikan dengan berat hati. Adalah ditetapkan oleh doktrin pelaksanaan substansial bahawa orang yang berjanji yang telah melaksanakan sebahagian besar kontrak di[#xA0]pihaknya boleh menyaman atas kontrak itu untuk jumlah yang dipersetujui, meskipun dia masih bertanggungjawab untuk ganti rugi kerana sebahagian daripada kegagalannya untuk memenuhi tanggungjawab kontraktualnya (lihat perenggan 77-78 & 80-84). (4) (oleh Zainun Ali HMR) Satu-satunya 'defect' jikapun ia dianggap sedemikian, adalah penanaman 'hydro seeding' dan bukan 'cow grass' atas padang bola sepak itu. Meskipun responden membantah terhadap ketidakpatuhan terma-terma kontrak ini, tiada notis dihantar keluar oleh responden kepada perayu. Responden sebaliknya, telah mengambil langkah drastik menamatkan kontrak tersebut atas alasan bahawa penanaman rumput itu tidak disiapkan dalam tempoh yang ditetapkan (lihat perenggan 95). (5) (oleh Zainun Ali HMR) Berdasarkan beberapa lanjutan masa yang telah diberikan oleh responden dan hakikat bahawa terdapat pelaksanaan substansial, responden diestopkan daripada mengenakan GJT ke atas perayu. Responden telah dihalang oleh doktrin estopel daripada menafikan persetujuan yang diberikan kepada perayu, yang mana dalam apa keadaan membentuk perubahan terma-terma kontrak. Dan memandangkan kedua-dua pihak telah bertindak berdasarkan terma-terma perjanjian yang diubah, responden kini diestopkan daripada menafikannya (lihat perenggan 112); Boustead Trading Sdn Bhd v Arab Malaysia Merchant Bank Bhd [1995] 3 MLJ 31 dirujuk. (6) (oleh Gopal Sri Ram HMR) Ia tidak terbuka kepada defendan untuk bergantung kepada surat bertarikh 7 Oktober 1995. Jika, sepertimana yang didakwa oleh defendan, plaintif telah melakukan perlanggaran penting kontrak, defendan mempunyai dua pilihan yang terbuka untuknya. Dia boleh menerima penamatan plaintif dan menganggap kontrak tersebut telah tamat. Ataupun dia boleh mengenepikan tindakan penamatan itu dan menganggap kontrak tersebut masih wujud. Pilihan-pilihan tersebut telah diberikan di bawah s 40 Akta Kontrak 1950. Defendan yang telah membuat pilihan untuk mengesahkan kontrak tersebut, melupuskan haknya untuk menamatkan kontrak itu (lihat perenggan 5) Lim Ah Moi v AMS Periasamy Suppiah Pillay [1997] 3 MLJ 323 dirujuk. (7) (oleh Gopal Sri Ram HMR) Tidak diragukan bahawa menyenaraihitamkan kontraktor oleh PWD akan menyebabkan kesan kewangan yang serius untuk perayu. Ia adalah prinsip tetap bahawa pelanggaran kontrak boleh diambil tindakan per se. Dalam erti kata lain, kerugian, yang dikatakan, injuria, tidak perlu dibuktikan secara

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[*163] berasingan sebagai suatu faktor yang salah. Plaintif juga bukan dalam tindakan kerana pelanggaran kontrak yang dikehendaki di sisi undang-undang untuk membuktikan bahawa defendan telah bertindak dengan sengaja atau cuai dalam melakukan pelanggaran itu. Setelah pelanggaran kontrak dibuktikan plaintif berhak mendapat ganti rugi. Selanjutnya adalah pelaksanaan dalam penaksiran ganti rugi tersebut. Sekiranya di peringkat itu dia tidak boleh membuktikan dengan keterangan ukuran ganti rugi yang dialami, ganti rugi nominal akan diawardkan (lihat perenggan 11-12). Notes For a case on breach of building contract, see 3(2) Mallal's Digest (4th Ed, 2006 Reissue) para 2548. For cases on assessment of damages, see 3(2) Mallal's Digest (4th Ed, 2006 Reissue) para 3240-3245. For cases on delay under building contract, see 3(2) Mallal's Digest (4th Ed, 2006 Reissue) para 2830-2844. Cases referred to Appleby v Myers (1867) LR 2 CP 651 Berry v Hodson [1988] 1 Qd R 361 Bolton v Mahadeva [1972] 3 All ER 1322 Boustead Trading (1985) Sdn Bhd v Arab-Malaysia Merchant Bank Bhd [1995] 3 MLJ 331 Central Provident Fund Board v Ho Bock Kee [1981] 2 MLJ 162 Champtaloup v Thomas [1976] 2 NSWLR 264 Chaplin v Hicks [1911] 2 KB 786 Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305 Hadmor Productions Ltd v Hamilton [1983] 1 AC 191 Hoenig v Isaacs [1952] 2 All ER 176 Holland v Wiltshire (1954) 90 CLR 409 Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 KP Kunchi Raman v Goh Brothers Sdn Bhd [1978] 1 MLJ 89 Kiely & Sons Ltd v Medcraft (1965) 109 Sol Jo 829 CA Lim Ah Moi v AMS Periasamy a/l Suppiah Pillay [1997] 3 MLJ 323 Pepper v Hart [1993] AC 593 Photo Production Ltd v Securicor Transport Ltd [1980] 1 All ER 556 Simpson v The London and North Western Railway Co [1876] 1 QB 274 Sony Electronics (M) Sdn Bhd v Direct Interest Sdn Bhd [2007] MLJ 229 Stern v McArthur (1988) 165 CLR 489 Tham Cheow Toh v Associated Metal Smelters Ltd [1972] 1 MLJ 171 Whitaker v Dunn (1887) 3 TLR 602

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[*164] Legislation referred to Contracts Act 1950s 40 Sale of Goods Act 1893 [UK]

Appeal from: Civil Suit No 22-97 of 1997 (High Court, Seremban) Aris Rizal Christopher Fernando (Raftfizi bin Zainal Abidin with him) (Aris Rizal Christopher Fernando & Co) for the appellant. Noramilia Mohd Saad (Senior Federal Counsel, Attorney General's Chambers) for the respondent. Gopal Sri Ram JCA::

[1] There is only one issue in this case. It is whether the plaintiff (appellant before us) is entitled to recover damages for breach of a building contract he had entered into with the defendant (respondent before us). The relevant facts are as follows.

[2] The plaintiff is a building contractor. On 2 March 1993, it entered into a

contract for the construction of a school for the defendant. The contract was in the standard PWD (JKR) form with which we are all quite familiar. The contract price was RM1,956,126. The contract period was 78[#xA0]weeks, that is to say, the plaintiff had to complete construction of the school and hand it to the defendant within that period. It is not on dispute that the 78 weeks expired on 29 August 1994. As it happened, the plaintiff did not complete construction by the agreed date. However, there is abundant evidence to show that the plaintiff was granted several extensions by the defendant. It is also beyond dispute -- indeed it is conceded by the defendant that as at 12 September 1995 (which is the date of his letter) the plaintiff had completed 93% of the work. What was left undone was certain remedial work in respect of some of the partitions in the building and the planting of grass on the hill slopes and the football field. The former was completed. As to the latter, the defendant accepted the turfing that was done on the hill slopes but he rejected the turfing of the football field which he wanted turfed with cow grass which is not the kind of grass that the plaintiff had used. Despite the aforesaid state of affairs, the defendant took the position that the work contracted for had not been completed. So, by his letter of 12[#xA0]September 1995, to which I have referred, the defendant warned the plaintiff to complete all works within 14 days. The defendant warned that if the plaintiff should make default then cl 51 of the contract would be invoked and the contract terminated. Later, by his letter of 7 October 1995, the defendant terminated the contract, purporting to act under cl 51(a) thereof. In essence what that clause says is this: without prejudice to any other remedies the Government (in the present instance the defendant) may have,

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[*165] in the event of the plaintiff commits any of the breaches specified by sub-cll (i)-(v) of cl[#xA0]51, the superintending officer ('SO') administering the contract may issue a notice to the contractor (the instant plaintiff) calling upon him to remedy the breach and if the breach persists for 14 days then the SO may terminate the contract.

[3] There are three matters relating to the letter of 7 October 1995 that require

mention. First, on 11 October 1995, some four days after the letter was written, a meeting was held between the parties. It was agreed that the defendant will be granted a further extension. Nothing was said about the letter itself. Second, the State Engineer, after a review of the facts, recommended that the plaintiff be excused for 17 weeks of delay. Despite this the defendant only permitted the plaintiff only 9 weeks. The defendant did not at any time reserve his rights under the letter of 7 October. How could he? The 9 weeks extension he gave the plaintiff far exceeded the 14 days the SO had prescribed under the letter. The irresistible inference to be drawn from all these actings is that the parties regarded the notice of 7 October 1995 as a dead letter intended to have no effect whatsoever. It therefore ceased, for all purposes, to have any effect whatsoever. Further, there is cogent evidence from the plaintiff to show that at the meeting of 11 October 1995 the defendant had waived his right to claim liquidated ascertained damages ('LAD') from the plaintiff for the delay in completing construction. Third, if you look at the 7 October 1995 letter, you will find that it does not accord with the terms of cl 51. I will deal with this part of the case at the appropriate place in this judgment.

[4] Let me now conclude the factual narrative. On 5 June 1996, the school

constructed by the plaintiff was officially handed over to the Ministry of Education which accepted it. Then, on 5 July 1996, the defendant wrote to the plaintiff alleging that the latter had not completed the works under the contract and on that basis sought to reinstate and rely upon the letter of 7[#xA0]October 1995 which by this time was, of course, dead as a doornail. The plaintiff refused to accept the termination. It issued writ. The defendant delivered his defence and counterclaim. The judge who tried the action found for the defendant. He dismissed the claim and entered judgment on the defendant's counterclaim. The plaintiff has now appealed to us.

[5] In my respectful view, this appeal must succeed for the following reasons. In

the first place, it is not open to the defendant to rely on the letter of 7 October 1995. If, as the defendant alleges, the plaintiff had committed a fundamental breach of the contract, the defendant had two mutually exclusive options open to him. He could accept the plaintiff's repudiation and treat the contract as at an end. Or he could waive the repudiatory

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[*166] conduct and treat the contract as subsisting. These options are given to him by s 40 of the Contracts Act 1950 which reads: When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance.

The defendant's conduct in granting the plaintiff extensions of time does in my

judgment fairly support the plaintiff's case that there was acquiescence on the part of the defendant in the continuance of the contract. There is also the fact that the Ministry of Education accepted without any reservation the handing over of the school to it on 5 June 1996. The defendant having made his election to affirm the contract, his right to put an end to it was forever lost. See, Lim Ah Moi v AMS Periasamy a/l Suppiah Pillay [1997] 3 MLJ 323.

[6] In the second place, the notice of termination which the defendant sought to issue pursuant to the terms of clause 51 of the contract does not accord with the terms of the clause. For it does not specify the breach in question as required by the clause. It is settled law that clauses such as the one under discussion will be construed strictly, that is to say, their strict compliance will be sought by the courts. As Wee Chong Jin CJ said in Central Provident Fund Board v Ho Bock Kee [1981] 2 MLJ 162, 'a forfeiture clause in a building contract will be strictly construed to see whether the operative event has occurred or not'. In my judgment the notice dated 7 October 1995 was null and void and of no effect because it does not comply with the terms of cl 51. It is also my judgment that the defendant's attempt to reinstate the said notice by way of its letter dated 5 July 1996 was ineffective. You cannot reinstate something that is utterly void.

[7] In the third place, the defendant's contention that the plaintiff had committed a fundamental breach of the contract cannot succeed on the facts of this case. There is the defendant's own admission that as at 12 September 1995, 93% of the work was completed. There was no demand made by the defendant of the plaintiff to remedy any defect in the school building itself despite the fact that it was, as conceded by DW2 in his evidence, that it was open for the defendant to have done so. The only real complaint which the defendant had was in relation to the laying of the cow grass on the playing field. This in my judgment is a trivial breach for which the defendant would not be entitled to put the contract to an end. This is because the plaintiff did not refuse to perform or disable itself from performing the contract in its entirety. In short, there is not here a state of affairs where -- to borrow the language of Lord Diplock in Photo Production Ltd v Securicor Transport Ltd [1980] 1 All ER 556 -- 'the failure by one party to perform a primary obligation has the effect of depriving the other party of substantially the

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[*167] whole benefit which it was the intention of the parties that he should obtain from the contract'. Accordingly, it was not open to the defendant to put an end to the contract. It follows that his act of terminating the contract amounted to a breach of contract.

[8] There is one further matter I must mention. In the court below it was part of

the plaintiff's case that the defendant's witness ('DW1 ') had acted in bad faith in the dealings he had with the plaintiff. The learned judge who tried the case however refused to permit the plaintiff to cross examine DW1 on the point. Yet when he came to write his judgment he said that the plaintiff had failed to establish mala fides against the defendant. This, with respect, is a serious misdirection. Having denied counsel for the plaintiff the opportunity to cross examine DW1 on the issue of mala fides, it was not open to him, as a matter of natural justice, to make a finding on the very point against the plaintiff. There is, so far as I am advised, no decided case directly in point. The closest analogy that comes to mind is Hadmor Productions Ltd v Hamilton [1983] 1 AC 191. It was a case that was decided at a time when it was the rule that courts should not seek assistance from Hansard to interpret a statute. There is no such bar now. See, Pepper v Hart [1993] AC 593. In Hadmor Productions, at the hearing before the Court of Appeal, counsel on both sides, in obedience to the rule, refrained from making any reference to Hansard. During argument, Lord Denning MR who presided gave no indication to counsel that he intended to rely on Hansard. However, when he came to write his judgment the Master of the Rolls when interpreting the relevant provision in the statute before the court referred to the speech of Lord Wedderburn in the House of Lords reported in Hansard when moving an unsuccessful opposition amendment to the relevant Bill. When the matter went on further appeal to the House of Lords, Lord Diplock criticised this approach. He said: Under our adversary system of procedure, for a judge to disregard the rule by which counsel are bound has the effect of depriving the parties to the action of the benefit of one of the most fundamental rules of natural justice: the right of each to be informed of any point adverse to him that is going to be relied upon by the judge and to be given an opportunity of stating what his answer to it is. In the instant case counsel for Hamilton and Bould complained that Lord Denning MR had selected one speech alone to rely upon out of many that had been made in the course of the passage of what was a highly controversial Bill through the two Houses of Parliament; and that if he, as counsel, had known that the Master of the Rolls was going to do that, not only would he have wished to criticise what Lord Wedderburn had said in his speech in the House of Lords, but he would also have wished to rely on other speeches disagreeing with Lord Wedderburn if he, as counsel, had been entitled to refer to Hansard.

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[9] In the present case, when the learned trial judge disallowed counsel for the plaintiff from pursuing the line of cross examination on the issue of DW1 's mala fides counsel was entitled to assume that no adverse comment would be made against his client on that point. Unfortunately, the learned judge after having made his decision nevertheless went on to comment adversely on the plaintiff's case. This is a clear breach of the rules of natural justice. If this be the only point before us, I would have been minded to direct a retrial of the action. However, there are, as I have shown, other areas in which the learned judge had misdirected himself both on the facts and the law.

[10] I now come to the issue of damages. In its statement of claim, the plaintiff

claimed the balance due to it on the contract. This is a sum of RM501,817.66. It is entitled to have this. It is also the plaintiff's case that following the termination of the contract it was blacklisted in so far as Government contracts are concerned. It said that it suffered general damages. It put these at RM2.8m.

[11] There is no doubt that the blacklisting of a contractor by the PWD can have

serious financial ramifications for him. He will not ever be considered in the execution of Government projects. Even work in the private sector may be difficult to come by. These are matters of public notoriety. It follows that the plaintiff must have suffered some damage from the blacklisting. Perhaps not to the extent it has claimed. It may be difficult to assess the damage. But that is no reason for refusing to make an award in its favour. In Tham Cheow Toh v Associated Metal Smelters Ltd [1972] 1 MLJ 171, Ali J (as he then was) cited with approval the following passage in the judgment of Cockburn CJ in Simpson v The London and North Western Railway Co [1876] 1 QB 274 at p 277: ... as to the supposed impossibility of ascertaining the damages, I think there is no such impossibility; to some extent, no doubt, they must be matter of speculation, but that is no reason for not awarding any damages at all.

[12] There is a further point which is in the plaintiff's favour. It is an established

principle that breach of contract is actionable per se. In other words, damage, that is to say, injuria, need not be separately established as an ingredient of the wrong. Neither is a plaintiff in an action for breach of contract required in law to prove that the defendant acted intentionally or negligently in committing the breach. Once a breach of contract is established a plaintiff is entitled to recover damages. What follows is an exercise in the assessment of those damages. If at that stage he or she is unable to evidentially establish the measure of damage suffered, nominal damages will be awarded. As my learned sister Zainun Ali JCA said when delivering

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[*169] the judgment of this court in Sony Electronics (M) Sdn Bhd v Direct Interest Sdn Bhd [2007] MLJ 229 (at p 242): Nominal damages may be awarded where the fact of a loss is shown but the necessary evidence as to its amount is not given.

[13] Acting on these well settled principles, I would award the plaintiff general

damages for breach of contract and direct the assessment of such damages by the senior assistant registrar of the High Court. I would also direct an early hearing of the assessment.

[14] For the reasons already given I would allow this appeal and set aside the

order of the learned judge. I have had the advantage of reading my learned sister Zainun Ali JCA's judgment in draft and agree with the orders she proposes to make in this appeal. Zainun Ali JCA::

[15] On 2 March 1993, the appellant, a building contractor (plaintiff in the court

below,) entered into a contract using the standard PWD (JKR) form with the respondent (defendant) to build a school. The contract price was RM1,956,126 and the contract was for a period of 78 weeks. This means that the construction of the school was to be completed by the appellant on or before 29 August 1994. It was not in dispute that the appellant failed to complete the building of the school within the time stipulated.

[16] The respondent then granted an extension of time for nine weeks till 31

October 1994. This was the first of several extensions. The appellant was still unable to complete it and on 5 November 1994, the appellant requested another extension. There is no evidence on record that another extension was granted but the conduct of parties show that an extension was in fact granted. On 26 October 1994, a certificate of non-compliance was issued to the appellant by the superintending officer ('SO'). On 24 November 1994, the respondent issued a final warning letter to the appellant to complete the construction of the school and stated the appellant liable for liquidated ascertained damages ('LAD') at RM630 per day.

[17] The appellant responded by requesting for a further extension of time on 9

February 1995. Thus on 23 June 1995, the respondent had a meeting with the appellant to discuss other incomplete works including the construction of the school, and instructed the appellant to complete the same.

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[*170] [18] On 12 September 1995, the respondent issued a notice of intention to

terminate the contract, followed by its letter of 7 October 1995, where the respondent gave formal notice of termination of the contract to the appellant.

[19] However, notwithstanding the above, the respondent allowed the appellant,

upon its request, to continue to complete the construction of the school. [20] A further meeting was held between the parties on 11 October 1995. The

appellant submitted that it was during this meeting that one Dato' Nordin Yunus, the then Director of PWD (PW1) promised to waive the LAD which the respondent had initially imposed on 24 November 1994. It was at this meeting too, that another extension was given to the appellant.

[21] On 27 April 1996, the respondent had another meeting with the appellant.

By that time another officer, Ir Zamri bin Darus ('PW2 ') had taken over the post of Dato' Nordin ('PW1 '). The extension of the construction of the school was allowed until 20 May 1996 for the purpose of grass turfing and changing the partition to a thicker dimension.

[22] PW2 then informed the appellant that in the event the appellant was unable

to complete the construction within the stipulated date, the termination notice of 7 October 1995 will be invoked. According to the evidence, the construction of the school was duly completed and officially accepted by the Ministry of Education on 5 June 1996.

[23] The appellant accordingly contends that the Ministry accepted the

construction of the school. But the respondent's position is that despite this, the appellant had failed to complete the construction of the school due to the non-compliance of the terms in that the grass turfing was not planted according to the specifications in the contract.

[24] The respondent further reiterated that the construction was in fact not

completed within the period allowed to the appellant, since the grass turfing was incomplete as at 20 May 1996.

[25] Consequently the respondent by letter dated 5 July 1996 revived the former

notice of termination and informed the appellant that the contract was now terminated in accordance with the said notice of 7 October 1995.

[26] The letter of 5 July 1996 (terminating the contract) states that the reason for

termination was that the grass turfing was not done within the period allowed ie on or before 20 May 1996.

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[27] In response, the appellant claimed that the respondent owed the appellant a

balance of RM501.817.66 (the balance of the contract sum) and the appellant also claimed the sum of RM2.8m for loss of future contract as a result of this dispute, since it jeopardised its status in that the appellant was blacklisted.

[28] The respondent, in reply, said that due to the appellant's breach, it had to

appoint another contractor to complete the work with regards to the grass turfing. THE APPELLANT'S CASE [29] In so far as the main part of the project goes, the appellant emphasised that

it had completed it, ie the building of the school itself. It can thus be assumed that in the absence of any complaint or notices of like effect from the respondent, the school was built according to specification. In fact during the cross-examination of SD2, he acknowledged that the only work not done as at 27 April 1996, was the planting of the grass and the thickening of the partition.

[30] The appellant indicated that they did plant the grass by 5 June 1996 but

conceded that it was not done in accordance with the specifications required by the respondent in the contract.

[31] 'Cow grass' was supposed to have been used (as per the specification), but

the appellant had instead used 'hydro-seeding' at the initial stage of the project, to which the appellant said the respondent did not object.

[32] The respondent only objected when 'hydro-seeding' was also used for the

football field, since the respondent wanted 'cow grass' to be planted there. However, it is the appellant's case that if it is merely on this account, the respondent is not entitled to regard that the appellant had thereby breached the contract.

[33] It is the appellant's position that the respondent had in any case, reneged on

this issue, since the respondent had, at the meeting of 27 April 1996, stated that they are willing to accept the school even without the grass turfing.

[34] In short, it is the appellant's case that the respondent had not been

consistent in its approach as regards its decision made at meetings regarding this particular term of the supplementary contract.

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[*172] [35] The appellant submitted that the respondent's act of terminating the whole

contract, only on account of the grass turfing being 'incomplete' as at 20 May 1996 as it were, was bad and wrongful.

[36] The appellant further contended that the non-completion of the grass

turfing (which appellant denied) did not go to the root of the contract, as to entitle the respondent to terminate the whole contract. There is no total failure of consideration which would justify such a course of action.

[37] The appellant's parting shot was that the respondent at most, was only

entitled to damages ie the portion of the non-completion of the grass turfing which amounted to RM20,000.

[38] The appellant claimed that the respondent owed them the balance of

RM501,817.66 (balance of the contract sum) and RM2.8m loss of future contracts, since as a result of this dispute its status in the 'Pusat Khidmat Kontraktor' was seriously jeopardised, in that it was 'blacklisted'.

THE RESPONDENT'S CASE [39] The respondent said that they entered into a contract on 2 March 1993 to

build a school at Felda Palong Negeri Sembilan ('the project') with the appellant. The said construction was to be completed on or before 29[#xA0]August 1994, ie 78 weeks after the date of the contract.

[40] However, the appellant failed to complete the contract on the appointed

date. [41] On the appellant's appeal to extend time to complete the contract, the

respondent allowed an extension of nine weeks ie from 30 August 1994 till 31 October 1994.

[42] However, on the agreed day of completion ie 31 October 1994, the

appellant was still unable to complete the project. [43] Invoking cl 40 of the contract, the respondent issued a warning letter to the

appellant and stated that a 'Perakuan Kerja Tidak Siap' will be issued whereby LAD of RM640 per day will be imposed on the appellant.

[44] On 26 October 1994 the said 'Perakuan Kerja Tidak Siap' was issued to the

appellant and the appellant was informed that LAD would commence on 1 November 1994.

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[*173] [45] On 12 September 1995 the 'Notis Tujuan Penamatan Kerja' pursuant to cl

51 of the contract was issued to the appellant giving the appellant 14[#xA0]days within which to complete the contract. The respondent found that the appellant had not been able to execute the contract satisfactorily within the 14 days period allowed it. Thus on 7 October 1995, the 'Notis Untuk Penamatan Pengambilan Kerja Kontraktor' pursuant to cl 51(a) of the contract, was issued to the appellant.

[46] However, despite the various notices mentioned above, the respondent was

approached by the appellant for a further extension of the contract period. [47] The respondent allowed appellant its request to extend time. In its

submission the respondent said that it did this in its exercise of its discretion to allow the appellant its application to extend time to complete the contract.

[48] In fact a 'Perakuan Persetujuan' dated 27 April 1996 was given by the

respondent, allowing the appellant the work of planting grass and work to thicken the partition to be completed on 20 May 1996.

[49] In the said 'Perakuan' of 27 April 1996, it was categorically stated that in

the event the appellant failed to complete the said assignments (planting grass and thickening of the partition) a notice called 'Notis Untuk Penamatan Pengambilan Kerja Kontraktor' which was issued earlier on 7 October 1995, would take effect.

[50] The appellant failed to complete the planting of grass on the due date ie on

20 May 1996 and consequently, the respondent invoked the termination notice of 7 October 1995, which was communicated to the appellant.

[51] In answer to the appellant's submission that it had completed the contract

save for the grass-turfing, the respondent contended that the Ministry of Education was 'compelled' to accept the contract even though it was not fully completed, since it was imperative that the students from the said area had to be placed there after having been temporarily placed in another school.

[52] The respondent contended that due to the appellant's failure to complete the

contract, the respondent had no alternative but to appoint another contractor to do the same, at a cost of RM450,000.

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[*174] [53] This amount also represented the major portion of the respondent's

counterclaim, supported by the respondent's final confirmation issued by the respondent. This was served on the appellant.

[54] The respondent contended that the amount claimed by the appellant in the

sum of the RM501,817.66 was not paid by them to the appellant, since this amount was taken and considered as a set off payment towards the LAD imposed, due to the appellant's failure and delay in completing the contract.

[55] The learned High Court judge found in favor of the respondent on the

ground that: (a) it was undisputed that the appellant failed to complete the contract on or before 31 October 1994; (b) that even after an extension of time till 31 October 1994 granted by the respondent to complete the contract, the appellant failed to do so and was given a further extension. Even when the contract was terminated on 5 July 1996, the contract still remained uncompleted; The learned judge ruled that the appellant's failure to complete the contract despite the extensions of time arose from the appellant's inability or incompetence to do the same; (c) The appellant's application to dispense with the LAD is untenable, in view of its inability to complete the contract; (d) the learned judge rejected the appellant's contention that it had completed the contract on 5 June 1996, in the light of the minutes of a meeting held on 18 November 1996 which spoke of a new contract to build and complete a school and other related works at Felda Palong 8, Jempol, Negeri Sembilan (ie the same site of the contract between the appellant and the respondent), at a cost of RM450,000.

[56] On the whole, the learned judge was of the view that the appellant had not complied with the specifications in the contract and there was nothing in evidence to suggest that the respondent had allowed any deviation or variation from the said specifications; that in terminating the said contract and imposing the LAD, the respondent had not been actuated by malice or mala fides, since they had acted well within the scope of the contract.

[57] In view of the above, the learned judge dismissed the appellant's claim and

allowed the respondent's counterclaim.

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[58] My view of this appeal is this. The facts as narrated above are clear enough. There are several issues in the instant case which can be distilled into just two posers. They are: (1) Did the non-completion of the grass turfing on the due date/delay by the appellant in completing the contract, amount to a breach of the fundamental terms of the contract, going to its root, entitling the respondent to terminate the contract and claiming damages? (2) Had the appellant performed its obligation under the contract (both principal and supplementary)?

[59] Let us see what would be the position in the light of the notice of termination pursuant to cl 51(a) and letters and notices substantiating the same.

[60] Clause 51 of the contract which reads as follows: 51. PENAMATAN PENGAMBILAN KERJA KONTRAKTOR (a) Tanpa menjejas apa-apa hak atau remedi lain yang dipunyai oleh Kerajaan, jika Kontraktor melakukan kemungkiran mengenai mana-mana satu atau lebih daripada perkara-perkara yang berikut, iaitu: (i) ... (ii) ... (iii) ... (iv) jika dia mungkir atau berulang kali cuai mematuhi suatu notis bertulis daripada PP untuk menukar dan mengganti apa-apa kerja yang cacat atau bahan atau barang-barang yang tidak sesuai, atau (v) ... maka PP boleh memberi kepadanya suatu notis yang dihantar dengan pos berdaftar atau dengan serah-hantaran yang direkodkan menyatakan kemungkiran itu, dan jika Kontraktor samada meneruskan kemungkiran itu selama empat belas (14) hari selepas penerimaan notis itu atau pada bila-bila masa selepas itu mengulangi kemungkiran itu (samada pernah diulangi dahulunya atau tidak), maka Kerajaan boleh dengan demikian itu melalui suatu notis yang dihantar dengan pos berdaftar atau dengan serah-hantaran yang direkodkan menamatkan pengambilan kerja Kontraktor di bawah Kontrak ini.

[61] In view of the above clause, let us see what was the nature of the purported notice given to the appellant.

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[62] By letter dated 5 July 1996, the respondent sent a notice by registered post to the appellant. It reads thus: Adalah didapati pihak tuan telah gagal mematuhi Perakuan Persetujuan yang telah ditandatangani oleh Mesyuarat Khas pada 27 April 1996 yang lalu, di mana kerja-kerja penanaman rumput di padang telah tidak disiapkan pada tarikh yang ditetapkan iaitu 20 Mei 1995. Dengan yang demikian, PENAMATAN PENGAMBILAN KERJA KONTRAKTOR yang telah dikeluarkan pada 07 Oktober 1995 dikekalkan.

[63] Since the respondent invoked the 'notis penamatan pengambilan kerja

kontraktor' dated 7 October 1995 to effectuate the said termination of the contract, the said notice needs looking into. It reads thus: ... Dukacita diperhatikan bahawa tuan didapati masih tidak menjalankan kerja dengan lebih pesatnya dalam tempoh EMPAT BELAS (14) HARI yang diberi dalam surat kami tersebut. Tiada juga sebarang jawapan atau alasan yang menasabah yang diterima daripada tuan. Maka sejajar dengan Fasal 51(a) Syarat-Syarat Kontrak, pengambilan kerja adalah dengan ini DITAMATKAN. Kerja akan disiapkan sejajar dengan Fasal 51(c) Syarat-Syarat Kontrak, dan tuan adalah dikehendaki menanggung segala perbelanjaan berlebihan yang akan timbul.

[64] It is noted that, an earlier notice dated 12 September 1995 was sent to the

appellant by the respondent, warning them to complete the contract within 14 days upon receipt of the said notice, failing which cl 51 of the contract (to terminate the contract) will be invoked.

[65] It was due to the appellant's apparent failure to complete the project within

the period of 14 days that the notice of 7 October 1995 was served on them on 5 July 1996.

[66] There appears to be non-compliance with the requirement of cl 51, in that

the notice did not contain the precise ground of termination. [67] Thus, in itself the notice was bad. The respondent's (through the senior

federal counsel) attempt at rectifying this failed, and in fact it worsened the situation when it said that it was justified to terminate the contract on account of the numerous extensions given to the appellant to perform the contract.

[68] In this regard it is my view that the respondent themselves had, unwittingly

or otherwise, admitted in their letter of 12 September 1995, that the appellant had, at that date, completed 93% of the contract.

The said letter of 12 September 1995 reads, inter alia:

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... kerja tuan sepatutnya sudah siap tetapi kemajuan yang dicapai setakat ini adalah 93%[#xA0]...

[69] In view of the above, and as case laws have shown, the several delays caused by the appellant were not so dire as to frustrate the entire consideration of the contract. I find nothing in the contract that had placed any condition, (special or otherwise) the breach of which would entitle the innocent party to repudiate the contract.

[70] If delay by the appellant is to be the main factor for termination (quite apart from unsatisfactory work, defective workmanship etc) that particular reason cannot be said to be a condition or warranty going to the root of the contract. Although a period of time for completion is necessarily in place here, one has to construe the entire contractual terms and conduct of parties for its effect and consequence. Time was a factor but in my view time no longer became the essence and in fact was vitiated when the respondent had acquiesced several times to the extensions of time asked for by the appellant.

[71] My view is that the breach if there was any in this case, was merely inconsequential or 'trifling' as suggested by Lord Upjohn in Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26.

The brief facts in the Hongkong Fir Shipping case is as follows: By a time charterparty dated 26 December 1956, the shipowners of MV Hongkong Fir let, and charterers hired the said ship for twenty four (24) calendar months. Clause 3 of the charterparty provided that the owners should '... maintain her in a thoroughly efficient state in hull and machinery during service ...'. The vessel was delivered to the charterers on 13 February 1957 and on that day, sailed from Liverpool to Newport News, Virginia to pick up a cargo of coal and carry it to Osaka. The vessel's machinery was in reasonably good condition at Liverpool but by reason of its age, needed to be maintained by an experienced, competent, careful and adequate engine room staff. When she sailed, the chief engineer was inefficient, the engine room complement insufficient and chiefly for that reason, there were many serious breakdowns in the machinery. She was not seen eight and half weeks, off hire for about five weeks and had about [#xA3]21, 400 spent on her for repairs. She reached Osaka on 25 May when a further period of about 15 weeks and additional monies were required to make her ready for sea.

[72] In fact when the vessel sailed from Osaka on 15 September, there was adequate and competent engine room staff and was then admittedly in all respects, seaworthy.

[73] However the charterers repudiated the charterparty in June 1957.

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[*178] [74] In an action by the owners for damages for wrongful repudiation of the

charterparty in which the charterers contended, inter alia, that they were entitled to repudiate by reason of a breach by the owners of their obligation to deliver a seaworthy vessel and that the charterparty was frustrated by the delays and breakdowns, Salmon J held that although the shipowners were in breach of their obligation to deliver a seaworthy ship, seaworthiness was not a condition precedent to their rights under the charterparty and, as the charterparty had not been frustrated, they were entitled to damages.

[75] It was held on appeal by the charterers, that although the shipowners were in breach of cl I of the charterparty, the vessel being unseaworthy on delivery by reason of an insufficient and incompetent engine room staff, seaworthiness was not a condition of the charterparty a breach of which entitled the charterer at once to repudiate. Lord Diplock held that the express or implied obligation of seaworthiness is neither a condition nor a warranty but one of that large class of contractual undertakings one breach of which might have the effect ascribed to a breach of 'condition' under the Sale of Goods Act 1893, and a different breach of which might have not only the same effect as that ascribed to a breach of warranty.

[76] His Lordship also held that the delays caused by the breakdowns and repairs were not so great as to frustrate the commercial purpose of the charterparty; and that accordingly the charterers' claim failed and the appeal was dismissed.

[77] Likewise, in the instant appeal my view is that the inability of the appellant to complete the contract within the time frame is not a particular stipulation which is regarded as a condition, going to the root of the contract, that it is clear that the parties contemplate that a breach of which entitles the other party at once to treat the contract as at an end.

[78] In fact no such condition exists, either in the principal or supplementary contract.

[79] As stated by Lord Upjohn: ... the remedies open to the innocent party for breach of a stipulation which is not a condition strictly so called, depend entirely upon the nature of the breach and its foreseeable consequence. Breaches of stipulation fall, naturally into two classes. First, there is the case where the owner by his conduct indicates that the considers himself no longer bound to perform his part of the contract; in that case, of course, the charterers may accept the repudiation and treat the contract as at an end. The second class is, of course the more usual one and that is where, due to misfortune such as the perils of the sea, engine failures, incompetence of the crew and so on, the owner is unable to perform a particular stipulation precisely in accordance with

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[*179] the terms of the contract try he never so hard to remedy it. In that case, the question to be answered is, does the breach of the stipulation go so much to the root of the contract that it makes further commercial performance of the contract impossible, or in other words is the whole contract frustrated? If yea, the innocent party may treat the contract as at an end. If nay, his claim sounds in damages only.

[80] Apart from the fact that the appellant's inability in completing the contract

within the stipulated time does not go to the root of the contract, two other factors go towards showing that this failure did not frustrate the entire contract for it to be completely incapable of being performed. Firstly there was substantial performance of the contract by the appellant and secondly there was acquiescence on the part of the respondent to vary the contractual terms, even if that acquiescence was grudging.

[81] From the evidence of parties, could it be said in all honesty, that the

appellant had completely failed in performing his side of the bargain, or that the defects were of such magnitude that the appellant could not be said to have substantially performed his contract?

[82] Or put in another way: On a true construction of the contract, is entire

performance a condition precedent to payment, it being a lump sum contract? [83] The older reported cases such as Appleby v Myers (1867) LR 2 CP 651 and

Whitaker v Dunn (1887) 3 TLR 602 require complete performance by a promisor as a condition precedent to his right of recovery under an entire contract.

[84] However the rigours of the common law has since been modified by later

judicial pronouncements. It is now established by the doctrine of substantial performance that a promisor who has substantially performed his side of the contract may sue on the contract for the agreed sum, though he remains liable in damages for his partial failure to fulfill his contractual obligations.

[85] The statement of the law on this matter can be found in the judgment of

Lord Justice Denning in Hoenig v Isaacs [1952] 2 All ER 176, at p 181, where His Lordship said, inter alia: ... When a contract provides for a specific sum to be paid on completion of specified work, the courts lean against a construction of the contract which would deprive the contractor of any payment at all simply because there are some defects or omissions. The promise to complete the work is therefore, construed as a term of the contract, but not as a condition ...

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[*180] [86] In the instant appeal, my view is that the contract was an entire or lump

sum contract, but since the doctrine of substantial performance has not been excluded by an express provision in the agreement, it would also be necessary to examine whether the appellant had substantially performed its contract.

[87] It is my view, following the observation of the English Court of Appeal in

Bolton v Mahadeva [1972] 3 All ER 1322, that where a contract (such as in the instant appeal) has been substantially performed, the test was substantial performance rather than whether the defects were of such a trivial nature that they could be disregarded under the de minimis rule.

[88] Following also what Gunn Chit Tuan J observed in KP Kunchi Raman v

Goh Brothers Sdn Bhd [1978] 1 MLJ 89 in considering whether there had been substantial performance, it was relevant to take into account both the nature of the defect and the proportion between the cost of rectifying them and the contract price.

[89] In the instant appeal, it is undisputed that the appellant had, as at 12

September 1995 completed 93% of the contract works (as admitted by the respondent itself in their letter dated 12 September 1995.

[90] The appellant had clearly shown it had substantially performed the

contract. [91] Is the appellant then, entitled to payment due to it with regard to both the

principal and supplementary contracts for work done? [92] In the instant appeal, the contract was worth RM1,956,126. However

authorities such as Kiely & Sons Ltd v Medcraft (1965) 109 Sol Jo 829 CA and Bolton v Mahadeva [1972] 2 All ER 1322 found that substantial performance is not to be measured by rigid financial calculation. Both Justices Salmon and Wilmer in Kiely & Sons Ltd v Medcraft took the view that it is for the court to consider the defects and see whether the work was substantially completed. So for every case, it is a question of fact and degree.

[93] Firstly, there is nothing on record to indicate that there are defects in the

appellant's work, of which notice had been issued by the respondent to the appellant. [94] Should there be any defect, the respondent would have issued its notice of

defect to allow the appellant or any contractor for that matter, to

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[*181] rectify the said defect. The respondent confirmed that they had not found any

defect nor had they issued any notice of like effect. As testified by SD2: Adalah prosidur JKR sebarang kecacatan bangunan/projek akan dikeluarkan notis kepada Kontraktor berkenaan untuk membaiki. Di dalam kes ini, tiada senarai kecacatan dikeluarkan kepada plaintiff (appellant).

[95] The only 'defect' if it could be termed as such, was the planting of 'hydro

seeding' instead of 'cow grass' on the football field. Although the respondent objected to this non-compliance of the terms of the contract, no notice was sent out by the respondent to the appellant. The respondent instead, took the drastic step of terminating the contract on the ground that the grass turfing was not completed within the time specified.

[96] It might be reminded that the appellant had in any event, completed all the

contract works except the football field grass turfing and had handed over the school on 5 June 1996.

[97] Yet, the respondent terminated the contract only on account of the

appellant's non-compliance with the specification to use 'cow grass' for the football field as at 20 May 1996. This was confirmed when SD2 testified that: Masalah hanya timbul apabila rumput padang yang ditanam tidak mengikut spesifikasi. Dan hanya berdasarkan masalah rumput ini sahaja keseluruhan kontrak plaintiff telah dibatalkan. ...

[98] Given the above, it is my view that taking all factors into consideration, the

respondent's termination of the contract amounted to a forfeiture, in view of the severity of the consequence. In my view, the respondent had not acted reasonably and in good faith. In fact 'bad faith' was imputed by the appellant against SD2. The appellant had tried to introduce evidence of 'bad blood' between it and SD2 during the trial. But the trial judge disallowed the issue to be raised at all. Yet, in his judgment the trial judge held that even if there was 'bad blood' as imputed by the appellant, the appellant had not established it. After having disallowed the appellant to submit on this point, it is not open for the trial judge to now make this perverse observation. It is my view that there was a misdirection on the trial judge's part on this point.

[99] By the time the project was handed over to the respondent on 5 June 1996,

the appellant had been paid a total sum of RM1,362,501.40.The balance of RM501,817.66 remained unpaid.

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[*182] [100] Considering the nature of the 'defect' which was merely that of replacing

'hydro seeding' with 'cow grass' and the cost of rectifying the same being only RM20,000 as quoted by the appellant, the question is whether the respondent is entitled to claim damages as claimed.

[101] The respondent said that because of the error of the appellant in not using

'cow grass', they had to employ another contractor to do the same at the cost of RM450,000.

[102] From the evidence led, the respondent had asked the new contractor

Syarikat Azaman bin Abdul Samad to redo certain things (apart from putting the 'cow grass') which were clearly outside the scope of the appellant's contract with the respondent.

[103] In my view, the act of the respondent, incurring extra expenses re-doing

certain works by the new contractor, was not within the contemplation of nor contained in the original contract. As DW3 had given the breakdown of all the works done by the new contractor it is clear that new items were added and even the grass turfing had extra works to be done to it. The question now is: Is the respondent entitled to claim RM450,000 from the appellant as damages for non-completion of the contract? This will be answered latterly.

[104] Turning now to the issue of the LAD, the question is this: Is the

respondent entitled to impose LAD on the appellant, in these circumstances? [105] First, it was undisputed that the contract was 93% complete. There was

substantial performance of the contract by the appellant. There was no abandonment of the work by the appellant, nor had the appellant done anything to jeopardise the completion of the work.

[106] Second, the various extensions given the appellant could only be viewed

that the respondent had given indulgence and had waived the imposition as to time and strict compliance with the terms of the contract.

[107] However the respondent made an untenable choice for its reason to

terminate the contract, when it terminated the contract on account of 'non-compliance with grass turfing by the appointed due date'.

[108] This reason works against the respondent in view of the principle found in

Hongkong Fir Shipping Co Ltd v Kawasaki Kaisha Ltd, where it is clear that the breach if at all, was not so great as to frustrate the entire

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[*183] contract, nor was the breach regarded as a condition, going to the root of the contract which would entitle the other party at once to treat the contract as at an end.

[109] Third, it must not be lost sight of that the respondent, through PW1, had

promised to waive the LAD for the contract. [110] This is fortified by the evidence of PW3, Lee Hoch Long, a contractor

where PW3 said in his testimony that PW1 will waive the LAD for the Project. [111] PW1 in his evidence also stated in a meeting held on 11 October 1995

with PW2 and one Puan Natisah, the quantity surveyor for JKR, that he had the authority to waive LAD if the appellant completed the project. PW1 also allowed the extension of time for the project to be completed.

[112] Even if PW2 disclaimed the dispensation of LAD, the fact was that PW2

had said that dispensation of LAD was conditional upon the appellant completing the work on time. However, in view of the various extensions given by respondent and the fact that there was substantial performance thereof, my view is that it is not open for the respondent to now ignore the consequence of the waiver in this regard. In so doing the respondent is now estopped from imposing LAD on the appellant. The respondent is barred by the doctrine of estoppel from denying the indulgence granted to the appellant, which in any case amount to variation of the terms of the contract. And as both parties had acted on the basis of the said varied terms of Agreement, the respondent is now estopped by conduct from denying it (Boustead Trading (1985) Sdn Bhd v Arab-Malaysia Merchant Bank Bhd [1995] 3 MLJ 331). It is not open for the respondent to now help themselves to the balance sum due to the appellant by contending that the amount is to account for LAD. In short, the respondent is not entitled to impose LAD on the appellant (which was calculated to be RM218,400).

[113] Taking the facts before me and considering the obligations of parties and

their conduct in this contract, what seems clear is this: [114] Although the right to terminate for breach of contract applies to all

contracts, it has long been subject to certain restrictions. [115] To begin with I find that in this appeal, the notice to terminate was bad in

law, for being devoid of the precise ground for termination.

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[*184] [116] Secondly, the respondent's conduct in allowing extensions of time to

perform the contract, entering into a supplementary contract and finally accepting the contract from the appellant on 5 June 1996, is not consistent with that of an innocent party whose right to terminate remains intact.

[117] Although an extension of time for performance does not of itself amount

to an abandonment of the right to terminate for failure to perform on time, more so if granted as a matter of grace (see Holland v Wiltshire (1954) 90 CLR 409), other factors in this appeal indicate otherwise.

[118] In my view, when the respondent allowed the appellant continued

performance of the contract on more than one occasion, and even entering into a supplementary contract, the respondent had thereby elected to affirm the contract to run its course. The appellant is entitled to regard it as such especially when the respondent accepted the contract from the appellant on 5 June 1996, which the appellant is entitled to treat as the respondent having waived its right to terminate. Nothing would be more clear and equivocal than this conduct of the respondent (see Berry v Hodson [1988] 1 Qd R 361; Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305).

[119] In any case, even if the respondent still had the right of election, the

exercise of that right must not be delayed unreasonably (see Champtaloup v Thomas [1976] 2 NSWLR 264).

[120] In this case, after having accepted the contract from the appellant on 5

June 1996, the respondent, out of the blue served on the appellant the notice to terminate a month later, ie on 5 July 1996.

[121] To my mind, for the respondent to take this course of action is

unconscionable, since the termination of the contract for breach results in an unjust forfeiture of the appellant's propriety interest, a fortiori when there is estoppel by conduct (see Stern v McArthur (1988) 165 CLR 489).

[122] This unconscionable conduct is exemplified by its claim for LAD and

counterclaim of RM450,000. [123] It is instructive to remind ourselves that a party having a legal right shall

not be permitted to exercise it in such a way that the exercise amounts to unconscionable conduct.

[124] Consequently the respondent cannot resist payment due to the appellant

for the unpaid balance of the contract, ie the sum of RM501,817.66.

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[*185] [125] Now comes the issue of damages. The appellant pleaded this claim and

led evidence that following on the heels of termination of the contract, it was blacklisted in so far as Government contracts are concerned.

[126] As a result, the appellant claimed that it suffered damages, which it put at

RM2.8m. [127] The question is, what would be the consequence of being blacklisted, for

the appellant? For one, it would mean that no contract from the Government would come its way. It would also mean that no door will be open to it by the private sector too. This can only mean that the appellant suffered some damages due to being blacklisted. This is apparent when it is shown that before the blacklisting, several projects found their way to the appellant company as evident in the submission of learned counsel for the appellant. However there was none, after the blacklist. But I do not think that the damages it suffered is to the extent that it had claimed. The appellant led evidence of previous contracts and tenders which it had won from the Government. This was not disputed. However the frequency or even certainty of those contracts were not brought forth. In this regard, the damages claimed may be difficult to assess, but this should not be an impediment to award an applicant damages it ought to get. In the words of Vaughan Williams LJ in Chaplin v Hicks [1911] 2 KB 786: ... The fact that damages cannot be assessed with certainty does not relieve the wrongdoer of the necessity of paying damages.

[128] In short, my view is that difficulty of proof does not of itself, do away

with the necessity of proof. The only question perhaps is, what is the standard required in such circumstances?

[129] Authorities on this subject suggest that the standard of proof only

demands that evidence from which the existence of damage can be reasonably inferred, which provides adequate data for calculating its amount.

[130] Based on this principle, I would award the appellant general damages for

breach of contract and give direction that the assessment of such damages be done by the senior assistant registrar of the High Court. An early hearing of the assessment is also directed.

[131] For the reasons stated in this appeal, I would allow this appeal with costs

here and below. The order of the learned judge is hereby set aside.

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[*186] [132] Thus I make the following order:

(a) the appellant is to be paid the unpaid contractual sum claimed, ie the sum of RM501,817.66 with interest at 8% pa with effect from 5 July 1996 till date of realisation; (b) general damages for breach of contract, to be assessed by the senior assistant registrar of the High Court. An early date shall be fixed for such assessment; (c) the respondent must pay the costs of this appeal and those incurred in the court below; (d) deposit shall be refunded to the appellant; and (e) the respondent's counterclaim is dismissed with costs. ORDER:

Appeal allowed with costs here and below. LOAD-DATE: 07/24/2008