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The Importance of Condition of Contract PDF
The Importance of Condition of Contract PDF
IN CONTRACT DOCUMENT
OCTOBER 2009
PSZ 19:16 (Pind. 1/97)
mengaku membenarkan tesis (PSM / Sarjana / Doktor Falsafah)* ini disimpan di Perpustakaan Universiti
Teknologi Malaysia dengan syarat-syarat kegunaan seperti berikut:
TIDAK TERHAD
Disahkan oleh
Alamat Tetap :
No 64, Jalan USJ 5/1A
47610 Subang Jaya
Selangor Darul Ehsan
Signature : ..............................................................................
Name ASSOC. PROF. DR. ROSLI ABDUL RASHID
: ..............................................................................
Date : ..............................................................................
THE IMPORTANCE OF CONDITION OF CONTRACT
IN CONTRACT DOCUMENT
OCTOBER 2009
DECLARATION
I declare that this thesis entitled “The Importance of Condition of Contract in Contract
Document” is the result of my own research except as cited in the references. The thesis
has not been accepted for any degree and is not concurrently submitted in candidature of
Signature : .................................................................
and to my sisters and brothers for your love and the countless hours of
laughter
Rosli Abdul Rashid is specially remembered for his time, patience and efforts in
‘moulding’ me and my thought processes. The completion of this dissertation would not
have been possible without his conscientious guidance and encouragement. I would also
to thank Encik Hakim, Encik Amran Majid, Encik Faridz, Encik Najib, Dr. Syed Alwee
Alsagoff and Ir. Oon Chee Kheng for taking their time out of their busy schedules in
and Fuziah Ahmad and my most trusted friend Farid Yusof, completing this study would
not have been possible. My wish is they all share my happiness. Last but not least,
special thanks go to my sisters, Hanisah and Munirah, and also my brothers, Abdul
Rahman and Abdul Hadi. Their love, understanding and encouragement have been a
The aim of this research is to grasp the significance of the inclusion of the terms
and conditions in construction contract. Terms and conditions of contract are very vital
to regulate the construction works. It states clearly the rights and obligations of the
contracting parties. At present the Standard Forms which are widely used which contain
the terms and conditions of contract. But, in new revision of P.W.D. Form 203A,
Condition of Contract does not expressly stated that Condition of Contract is one of the
without expressing the term, the Condition of Contract is still one of the Contract
Document. Therefore, it is imperative for the contracting parties to ensure that the terms
and conditions are compiled together with the contract to avoid any disputes. The terms
and conditions also shall be prepared clearly and unambiguously. The contracting
parties should understand clearly the terms and conditions before they agreed executing
the contract. This research is based on documentation study about the terms and
by referring to court cases where there are incomplete terms and conditions and also
where the terms and conditions are not clear and ambiguous.
ABSTRAK
kepentingan wujudnya terma dan syarat kontrak di dalam kontrak binaan. Terma dan
syarat kontrak adalah sangat penting kerana ia mengawal selia kerja pembinaan. Ia
menerangkan dengan jelas tentang hak dan tanggungjawab pihak yang berkontrak.
Namun, di masa kini, Borang Kontrak Setara telah digunakan di dalam kerja binaan
yang mengandungi terma dan syarat kontrak. Tetapi, Borang Kontrak Setara, Borang
P.W.D. 203A yang terbaru, tidak menyatakan bahawa Syarat-syarat Kontrak sebagai
salah satu dokumen di dalam Dokumen Kontrak. Isu besar akan timbul sekiranya
kerana tidak ada terma dan syarat tentang kerja pembinaan tersebut. Oleh itu, adalah
sangat penting untuk pihak yang berkontrak untuk memastikan bahawa terma dan syarat
kontrak ada semasa berkontrak untuk mengelakkan pertikaian berlaku. Semua terma
dan syarat kontrak juga perlu disediakan dengan jelas dan tanpa ragu. Pihak yang
berkontrak perlu faham dengan jelas setiap terma dan syarat kontrak sebelum bersetuju
dokumen tentang terma dan syarat kontrak dan juga dokumen kontrak. Ianya juga
disokong oleh beberapa kes mahkamah mengenai terma dan syarat kontrak yang tidak
lengkap dan juga terma dan syarat kontrak yang tidak jelas.
TABLE OF CONTENTS
1 INTRODUCTION 1
1.4.2 Interview 8
1.4.3 Synthesized 9
1.4.4 Assimilation 9
2.0 Introduction 13
2.1 Contract 14
2.2 Agreement 15
2.3 Manner of Agreement 20
2.7.3 Standardization 33
3 CONTRACT DOCUMENT 37
3.0 Introduction 37
Contract Documents 43
OF CONTRACT 49
4.0 Introduction 49
4.6 Interviews
5.0 Introduction 64
5.1 Conclusion 64
5.2 Recommendation 67
REFERENCES
APPENDIX
LIST OF TABLE
PAGE
Cheng Hang Guan & Ors v Perumahan Farlim (Penang) Sdn. Bhd. & Ors
Diamond Peek Sdn. Bhd. & Anor v D.R. Tweedie [1982] 1 MLJ 97 20
Kam Mah Theatre Sdn. Bhd. V Tan Lay Soon [1994] 1 MLJ 108 53
Produce Brokers Co. Ltd. v Olympia Oil & Cake Co. Ltd. [1916] 1 AC 314 30
Sri Kajang Rock Products Sdn. Bhd. V Maybank Finance Bhd. [1992]
1 CLJ 205 16
INTRODUCTION
a) in writing
b) by orally
c) by inference from the conduct of the parties and the circumstances of
the case
d) by any combination of the above modes
Basically, the terms and conditions is what are being agreed by the parties
to a contract. The word ‘term’ in contract law refers to a stipulation which gives
efficacy to the intention of the parties. Terms of a contract are variously called
stipulations, covenants, provisions and clauses depending on the nature of particular
contracts.
4
W.T. Major (1983), The Law of Contract, 6th edn, Macdonald & Evans Ltd
In the case of construction contract, the contracting parties may include any
term and condition in the contract in order to complete and fulfill the requirement of
the construction works. Normally, the terms and conditions are about the rights and
obligations of the contracting parties. The terms and conditions set out in printed
Condition of Contract must be clear and unambiguous to avoid any dispute to arise.
5
Cheng, Wong, Soo (2004), Construction Law and Practice in Hong Kong, Sweet & Maxwell Asia
and any other items specifically stipulated as being included in the contract
documents6.
a) Form of Tender
b) Letter of Acceptance
c) Contract Drawings
d) Bills of Quantities
e) Specifications
f) Treasury’s Instructions
g) ………………………
h) ………………………
i) ………………………
6
McDermott P et al (1999), Procurement Systems : A Guide to Best Practice in Construction, E&FN
Spon, London
and all these documents shall be complementary to one another.”
P.W.D Form 203A (Rev 2007) did not expressly state that Condition of
Contract is part of the Contract Document. It is impliedly part of the Contract
Document. In other Form of Contract, Condition of contract is expressly stated as
part of the Contract Document. See below;
a) Form of Tender
b) Letter of Acceptance
c) Contract Drawings
d) Bills of Quantities
e) Specifications
f) Treasury Instructions
Does it mean that, by not expressly stating that Condition of Contract is
part of Contract Document, the Contract Document is not complete? As in other
Forms of Contract, the Condition of Contract should be the main document which is
complemented by other documents. When it is not expressly mention, it can be
taken that the Condition of Contract is not to be read as part of the contract. It means
something outside of the others.
In order to achieve the said objectives, there are a number of methods used
by the writer in obtaining appropriate source of information and data. The
implementations stage is planned in detail in order to ensure the success of this
research.
There are many types of interview methods. For this research, the
interviewer chooses the informal conversational interview. For this method,
there are no predetermined questions, in order to remain as open and
adaptable as possible to the interviewee’s nature and priorities, during the
interview the interviewer ‘goes with the flow’.
1.4.3 Synthesized
1.4.4 Assimilation
The methodology
process for
this
dissertation
is as
shown in
Figure
1.1
Figure 1.1: Research Methodology Flowchart
a) Chapter 1 – INTRODUCTION
CHAPTER 2
This chapter explains the formation of the contracts including the essential
elements of a contract and manner of a contract. It also undertakes a clear
understanding of terms and conditions of contract and the used of Standard Forms.
2.1 Contract
For many years, the construction industry has relied on formal contracts to
define and enforce the obligations and rights of contracting parties7. It is essential to
remember that construction contracts are first and foremost is contract, and therefore,
the general law applicable is the law of contract8. Anyone involved in the
7
Cheung, Kenneth, T.W. and Chim, (2006), How Rational Construction Contract? Journal of
Professional Issues in Engineering Education and Practice
8
Netto (1982), Dispute Arising Out of the Main Contract and Subcontract. Seminar on Avoiding
Disputes in Construction Contracts. Institute of International Research
management of building and engineering industry must have a sound working
knowledge of the general principles of contract law.
Beatson, in Anson’s Law of Contract, takes his definition a little further than this,
defining it as:
9
Treitel, The Law of Contract, 11th edn, (2003), Sweet & Mwawell Limited
10
Beatson, Anson’s Law of Contract, 28th edn, (2002), Oxford University Press
more than some subjective indication of agreement between the parties. There is a
clear need for some degree of evidence of the fact of agreement, otherwise there
would be uncertainty when one attempts to reconcile the theoretical basis of the law
of contract with the actual intentions of the parties. An individual could escape his
obligations merely by stating that he had no intention of being bound by any
agreement.
2.2 Agreement
Two very different approaches have been used to assess the presence of an
agreement. The first is a liberal laissez-faire approach which anything at all could
potentially be used in assessing the presence of an agreement. Such an approach
almost invariably results in a subjective assessment of the parties’ actions taking
place and has the disadvantage of rendering the law uncertain and unpredictable.
This approach found favour with Lord Denning who, in Butler Machine Tool Co.
Ltd v Ex-Cell-O Corporation (England) Ltd11, stated:
Similarly, in Gibson v Manchester City Council12, he also stated that one ought to:
11
[1979] 1 All ER 965
12
[1979] 1 All ER 972
“look at the correspondence as a whole and at the conduct of the parties
and see therefrom whether the parties have come to an agreement on
everything that was material”
13
Upex & Bennett (2004), Davies on Contract 9th edn, Sweet & Maxwell Limited
14
[1992] 1 CLJ 205
a) Offer
There are two kinds of offer. First, the offer may call for an acceptance
in the form of an unqualified promise to perform according to the terms
contained in the offer. The acceptance of this kind of offer leads to the most
usual kind of contract, generally known as the bilateral contract. Secondly, the
offeror’s offer may be in terms which call for an act to be performed, e.g. the
return of specific lost property. A unilateral contract is made upon performance
according to the terms of the offer.
b) Acceptance
Acceptance consists of any act which signifies the final consent of the
offeree to the terms of the offer. As the mechanics of offer and acceptance are
observed from an objective standpoint, there can be no binding agreement unless
an acceptance has been communicated to the offeror which corresponds exactly
with the terms of the offer.
15
Richards, Law of Contract, 6th edn (2004), Pearson Education Limited
In some cases, the offeror may have specified a particular mode of
acceptance, in which event no contract will result unless the assent takes the
required form. Otherwise, acceptance may be made in any form which is
deemed reasonable16.
c) Intention
16
Wilson, Principle of the Law of Contract (1962), Sweet & Maxwell Limited
17
Cheng, Wong, Soo, Construction Law and Practice in Hong Kong, (2004), Sweet & Maxwell Asia
d) Consideration
“when, at the desire of the promisor, the promise or any other person has
done or abstained from doing, or does or abstains from doing, or promise
to do or to abstain from doing, something, such act or abstinence or
promise is called a consideration of the promise,”
The English Statute of Frauds 1677 which requires certain types of contract
to be in writing has no application in Malaysia. In Diamond Peek Sdn. Bhd. &
Anor. v D.R. Tweedie19, Gunn Chit Tuan J. in accepting this view with respect to an
oral agreement for the sale of land, observed:
“Under our law, as in India, an oral contract for the sale of immovable
property is valid and enforceable. The mere fact that the parties desired
to have that agreement put in writing and drawn up in proper form does
not affect its validity”
18
Vohrah & Wu Min Aun, The Commercial Law of Malaysia, 2nd edn (2007), Pearson Malaysia Sdn.
Bhd.
19
[1982] 1 MLJ 97
a) Contracts required to be made orally
“In this case, dispute arose between the main contractor and the
subcontractor in relation to an expansion project for the Hong Kong
International School, where it was alleged that the provisions of the
main contract were expressly agreed to be binding on the
subcontractor and payment to the subcontractor would be upon
receipt of payment by the main contractor from the employer. As one
of the persons involved in the subcontract had left the main
contractor, the court had to deal with the matters relying on what it
was alleged that he said or agreed, without actually hearing from
him. In the circumstances, the court held that no such express terms
had been incorporated into the contract.”
The Statute of Frauds provided that “the agreement upon which such
action shall be brought, or some memorandum or note thereof, shall be in writing
and signed by the party to be charged therewith or some other person thereunto
by him lawfully authorized.”
a) Form
The record of the contract need not be made in any particular form so
long as it contains the names of the parties and all material terms of their
agreement. There is no requirement that the agreement should have been
committed to writing for the express purpose of satisfying the relevant
statute. The purpose for which the written statement was made is immaterial
so long as it acknowledges the existence and the terms of the contract.
b) Contents
Whatever forms the writing may take, it must present the court with a
complete record of the material terms of the contract which it is called upon
to enforce. First, it must identify the parties and the subject matter of their
agreement. It is not essential that the parties be actual named, so long as an
adequate description is provided from which they can easily be identified.
Secondly, the document must set out the consideration provided for
the agreement, though this requirement has been statutorily waived in the
case of a contract of guarantee. Finally, it must contain all the remaining
terms of the particular agreement which are considered material by the
parties to it.
c) Joinder of documents
d) Signature
The courts will look hard to see whether in fact there is a contract, by
reference to any oral and written exchanges and the performance of the
obligations as to construction and payment. The best example of this is G
Percy Trentham Ltd v Archital Luxfer Ltd20 where Steyn LJ said:
“The fact that the contract was performed on both sides will often
make it unrealistic to argue that there was no intention to enter into
legal relations. It will often make it difficult to submit that the
contract is void for vagueness or uncertainty. Specifically, the fact
that the transaction is executed makes it easier to imply a term
resolving any uncertainty, or alternatively, it may make it possible to
treat a matter not finalized in negotiations as inessential.”
20
[1993] 2 Lloyds LR 25 at 27
The agreement having been reached on the basis of offer and acceptance,
contractual intention is established and consideration has been given. Then as a
matter of reality, parties tend to continue to negotiate, especially if by conduct they
have started to perform the main terms of the contract. In that case, further
negotiations by the parties would amount to variations to the contract that has been
reached.
Sometimes, whilst the contract is still being negotiated, a party may require the other
party to start to perform before the terms are finalized.
21
[1916] 2 CH 187
22
[1941] 1 AC 251
2.5 Terms and Representations
According to Upez and Bennett24, the terms of the contract and exemption
clauses are what contain within the agreement. Defects in the agreement will occur
when there is an absence of required formality, misrepresentation, duress and undue
influence, mistake, illegality, and also incapacity.
23
Cheng, Wong, Soo (2004), Construction Law and Practice in Hong Kong, Sweet and Maxwell Asia
24
Upex and Geoffrey Bennett (2004), Davies on Contract 9th edn, Sweet & Maxwell Limited, p. 1
Not every statement made by the parties in the course of negotiation
leading to the contract is a term of the contract. Those statements which have been
incorporated into the contract become terms while others remain as representations.
Those that are terms become contractually binding.
Where the parties put their eventual contract in writing, any statement that
appears in the written contract will usually be regarded as a term. Any statement
made before the written contract but not included in it is likely to be regarded as
representation, on the grounds that if the parties draw up a written contract which
leaves out an earlier statement, it is likely that they did not regard that statement as
an important one26.
Written terms can be incorporated into a contract in three ways. There are
by signature, by reasonable notice and also by a previous course of dealing. Where
25
Vohrah and Wu Min Aun(2000), The Commercial Law of Malaysia, Pearson Malaysia Sdn. Bhd. p. 70
– p. 73
26
Elliott & Quinn, Contract Law 6th edn (2007), Pearson Education Limited
the parties enter into a written contract after one party has made oral assurance, there
are at least three possibilities as to the status of those oral statement.
a) The contract may be contained exclusively in the written document, with the oral
statements being merely representations
b) The contract may be partly written and partly oral
c) There may be two contracts, the main written one and a collateral one based on
oral statements
The terms of a contract may be contained in more than one document. The
parties may purport to incorporate one document in another by express reference.
For example, this may occur where there is a clause in the conditions of contract
incorporating the terms in the bills of quantities into a construction contract. In this
regard, the general rule is that the terms of a contract must be brought to the attention
of the other party before the contract is formed.
27
[1949] 1 KB 532
Terms of a contract may be variously classified such as that between
express and implied terms. Another classification is that between conditions and
warranties, and more recently, a third group called ‘intermediate’ or ‘innominate’
term has emerged. The terms ‘condition’ can be confusing because in the ordinary
use of the word, it may be used to describe any one of the following:
Section 12 of the Sale of Goods Act gives both terms a definite meaning. Subsection
(2) states that:
28
[1916] 1 AC 314
where such custom in the trade was not inconsistent with the terms of the contract. In
his judgement, Lord Atkinson said:
29
Cheng, Wong & Soo, Construction Law and Practice in Hong Kong (2004), Sweet & Maxwell Asia
30
Nigel M. Robinson, Anthony P. Lavers, George Tan Keok Heng & Raymond Chan (1996),
Construction Law in Singapore and Malaysia 2nd edn, Butterworths Asia
client and his consultants and his builders are inevitably difficult and potentially
fractious. The professional providers of construction services do not need to be
further motivated if they know clearly what is required of them.
a) Government Projects
• JKR 203 A with Bills of Quantities
• JKR 203 with Drawings and Specifications
• JKR N for Nominated Subcontractor
• JKR P for Nominated Supplier
• PWD Form DB/T (2000Edn) for Design and Built or Turnkey project
• PUTRAJAYA Form of Contract for general construction
2.7.3 Standardization
Construction Law in Singapore and Malaysia has stated the advantages of standard
forms are as follows:
In using Standard Forms, one thing to keep in mind is that a construction contract
is often drawn up by the engineer, architect or surveyor from traditional, often
inconsistent and sometimes mutually destructive stipulations and provisions of various
kinds that have been consolidated for years or been put forward brand-new, with a view
to producing various legal results. When put into practice, the problems with Standard
Forms of contracts are further escalated by the incorporation, or simply pulling together,
or other provisions into a contract, whether derived from in-house practice or from the
last similar project, without an overview of the legal implications. This obviously runs
more risk of producing a poorly drafted contract, which fails to accurately achieve the
desired legal effects or to provide sufficient contingencies against the inherent
uncertainty in construction works. Yet, once a contract is entered into, the potential
problems for both parties are locked in. The damage is done. It is only a matter of time,
as to when and how it surfaces.
31
[1987] HKLR 1076
CHAPTER 3
CONTRACT DOCUMENT
3.0 Introduction
Generally, Contract Document means the set of documents that form a part
of the legal contract for services between two or more parties. These typically
include detailed instructions to the contractor, tender forms, construction documents
and specifications. Contract Documents is also a term used to represent all executed
agreements between the owner and contractor; any general, supplementary, or other
contract conditions; the drawings and specifications; all addenda issued prior to
execution of the contract; and any other items specifically stipulated as being
included in the contract documents32. Contract Document can be in three manners to
explain the works to be done. There are by graphic, in numbers and also in writing.
Basically, by graphic refer to the drawings. The drawings will describe the shape,
types and also requirement of the construction works. In numbers is normally
referred to the amount of payment. Written form is basically the specification and
also the Condition of Contract.
32
McDermott P et al (1999), Procurement Systems : A Guide to Best Practice in Construction, E&FN
Spon, London
33
Rowlinson S & McDermott P (2006), Procurement Systems : A Guide to Best Practice in
Construction, R&FN Spon London UK
transcripts, drawing, and photographs are documents. Many standard
forms of contracts define what are to be contract documents.”
Azizan bin Supardi34 also said that the Contract Document should include
the following document:
a) Articles of Agreement
• For the consideration hereinafter mentioned the Contractor will upon the
subject to the Contract Documents carry out and completes the Works as
shown upon and described by or referred to in those Documents.
b) Condition of Contract
34
Azizan bin Supardi (2008), Malaysian Construction Contract (Law and Management), Department of
Quantity Surveying UiTM, p. 240, 241, and 242.
• To provide the administrative mechanism
• Example: Architect’s instruction, Certificates
c) Appendices
d) Specifications
e) Bills of Quantities
Define the whole of the contractor’s obligations for quality and quantity
of works. They are prepared in accordance with standard method of
measurement. Bills of Quantities form the basis for the contractor’s estimates of
the tender price.
f) Drawings
g) Tender Form
Tender Form consist the title of the project, name of the contractor, name
of the client and other details about the construction project.
h) Letter of Acceptance
i) Schedule of Rates
j) Treasury Instructions
k) Schedule
35
Harban, K S (2002), Engineering and Construction Contract Management, Commencement and
Administration, Lexis Nexis, Singapore
3.3 Contractual Obligation in the Absence of Condition of Contract in Contract
Document
Lord Browne Wilkinson has said in Linden Gardens Trust Ltd v Lenesta Sludge
Disposal Ltd36:
“Building contract are pregnant with disputes. Some employers are much
more reasonable than others in dealing with such disputes. The disputes
frequently arise in the context of the contractor suing for the price and
being met by a claim for abatement of the price or cross-claims founded
on an allegation that the performance of the contract has been
defective…..”
There are two basic warranties which are either expressly or impliedly
given by each of the parties. The contractor’s warranty is that they will carry out and
complete the works shown on the contract drawings and described in any
36
[1994] 1 AC 85
specification or bills of quantities. The employer’s warranty is that it will provide
the contractor with the information needed in order to construct the works. In
P.W.D. Form 203A (Rev 2007), the obligation of the contractor is stated in clause
10.1. The contractor will have no problem if this clause is not provided because they
have already known their obligation as contractor, which is to complete the works.
But, this clause will express clearly their obligation as contractor more than only
complete the works. Without this provision clause, the contractor will not know
their obligations and responsibilities under the contract as a whole.
When making claims against the other, owners and contractors often will
attempt to enforce the provisions of conversations and inferences of actions.
Similarly, architects will often search the documents seeking authority to compel the
owner or contractor to perform some duty. However, only those documents and
promises, that have been reduced to writing and incorporated into the contract, can
be relied upon as being legally enforceable. Without the provision clause in
Condition of Contract, claims are difficult to make because the promises without any
written contract will not be legally enforceable. This is due to the fact that promises
that made by orally can easily be denied by the fault party.
Some forms will prohibit the sub-letting of any work. Today, most work is
done by sub-contractors. The obligations of the contractor are vicariously performed
by sub-contractors. However, the contractor could, unless there is a prohibition,
assign to another parties the benefit of the contract. That will usually be done by the
assignment of the right to receive the contract sum and interim payments under the
sub-contractor. If there is no Condition of Contract, the sub-contractor will not
know their rights and responsibility to the contractor and the employer in sub-letting
or assignment of the construction project. Clause 47 in P.W.D. Form 203A (Rev
2007) have stated that the contractor cannot let the sub-contractor to do the works
without the consent of the S.O. If this clause is not read, the contractor might let the
whole work to be done by the sub-contractor without the consent by the S.O.
The contractor will be expressly required to comply with all statutes and
statutory instruments. In construction contracts, the most important ones are the
Building Regulations. Standard Forms have developed based on the Building
Regulations. If the construction work is not based on the Condition of Contract, the
contractor would be in danger of being held liable to the employer in the event of the
design defective in that the foundations were inadequate or the walls were not a
sufficient barrier to moisture. In the event of discrepancy between the design and the
Building Regulations, then the contractor should give the S.O. notice and the S.O.
must issue instructions to the contractor remedying the divergence thus ensuring the
compliance of the structure. This is the procedure contain in the Condition of
Contract.
Condition of Contract will make the provision for insurance. The insurance
is related to the works, injury to people and also damage to property. Insurance of
works and the risk in the works provided for in the contract as those to be insured
against. Without the Condition of Contract, there are some issues raised such as who
will insure the project and who will bear the premium cost.
These are some of the problems which are related to the contractual
obligation in the absence of the Condition of Contract.
CHAPTER 4
THE IMPORTANCE OF CONDITION OF CONTRACT
4.0 Introduction
This chapter looks into the several case laws in order to establish the status
and the importance of Condition of Contract in a construction Contract Document.
This chapter also considers the expert opinion of several lawyers and professionals
on the subject matters.
Each court cases were retrieved from lexis nexis website. The terms used
for searching the court cases are “terms and conditions of construction contract”.
There are 100 court cases listed. Only five court cases that relate to the incomplete
document, incomplete terms and conditions and also ambiguous terms and condition.
These five court cases are being synthesized to get a conclusion to answer the
problem statement for this research.
4.1 Court Case 1
In this case, the plaintiffs’ family had been staying on part of holding
Nos 3632 and 2497, Mukim 13, NED, Penang. They have been staying there
for more than 100 years. The place were situated their dwelling houses, No
258K and No 259H respectively, and their vegetable farm. The registered
proprietor of holding No 3532 were and are trustees of the Khoo Kongsi.
Plaintiff 2’s grandfather’s (Cheong’s) family had converted what was once
swampy jungle land into a productive farm. On Cheong’s death, plaintiff 2
took over management of the farm, which was worked on by the family
members. House No 258K had been on the plot concerned before December
1938 and, in 1972, plaintiff 1 and plaintiff 2 were registered as tenants in place
of Cheong. House No 259H was built by Cheong in 1963 with the consent of
the Khoo Kongsi and registered in the name of plaintiff 2. After Cheong’s
death, plaintiff 2 spent RM1,500 in providing a ceiling for the house. No
conditions were printed on the rent receipts issued to Cheong and plaintiff 2
until late 1981. Conditions, which were in English, were endorsed on receipts
for the farm after 1976 and for the two dwelling houses in 1981. The plaintiffs
were illiterate farmers and could not understand these conditions which
included a condition that a period of one month’s notice would be sufficient to
terminate the tenancy. Sometime in 1972, plaintiff 2 was informed by the
visiting trustee of the Khoo Kongsi that it was not necessary to change the
tenancy into her name and that she could continue planting vegetables as long
as she wished provided she paid rent.
The issue arises here relating to the terms and conditions are when the
conditions were in English, which the plaintiffs, who were illiterate farmers,
did not understand the content of the contract. So, it would be wrong to infer
that the plaintiffs had, by conduct, accepted them as such. Accordingly, it was
said that there was no material upon which it could be said that the plaintiffs
had, by their conduct, accepted the conditions. The judge has said that;
This statement states that the receipt, which is the evidence of payment
showed the conditions of rent. When the plaintiff did not understand English
language, he knew nothing about the conditions appeared on the receipt. In law, the
receipt is only the evidence of payment. It cannot be a contract. The intention of the
parties is the most important in constitute a contract. In this case, when the plaintiff
did not understand the language used to describe the condition, it means that he
knew nothing about the condition. The plaintiff does not have any intention towards
the conditions stated in the receipt. As such, it could not be saying that the plaintiff
had accepted the conditions.
This is supported by the practicing lawyer, by saying that, the terms and
conditions is important in a contract. It must be clear and unambiguous which also
means that the parties involves must understand clearly all the terms and conditions.
In the event, the terms and conditions is not clear, the intention of the parties will
take into account. Is there any intention by the parties to the contract? This is the
first question should be asked when the terms and conditions is not clear and
unambiguous. For this court case, the plaintiff has no intention at all to the contract
because he knew nothing about the appearance of the conditions on the receipt. The
contract is not complete without intention of the parties and it is not valid. Hence,
with the absence of Condition of Contract from Contract Document, but the parties
involved are aware and agree about the conditions of the contract, the Contract
Document is complete and the contact is valid. As such, there must be written terms
and conditions which is perfectly written and must be clear and unambiguous.
KAM MAH THEATRE SDN. BHD. V TAN LAY SOON [1994] 1 MLJ 108
“The words ‘usual terms and conditions’ failed to reveal certainty and
were too ambiguous. What would be the usual terms and conditions
remained largely a matter of conjecture, thus the words would create
uncertainty unless a contract containing these agreed ‘usual terms and
conditions’ had been signed by the parties.”
This Supreme Court judge have said that the word used to describe the
terms and conditions of contract must be certain and unambiguous. If the terms
and conditions are not certain, it will give other interpretation to the other parties.
The issue arise here is only one party signed the contract because the other party
does not agree to the ambiguous terms used. There is no intention from one
party and also no acceptance is made in this contract. However, if all the parties
agreed with the terms and conditions used, the contract can be then executed.
This court case show that, even though the Condition of Contract is not
include in the Contract Document, but the contracting parties agree with the clear
terms and conditions used and they have the intention towards the contract, the
Contract Document is still complete. The contract is also valid.
4.3 Court Case 3
In this case, the Liverpool City Council “(LCC)” owned a large block
of flats and they brought action against some tenants for possession for non
payment of rent. The tenants claimed that the LCC was in breach of its duty to
repair and maintain. The condition of the flats deteriorated. There were defects
in the stairs and lifts and internal rubbish chutes became blocked. There was no
formal lease to govern the arrangement, just a document called “conditions of
tenancy” which was signed by the tenants, but not the LCC. This document
listed the duties of the tenants but said nothing about the duties of the LCC.
Here, the court is trying to establish what the contract is where the contracting
parties have not stated it.
This is due to the fact that, when the contractor enter into a contract
under P.W.D 203A (rev2007), the contract is between the contractor and the
government. The government’s term and condition is only what have been stated
in the P.W.D 203A (rev 2007), and are considered thoroughly cover the interest
of both parties; the government and the main contractor. This is due to the fact
that the government also particular on the status of the project to avoid any
distractions, complications and disruption that may delay the project and
indirectly ruin the public interest. If that happen, it will tarnish the image of the
government. That is the different to that of the above LCC v Irwin [1977] on
their intention on drafting the contract as compared to the P.W.D 203A (rev
2007), that is not only cover the interest of the government, but also the main-
contractor, as well as the public interest. Hence, the standard form of P.W.D
203A (rev 2007) is well received by the main-contractor without contention prior
signing the contract.
This case was a case where the question of an implied term was
considered in relation to the phasing of work and the extension of time provision.
Lord Pearson said;
“The court will not even improve the contract which the parties have
made for themselves, however desirable the improvement might be. The
court’s function is to interpret and apply the contract which the parties
have made for themselves. If the express terms are perfectly clear and
free from ambiguity, there is no choice to be made between different
possible meanings: the clear terms must be applied even if the courts
thinks some other terms would have been more suitable. An unexpressed
term can be implied if and only if the court finds that the parties must
have intended that term to form part of their contract: it is not enough for
the court to find that such a term would have been adopted by the parties
as reasonable men if it had been suggested to them: it must have been a
term that went without saying, a term necessary to give business efficacy
to the contract, a term which, though tacit, formed part of the contract
which the parties made for themselves.”
This case and Liverpool City Council case discussed the same thing in
different ways. The issue is whether the term is necessary. It is not whether the
term is reasonable, but whether it is necessary. If the contract does not work
without the term, then the term will be implied into the contract. If the contract
works without it, then the term will not be implied, no matter how desirable the
implication of the term might be.
At the trial court, Lord Denning found that the doctrine of fundamental
breach did apply. However, at the Court of Appeal, Lord Wilberforce,
overturned Denning and found that the exclusion clause indeed be relied upon.
Lord Wilberforce explicitly rejected Denning’s application of the doctrine of
fundamental breach and opted for a ‘rule of construction’ approach. Exemption
clauses were judged to be interpreted the same as any other term regardless of
whether a breach has occurred and the scope of the exclusion must be determined
by examining the construction of the contract. On the facts, Lord Wilberforce
found that the exclusion clause precluded all liability, even when harm was
caused intentionally.
The above case indicates the importance of the clear and unambiguous
term and condition in the contract. Though was contested and was initialed won
by the plaintiff, who argued that the liability clause be aborted due to huge
losses, however, the appeal court judge was adamant and firm to overturn the
trial court judge whose judgment was initially in favor of the plaintiff. As such,
it is imperative the clauses, terms and conditions in the contract be very clear and
unambiguous and agreed by both parties.
4.6 Interviews
Four legal practitioners and legal advisors have been interviewed to seek their
opinion on the importance of Condition of Contract in the construction Contract
Document. The interview pointed out that although the Condition of Contract is
separated from Contract Document, there is no major implication to the Contract
Document. The Contract Document is still sufficient, and complete. This is because, the
contract under P.W.D 203A (rev2007), the Contract Document and the Condition of
Contract have to be read together and complement to each other.
He added, “In the event Contract Document is not consistent with the
Condition of Contract, Condition of Contract shall prevail. Contract Document
and Condition of Contract shall be read together to form part of the agreement.
The Contract Document is still valid and complete.”
4.7 Conclusion
Based on the study of the cases, it is found that terms and conditions are very
important to spell out the intention and linkage between two parties. The term and
conditions must be clear and not ambiguous so that both parties understand their roles
and responsibilities in undertaking their jobs. It is imperative to grasp the term and
condition so that if any conflict and misunderstanding, the contract will be used as a
reference to settle the differences amicably.
It is agreed by the legal advisor 4, by saying that the terms and conditions is done
based on the intention of both parties which may or may not be included in the contract.
In the event the intention is not elaborate in the contract as per Court Cases no 3, both
parties have to go to court for judge to use implied term to make decision.
CHAPTER 5
This chapter summaries and concludes the synthesized court cases and
interviews and also make recommendation based on the conclusion. Prior of that, it
is important to note that the objectives of the research have been achieved.
5.2 Conclusion
The absence of the Condition of Contract will not make the contract to be
invalid, because of the facts that the validity of the contract will be referred to the
essential elements of the contract. The essential elements of contract are offer,
acceptance, intention and also consideration. If the contract has all of these essential
elements of contract, the contract will be valid.
From the court cases, it is important to have clear terms and conditions in a
contract. Terms and conditions should be prepared by the contracting parties. The
court do not involve in creating the terms and conditions. The court will only make
a decision on the obligation of the parties if dispute arise from the terms and
conditions which is not clear or if there is a missing terms. However, when the
terms and conditions in the contract are not clear and ambiguous, the intention of the
contracting parties will take into account. If the parties have the intention towards
the contract, the contract is binding.
As such as the P.W.D 203A (rev 2007) is not expressly stated Condition of
Contract as part of the Contract Document, the Contract Document is still complete
because the Contract Document have to be read together with the P.W.D Form 203A
(rev 2007) to form part of the agreement. The P.W.D Form 203A (rev 2007) is a
contract to bind two parties according to the terms and conditions. It is done based
on the intention of the contracting parties. It also is the mother of agreement.
Contract Document is an elaboration of what has been defined in the P.W.D Form
203A (rev 2007). In the event, the Contract Document is not consistent with the
P.W.D Form (rev 2007), the P.W.D Form 203A shall prevail.
5.3 Recommendation
1. Terms and conditions should be prepared clearly and without any ambiguities to
the contracting parties.
2. The contracting parties should have same understanding about the terms and
conditions to avoid wrong interpretation.
3. Terms and conditions should be prepared according to the work to be done
without any missing terms and conditions.
4. Terms and conditions should be prepared completely and agreed by the
contracting parties before the work started.
5. The terms and conditions should be compiled with all other related documents
pertaining to the work undertaken for completion of legal binding documents.
The terms and conditions shall be included in any of the contract. But,
normally the contracting parties will not read all the terms before they have been
agreed to the terms. The terms only be read when dispute arise and relate to the
obligation of the parties. Therefore, the contracting parties should understand clearly
their obligation before the work started. The contracting parties should prepared and
understand clearly the terms and conditions.
5.4 Limitation of the Research
REFERENCES
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Beatson (2002), Anson’s Law of Contract, 28th edn, Oxford University Press
Elliott & Quinn (2007), Contract Law 6th edn, Pearson Education Limited
J.F.Wilson (1962), Principle of the Law of Contract, Sweet & Maxwell Limited
Paul Richards (2004), Law of Contract, 6th edn, Pearson Education Limited
Robert Upex & Geoffrey Bennett (2004), Davies on Contract 9th edn, Sweet & Maxwell
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Treitel (2003), The Law of Contract, 11th edn, Sweet & Mwawell Limited
W.T. Major (1983), The Law of Contract, 6th edn, Macdonald & Evans Ltd
Bevin Netto (1982), Dispute Arising Out of the Main Contract and Subcontract.
Seminar on Avoiding Disputes in Construction Contracts. Institute of International
Research
Sai On Cheung, Kenneth, T.W. and Pui Shan Chim, (2006), How Rational Construction
Contract? Journal of Professional Issues in Engineering Education and Practice
INTERVIEWEE LIST
INTERVIEWEE’S ORGANISATION
NAME
1. INTERVIEWEE 1 EN. AMRAN MAJID JKR