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INTRODUCTION ______________________________________________________________________________ 1 DIAGRAM OF MAIN CONTRACTUAL ACTIVITIES ___________________________________________________ 2 CONTRACTOR SIGN AND RETURNS LETTER OF ACCEPTANCE OF TENDER. ___________________________ 3 Letter of Acceptance Definition _________________________________________________________________ 3 SITE POSSESSION _____________________________________________________________________________ 3 CONTRACTOR DEPOSITS OR SUBMIT RELEVANT INSURANCE POLICIES ______________________________ 4 CONTRACTOR DEPOSITS OR SUBMIT PERFORMANCE BOND OR BANK GUARANTEE ___________________ 6 Performance Bond Definition ___________________________________________________________________ 6 CONTRACTOR SUBMIT WORK PROGRAMME ______________________________________________________ 7 Work Programme Definition____________________________________________________________________ 7 CONTRACTOR EXECUTED WORKS INCLUDING DELIVERY MATERIAL. _______________________________ 8 S.O MAKE VALUATION OF THE WORKS EXECUTED & MATERIAL DELIVERED EVERY MONTH.___________ 9 S.O ISSUES CERTIFICATION OF COMPLETION. ___________________________________________________ 10 DEFECT LIABILITY PERIOD (DLP) AND S.O ISSUES SCHEDULE OF DEFECT. _________________________ 11 CONTRACTOR VERIFY AND REPAIR ALL THE DEFECTS. ___________________________________________ 12 FINAL CERTIFICATE__________________________________________________________________________ 12 PRIVITY OF CONTRACT _______________________________________________________________________ 13 Privity of Contract Definition __________________________________________________________________ 13 What is Privity of Contract? ___________________________________________________________________ 13 Precedent Case 1 _________________________________________________________________________ 14 Precedent Case 2 _________________________________________________________________________ 14 Precedent Case 3 _________________________________________________________________________ 14 Precedent Case 4 _________________________________________________________________________ 15 Rule of Privity of Contract ____________________________________________________________________ 15 What are the Rules? _________________________________________________________________________ 16 Exceptions to the Rule of Privity _______________________________________________________________ 17 SUMMARY___________________________________________________________________________________ 23 CONCLUTION _______________________________________________________________________________ 29 REFERANCE _________________________________________________________________________________ 30 INDEX ______________________________________________________________________________________ 31 Appendix ____________________________________________________________________________________ 32 1. 2. 3. 4. Sample Letter of Acceptance form Jabatan Kerja Raya Malaysia (Surat Setuju Terima Tender) Sample Contractor All Risk Insurance policy from Kurnia Insurance. Sample Performance Bond used in Government Project. Sample Interim Certificate by the Architect.


a) Explain by mean of annotated diagram the main contractual activities under a government contract starting from issuance of letter of acceptance to issuance of final certificate.


What is the rule of Privity of Contract? Discuss how this rule of law effects the contractual relationship between employer, main contractor and sub-contractors.

For this assignment I had chose question from examination paper October 2010 question 3. The question have two (2) part, (a) and (b). Question (a) regarding contractual activity for Government that use P.W.D forms of contracts. The standard forms of construction contract used by the Malaysian Public Sector normally JKR. The standard form consists PWD 203, PWD 203A, PWD 203N, PWD 203P as well as PWD DB/T. Each of the form of the contract has its own role and function to play in the government project. In question (b) it consist in Privity of Contract and it rule and how it effects contractual relationship between employer, main contractor and sub-contractors. In this case, a lot of precedent case will be use to explain the detail of the Privity of Contract and it rule.

O Issues Schedule of Defect Contractor Verify and Repair all the Defects Certificate of Making Good Defect Period of Final Measurement and Valuation Final Account Final Certificate END . Contractor Deposits or Submit Performance Bond or Bank Guarantee Contractor Submit Work Programme Contractor Executed Works Including Delivery Material S.O Make Valuation of the Works Executed & Material Delivered Every Month S.O Issues Certification of Completion Defect Liability Period (DLP) and S.DIAGRAM OF MAIN CONTRACTUAL ACTIVITIES START Contractor Sign And Returns Letter Of Acceptance Of Tender. Site Possession Contractor Deposits or Submit Relevant Insurance Policies.

com) Essential information to include in a letter of award include the following 1. and when the contract will be signed. Public Liability Policy. FORM 203A(Rev. Letter of Acceptance Definition Written confirmation of an award of a contract by a customer (owner or principal) to a successful bidder. it is sometimes also used in lieu of a purchase order to a vendor.W. Performance Bond. Contractor signature with witness and date. stating the amount of the award. 38. Insurance Policy for the Work. d. c. 7. Social Security Scheme.4 In the event of any delay in giving possession of the site from the ³Date for Possession´ as stated in Letter of Acceptance or delay in giving any section or part of the . the award date. 6. Site Possession Date.D. a. Amount of award ± Contract Amount. If the employer fail to give the contractor site possession on the date stated in LA (Letter of Acceptance) The S.4 P. S. b. Also called award letter or notice of award. 5. Date of Completion. It may also contain a notice to proceed. 2. Liability Period. (BusinessDictionary.CONTRACTOR SIGN AND RETURNS LETTER OF ACCEPTANCE OF TENDER. 4.O must issue instruction in regard to the revision of date of possession and the date for completion as stated in clause 38. Document that contractor must submit such as. SITE POSSESSION Contractor is definitely entitled to exclusive possession of the whole construction site.O for the Project.2007) The Clause. 3.

a. lightning. tempest. explosions storm. occupation or use as is necessary to enable him to perform the contract¶¶ (business-freetips. Public Liability Policy. The policy must covered the contract period. b. Precedent Case In a precedent case between London B. nor shall he be entitled to terminate this contract. all works executed and all unfix material and goods. The policy must be issue by competence insurance company on the name of employer and the Contractor. or over-flowing over water tanks. The Policy covered any accident at site.1(h) hereof. delivered to. Insurance Policy for the Works. apparatus or pipe. flood. bursting. The contract policy must covered liability against loss and damages by fire. riot and civil commotion.3. may issue instructions in regards to the revision of the ³Date for Possession´ and the ³Date for Completion´ shall be appropriately revise under clause 43. The policy must cover the contract period. placed on or adjacents to the works and intended . defect liability and three (3) month 14 days afterwards. the verdict was: µ¶the contract necessarily required the building owner to give the contractor such possession. the S. but the Contractor shall not be entitled to claim for any loss or damage caused by such delay in giving possession of Site.com) CONTRACTOR DEPOSITS OR SUBMIT RELEVANT INSURANCE POLICIES The contractor must submit all relevant insurance that stated in LA (Letter of Acceptance) such as. ground subsidence.O.Site as provided in clause 38. of Hounslow Vs Twickenham Garden Developments Ltd (1970) 7 BLR81. aircraft and others aerial devices or article dropped there from. The policy must be issue by competence insurance company on the name of employer and the Contractor.

arising out of .W. 2007).D. the Contractor shall. plants. moveable or immovable. P. or by reason of the execution of the work and cause by any negligence. the Contractor shall bear the amount of such excess. whether nominated or otherwise. All the relevant insurance must submit to employer before Contractor start their works or the Contractor can submit Cover Note of the insurance policy and all the premium receipt that had been paid. 15.1 (a) Taking of insurance Without prejudice to his liability to indemnify the government under clause 14 hereof.thereof (but excluding temporary buildings. as condition precedent to the commencement of any work under this contract. breach of contract or default of the Contractor or any sub-contractor. (c) Such insurance as referred to under sub-clause (a) hereof shall be effected with an insurance company as approved by the Government and maintained in the joint names of the government and Contractor and all sub-contractor. effect and maintain such insurances whether with or without an excess amount as specified in Appendix hereto as are necessary to cover the liability of the Contractor. 15. whether nominated or otherwise. Insurance Policy Clause . FORM 203A (Rev. whether nominated or otherwise. (b) Such insurance shall be for the purpose of personal injuries or death. tools and equipment owned or hired by the Contractor or any Sub-contractor. The policy or policies of insurance shall contain a cross liability clause indemnifying each of the jointly insured against claims made by on him by the other jointly insured. Such insurance shall cover from period of the date of possession of site until the date of issuance of certificate of Making Good Defect for any claim occasioned by the contractor or any subcontractor in the course of . nominated or otherwise). omission. Where and excess amount is specified in Appendix. or in the course of. damage or loss to property.0 INSURANCE AGAINST PERSONAL INJURIES AND DAMAGE TO PROPERTY.

The value of the bond must 5% from the total amount of the contract. P.396.O. FORM 203A (Rev.0 PERFORMANCE BOND / PERFORMANCE GUENTEE SUM 13. 13. 269. The Performance Bond shall remain valid and effective until twelve (12) month after the expiry of the Defect Liability Period or issuance of the Certificate of Completion of Making Good Defect. 2007). . If the contract amount was RM 2. the client is guaranteed to use the money for any monetary loss.00 the bond value was RM 124.W. whichever is the later. provide a Performance Bond or Performance Guarantee Sum as the case may be substantially in the form as in Appendix issued by and approved licensed bank or financial institution incorporated in Malaysia in favour of the Government for a sum equivalent to five percent (5%) of the total Contract Sum as specified in Appendix to secure the due performance of the obligations under this contract by the Contractor. 15.1(a) The Contractor shall. CONTRACTOR DEPOSITS OR SUBMIT PERFORMANCE BOND OR BANK GUARANTEE Performance Bond Definition A bond issued to one party of a contract as a guarantee against the failure of the other party to meet obligations specified in the contract..D.any operations carried out by the Contractor or any sub-contractor for the purpose of complying with his obligations under Clause 48 hereof. a contractor may issue a bond to a client for whom a building is being constructed. If the contractor fails to construct the building according to the specifications laid out by the contract. Performance Bond Clause. 485. on the date of the possession of site. whether demand or not. (investopedia) For example.80.2 Production of Polices It shall be the duty of the Contractor to produce and shall deposit the relevant policy or policies of the insurance together with receipt in respect of premiums paid to the S.

c. deadlines. the Government shall be entitled at any time to call upon the Performance Bond. CONTRACTOR SUBMIT WORK PROGRAMME Work Programme Definition Specifies the detailed implementation of the specific programmes. in order to prepare a successful proposal. submit to the S. Tiles sample. The extent to which a proposal addresses the objectives of the work programme is an evaluation criterion (i. wholly or partially. shall reasonably determained. 12.13.e. for his approval a programme of work of the execution of the works in such forms and details as the S.O. Work Programme Clause. It provides all information necessary to launch calls for proposals.1 PROGRAMME OF WORK Where a programme of work is not provided by the S. Together with work programme the Contractor has to submit construction method and the entire material sample such as. P. (Marie Cure Actions. 2007). instruments used. . the Contractor shall within fourteen (14) days after the date of the Letter of Acceptance.3 Notwithstanding anything contained in the Contract.W. b. a. in the event that the Contractor fails to perform or fulfil its obligation under this Contract and such failure is not remedied in accordance with this Contract. d.D.O. roadmaps). Sanitary.0 12. Ceiling and other relevant material. Window material. It comprises detailed descriptions of the activities (detailed thematic priorities.O. FORM 203A (Rev.. evaluation criteria. one has to read carefully the work programme related to the call addressed). 2006) The Contractor must submit the work programme to show and to ensure the construction activity and Contractor meet the dateline.

CONTRACTOR EXECUTED WORKS INCLUDING DELIVERY MATERIAL.O. that the actual progress of the works does not conform to the fixed or approved programme of work refered to clause 12. Contractor start work accordance to specification of the drawing. 2007).2 If at any time it should appear to the S. The Contractor shall.O.D FORM 203A (Rev.O. or arrange for or carry out any test of any material or goods (whether or not already incorporated in the works) or of any executed work with the S. including µS¶ curve show that the progress of work in comparesion between planning and actual works. the Contractor shall produce.12.O. At this stage also Architect or S.O. The Contractor shall submit or present to the S. to open up for inspection any work covered up. provide sample of material and goods for testing purposes. may in writing require and the cost of such opening u or testing (together with the cost of making good in consequence thereof) shall be added to the Contract Sum unless provided for in the Bill of Quantities by way of Provision Sum or otherwise or unless the inspection or test show that the work.2 The Contractor shall.W.O. the Contract shall provided progress of works with picture.D. a revised programme of work showimg the necessary modifications to the approved programme necessary to ensure completion of the works within the time for completion as defined in clause 39 hereof or any extended time granted pursuant to clause 43. 35. will monitor and inspect Contractor work. in clause. FORM 203A (Rev. has the right to instructs the Contractor to remove the work that not follow the specification as stated in P. started that the Contractor shall provided relevant sample. During the construction. materials or goods are not in accordance with this Contract.W. entirely at his own cost. 2007). when instructed by S. . The S.1 hereof.O. Clause in P. the progress in weekly meeting and submit the progress report to S.

from time to time. once (or more often at the discretion of the S. the S. 28. The S.O.1 When the Contractor has executed works including delivery to or adjacent to the Works of any unfixed materials or goods intended for incorporation into the Works in accordance with the term of this Contract and their total value of work thereof has reached the sum referred to in Appendix. provided such assistance. shall issue Interim Certificate to Contractor within fourteen (14) days from the date of evaluation. It was stated in P. FORM 203A (Rev.4 thereof.O.O.O. weight or quality of the material used. provided the total value of the work properly executed and the value of unfixed materials and goods as specified in clause 28. 2007) in clause. The evaluation for interim claim was stated in P.O. instruments. and shall supply sample of material before incorporation in the works for testing. 36. as may be required by the S.) during the course of each succeeding month the S.2 Thereafter.W. as well as and the quality.4 The Contractor shall. or architect and Contractor evaluate the executed works by contractor for Contractor to make their interim claim. 28.D. measuring and testing of any work. may issue instruction to contractor to remove from the site or rectify any work. The works included percentage of the work done and unfix material at site. labour and materials as are normally required for the purpose of examining.O.3 The S.O.36. goods which are not in accordance with this Contract at it own cost.O MAKE VALUATION OF THE WORKS EXECUTED & MATERIAL DELIVERED EVERY MONTH. delivered to the Site intended of incorporation into the Works in each subsequent valuation shall not be less than the sum referred to in Appendix. . S. Architect or S.W. 2007) in clause. machines. shall at the time make the first valuation of the same.D. shall make a valuation of the works properly executed and of unfixed materials and goods delivered to or adjacent to the Site. FROM 203A (Rev.

O. or the Government the relevant insurance policies under clause 15 and 18 hereof. if the works achieve practical completion and the S.O.D. 28.O. be the estimated total value of the work properly executed and up to ninety percent (90%) of the value of the unfixed materials and goods delivered to or adjacent to the Site intended for incorporation into the permanent Work up to and including the date the valuation was made.3 Within fourteen (14) days from the date of any such valuation being made and subject to the provision mentioned in the clause 28. PROVIDED THAT such certificate shall only include the value of the said unfixed materials and goods as and from such time as they are reasonably and properly and not prematurely delivered to or adjacent to the Site and adequately protected against weather.O. in writing to that effect. shall issue Certification of Practical Completion to the Contractor ast stated in P. subject to any agreement between the Parties as to payment by stages. S. shall issue an Interim Certificate starting the amount due to the Contractor from the Government. shall .3 Within 14 days of receipt of such notice. the S.O. the S. 39. the Contractor shall notify the S. 39. The Certification of Completion shall be issue by the S. damage or deterioration.O ISSUES CERTIFICATION OF COMPLETION. less any payment (including advance payment) previously made paid under the Contract. FORM 203A (Rev.1.O. Pursuant to such inspection/testing. PROVIDED THAT the signing of this Contract shall not be a condition precedent for the issue of the first Interim certification (and no other) so long as the Contractor has returned the Letter of Acceptance of Tender duly signed and has deposited with the S. shall carry out testing/inspection of the Works.4 The amount stated as due in an Interim Certificate shall.O.O.2 If the Contractor considers that the works have achieved practical completion. if the contractor fulfill their contract within the dateline and The Contractor shall notify the S. 2007) in clause. the S.28.W.

will certified the works. FORM 203A (Rev.O. the S. and such date shall be the date of the commencement of the Defects Liability Period as provided in clause 48 hereof.O.O.D.W.O. will give Defect List to the Contractor to review and shall repaired all the defect within the Defect liability Period. the S.O. . imperfection. shall issue written instruction to the Contractor to make good such defect. imperfection. shrinkage or any other fault whatsoever at the Contractor¶s own cost. The Contractor shall complete all such works with due expedition or within such time as may be specified by the S. any defect. or (b) give instruction to the Contract specifying all defective works which are required to be compete by the Contractor before the issuance of the Certificate of Practical Completion. 2007) in clause.O ISSUES SCHEDULE OF DEFECT.O. shrinkage or any other fault whatsoever which may appear and which are due to materials or goods or workmanship not in accordance with this Contract. After received the Certificate of Completion.(a) issue the Certificate of Practical Completion to the Contractor if in his opinion the whole Works have reached Practical Completion and have satisfactorily passed any inspection/test carried out by the S.1 Completion of Outstanding Work and Remedying Defects (a) At any time during the Defect Liability Period as stated in Appendix hereto (or if none stated the period is twelve (12) months from the date of Practical completion of the Works). The date of such completion shall be certified by the S. it was sated in P. DEFECT LIABILITY PERIOD (DLP) AND S. 48. twelve (12) month from issue of Certificate of Compilation and S.

imperfection. FROM 203A (Rev. shrinkage or any other fault whatsoever which may appear during the Defect Liability Period to be made good by the Contractor. The defect. The clause in P. PROVIDED THAT the S. shrinkage or any other fault whatsoever specified in the schedule of Defects shall be made good by the Contractor at his own costs and to completed within a reasonable time but in any case not later than three (3) months after the receipt of the said Schedule. in the Schedule of Defects which he shall delver to the Contractor not later than fourteen (14) days after the expiration of the Defect Liability Period. imperfection. . whichever is the later. FINAL CERTIFICATE The S. shall issue Final Certificate after all the defect works done by Contractor and been approved by S.W. any defect.2007) is 48. shrinkage or any other fault whatsoever after the issuance of the said Schedule of Defect or after fourteen (14) days from the expiration of the said Defect Liability Period. (b) Without prejudice to sub-clause (a). shall not be allowed to issue any further instruction requiring the Contractor to make good any defect.O.1(b) as below.O. The Contractor shall repair and made goods all the defect in Schedule of Defect within the Defect Liability Period.CONTRACTOR VERIFY AND REPAIR ALL THE DEFECTS.O.D.O. shall be specified by the S. imperfection.

2005) What is Privity of Contract? A contract is an agreement made under legal obligations and entered into by 2 or more parties. The contract may be written or oral.. This is because parties subject to the contract have certain rights and obligations that one must respect and follow. where the contract is for the beneft of a third party beneficiary. This may also include the possibility of suing a party in the event of a breach of contract. referred to as an assignee. (DHEERSJ. (b) Where the plaintiff is the beneficiary solely interested in the promise. It¶s also possible to . but both subscribe to the contract that only those who have entered into the contract can reap the benefits of the agreement or must abide by whatever terms and conditions were stipulated in the contract. This legal concept refers to privity of contract. such rights and obligations are not usually extended to third parties in a contract because they are not included in the privity of contract. This happens when a party cannot fulfill the terms and conditions or deliver the promises he or she agreed to. transfers rights or responsibilities due from the contract to the third party. This can be done through assignment wherein one of the parties under contract. Privity of contract is a legal concept that deals with issues surrounding what legal obligations the parties under contract are subject to.PRIVITY OF CONTRACT Privity of Contract Definition The general requirement that a person who sues upon a contract must be the pomisee or must have some legal interest in the undertaking. i.e. However. There are instances however when a third party can be granted the right to privity of contract. There are some exceptious to the rule: (a) Where assets come into the promisor¶s hands which in equity belong to a third person. Once an assignment occurs. referred to as an assignor. the assignor loses his or her rights in the contract while the assignee receives the rights.

Selfridge was one such retailer and they sold at prices below the specified prices. The consideration is not moving from the company to the dealer. Nor was the court swayed by the absence of an express designation . of course. having been a party to the contract). When the uncle died. ³Where a contract is made with A for the benefit of B. A can sue on the contract for the benefit of B and recover all that B could have recovered if the contract had been made with B himself. but as executor of the uncle¶s estate and on his behalf (the uncle. with exactly the same contract with the manufacturer. One of the terms was that the nephew would pay support to the uncle¶s wife upon the uncle¶s death. Mabee McLaren Motors Ltd. the nephew reneged.´ The court based its opinion on the fact that the contract between the manufacturer and each dealer was exactly the same. not personally. v. There appeared to be no privity of contract between Dunlop and Selfridge. (What is Privity of Contract?) Precedent Case 1 Dunlop Pneumatic Tyre Co.´ (CONTRACT LAW) Precedent Case 3 McCannell v. The widow was able to sue. Beswick (1966) A nephew bought out his uncle¶s coal business. Selfridge & Co. Ltd. (1926) In this case. The court also noted that there was no consideration flowing from Dunlop to Selfridge so it was not possible for Dunlop to enforce against Selfridge. (1915) Dunlop sold its tires to a wholesaler on the condition that they were sold to retailers who agreed to sell at the specified prices. Ltd. The widow sued. but from one dealer to another. the issue was the extent to which a contract between a car manufacturer (Studebaker) and a dealer could be enforced by another dealer. The court decided that the manufacturer was ³the agent of the several dealers to bring about privity of contract between them. (CONTRACT LAW) Precedent Case 2 Beswick v.gain privity of contract through delegation of duties wherein the delegator gives his or her rights to the delegatee.

to the effect that the manufacturer was the agent of the dealers. damaged the transformer to the tune of $33. main contractor and sub-contractor. To this. the court made an outright exception in the case of employees. through their negligence. ³An employer such as Kuehne & Nagel performs its contractual obligations with a party such as the appellants through its employees. London Drugs sued them personally.´ (CONTRACT LAW) Precedent Case 4 London Drugs Ltd. extend its benefit to the employee(s) seeking to rely on it. The employees sought to invoke the liability limitation clause. and (2) the employee(s) seeking the benefit of the limitation of liability clause must have been acting in the course of their employment and must have been performing the very services provided for in the contract between their employer and the plaintiff when the loss occurred. v. In construction industries sub-contractor only have contract with main-contractor even though employer introduce or recommend sub-contractor to main- . Rule of the Privity of Contract show that main-contractor only have contract with employer not with the sub-contractor. ³The function which he (the manufacturer) fills in bringing the parties together and their recognition of the relationship which his efforts have created is the test of agency. a storage company. for the whole amount. Canada¶s Supreme Court recognized that the privity of contract rule prevented beneficiaries from enforcing a contract to which they were not a party.´ (CONTRACT LAW) Rule of Privity of Contract Contractual relationship between employer. there is an identity of interest between employer and employee. As far as contractual obligations are concerned. Kuehne & Nagel International Ltd.955 of damages. either expressly or impliedly. When two employees of the storage company. Their contract had a liability clause limited to $40. (1992) A transformer belonging to London Drugs was stored by the defendant.´ The court then set two conditions allowing ³employees (to) be entitled to benefit from a limitation of liability clause found in a contract between their employer and the plaintiff: « (1) the limitation of liability clause must.

However. the court decided that Mrs Beswick would not be allowed to enforce payment using the Act. in the case of Tweddle v Atkinson (1861). The court decided that there was no contract between the third party. but that person was not able to benefit from the payment that was intended for him under the contract. for instance in the case of Jackson v Horizons Holidays (1975). the contract was created for the benefit of a third party. The rules of privity can cause disadvantages. Mr Jackson was informed that his original holiday was not ready and was offered an alternative. was used to obtain property by a third party. this is where there was a contract between two parties. booked a holiday for himself. (In Brief free legal information) What are the Rules? There are rules which stipulate who can take action to sue another party within a contract. However. The Main-Contractor shall responsible for any damage or any adequate in construction by the Sub-Contractor because of privity between them. his wife and his two children. the court decided that the contract was enforceable. this is where the plaintiff. In the case of Port Line v Ben Line Steamers (1958). The plaintiff . a third party could not sue Selfridge over an agreement over the price because the third party was not in contract with Selfridge. There have been cases which show how the rules of privity work. and it could not have the right to sue. this is where a third party to a contract tried to enforce payment under a contract which was between her late husband and her nephew. However. In the case of Beswick v Beswick (1968). Dunlop and Selfridge. the holiday tuned out unsatisfactory and Mr Jackson and his family were disappointed. which he accepted. The privity rule shows only those who have engaged in a contract have the right to sue. Section 56 of the Law of Property Act 1925. however.contractor. Mr Jackson. In the case of Dunlop v Selfridge (1915).

sued the company for breach of contract. it was decided that the damages could be extended to his family. and that the court could not award them separately. restrictions on price are also allowed. There . The court also decided that the figure awarded was right when considering himself and his family. The court awarded Mr Jackson damages. but the court did not divide the damages between the family members. (In Brief free legal information) Eurymedon (1975) This case (The Eurymedon [1975] AC 154) demonstrates that although an existing contractual obligation cannot usually be consideration in an agreement between the contracting parties. but later admitted liability. Collateral contracts are when there is a situation where it allows a party to find a way to avoid the rule. Another exception is covenants which run with the land. this is in the case of Tulk v Moxhay (1848). the court decided that he sued for breach of contract for himself and his family. which is another exception to the rule. which are restrictive and positive. it is possible for an obligation to a third party to be so deemed. and can override the common law in place. and therefore his damages recovered were for him and his family. For positive. Statute laws that are made can also act as exceptions to the rule. The court decided that it was for Mr Jackson to consider his family in the damages awarded. the court decided that the covenant could run with the land. an example of this is in the case of Shanklin Pier v Detel (1951). (In Brief free legal information) Exceptions to the Rule of Privity There are certain exceptions to the rule of privity. For restrictive. However. In certain circumstances. the company initially denied the claims made by the plaintiff. In the case of Eurymedon (1975). Mr Jackson appealed. in the case of Smith and Snipes Hall Farm v River Douglas Catchment Board (1949). this is where an agent was involved in the contract. and only awarded them Mr Jackson.

as this would be contrary to the principles of Privity of contract. even though the clause was for their benefit. and that the owners would extend the same exemption to the carriers' agents at the docks (the stevedors. This seems on the face of it to be a good case. The reasoning goes like this: y in contracting with the carriers. the owners of the goods made a unilateral offer to the effect that a party (as yet unknown) could unload the goods at dockside with the benefit of the exclusion clause. So the problem for the court was to find a way in which there was an implied agreement between the stevedors and the owners that did include this clause. The owners argued that there was an implied contract between themselves and the stevedors. they were liable for damages. The contract contained an exemption clause to the effect that the owners could not sue for damages in respect of negligence after one year. the owners did not bring suit until the time set out in the exclusion clause had elapsed. in this case). So they sued the stevedors. However. However. and under the terms of this implied contract the stevedors should have exercised due care in the unloading. as the exclusion clause would have defeated their suit. Because they did not. The stevedors damaged the machine at the dock. . the owners of the goods (the plaintiff) and the stevedors (defendents). that this was a result of their negligence is not in dispute. It hardly seems fair that they should wriggle out of this exemption on a technicality. this probably arises because in fact the intentions of all the contracting parties were clear. The owner contracted with the carrier to deliver a piece of machinery. they fully consented to exempt the carriers and their agents from liability for negligence. the stevedors could not rely on the exemption clause as a term in the original contract itself. it is clear that when the owner of the goods contracted with the carrier. The case concerns a carrier of goods by sea. They could not sue the carrier. Now.is some rather tortuous reasoning in the judgement. the court strove to find terms under which it could deliver a judgement that reflected these intentions.

Then. On the basis of this conversation Shanklin Pier Ltd instructed the contractors to use a particular paint.. y therefore the stevedors were not liable. Although the reasoning is strained. it is interesting to ask what the situation would have been if the stevedors had damaged the goods before fulfulling their consideration. However. there would no consideration and no contract. acceptance was signalled by their performing the requested action (as per Carlill v Carbolic Smoke Ball Co.y the stevedors accepted this offer. on ship itself.) y this acceptance formed a valid implied contract. This was complicated by the fact that there was no . the only tricky one was consideration. an exception to the rule of privity of contract where a contract may be given consideration by entering into another contract. which was deemed to be the process of unloading the goods. Facts Shanklin Pier Ltd hired a contractor to paint Shanklin Pier. which they did. and that it would last for at least seven years. e. (Lawiki. the judgement gives effect to the original intentions of the contractees.g.org. In it the High Court of Justice King's Bench Division created the principle of collateral contracts. because all the required provisions for validity were in place. and Shanklin Pier attempted to claim compensation from Detel Products. y therefore the stevedors had a contract with the owners. They spoke to Detel Products Ltd about whether a particular paint was suitable to be used. in which they were exempted from liability after one year. 2010) Shanklin Pier Ltd v Detel Products Ltd [1951] Shanklin Pier Ltd v Detel Products Ltd [1951] 2 KB 854 is a leading judgment on the subject of collateral contracts in English contract law. and Detel assured them that it was. The paint started to peel after three months. and does not offend against any other precedents. presumably.

direct contract between the two companies. as well as of several of the houses forming the square. and at all times thereafter at his and their own costs and charges." The piece of land so conveyed passed by divers means conveyances into the hands of the . Appeal by the defendant from an order of LORD LANGDALE MR. and administrators. uncovered with any buildings. and assigns should. in an open state. no one purchasing with notice of that equity can stand in a different situation from that of the party from whom he purchased. sold the piece of ground by the description of: "Leicester Square Garden or Pleasure Ground. for himself. in an action for an injunction. Per LORD COTTENHAM. executors. being then the owner in fee of a vacant piece of ground in Leicester Square. and that it should be lawful for the inhabitants of Leicester Square. on payment of a reasonable rent for the same. 2010) Tulk v Moxhay (1848). tenants of the plaintiff. with the plaintiff. and in sufficient and proper repair as a square garden and pleasure ground. with the equestrian statue then standing in the centre thereof and the iron railing and stone work round the same. "that Films. in neat and ornamental order. (wikipedia. and between the contractors and Detel Products. and assigns. to have keys at their own expense and the privilege of admission therewith at any time or times into the said square garden and pleasure ground. and would from time to time." to one Elms in fee. London. The deed of conveyance contained a covenant by Elms. his heirs. LC: If an equity is attached to property by the owner. In 1808 the plaintiff. his heirs. only between Shanklin Pier and the contractors. keep and maintain the said piece of ground and square garden and the iron railing round the same in its then form. his heirs.

Of course. who remained owner of several houses in the square. the price would be affected by the covenant. An injunction was granted by the Master of the Rolls. The defendant having manifested an intention to alter the character of the square garden. Here there is no question about the contract. but that he might sell the piece of land. with notice of which he purchased. it would be impossible for an owner of land to sell part of it without incurring the risk of rendering what he retains worthless. and uncovered with buildings. to restrain the defendant from converting or using the piece of ground and square garden and the iron railing round the same to or for any other purpose than as a square garden and pleasure ground in an open state. but the question is not whether the covenant runs with the land. The defendant moved to discharge that order. the plaintiff. It is now contended. If that were so. this court cannot enforce it. . filed this bill for an injunction. The owner of certain houses in the square sells the land adjoining. and nothing could be more inequitable than that the original purchaser should be able to sell the property the next day for a greater price. but whether a party shall be permitted to use the land in a manner inconsistent with the contract entered into by his vendor. in consideration of the assignee being allowed to escape from the liability which he had himself undertaken. not that the vendee could violate that contract. if he thought fit. but he admitted that he had purchased with notice of the covenant in the deed of 1808. and that the purchaser from him may violate it without this court having any power to interfere. whose purchase deed contained no similar covenant with his vendor. with a covenant from the purchaser not to use it for any other purpose than as a square garden.defendant. the covenant being one which does not run with the land. It is said that. JUDGMENT: LORD COTTENHAM LC: That this court has jurisdiction to enforce a contract between the owner of land and his neighbour purchasing a part of it that the purchaser shall either use or abstain from using the land purchased in a particular way is what I never knew disputed. and asserted a right. to build upon it.

The motion was. in which he considered that doctrine as not in dispute. With respect to the observations of LORD BROUGHAM in Keppell v Bailey he never could have meant to lay down. but. that this court would not enforce an equity attached to land by the owner unless under such circumstances as would maintain an action at law. I never intended to make the injunction depend upon the result of the action. I think this decision of the Master of the Rolls perfectly right. was locally situated within what was called the Dell. There are not only cases before the Vice-Chancellor of England. nor does the order imply it. to discharge an order for the commitment of the defendant for an alleged breach of the injunction. and the plaintiff insisting that it was not. that this motion must be refused with costs. and also to dissolve the injunction. and. I gave him liberty to do so. I thought the pendency of the suit ought not to prejudice the plaintiff in his right to bring an action if he thought he had such right. I upheld the injunction. If that be the result of his observations. if there was a mere agreement and no covenant. that. on which alone he had under the covenant a right to build. and. therefore. I can only say that I cannot coincide with it. there being a doubt whether part of the premises on which the defendant was proceeding to build. this court would enforce it against a party purchasing with notice of it. no one purchasing with notice of that equity can stand in a different situation from that of the party from whom he purchased. for if an equity is attached to property by the owner. In Mann v Stephens before me. but discharged the order of commitment on the ground that it was not clearly proved that any breach had been committed. 2011) . but looking at the ground on which LORD ELDON disposed of Duke of Bedford v British Museum Trustees it is impossible to suppose that he entertained any doubt of it.That the question does not depend upon whether the covenant runs with the land is evident from this. therefore. (CVN Law School.

eleven owners of land through which the river ran made an agreement with the local catchment board. The question was whether not having been privy to the original agreement was a bar to any recovery.Smith and Snipes Hall Farm v River Douglas Catchment Board (1949) Facts The River Douglas Catchment Board agreed with a number of landowners between the River Douglas and the Leeds and Liverpool Canal) to carry out some work if some contribution to the cost was given. The breach on that occasion was soon closed. The agreement showed the intention that the obligation would attach to the land. deepen and make good the banks of the river. and thereafter to maintain them. and it would not matter whose hands the land came into: the owner could enforce the covenant. and the landowners paid a contribution towards the cost. The low meadows. Because the covenant ran with the land. it was from the first doomed to failure. In 1938. which incorporated Snipes Hall Farm Ltd in 1944. But the banks of the river were not strong enough to stand serious floods. The landowners. Judgment The Court of Appeal all held that the Board was in breach of contract. Denning LJ's notable decision went as follows. There is in Lancashire a river called Eller Brook. were broken up and brought under the plough. but the board's . In 1944 they burst. In Autumn 1946 the Ellen Brook burst its banks and flooded Smith and Snipes Hall Farm land. In 1940 Mrs S. and that breach caused damage to the farm. under section 78 Law of Property Act 1925 it could be enforced by the covenantee and successors in title. one of the covenantees. sold her land ("Low Meadows") to Smith. which had been rough marshland. in the opinion of experts. of course. whereby the board undertook to widen. Crops were sown and harvested. which is liable to overflow its banks and flood the adjoining land. did not know this and set about cultivating the land. but they did it so unskilfully that. They made a claim against the Board for damages in tort and breach of contract. The board did the work and practically completed it by 1940. in order to prevent the flooding.

the fields were flooded. Mr." But apparently he did nothing. The principle is not nearly so fundamental as it is sometimes supposed to be. the banks burst. Nield says that the plaintiffs cannot sue. I propose to put a machine on to strengthen it as soon as one is available. but they did not do either. It follows. They did not know that the banks were doomed to failure. he could recover from the board." In 1945 there was another burst near by. He says that there is no privity of contract between them and the board. I make so bold as to dispute it. It was an implied term that they should do the work with reasonable care and skill. Serious floods arose. But he sold the land and he has suffered no damage. That argument can be met either by admitting the principle and saying that it does not apply to this case. This action is brought by a tenant of the fields against the board to recover the value of the crops he has lost. The landowners and their tenants went on cultivating the land. No private contractor who was engaged to make works for a specific purpose could excuse himself for bad results by saying that he had not sufficient money to erect proper works. It may be that the board had not sufficient funds available to carry out such works. Then in 1946 the worst happened.engineer was aware of the danger. and that it is a fundamental principle that no one can sue upon a contract to which he is not a party. but the substantial claim is by the tenant company. or at any rate nothing effective. and the crops ruined. just as irrelevant in the case of a public board as in the case of a private contractor. or by disputing the principle itself. The present owner joins in the action. or to make them very much wider. On those facts it is my opinion that the board broke their contract. and he reported that "this bank is largely composed of sand. that if the original landowner with whom the agreement was made had himself cultivated the fields. but principally by the tenants. and the question is whether they can sue on the contract. was to put a clay core in the banks. therefore. It did not become rooted in our law until the year 1861 . according to the experts. or. The damage has been suffered partly by the man who purchased the land. so as to make the banks reasonably fit for the purpose of preventing flooding. but that seems to me to be an irrelevant consideration. at any rate. and suffered damage by the breach. He reported to the board that "the bank is a bad one under any conditions. The proper way of doing this. claiming his loss of rent.

but also at the suit of one who was not a party to the contract.) that the courts. must keep his promise. It has sometimes been supposed that there must always be something in the nature of a "trust" for his benefit. It may be difficult to define what is a sufficient interest.(Tweddle v Atkinson. The truth is that the principle is not so limited. It is upon this principle. to say what is sufficient interest to entitle the third person to recover. of course.) that Lord Hardwicke decided that a third person is entitled to sue if there can be spelt out of the contract an intention by one of the parties to contract as trustee for him. as it was in Les Affréteurs Réunis Société Anonyme v Leopold Walford Ltd. under seal or for good consideration. it does cover the protection of the legitimate property.) that Lord Mansfield held that an undisclosed principal is entitled to sue on a contract made by his agent for his benefit. It has never been able entirely to supplant another principle whose roots go much deeper. and there was no trust fund to be administered. It covers. rights such as these which cannot justly be denied. even though nothing was said about agency in the contract. have held that a covenant made with the owner of land for its benefit can be enforced against the covenantor. the right of a seller to . even though nothing was said about any trust in the contract. of course. but also by his successors in title. although no agency or trust for him can be inferred. I mean the principle that a man who makes a deliberate promise which is intended to be binding. provided that it was made for his benefit and that he has a sufficient interest to entitle him to enforce it. (iii. and (iv. implicit if not expressed (i. (ii. Whilst it does not include the maintenance of prices to the public disadvantage. and reached its full growth in 1915 (Dunlop v Selfridge). to any defences that may be open on the merits. and the court will hold him to it. not only by the original party.) that the Courts of Common Law in the seventeenth and eighteenth centuries repeatedly enforced promises expressly made in favour of an interested person. and it involves the trustee being made a nominal party to the action either as plaintiff or defendant. unless that formality is dispensed with. not only at the suit of the party who gave the consideration. subject always. But this is an elusive test which does not explain all the cases. that is to say. therefore. Throughout the history of the principle the difficulty has been. ever since 1368. rights and interests of the third person.

This limitation. taken out by him against loss by burglary which is expressed to cover them. after he has parted with the land. The reason which Lord Coke gave for this rule is the reason which underlies the whole of the principle now under consideration. could recover no more than nominal damages for any breach that occurred thereafter. however. at common law that. to give the driver of a motor car the right to sue on an insurance policy taken out by the owner which is expressed to cover the driver. in order that a successor in title should be entitled to sue. however. cf Prudential Staff Union v Hall. The law on this subject was fully expounded by Mr. which provides that a covenant relating to any land of the covenantee shall be deemed to be made with the covenantee and his successors in title. as. or the right of a man's servants and guests to claim on an insurance policy." and it has been removed by s. as is pointed out in Smith's Leading Cases. Such covenants are clearly intended. In some cases the legislature itself has intervened." If a successor in title were not allowed to sue it would mean that the covenantor could break his contract with impunity. That alone was a sufficient interest to entitle him to enforce the contract. for it is clear that the original owner. he must be of the same estate as the original owner. and usually expressed. and not for the benefit of anyone else. The particular application of the principle with which we are concerned here is the case of covenants made with the owner of the land to which they relate. The covenant was supposed to be made for the benefit of the owner and his successors in title. It was always held. 78 of the Law of Property Act 1925. "and the persons deriving title under . the right of a widow to sue for a pension which her husband's employers promised to pay her under contract with him.enforce a commercial credit issued in his favour by a bank. to be for the benefit of whomsoever should be the owner of the land for the time being. was. and at common law each successive owner has a sufficient interest to sue because he holds the same estate as the original owner. Smith in his note to Spencer's case which has always been regarded as authoritative. He said in his work upon Littleton that it was "to give damages to the party grieved. for instance. under contract with the buyer. capable of being "productive of very serious and disagreeable consequences. But this does not mean that the common law would not have reached the same result by itself.

That section is no doubt. So much for the question of principle. So construed it is a clear statutory recognition of the principle to which I have referred and it is applicable to this case. it is to be deemed to be made.him or them" and shall have effect as if such successors "and other persons" were expressed. which says that a person may take the benefit of any covenant or agreement respecting land or other property. but also with the purchasers of the land and their tenants as if they were expressed. although he may not be named as a party to the instrument. and they clearly have sufficient interest to entitle them to enforce it because they have suffered the damage. it should. there is no reason why the section should not be given its full scope. as Lord Greene has said. 56. confined to cases when the person seeking to take advantage of it is a person "within the benefit" of the covenant or agreement. although he was not a party to it. The covenant of the catchment board in this case clearly relates to the land of the covenantees. It is true that the agreement did not describe the lands by metes and bounds. . I cannot believe that the covenantors there could break their contract with impunity. that a person may enforce an agreement respecting property made for his benefit. Mr. I would not wish to leave this subject without referring also to s. 56 of the Law of Property Act. If the principle had been canvassed in In re Miller's Agreement. 5 of the Real Property Act 1845. I think have been held there that the daughters had a right at common law to sue for their pension. Section 56 means. therefore. it would be clear that the covenant was made for their benefit. s. By the statute. The result is that the plaintiffs come within the principle whereby a person interested can sue on a contract expressly made for his benefit. a right which was reinforced by s. therefore. 1925 . Nield did urge that the benefit of the covenant should not run with the land here because there was no clearly defined piece of land to which it was attached.but. but it did give a description of them which was capable of being rendered certain by extrinsic evidence. Now if they were expressed. subject to that limitation. It was a covenant to do work on the land for the benefit of the land. just as Lord Dunedin was prepared to give full scope to its narrower predecessor. not only with the original owner.

2007). therefore. shows that. Id certum est quod certum reddi potest.W. and they are in duty bound to fulfil it. SUMMARY There have a relationship between Contract Administration and P. in consequence of the works done by the board. start from receiving L. in the East Suffolk case. The decision of the House of Lords does show. that. and ever since The Prior's case it has been held that the covenantor is liable because of his covenant given to the owner of the dominant tenement and not because of his relationship to any servient tenement. but it also shows that if it does exercise its powers it must use reasonable care not to injure persons likely to be affected by its operations. therefore. in the absence of a contract. however. The Contractor shall follow the instruction in P. that the appeal should be allowed. This is a question of the benefit running. But the duty in contract is a very different thing.D. The landowner paid his contribution in return for the board's promise. the board are liable to the plaintiffs in damages for breach of covenant.W. but I will add a word about it. ploughed up the land and cultivated the fields. The present case is very different from that one.W. FORM 203 (Rev.and that is sufficient. for in that case they would have had no crops there. Mr. But that is only material when there is a question whether the burden of a covenant runs with the land. It is thus unnecessary to consider whether they are liable in tort. I agree.A (Letter of Acceptance) or µSurat Setuju Terima Tender¶ until finish project when the Contractor receiving Final Certificate from the S. In my opinion. Nield also argued that there was no servient tenement. An adjacent landowner must not be too critical if the board prefers thrift to efficiency. and in the result suffered damage which they would not have done if the board had done nothing. because here the landowners. The decision of the House of Lords.O.D. it is material to inquire into the expense of the works which it is said they ought to have constructed.D to ensure . There is no question of a gift horse there. in considering whether the board broke its duty in tort. for the Government project normally handle by JKR it Contractor obligation the follow all the instruction in P. I suppose on the principle that he should not look a gift horse in the mouth and must be prepared to take it with some faults. a catchment board is under no duty to exercise its powers with efficiency or dispatch or at all.

Nominated Sub-Contractor and Quantity Survey have to follow the Standard Form of Contract. there also have exception in the Privity of Contract that can overwrite the Privity of Contract as the case of Eurymedon [1975]. Engineers. Rule of Privity of Contract show that only parties in the contract can sues other parties. Between this two (2) question there have a relationship. all the parties that involve in construction site such as. if the third parties that not involved in the contract want to take legal action the contract was void to him.the smoothness of contraction works and meet the date line that has been stated in Letter of Acceptance. Architects. However. in this case the employer cannot sues the Supplier if the Supplier supply the material that poor in quality. The Main. CONCLUTION In order to ensure the smoothness and to prevent the project from delay. if the Sub-Contractor works not follow the specification and the Supplier supply low quality material. Main-Contractor. . the Privity of Contract in construction site show that a person cannot enforce obligations under a contract to which he is not a party. Main-Contractor have to responsible even thought the Sub-Contractor or Supplier been introduce by others parties such as Architect or Employer himself.Contractor also must know their obligation on Sub-Contractor and Supplier.

com 8.d. 2011. from In Breaf: www. Retrieved February 22. Retrieved march 9. Retrieved February 26.d. from business-freetips. 3.REFERANCE 1. En. 2011. CVN Law School. Retrieved February 22.lawiki. &.wordpress.d.). Retrieved March 4. Retrieved February 22. (2011).). LEGAL DICTIONARY.). 2011. S. 2.com. (2006. (n. Juruteknik JABATAN KERJA RAYA. 2011.org: httpp://en. 2011. (2005).com 5. 2011. PETALING JAYA: INTERNATIONAL LAW BOOKES ERVICES. Terengganu.eu 6.co. CONTRACT LAW.europa. What is Privity of Contract? (n. Sharif Husin.org .d. from Marie Cure Actions: http://ec.com: httpp://lawschool. Retrieved March 8. Retrieved March 3. 2011. (2010. Retrieved March 9.courtroom.courtroom. from CIVIL LAW NETWORK: htpp://civillaenetwork. February 3). (n. (2010. Retrieved February 22.org 12. from lowschool.).investopedia.inbrief. Kemaman. Chukai. Lawiki. (n. 9. wikipedia.com. April 13). In Brief free legal information. DHEERSJ. 2011. from BusinessDictionary.d.org 11. (n. from wikipedia.i.com 7. January 20). from http://www. from investopedia: www.). from htpp://brainz.uk 10. 2011.d. (n.).org. 4.wikipedia. 2011.

8 8 6 15 18 6 E Eurymedon [1975] 19 I Insurance Policy for the Works. (1926) 16 P Performance Bond Performance Guarantee Sum possession of Site Privity of contract privity rule Public Liability Policy. Interim Certificate 6 11 W work programme 9 .INDEX B Beswick v. Ltd. Selfridge & Co. v. Ltd. (1992) 12 6 17 C Certification of Practical Completion M D Defect liability Period 13 Dunlop Pneumatic Tyre Co. Beswick (1966) 16 L London B. (1915) 16 Dunlop v Selfridge (1915) 18 McCannell v. Mabee McLaren Motors Ltd. Kuehne & Nagel International Ltd. v. of Hounslow Vs Twickenham London Drugs Ltd.

3. . Sample of Interim Certificate by the Architect.Appendix 1. Sample of Bank Guarantee used in Government JKR Project. Sample of Letter of Acceptance form Jabatan Kerja Raya Malaysia (Surat Setuju Terima Tender) 2. 4. Sample of Contractor All Risk Insurance policy from Kurnia Insurance.

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