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CONTRACTORS LIABILITIES TOWARDS EMPLOYERS DEFECTIVE BUILDING WORK CLAIMS DURING DEFECT LIABILITY PERIOD

LIM TZE SHWAN

UNIVERSITI TEKNOLOGI MALAYSIA

PSZ 19:16 (Pind. 1/07)

UNIVERSITI TEKNOLOGI MALAYSIA


DECLARATION OF THESIS / UNDERGRADUATE PROJECT PAPER AND COPYRIGHT

Authors full name : Date of birth Title : :

LIM TZE SHWAN 29 August 1987 CONTRACTORS LIABILITIES TOWARDS EMPLOYERS DEFECTIVE BUILDING WORK CLAIMS DURING DEFECT LIABILITY PERIOD

Academic Session:

2010/2011/3

I declare that this thesis is classified as :

CONFIDENTIAL RESTRICTED OPEN ACCESS

(Contains confidential information under the Official Secret Act 1972)* (Contains restricted information as specified by the organisation where research was done)* I agree that my thesis to be published as online open access (full text)

I acknowledged that Universiti Teknologi Malaysia reserves the right as follows : 1. The thesis is the property of Universiti Teknologi Malaysia. 2. The Library of Universiti Teknologi Malaysia has the right to make copies for the purpose of research only. 3. The Library has the right to make copies of the thesis for academic exchange. Certified by :

SIGNATURE

SIGNATURE OF SUPERVISOR

LIM TZE SHWAN


(870829-35-5348)

ASSOC. PROF. DR. MAIZON HASHIM


(NAME OF SUPERVISOR)

Date : 8 AUGUST 2011

Date : 8 AUGUST 2011

NOTES :

If the thesis is CONFIDENTIAL or RESTRICTED, please attach with the letter from the organisation with period and reasons for confidentiality or restriction.

I/We* hereby declare that I/we* have read this project report and in my/our* opinion this project report is sufficient in terms of scope and quality for the award of the degree of Master of Construction Contract Management

Signature

: ................................................................

ASSOC. PROF. DR. MAIZON HASHIM Name of Supervisor I : ................................................................ AUGUST 2011 Date :8 ................................................................

* Delete as necessary

CONTRACTORS LIABILITIES TOWARDS EMPLOYERS DEFECTIVE BUILDING WORK CLAIMS DURING DEFECT LIABILITY PERIOD

LIM TZE SHWAN

A project report submitted in partial fulfillment of the requirement for the award of the degree of Master of Science (Construction Contract Management)

Faculty of Built Environment Universiti Teknologi Malaysia

JULY 2011

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I declare that this project report entitled Contractors Liability towards Employers Defective Building Work Claims during Defect Liability Period is the result of my own research except as cited in the references. The project report has not been accepted for any degree and is not concurrently submitted in candidature of any other degree.

Signature Name Date

: .......................................................... LIM TZE SHWAN : .......................................................... 8 AUGUST 2011 : ...........................................................

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DEDICATION

To my parents for giving me such a good start, and to my beloved friends for your love and the countless hours of laughter and joy we shared throught the years.

Thanks for support, guidance and everything.

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ACKNOWLEDGEMENT

First of all, I would like to express my highest gratitude to my supervisor, Assoc.


Prof. Dr. Maizon Hashim for her guidance, patience, advice and support in assisting me to

complete this dissertation throughout the semester.

Appreciation also goes to all the lecturers on the Master of Science (Construction Contract Management) course, for their patience and advice during the process of completing this master project.

Very importantly, I would like to thank my parents and family members for their support and encouragement throughout the research. Finally, my appreciation goes to my fellow coursemates with whom I exchanged much information and those who had contributed directly and indirectly to this master project.

ABSTRACT

The contractors liability towards the defects discovered during defect liability period is related to the issue of their rights and liability during that period. The issues included are the employers obligation to notify the contractor of defects, the contractors liability towards defective work caused by design defects, materials supplied by employer and whether the contractors liability to warn the employer if any faulty design that they knew about. The objective of this research is to identify the defective building work claims made by the employer for the defective building works during defect liability period and the circumstances whether the contractor is liable to the claims. The findings of this study show that, during the defect liability period, the contractor is liable and has the duty and rights to return to the site to rectify the defects and the employer is under the obligation to notify the contractor of the defects discovered. The contractor is not liable for the defective work caused by the quality of materials provided by employer, supplier choosen by employer and designers defective designs. But, it is the contractors liability to warn the employer of the faulty designs. The contractor is in breach of contract when he fails to rectify the defect during the defect liability period, and is liable to pay damages to the employer. The damages under employers defective work claims are cost of rectification, loss of amenity and consequential loss. The contractor is not liable for the full cost of rectification when the employer fails to give the notice of defects or refuses the contractor to rectify the defects. The contractor is liable to the damages for the loss of amenity when the work is not up to the satisfaction of the employer. The contractor is also liable to compensation for the consequential loss. The case analysis show that the employer can claims under the contract and common law. This study can use as a guidance for the employer and contractor on their legal rights and liability in respect to the defective works which appear during defect liability period.

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ABSTRAK

Liabiliti kontraktor terhadap penampilan kecacatan dalam tempoh liabiliti kecacatan adalah berkaitan dengan masalah hak-hak dan kewajipan selama tempoh itu. Masalah tertakluk kewajipan majikan untuk memberitahu tentang penampilan kecacatan, samada kontraktor bertanggungjawab terhadap kecacatan kerja yang disebaban oleh kecacatan rekabentuk, bahan-bahan pembinaan yang disediakan oleh majikan, dan samada kontraktor bertanggungjawab untuk memberi amaran kepada majikan jikalau mereka tahu tentang sebarang kecacatan rekabentuk. Tujuan kajian ini bertujuan untuk mengenal pasti tuntutan kecacatan yang dibuat oleh majikan untuk kerja-kerja cacat selama tempoh liabiliti kecacatan dan keadaan sama ada kontraktor nertanggungjawab kepada tuntutan itu. Keputusan kajian menunjukkan bahawa, selama tempoh liabiliti kecacatan, kontraktor bertanggungjawab dan menpunyai tugas dan hak-hak untuk kembali ke tapak pembinaan untuk memperbaiki sebarang kecacatan. Majikan adalah berkewajiban untuk memberitahu kontraktor tentang kecacatan yang ditemui. Kontraktor adalah tidak bertanggungjawab untuk kecacatan kerja yang disebabkan oleh qualitinya bahan-bahan yang dibekal atau pembekal yang dipilih oleh majikan, kecacatan rekabentuk daripada pereka bentuk. Namun, kontraktor berliabiliti untuk memberi amaran kepada majikan tentang kecacatan rekabentuk. Kontraktor yang melanggar kontrak dengan gagal untuk memperbaikan kerja-kerja cacat selama tempoh liabiliti kecacatan, dan bertanggungjawab untuk membayar ganti rugi kepada majikan. Tuntutan gantirugi adalah kos pembaikan, kehilangan kepuasan, dan kerugian atas sebab. Kontraktor adalah tidak bertanggungjawab kepada pembayaran penuh kos pembaikan jika majikan gagal untuk memberi notis kocacatan atau tidak memberi peluang untuk kontraktor membaiki kecacatan. Kontraktor adalah bertanggungjawab terhadap gantirugi atas kehilangan kepuasan jika kerja tidak menemui tahap kepuasan majikan. Kontraktor juga bertanggungjawab untuk pampasan kepada kerugian atas sebab. Analisis kes-kes menunjukkan bahawa majikan boleh menuntut di bawah kontrak dan common law. Kajian ini baleh digunakan sebagai rujukan kepada majikan dan kontractor untuk memahami hak-hak dan kewajipan berkaitan kecacatan kerja yang menampil sepanjang tempoh liabiliti kecacatan.

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TABLES OF CONTENTS

CHAPTER DECLARATION DEDICATION ACKNOWLEDGEMENT ABSTRACT ABSTRAK TABLES OF CONTENT LIST OF TABLES LIST OF FIGURES

TITLE

PAGE ii iii iv v vi vii x xi xii xiii

LIST OF ABBRIEVATIONS LIST OF CASES 1 INTRODUCTION 1.1 1.2 1.3 1.4 1.5 1.6 1.7 Research Background Problem Statement Objective of Research Scope of Research Significant of Research Research Methodology Structure of Research

1 7 11 11 12 12 15

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DEFECTIVE BUILDING WORKS DURING DEFECT LIABILITY PERIOD 2.1 2.2 2.3 Introduction Definition of Defect Types of Defect 2.3.1 2.3.2 2.4 Patent Defects Latent Defects 17 18 20 21 22 24 26 29 32 34 36 38 39 42

Causes of Defective Work 2.4.1 2.4.2 2.4.3 Standard of Design Quality of Building Materials Quality of Workmanship Defects Discovered during Defect Liability Period Contractors Obligation during Defect Liability Period Provisions Deal with Defect Liability Period

2.5

Defect Liability Period 2.5.1 2.5.2 2.5.3

2.6 3

Conclusion

EMPLOYERS DEFECTIVE WORK CLAIMS DURING DEFECT LIABILITY PERIOD AND THE CONTRACTORS LIABILITIES 3.1 3.2 Introduction Provisions in the Standard Form of Contract 3.2.1 3.2.2 3.3 3.4 3.5 3.6 Provision Deals with Defect Liability Contractors Rights to Rectify Works and Notification Liability of Contractor to Employer 43 45 46 49 51 54 59 63 65

Liability for Defects 3.3.1 Defective Work Claims by Employer during Defect Liability Period Liability to Defective Work Claims Conclusion

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ANALYSIS OF CASE STUDIES 4.1 4.2 Introduction Contractors Defect Liability during Defect Liability Period 4.2.1 4.2.2 Rights and Liability of the Contractor to Return to Site to Rectify the Defects The Employers Obligation to Notify the Contractor of Defects and the Contractors Liability The Contractors Liability for the Defective Works Caused by the Materials Supplied by the Employer The Contractors Liability towards Design Defects Contractor to Warn Employer of Any Design Defects that They Knew About 67 68 69 73

4.2.3

75

4.2.4 4.2.5 4.3

78 81 87 88 94 99 102

Assessment of Damages under Defective Work Claim by Employer 4.3.1 4.3.2 4.3.3 Cost of Rectification Loss of Amenity Consequential Loss

4.4 5

Conclusion

CONCLUSION AND RECOMMENDATIONS 5.1 5.2 5.3 5.4 5.5 Introduction Summary of Research Findings Problem Encounter during Research Further Studies Conclusion 103 104 112 112 113 115

REFERENCES

LIST OF TABLES

TABLE NO

TITLE

PAGE

5.1

Summary of Research Findings

105

xi

LIST OF FIGURES

FIGURE NO.

TITLE

PAGE

1.1 2.1

Flowcart of Research Methodology Flowcart of Contractors Liability to Defects during DLP under PAM 2006 Standard Form of Contract Clause 15 Flowcart of Contractors Liability to Defects during DLP under PWD203A Standard Form of Contract Clause 48 Flowcart of Contractors Liability to Defects during DLP under CIDB 2000 Standard Form of Contract Clause 27

14 56

2.2

57

2.3

58

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LIST OF ABBRIEVATIONS

AC All ER ALJR AMR BCL BLR Con LR ER ICR ILR IR JP LIL Rep MLJ NSWLR QB QSR SC SCR SLR WLR

Appeal Cases, House of Lords All England Law Reports Australia Law Journal Reports All Malaysia Reports Building and Construction Law Cases Building Law Reports, UK Construction Law Reports Equity Reports Industrial Cases Reports International Law Reports Irish Reports Justice of the Peace / Justice of the Peace Reports Lloyds List Reports Malayan Law Journal New South Wales Law Reports Law Reports: Queens Bench Division Queensland State Reports Session Cases Supreme Court Reporter Singapore Law Reports Weekly Law Report

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LIST OF CASES

CASES

PAGE

Adcocks Trustee v Bridge R.D.C.(1911) 75 J.P. 241 Apex Realty Pty Ltd v Walker Bros & Preece Pty Ltd (1958) 76 WN (NSW) 34 Aubum Municipal Council v ARC Engineering Pty Ltd (1973) NSWLR 513 Australian Knitting Mills Ltd. v. Grant (1933) 50 CLR. 387, 413 Bater v Bater (1951) P. 35 Bellgrove v Eldridge (1954) 90 CLR 613 Brunkswick Construction v Nowlan (1974) 21 BLR 27 Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653 Cable (1956) ltd v Hutcherson Bros Pty Ltd (1969)123 CLR 143 Carr v JA Berriman Pty Ltd (1953) 27 ALJR 273 CGA Brown Limited v Carr & Anor (2006) EWCA Civ 785 Crown Estate Commissioners v. John Mowlem (1995) 70 BLR 1 D Galambos & Son (1974) 5 ACTR 10 Director of War Service Home v Harris (1968) Qd R 275 Elanore Country Ltd v V J Summersby & Pearce & Sons (Excavations) Pty Ltd (1988) 4 BCL 309 Gloucestershire Country Council v Richardson (1969) 1 AC 480 Greaves & Co (Contractors) Ltd v Baynham Meikle & Partners (1975) 1 WLR 1095 H.W. Nevill (Sublest) v William Press and Son (1981) 20 BLR 78 Hancock and others v BW Brazier (Anerly) Ltd (1966) 2 All ER 901

29 65

29

31 52 60,88,93,111 28,82 62 65 37 83 7 61 53 65

32 29,52,78

6,99,112 34

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Helicopter Sales (Aust) Pty Ltd v Rotor-Works Pty Ltd(1974)132 CLR1 Henry Kendall & sons v William Lillico & sons Ltd (1968) 2 All ER 444, (1969) 2 AC 31, (1968) 3 WLR 110 IBA v EMI Electronics Ltd & BICC Construction Ltd (1980) 14 BLR 1 Kemayan Construction Sdn Bhd v Prestara Sdn Bhd (1997) 5 MLJ 608 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd (1993) 3. All E.R. 417 London and SW Railway v Flower (1875) 1 CPD 77 Lynch v Thorne (1956) 1 WLR 303 Martin v McNamara (1951) QSR 225.8 Midland Bank v Hett, Stubs & Kemp(1979) Ch. 384 Oldschool v Gleeson (Construction) Ltd (1976) 4 BLR 103, 131 P & M Kaye Ltd v Hosier & Dickinson Ltd (1972) 1 WLR 146

65 31

28 38,71 53

73 34 32 53 28 8,49,54,70, 101,109,112

Pearce & High Limited v Baxter (1999) BLR 101

9,55,74,89, 110,111

Plant Construction Plc v. Clive Adams Associates and JHM Construction Services Ltd (2000) 2 TCLR 513 Robinson v Harman (1848) 1 Exch 850 Ruxley Electronics & Construction Ltd v Forsyth (1996) AC 344

85

86 8,90,93, 95,111

Syarikat Tan Kim Beng and Rakan-rakan v Pulai Jaya Sdn Berhad (1992) 1 MLJ 42 Tate v Latham (1897)66 LJQB 351 Victoria University of Manchester v Hugh Wilson & Lewis Wormsley and Pochin Ltd (1984) 2 ConLR 43 Viking Grain Storage Limited v T.H. While Installations (1985) 3 Con. L.R. 52 William Tompkinson v Parochial Church Council of St Michael (1990) 6 Const LJ 814

61

19 21,23

80

50,87

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Yap Boon Keng Sonny v Pacific Prince International Pte Ltd and Another (2009) 1 SLR 385 Young and Marten Ltd v Mc Manus Child Ltd (1969) 1 AC 454

94

31,76

CHAPTER 1

INTRODUCTION

1.1 Research Background

In construction, there are number of factors that cause defect to building works, including negligent design, inferior materials, inadequate supervision, shoddy workmanship or other forms of negligent construction 1 . Defective construction works give the bad implications and effects to parties involved, and it was found that poor quality workmanship can result in a long list of defects2.

In a traditional contract, it is the contractors obligation to carry out and complete the building works which require him to provide the workmanship and materials as required by the specifications given by the architect and engineers 3. The contractor is required to perform and complete the construction fully in accordance
1

Ter, Kah Leng (1989). Builderss Tort Liability for Economic Loss Arising from Defective Buildings. Malayan Law Journal. 2 Summerlin & Ogborn. (2006). Construction Defects. Construction Law Attorneys, Thomson Business. 3 Chan CF. P. (2002), Commonwealth construction cases-the Singapore perspective. Sweet & Maxwell Asia, Singapore, a Thomson Company.

with the contract documents, usually consisting of at least plans, specifications and the building code within required time4. Thus, if the contractor fails to construct in accordance with applicable contract documents, he is responsible for the resulting damages.

So far as the standard of work is concerned, the contractors basic obligation is to comply with the terms of the contract. Most formal building or engineering contracts contain an initial express obligation of the contractor in some such words as to carry out and complete the works in accordance with the contract. This is, in fact a dual obligations that are, both to carry out and to complete the works.5

The terms of contract include both express terms (such as the requirement of contract that work shall be of the standards described in the bills) and implied terms (such as the principle that all materials shall be of satisfactory quality)6. It was too often that contractors believe that liability is limited to what is written in the contract which is a crucial misconception. There are many areas of contractual liability which are implied and not expressed7. Practically, this implied contractual liability might be the contractors obligation to perform its work in a good workmanlike manner. Therefore, even when dealing with contractual liability, the contractor is often subject to a scope of liability which is usually different from, the written contract and often more comprehensive.

In a construction contract, a contractor undertakes to do works and supplies materials impliedly, including8:

Ficken. B. W. (2006). Legal Consideration and Dispute Resolution: The Water-Related Construction Failure. American Society for Testing and Materials. Race Street, Philadelphia, PA 19103. 5 I. N. Duncan Wallace (1995). Hudsons Building and Engineering Contracts. 11th Edition. (Sweet & Maxwell) pp. 472 6 Murdoch, J and Hughes, W. Construction Contracts: Law and Management. (London: Spon Press, 2000) pp. 147 7 Simon, S. M. (1979), Construction Contracts and Claims. New York: McGraw-Hill Book Company. 8 I. N. Duncan Wallace. Supra 5. pp. 519

a)

to do the work undertaken with care and skill or, as sometimes expressed, in a workmanlike manner;

b) to use materials of good quality. In the case of materials described expressly this will mean good of their expressed kind and free from defects. (In the case of goods not described, or not described in sufficient detail, there will be reliance on the contractor to that extent, and the warranty (c) below will apply); c) that both the workmanship and materials will be reasonably fit for the purpose for which they are required, unless the circumstances of the contract are such as to exclude any such obligation (this obligation is additional to that in (a) and (b), and will only become relevant, for practical purposes in any dispute, if the contractor has fulfilled his obligations under (a) and (b)).

In addition to the principal express or implied obligation to complete the construction, there are express reference to substantial completion or practical completion in formal English-style contracts which often used as definitions in formal contracts to donate the begin of the maintenance or defect liability period. This is also significant to secure the release to the contractor of the first portion of any retention moneys. In general, what is contemplated by these expressions is a state of apparent completion free of known defects which will enable the employer to enter into occupation and make use of the project, with the result that they will usually bring any possible liability of the contractor for liquidated damages for delay to an end. The scheme of this type of contract thus contemplates the commencement of a period when the employer enters into occupation but at the end of which any then known omissions or defects will be made good by the contractor9.

I. N. Duncan Wallace. Supra 5. pp. 474

The liability, obligations and responsibilities of the contractor do not stop with the contract10. There are broader and more inclusive. Liability may rest in the field of torts. Although the contract may specify that the contractor is obligated to act in a reasonable manner or even if the contract does not specify it, the law of torts does. Under the law of torts, every person owes every other the obligation to exercise reasonable care and skill11. This obligation extends beyond the contracting party, and it applies to all persons. Therefore, the contractor may be liable for its failure to exercise reasonable care in the performance of his duties, even though it is fulfilling its contractual obligations. It can be said that a contractor who lives by its contract is merely inviting potential liability.

In construction industry, most of the standard forms of building or engineering contract contain provisions that deal with defective works where defective works could be in the forms of design fault, defective building materials or bad workmanships. In construction contracts, it cannot be said that the works have been practically completed, if the work is so defective that it would prevent the owner from using the building as intended by the contract.12

Defect Liability Period (DLP) is a common feature in all the standard form of construction contracts in Malaysia, i.e. Pertubuhan Arkitek Malaysia (PAM) 2006 / Public Work Department (PWD) 203A (Rev.2007) / Institution of Engineer Malaysia (IEM) / Construction Industry Development Board (CIDB) 2000. During the DLP, the Contractor is obliged and liable to rectify defects that appear between the period the Certificate of Practical Completion (CPC) is issued and the expiry of the DLP13. Defects can be classified into two main categories, patent defects and latent defects. Patent defects are defects that can be discovered by normal

10

Frank E. and James A. (1988). Building Subsidence: Liability and Insurance. London: Oxford BSP Professional Books. 11 Simon, S. M. Supra 7. 12 Mohd Suhaimi Mohd Danuri (2005), The Employers Rights and the Contractors Liabilities in Relation to the Defects Liability Period. (The Malaysian Surveyor). pp. 54 13 Anon (2007), What Are The Obligation Of The Contractor During Defect Liability Period? The Entrusty Group, Master Builders, 1st quarter 2007

examination or testing during the defects liability period whereas latent defects are by its very nature concealed and may not manifest itself for many years.

Although each contract will obviously be unique, broad conceptual types of contract may be identified, and even a contract created specifically to meet the individual requirement of a given situation, it will inevitably have points of similarity to other contracts. The DLP provisions are found under the following clauses of the standard forms of construction contracts: PAM 2006: Clause 15 Practical Completion & Defects Liability. PWD 203A 2007: Clause 48 Defects Liability and Making Good. CIDB 2000: Clause 27 Defects Liability after Completion.

According to the standard form of construction contract, sub-clause 15.1 of PAM 2006 form of contract specifies that the works shall be deemed to be practically completed if the architect is of the opinion that all necessary works specified by the contract have been completed and the defects existing in such works are de minimis 14 . Clause 45(a) of JKR 203 form of contract specifies that the contractor is responsible for any defect, imperfection, shrinkage, or any other fault which appears during the Defects Liability Period, which will be six (6) months from the day named in the Certificate of Practical Completion issued, unless some other period is specified in the Appendix 15 . Similarly in CIDB 2000 form of contract, Clause 27.1 specifies that the contractor shall complete any outstanding work and remedying defects during the Defects Liability Period.

Once the works have been practically completed and the issuance of the Certificate of Practical Completion, the Defects Liability Period will begin. Any defects, shrinkages or other faults arising during this period due to defective
14 15

Mohd Suhaimi Mohd Danuri. Supra 12. pp. 54 Lim Chong Fong. The Malaysian PWD Form of Construction Contract. (Malaysia: Sweet & Maxwell Asia, 2004) pp. 105

materials or workmanship must be put right by the contractor at his own expense16. Refer to this, sub-clause 9(a) of PWD 203A requires the contractor to use materials and workmanships that comply with the specifications, further, sub-clause 9(b) entitles the superintending officer to instruct the contractor to demolish or open up the work done and the associated cost will be borne by the contractor if the works have not carried out in accordance with the contract.

Where in the case of H.W. Nevill (Sublest) v William Press and Son17, which the Joint Contracts Tribunal (JCT) standard form of contract was used, Judge Newey QC said that: the clause 15(2) and (3) (the clause relating to DLP) provided an efficient way of dealing with defects to the advantage of both parties. If the owner have had seek contractors new to the site to do the remedial work it might well have had difficulty in finding them. It would also almost certainly have had to pay them more and would then have sought to have recovered from the Contractor more than the cost to the Contractor of making good the defects.

Therefore, under the contract, the contractor is liable for the defective works and has the rights and duty to return to the site to remedy the defects during defect liability period. The employer is under an obligation to give first priority to the ordinary contractor to rectify the defects before engaging another contractor to remedy the defects. The ordinary contractor who responsible, is usually carrying out the repairs with more cheaper cost and more efficient than the employer engaging a third party to repair the defects.

16 17

Murdoch, J and Hughes, W. Supra 6. pp. 184 (1981) 20 Build LR 78

1.2 Problem Statement

Defective construction work, whether the result of inadequate design, faulty workmanship or poor materials, or some combination of these failings, is a frequent cause of legal disputes18.

Defective work claim is the most common claim made by employer 19 . A contractor is someone who is usually to be blamed, other than the other building team members. Unless otherwise stated in the contract, defective work entitles a building owner to rectify the defective work and/or claim damages against the contractor in contract and/or at common law. Hence, it is important that the contractor should possess a good knowledge of their responsibilities and liabilities20.

Frankel 21 noted that the construction defects can arise from improper soil analysis / preparation, site selection and planning, architectural design, civil and structural engineering, negligent construction or defective building materials. Frankel further stated that the recent explosion in new construction has spawned, increased construction defect litigation.

Where in the case of Crown Estate Commissioners v. John Mowlem22, StuartSmith LJ indentified three cases for dealing with defects in quality of the work: i. Case A - the criteria stipulated in the contract documents (standard specification).

18 19

Kevin Barrett (2008). Defective Construction Work. Jim Doyle (2005). Defective Work Claims. Doyles Construction Lawyers 20 Kevin Barrett. Supra 18 21 Frankel E. R. (2005). Insurance Coverage for Construction Defect Claims. Real Estate Finance; ABI/INFORM Global. pp 20. 22 (1995) 70 BLR 1

ii.

Case B standards and quality not stated in the contract documents, in quality and case there is an implied term that materials will be of a reasonable quality and fit for their purpose and workmanship will be to a reasonable standard.

iii.

Case C the standards and quality is expressed to be to the architects satisfaction.

For instance, the case of Ruxley Electronics & Construction Ltd v Forsyth23, relates to damages for defective works. This case arose where a swimming pool was constructed at a depth of 6'9" instead of 7'6'' as required by the Employer. The House of Lords had awarded damages regarding reasonableness as a factor to be considered in determining what that loss was to the employer.

In another case of P & M Kaye Ltd v Hosier & Dickinson Ltd24, where the JCT form of contract was used, Lord Diplock stated that: .the contractor is under an obligation to remedy the defects in accordance with the architects instructions. If he does not do so, the employer can recover as damages the cost of remedying the defects, even though this cost is greater than the diminution in value of the works as a result of the unremedied defects.

In every construction projects, the contracts envisage that the defects might occur during the DLP, and such defects shall not be considered as a breach of contract. Upon receipt of notice, the contractor is obliged to return to the site to make good the defects and the employer is obliged to allow the contractor to do so25. The contractor is considered as breaching the contract, once he denies or fails to rectify the defective work, and the employer is entitled to damages.
23 24

(1996) AC 344 (1972) 1 WLR 146 25 Anon. Supra 13.

It is essential that the contractors liability for defective works which lies prior to practical completion and during defect liability period is however undeniable. The failure of the contractor to rectify the defects which appear during Defect Liability Period (DLP) as required by the contract would constitute a breach of contract that will entitles the employer to be remedied in the forms of damages as per Section 74(3) of Contract Act 1950. Furthermore, if the contractor has failed to rectify the defects as instructed by the contract administrator or upon receipt of the notice, the employer is entitled to appoint another contractor and recover the cost of rectifying the defects from the original contractor within the ambit of the contract provision.26

It is noted that the Defect Liability Period (DLP) provision requires such a notice to be given to the Contractor. However, what would the scenario be if the Employer/Architect/ Engineer/SO fails to issue the required notice to the contractor? Is the contractor still liable to the defect works and the damages? Yet, would the employer lose its rights and remedies to recover the cost of remedying the defects?

In considering this issue, it is essential to appreciate that the requirement of such notices impliedly imposes a duty to mitigate the loss on the part of the Employer. The decision had been held in the Court of Appeal (UK) in the case Pearce & High Limited v Baxter 27, where Evans LJ said that:In my judgment, the contractor is not liable for the full cost of repairs in those circumstances. The employer cannot recover more than the amount which it would have cost the contractor himself to remedy the defects. Thus, the employers failure to comply with clause 2.5 (the clause relating to rectification of defects), whether by refusing to allow the contractor to carry out the repair or by failing to give notice of defects, limits the amount of damages which he is entitled to recover. The result is achieved as a matter of legal
26 27

Mohd Suhaimi Mohd Danuri. Supra 12. pp. 57 (1999) BLR 101

10

analysis by permitting the contractor to set off against the employers damages the amount by which he, the contractor, has been disadvantaged by not being able or permitted to carry out the repairs himself, or more simply, by reference to the employers duty to mitigate his loss.

Evan LJ in the above case accepted that the giving of a notice with regard to defects should be regarded as a condition precedent to the employers rights to require the contractors compliance with the defects liability clause. It was held that the employers failure in giving the required notice would limit the employers recovery if the rectification cost were more than the cost of the original contractor to rectify the defects.

The contractor is under the duty to rectify the defects during the defect liability period. the contract stated that it is the clients rights to get another person to rectify the defects and has the rights to claims for the cost of rectification. However, does it mean that the contractor has to pay everything that the client claimed? The clauses in standard form of contract has stated that the employer can employ a 3rd party to rectify the defects, but it didnt stated the situation that the contractor is not liable to the full cost of the rectification. The contract also didnt state the situation or exception that the contractor is not liable to the defects.

The following discussions give rise of the several questions: i. Are the contractor responsible to all the cost of rectification, ii. Are the contractor abligated to rectify the works, and are there any exception, iii. If the employer direct another party to rectify the defects, is that mean the contractor has to pay all the cost.

11

Therefore, this study will analyse the defective building works claims during defect liability period and the contractors liability towards the defects, so that through this study, the contractor will be able to have better understanding on the possible defective building work claims that the employer may claim during defect liability period and their legal positions and liabilities to the claims.

1.3 Objectives of Research

The above aim of research is supported with the following objective: To determine the circumstances that the contractor is not liable for the defect, imperfection, shrinkage or any other fault which appeared during defect liability period.

1.4 Scope of Research

The following are the scopes for this study: 1. Only cases related to defective building works during defect liability period will be discussed in the study. 2. The circumstances discussed are those concerning between both the main contractor and employer only. 3. Standard forms of contract commonly referred to and examined in this research are Pertubuhan Arkitek Malaysia (PAM) Standard Form of Contract 2006, Public Works Department (P.W.D) Form 203A (Rev.2007), Construction Industry Development Board (CIDB) Standard Form of Contract for Building Works (2000 Edition).

12

1.5 Significant of Research

This research is important in order to find out and define the liabilities of the contractor when there is defective building works. Through this study, the contractors may have the knowledge on their liability towards the employers claims in relation to defective building works.

1.6 Research Methodology

The methodologies of this study has been separated into few steps, namely indentifying the research issue, literature review, data collection, research analysis and conclusion and recommendation. This approach is to ensure that the collection of the information and the data analyzing can be precisely implemented.

I.

Initial Study and Identifying the Research Issue

The overview of concept for the study was obtained through intensive reading of books, journals, articles and newspaper cutting which can easily attained from the library of faculty and UTMs Library. Discussions with supervisor, lecturers, as well as course mates, were held so that more ideas and knowledge relating to the topic could be collected. Related information concerning current scenario of construction industry in Malaysia and the contract issues in the industry were referred. From the research issue, the objectives of the study are identified.

13

II. Literature Review

Various documentation and literature review regarding to contractors liabilities towards employers damages in relation to defective building works are collected to achieve the research objectives. Books, journals, research papers, reports, newspaper as well as sources from the internet are referred. Primary data: electronic database; secondary data: books, act, articles, seminar papers and etc. Related legal cases based on previous court cases, journals, papers, and reports are collected from Malayan Law Journals via UTM library collection and electronic database.

III.

Data and Information Collection

In this stage, all the collected data, information, ideas, opinions and comments will be arranged, analysed and interpreted. The relevant case laws collected will be carefully reviewed, with special attention on the facts of the case, issues and judgments presented by each case law. The proper arrangement of data tends to streamline the process of writing up.

IV.

Writing-up and Completion

The final stage of the research process mainly involved the writing up and checking of the writing. In this stage, the whole process of the study will be reviewed to identify whether the research objective had been achieved. Lastly, conclusion and recommendations will be made based on the findings from the analysis of data.

14

Figure 1.1

Flowchart of Research Methodology

15

1.7 Structure of Research

This dissertation is divided into five (5) chapters and each chapter covered different scope of studies. The outlines for each chapter are as follows:

I.

Chapter 1 Introduction

First Chapter is basically an introduction on the topics, problem statement, research aims and objectives, scope of research, research methodology and methods of approach and outline of structure of research.

II.

Chapter 2 Defective Building Works During Defect Liability Period

Second Chapter is the literature review about the definition of defect liabilities and the discussion on the common type of building defects, general causes of building defects and classification of building defects.

III.

Chapter 3 - Employers Defective Work Claims during Defect Liability Period and the Contractors Liabilities

This Chapter is the literature review on the contractors liability towards the defective work claims and liability of contractor to employer in respect of defects discovered during defect liability period. Provision of the construction industry form of contract in relation of defect liabilities will be referred and discussed.

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IV.

Chapter 4 Data Analysis

Forth chapter is focusing on the court cases review and analyse the results from the judicial decisions as reported in law reports which concerning the contractors liability towards employers claims in relation to defective building works during defect liability period and the circumstances that the contractor liable or not liable.

V.

Chapter 5 Conclusion

This last chapter comprises of the discussion on findings and interpretation of the data collected conclusion and recommendation. The findings and analysis, conclusion and recommendation are utilized in order to answer the objectives of the research.

CHAPTER 2

DEFECTIVE BUILDING WORKS DURING DEFECT LIABILITY PERIOD

2.1 Introduction

Defective building works can be defined as works which fell short of complying with the express descriptions or requirements of the contract, especially any drawings or specifications, together with any implied terms and conditions as to its quality, workmanship, durability, aesthetic, performance or design28. Construction defects are the unacceptable quality of a project which can be identified and remedied. Thus, construction defects are inevitable in construction projects delivery and are usually contentious between the employer and the contractor or subcontractors.

28

Cho, Y. J., Hyun, C. T., Lee, S. B. and Diekmann, J. (2006): Characteristics of contractors liabilities for defects and defective works in Korean public projects, Journal of Professional Issues in Engineering Education and Practice, Volume 132, Issue 2, pp. 180-186.

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Nowadays, most modern buildings and civil structures are complex and involve the use of a great variety of engineering methods and processes. Therefore most projects face the possibility of defects and defective work, which generally result in structures that cannot perform their originally intended roles29.

Commonly, defects take place in any part of a construction project and at any stage of construction. Defects in construction projects are attributable to various reasons for example, improper fixing of water pipe, poor quality of materials supplied by building merchants or by combination of poor quality of materials and poor workmanship. In respect to this, Summerlin and Ogborn30 acknowledge that construction defects can be the result of design error by the architect, a manufacturing flaw, defective materials, improper use or installation of materials, lack of adherence to the blueprint by the contractor, or any combination thereof.

2.2 Definition of Defects

According to Chan 31 , defective building work is defined as defect or deficiency in the design, construction, or materials in a construction project. Meanwhile, Alan 32 has described defective building work as premature failure resulting from errors of design, workmanship, maintenance or the use of faulty materials.

29
30

Cho, Y. J., Hyun, C. T., Lee, S. B. and Diekmann, J. Supra 28. pp. 180-186. Summerlin & Ogborn. Supra 2. 31 Chan CF. F. Supra 3. pp. 49. 32 Alan Crocker (1990), Building failures recovering the cost. BSP Professional Books, Oxford. pp. 2.

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Atkinson33 defines defects as: breaches of terms and conditions of contract by the contractors. While Cama 34 defines a defect in the context of a building contract as: a failure of the completed project to satisfy the express or implied quality or quantity obligations of the construction contract. Meanwhile, Marianne35 defines construction defect as: a failure of a building component to be erected in the appropriate manner. The definition of defects in Oxford Concise English Dictionary is lack of something essential or required; imperfection; a shortcoming or failing; a blemish; the amount by which a thing falls short.

Defective building work is defined in a slightly different ways from the legal perspective. In respects to that, Sweet 36 has acknowledge that the construction defects defined by the law as failure of the building or any building component to be erected in a reasonably workmanlike manner. Oxford Dictionary of Law defines defect as: a fault or failing in a thing.

Legally, defective building work is defined as an element supplied or constructed which is in some respect, not in accordance with the contract, or as some action having consequences not authorised by the contract 37. In addition, it was also described as work which fails to comply with the express descriptions or requirements of the contract, including any drawings and specifications, together with any implied terms as to quality, workmanship, performance and design 38. For instance, Bruce J in Tate v Latham39 has defined defective building work as a lack

33

Atkinson, D. (1999), Measures of Damages for Defects., from http://www.atkinsonlaw.com/cases /CasesArticles /Articles/ Defects.htm 34 Cama, J. (2004). Who Pays to Fix Building Defects? American Systems USA inc. Berrymans Legal Consultants. 35 Marianne, J. (2005). Building defects spoil homeowners dreams. Portland: The Oregonian News. The Aldrich Law Office, P.C. 522 SW 5th Avenue. 36 Sweet, J. J. (1993). Avoiding or Minimizing Construction Litigation. San Jose California: Wiley Law Publication. 37 Nigel M. Robinson (1996): Construction Law in Singapore and Malaysia. 2nd Edition. (Butterworths Asia Malaysia). pp. 159-160. 38 Atkinson, D. Supra 33. 39 (1897)66 LJQB 351

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or absence of something essential to completeness 40 . In other words, defective building work means violation of contract.

2.3 Types of Defect

The works is considered as defects or defective building works when the standard and quality of workmanship and materials as specified in the contract is deficient. Generally, defects can be classified into two main categories which are Patent defects and Latent defects41. The Patent defects are defects that can be discovered by normal examination or testing. Patent defects encompasses the usual defects encounted in routine inspections. Latent Defects are defects which are not discoverable by normal examination or testing which manifests itself after a period of time.

By definition, defects that become noticeable within the defect liability period may be discovered in time for the employer to take action against the contractor under the term of the building contract42.

In the construction industry, the cases on disputes triggered by defects have attributed strongly in the development of construction law, although the issues raised have varied depending on whether the defect is patent or latent43.

40 41

Chan CF. F. Supra 3. pp. 68. Anon. Supra 13. 42 Chan CF. P. Supra 3. pp. 69. 43 Chan CF. P. Supra 3. pp. 68

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2.3.1 Patent Defects Patent defects are the defects which can be discoverable upon examination or deficiency in a structure that is obvious to reasonable inspection for example a roof leak or a foundation crack44. Normally, defects are readily apparent to the naked eye and are therefore capable of being assessed and measured relatively easily and then, if necessary, rectified. In the case of Victoria University of Manchester v Hugh Wilson & Lewis Wormsley and Pochin Ltd45, patent defect has been defined as defect which could be discovered by the exercise of ordinary care46. Hence, patent defects are defects that are apparent and can be discovered by means of reasonable inspection, examination or testing.

Vincent Powell-Smith describes a patent defect as: A defect which is discoverable by reasonable inspection 47. In the context of engineering contracts, the term embraces all the items which the engineer or engineers representative must be expected to find and bring to the contractors attention so the remedial works can be carried out. Patent defects are plain to see, or at least, that is the theory. Whether the engineer could or should have seen defects on site during site visits has exercised more than one judicial mind. Meanwhile, Robinson, the authors in Construction Law in Singapore and Malaysia, ascribe a rather simple definition to the term patent defects; this being48: a defect that can be discovered by normal examination or testing.

44 45

Cama, J. Supra 34. (1984) 2 ConLR 43 46 Chan CF. P. Supra 3. pp. 69. 47 Harbans Singh. Supra 47. pp. 695 48 Nigel M Robinson. Supra 37. pp. 160

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2.3.2 Latent Defects A latent defect is by definition considered as something that cannot be easily discovered. Latent defects can be said as those hidden or concealed defects which would not be discovered by the nature of a reasonable inspection 49. Normally, latent defects only become apparent at some later date or upon an investigation of some consequential effects caused by the defect.

Michael F. James 50 has defined latent defects as defects which cannot reasonably be discovered at the stage of a buildings practical completion or during the period of contractual liability for defects. While Susan Hodges51 alleges that a latent defect is defect which could not be discovered on such an examination as a reasonably careful skilled man would make. Hence, by definition latent defects are contrary to patent defects which it cannot be discovered by the exercise of due diligence or ordinary care.

Vincent Powell-Smith52 describes latent defects as the following definitions: A defect which is not discoverable during the course of ordinary and reasonable examination but which manifests itself after a period of time. In building and civil engineering work the most common application is defects becoming apparent after the maintenance period expired. Meanwhile, Robinson and Lavers describe a latent defect in the following words 53 : a defect that cannot be discovered by normal examination and testing.

49 50

Cama, J. Supra 34. Michael F.James (2994), Construction Law. The Macmillan Press Ltd, London. pp. 145. 51 Susan Hodges (1996), Law of marine insurance. Cavendish Publishing Limited, London. pp. 133. 52 Harbans Singh. Supra 47. pp. 696 53 Nigel M Robinson. Supra 37. pp. 161

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Hence, latent defects will only be noticeable after a period of times, and this has created challenges and places difficulties to those who suffer as a result of the said defects and wish to obtain compensation for loss suffered when54: 1. The notice of latent defect becomes obvious only after the developer/owners have sold the completed structure. 2. The valid limitation period has expired when the latent defects becomes apparent.

Generally, the courts will award monetary damages for the latent defects. In most of the instances, patent defects that have been covered up by the owners, will often be interpreted as latent defects by the courts, in order to award some kind of relief. Most often to clearly differentiate the patent from latent defects depend on the direction of examination and the expertise of the judge in the court of law. Therefore, whether a defect is classified as a patent defect or latent defect is up to the judge and the outcome sometimes surprising55.

In the case of Victoria University of Manchester v Hugh Wilson & Lewis Wormsley (a Firm) and Pochin (Contractor)56, it was held that the latent defects is one which could not be discovered by such an examination as a reasonably careful man skilled in that matter would make. Thus, as stated by its nature, a latent defect cannot be discovered until it becomes patent and yet it may not be discovered immediately since there may be no immediately apparent signs to indicate the presence of the defects57.

54 55

Michael F.James. Supra 50. pp. 145. Cama, J. Supra 34. 56 (1984) 2 Con LR 43 57 Chan CF. P. Supra 3.

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2.4 Causes of Defective Work

Generally, there are various reasons that will give rise to the building defects. It may either be poor design, low quality workmanship or the building was not constructed according to the design or because it has been subjected to factors not allowed for in the design. It was said that, before the contractor is liable to remedy the defects, it must be shown that they have arisen from materials and workmanship not being in accordance with the contract58.

Therefore, a defective work can be defined as an element supplied or constructed which is in some respect not in accordance with the contract. It also can be considered as some action having consequences which are not authorised by the contract. Thus, the acceptability of performance must, in contract, be limited to those express or implied terms in the contract. Express terms are commonly either compliance with the contracts specification content and the drawings, satisfaction of the architect (or other supervisor) or both. The implied require merchantable quality, workmanlike workmanship and fitness for purpose. 59.

In most of the construction contract, the construction work is defined as defective when it does not be in accordance with the standard that is required by the contract. Article 7 of PAM 2006 has defined defective work as defects, shrinkage or other faults due to materials and workmanship not in accordance with the contract and/or due to any faulty design undertaken by the contractor. Thus, it is found that the defective works are triggered by improper materials, workmanship and faulty design. Clause 9(a) of JRK 203A 2007 Form and Clause 6.1 of PAM 2006 Form requires the contractor to use materials and workmanships that comply with
58

Sundra Rajoo (1999), The Malaysian Standard Form of building contract the PAM 1998 Form. Malayan Law Journal Sdn Bhd, Kuala Lumpur, pp.146. 59 Nigel M Robinson. Supra 37. pp. 160

25

the specifications. The obligation of the contractor to procure and achieve the specified kind and standard is an absolute one. If the contractor fails to do so, he would be in breach of contract unless the Superintending Officer is willing to permit a substitution by way of a variation instruction60. Clause 9(b) of JKR 203A Form and Clause 6.3 of PAM 2006 Form empowers the Superintendent Officer / Architect to require the contractor to demolish or open up the work done for inspection and associated cost will be borne by the contractor if the works have not been carried out in accordance with the contract61. The purpose for opening up and testing is to ensure that the works, materials, workmanship and goods are in accordance to the contract. If the contractor is not in default, he can recover the cost of opening up, testing and making good.

A number of analyses of building failures have been carried out to determine whether they were due to poor design, construction, materials or misuse by the occupier. Most of the failures were due to faulty design (design in this context is often building construction design and detailing and not necessarily engineering), following by fault were due to the builders faulty execution of the work, failure of components or materials to meets acceptable performance, and failure were due to misuse by the use of the building62.

However, there are two respects of defects that are seldom considered. One is the buildability of the design which determines whether good workmanship can ever be achieved if the necessary reasonable care and skill are presented. Another aspect is that the durability of the materials which represents the life span of each material in given environment before it deteriorates, wither partially or wholly63.

60

Lim Chong Fong. The Malaysian PWD Form of Construction Contract. (Malaysia: Sweet & Maxwell Asia, 2004). pp. 29 61 Mohd Suhaimi Mohd Danuri. Supra 12. pp. 55 62 Holland, R. , Montgomery B.E. , Smith and Moore J. F.A.(1992). Appraisal and Repair of Building Structures. London: Thomas Telford. 63 Chan CF. P. Supra 3.

26

Generally, defects in the construction industry can be well divided into three (3) main categories64 as follows: a) Standard of design b) Quality of the building materials c) Quality of the workmanship

2.4.1 Standard of Design

Liability for design is mainly determined today by a partys undertaking contractual responsibility to supply design services 65 . Design, includes both the broad concept of building and also matters of considerable detail. In traditional building procurement, there is a clear separate function between the design and construction 66 . The responsibility of design is under the employers design team (normally consist of architect, civil engineer and structural engineer). Meanwhile, construction is the responsibility of the contractor, whose duty is to construct in strict accordance with the contract documents.

Generally, scope of design include not only structural calculations and the dimensions, shape and location of the work, but also the choice of particular materials for particular functions and, similarly, the choice of particular work processes. In other words, in sophisticated contracts the designs includes the drawings as well as the specifications 67.

64 65

Mohd Suhaimi Mohd Danuri. Supra 12. pp. 55 Nigel M. Robinson. Supra 37. pp. 136. 66 John Murdoch and Will Hughes (2008), Construction contracts law and management. 4th edition, Taylor & Francis, London, pp. 179. 67 I. N. Duncan Wallace. Supra 5. pp. 274.

27

The term design has been explained by Vincent Powell-Smith as 68 : A rather vague denoting a scheme or plan of action. In the construction and engineering industry, it may be applied to the works of the engineer in formulating the function, structure and appearance of a works or to a structural engineer in determining the sizes of structural members

In traditional construction procurement, contractor bears no liability for defect which arises due to design error or faulty design. Under the contract used by traditional method of procurement, designs are the exclusive province of the architect, plus such specialist as are necessary. In fact, in practice, contractor under a traditional form of contract are however tending to take on a measure of design responsibility in the following ways69: a) When the contract documents give insufficient fine detail such as how far apart to place a fixing screw, a contractor who exercises discretion is in fact taking on a design function. Contractor who uses his own initiative without seeking an architects instruction, will be liable for any defects that arise. b) Contractors are often asked during the progress of construction, for their opinion to overcome a particular problem that has arisen. If such an opinion is given (at least where the person giving it is a specialist) a duty of care will arise. c) Where the contractors are required to produce drawings for the architects approval, any matters of designs that are included, the contractor may be liable. This is regardless of the possibility where the architect may be held jointly liable. d) Where the contractor is required to warn the employer of any design defects that he knew about. This point was considered in the case of

68 69

Harbans Singh. Supra 47. pp. 698 John Murdoch and Will Hughes, Supra 66. pp. 187.

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Brunkswick Construction v Nowlan70, Supreme Court of Canada has held contractor is liable for employer to warn him of faulty design which subsequently has resulted in defects.

By that as it may, the undertaking of the design may not be confined to the employers designers but may be the obligation of the contractor whereby quality standards may be either71: a) Stipulated expressly in the contract i.e. in the specifications, standards, codes of practice, etc and reaffirmed through specific clauses in the conditions of contract. b) In the absence of express provisions, established by necessary implication.

Therefore, under traditional contracting method, the design responsibility shall remain under the responsibility of the consulting engineer or the architect. In Oldschool v Gleeson (Construction) Ltd72, Judge Stabb QC said:The responsibility of the consulting engineer is for the design of the engineering components of the works and his supervisory responsibility is to his client to ensure the works are carried out in accordance with that design.

Contrary, when the contractor is required to use a design and construct method (where an architect or engineer is not engaged by the employer), the contractor shall be responsible for the proposed design73. Under this type of contract, the contractor undertakes design responsibility, not only to the reasonable care and skill standard which an architect or engineer will owe, but with a duty of fitness for purpose consistent with the overall construction obligation74.

70 71

(1974) 21 BLR 27. Harbans Singh. Supra 47. pp. 698 72 (1976) 4 BLR 103, 131 73 IBA v EMI Electronics Ltd & BICC Construction Ltd (1980) 14 BLR 1 74 John Murdoch and Will Hughes, Supra 66. pp. 179.

29

Generally, a contractor undertaking a contract on a design and build/design and construct basis implicitly warrants that where the purpose of the required works has been adequately brought to his notice, it imposes on the contractor a duty to ensure that the design undertaken by him would be reasonably fit for its purpose 75. This fitness for purpose warranty is strict in the sense that the design and build contractor will be strictly liable to the employer for any defects resulting from an error in his design even though he has not been negligent 76. The same also apply to other procurement system such as turnkey which is a variance of design and build procurement system.

Consequently, if the defects were proven to be faulty of engineers design, the employer can sue the engineer for breach of contract77. On the other hand, if the defect is flowing from the contractors fault, the contractor should be liable to remedy the defect78.

2.4.2 Quality of the Building Materials

As a general rule, the contractors obligation will not extend beyond supplying a material of good quality conforming to the express description of it in the contract documents, if the description is precise and certainty with to the architects and engineers choice of the material79.

75 76

Greaves & Co (Contractors) Ltd v Baynham Meikle & Partners (1975) 1 WLR 1095 Monica Neo, Construction defects: your rights and remedies. Sweet & Maxwell Asia, Singapore, 2005, pp. 27-28. 77 Aubum Municipal Council v ARC Engineering Pty Ltd (1973) NSWLR 513 78 Mohd Suhaimi Mohd Danuri. Supra 12. pp. 55 79 Adcocks Trustee v Bridge R.D.C.(1911) 75 J.P. 241

30

The quality standards expected of the contractor are either80: a) Expressed in the contract, i.e. in the form of specifications, employers requirements, etc; these being reaffirmed vide appropriately drafted conditions of contract, which set out those matters on kind, quality and standard of materials. Clause 1.1 and 6.1 of PAM 2006 Form respectively state that the contractor shall provide materials and goods of the respective quality and standard as described in the contract document or as required by the architect. Clause 35.1 of PWD 203A 2007 Form provides that all materials and goods shall be of respective kinds and standard described in the specification and of good quality. Clause 15.1 of CIDB 2000 Form provides that the materials and goods provided by the contractor shall be the respective kind and quality described in the Contract or required by the Superintending Officer in accordance with the provisions of the Contract.

b) Established by necessary implication, such as materials supplied must be of merchantable quality and fit for their purpose81, where these two criteria operating independently and exclusively82.

Building contracts usually define the precision specification of materials to be used by the contractor. The contractor shall be held responsible if the building materials appear to be defective although its usage has been specified by the contract specification, where materials may be said to be of poor quality83.

80 81

Harbans Singh. Supra 47. pp. 697 Khong Seng v Ng Teong Kiat Biscuit Factory Ltd (1963) MLJ 388 82 Rumbelows Ltd v Firesnow Sprinkler AMK and Installations Ltd (1980) 19 BLR 25 83 I. N. Duncan Wallace. Supra 5. pp 274.

31

Nevertheless, there are situations where the contract documents fail to specify the kind, quality or standard of materials and goods, and then the usual implied duties of the contractor apply. And these implied duties or terms require that the materials and goods will be of merchantable quality84. With respect to that, John Murdoch and Will Hughes has given the merchantable quality as meanings that, goods and materials are to be free from any defects as it is reasonable to expect, given such factors as their price and the way they are described85.

Reid LJ in Henry Kendall & sons v William Lillico & sons Ltd 86 has defined merchantable quality as: commercially saleablethe lowest quality commercially so sold. There is also another explanation brought by Dixon J in Australian Knitting Mills Ltd. v. Grant87: "The condition that goods are of merchantable quality requires that they should be in such an actual state that a buyer fully acquainted with the facts and, therefore, knowing what hidden defects exist and not being limited to their apparent condition would buy them without abatement of the price obtainable for such goods if in reasonable sound order and condition and without special terms."

Accordingly, a contractor is liable to supply goods and materials which are merchantable quality88. However, the House of Lords in Young and Marten Ltd v Mc Manus Child Ltd89 held that, the contractor was not liable for an implied warranty of the defective material bought from the manufacturer specified by the owner.

In addition, under certain condition, the contractor will not be liable for defective materials where he is forced by the employer to obtain those materials from a supplier who, to the employers knowledge, excludes or limits liability for

84 85

Sundra Rajoo. Supra 58. pp. 95. John Murdoch and Will Hughes. Supra 66, pp.161. 86 (1968) 2 All ER 444, (1969) 2 AC 31, (1968) 3 WLR 110 87 (1933) 50 CLR. 387, 413 88 John Murdoch and Will Hughes, Supra 66, pp.161. 89 (1969) 1 AC 454

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defects. In Gloucestershire Country Council v Richardson 90 , under a contract to build an extension to a college, the contractor is directed to enter into contract for supply of concrete columns without any reference to the contractor. The design, materials, specification, quality and price are fixed between the employer and his supplier. It is held that the contractor is not liable since the circumstances of this case indicates an intention to exclude from main contract any implied terms that the column will be fit for their purpose or of good quality.

In another case of Martin v McNamara91, the Court held that, the employer was relying on the skill and judgement of the contractor that the materials were fit for the intended purpose when the contractor had suggested to use a different type of roof tiles that turned out to be faulty. The owner should be entitled to the cost of removing and replacing the faulty materials if the repair work was unreasonably to be carried out. However, it would be unreasonable to put the liability on the contractor, if the owner has accepted the material to be used although the contractor has made known to the owner that the specified manufacturer excluded any warranty of quality.

2.4.3 Quality of the Workmanship

In respect to quality of workmanship, the standard of workmanship may be expressly defined in considerable detail by the contract document, for example by requiring it to comply with an appropriate code of practice92. Where the standards are described in the contract documents, the workmanship must be of those standards. The deficiencies in the labour of both main and sub-contractors are mainly the outcomes of lack of skill, lack of care and interest, or lack of knowledge on the
90 91

(1969) 1 AC 480. (1951) QSR 225.8 92 Murdoch, J and Hughes, W. Supra 6. pp. 148

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importance of special care in the execution of some important scope of work 93 . Anyhow, if there are no express terms in regard of workmanship, then the implied duties of the contractor apply94. The court will imply a term in the contract that the work will be carried out with proper skill and care, i.e. workmanlike manner95.

The standards of workmanship to which the contractor must aspire to work towards are either96: a) Prescribed in the contract in an express manner. These are usually contained in the form of the specifications, standards, code of practice, etc, and endorsed by the relevant express clauses. It is essential that the standard of workmanship for each item of work in a building project should be expressly provided in the building contract to avoid creating uncertainties in the scope of the contractors obligation97. Clause 1.1 and 6.1 of PAM 2006 Form provide that the workmanship for the work shall be of the standard as described in the contract document or as required by the architect. Clause 35.1 of PWD 203A 2007 Form provides that the workmanship shall be of respective kinds and standard described in the specification and in accordance with the standard of workmanship in the industry.

b) Implied under the general corpus of the law, e.g. workmanship has to be of workmanlike standard such that an employer could reasonably expect of an ordinarily skilled and experienced contractor of the type the employer has elected to employ and having regard to any relevant claims made by the contractor as to his level of competence 98 . It is to be noted that where a
93 94

Alan Crocker. Supra 32. pp. 7. Sundra Rajoo. Supra 58. pp. 95 95 John Murdoch and Will Hughes. Supra 66. pp. 160. 96 Harbans Singh. (2003), Engineering and Construction Contracts Management Post Commencement Practice. (Singapore: LexisNexis, 2003.) pp. 698 97 Chan CF. P. Supra 3. pp. 51. 98 Hancock v BW Brazier (Annerley) Ltd (1966) 2 All ER 901

34

contractor has complied exactly with a detail express specification, there is no room for implication of further provision as to the standard required to be achieved99.

In Hancock and others v BW Brazier (Anerly) Ltd100, a builder sells an estate of houses, which he is then erecting, to a purchaser under a contract which provided by Clause 9 that the builder will in a proper and workmanlike manner erect, build and complete a dwelling-house in accordance with the plan and specification prior to completion. It is held that the purchaser is entitled to damages for breach by the builder of implied warranty in doing his work in a good and workmanlike manner and supply good and proper materials so that the house will be reasonably fit for human habitation.

2.5 Defects Liability Period

Upon completion of the works, the architect will usually issue a certificate of practical completion (CPC) to certify that the works have been completed in accordance with the contract101. Then the defect liability period (DLP) begins. The exact status of the Defects Liability Period, is a period defined in the construction contract which during this period, the appearance of defects is at the contractors own risk in that he may be called upon to return to site to rectify them as necessary. This was traditionally a period of six months but is now commonly specified as twelve (12) months after issuance of CPC 102.

99

Lynch v Thorne [1956] 1 WLR 303 (1966) 2 All ER 901 101 James B. Longbottom of Brian E. Rawling & Associates (BERA), 2001, Defective Work - Minimising the Problems, Hong Kong Institute of Surveyors. 102 Nigel M Robinson. Supra 37. pp. 170
100

35

Most standard forms of contract will include a defects liability clause which provides that the contractor will make good defects which appear within the defects liability period. The Contractor will be liable to rectify any defects, shrinkages or other faults arising during this period due to defective materials or workmanship at the contractors own cost. In practice, such defect liability period clauses also work to the advantage that making the ordinary contractor responsible for carrying out the repairs is usually cheaper and more efficient than either the employer repairing the defect himself or engaging a third party to repair the defect103.

The contractual procedure for dealing with defects arising during the Defects Liability Period is that the contract administrator should issue a schedule of such defects to the contractor not later than fourteen days after the end of the defects liability period, and the contractor then has a reasonable time to rectify the defect works. Once the work had been rectified, the contract administrator will issue a Certificate of Completion of Making Good Defects, and following the contractor becomes entitled to the remaining part of the retention money104.

It is common in construction contracts to require the contractor to warrant that the works upon completion are free from defects and to make good defects which appear during the defects liability period. The defects liability period provides a practical mechanism to the Employer for the repair or making good of defects which may not be apparent before completion, without resorting to dispute resolution105. Defects appeared after the expiry of the defects liability period and the employers remedy in most cases is limited to pursuing a legal claim in damages.

It is during the defects liability period that the employer has the right to call for the contractors physical return to the site after the employer has taken over the
103

Mallesons Stephen Jaques, 2003. Defects Liability Period - an introduction. Asian Projects and Construction Update. 104 Murdoch, J and Hughes, W. Supra 6. pp.185. 105 Mallesons Stephen Jaques. Supra 103.

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works. The employer must serve a notification of defect on the contractor and the contractor is required to make good the defect within a reasonable period. Remedies available to the employer in the event the contractor fails to make good defects during DLP may include the right to106: a) carry out the remedial works himself or employ other contractors and deduct all reasonable costs incurred from the retention monies; b) determine a reasonable reduction in contract price to reflect the diminution in value of the works by reason of the defects; c) call on the performance security; d) terminate the contract

2.5.1 Defects Discovered during Defect Liability Period

Defects discovered during defect liability period normally covers the period from the date of completion or handing over up to the certification by the contract administrator of the contractors obligation to remedy defects, i.e. by the issue of the Certificate of Making Good Defects107. In all cases, the strict entirety of the contract is modified and provision is made for the making good of defects by the contractor subsequent to handing over possession. Standard forms of contract generally give the contractor a licence to return to the site for the purpose of remedying defects. In effects, such condition of contract confers upon the contractor a right to repair or make good its defective works 108 . In fact, the employers right to have defects

106

N. Pathmavathy and Kamraj Nayagam, Skrine & Co. (2004), Drafting Construction Contraccts, The Ingenieur Volume 35 Sept-Nov 2007, cover feature 21. 107 Harbans Singh. Supra 47. pp. 711 108 Ong See Lian. 2005. Defective Works. International Conference on Construction Law & Arbitration. (26th 28th April 2005, Kuala Lumpur.). pp. 3.

37

remedied within this stipulated period after completion is in substitution for his rights to a damages claim in respect of the cost of remedial work.109.

Accordingly, it is generally accepted that if the original contractor had failed to comply with the said notice for rectification, the employer would be entitled to appoint another contractor to make good the defects. However, the issue would be raise up if the employer employs another contractor to rectify the defects without first giving the required notice and rights to the original contractor. In another words, it deprives the original contractor from having their rights and opportunity to undertake the remedial works himself. Therefore, it must be noted that the employer cannot employ another contractor to do work that the original contractor is obliged to do under the contract 110 . The common law principle has justified that the works under the contract cannot be omitted with an intention of giving it to another contractor111.

Clause 15 of PAM 2006 Form, Clause 48 of PWD203A 2007 Form and clause 27 of CIDB 2000 Form provide two ways of notifying the contractor for rectifying the defects during DLP as follows112: a) At any time during DLP, the Architect/Superintending Officer can request the contractor in writing to make good the defects within reasonable time; and b) Architect/Superintending Officer not later than fourteen (14) days after the expiry of DLP issues schedule of defects to be made good by the contractor within reasonable time; but in PWD 203A it clearly specifies that the defects to be made good by the contractor not later than three (3) months after receiving the schedule.

109 110

Nigel M Robinson. Supra 37. pp. 171 Mohd Suhaimi Mohd Danuri. Supra 12. pp. 56 111 Carr v JA Berriman Pty Ltd (1953) 27 ALJR 273 112 Mohd Suhaimi Mohd Danuri. Supra 12. pp. 54

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2.5.2 Contractors Obligation during Defect Liability Period

As the contracts envisage that the defects might occur during the defect liability period, such defective building works shall not be considered as a breach of contract by the contractor113. Upon receipt of notice of defect and rectification, the contractor is obliged to return to the site to make good the defects and the employer is obliged to allow the contractor to do so. However, failure of the contractor to rectify the defects upon receipt of notice constitutes a breach of contract and therefore the employer has the rights to recover the cost in the form of damages per Section 74(3) of Contracts Act 1950. It is an alternative of recovering the cost of the remedying defective works by another contractor within the ambit of the contract provisions. Therefore, it is the contractors obligation under the contract to rectify the defects which appears during defect liability period.

Therefore, in the event that the contractor fails to rectify the defects after being given notice or the employer is not satisfied with the remedial works, the employer is entitled to appoint another contractor to undertake the remedial work and claims the cost of rectification from the original contractor 114. This has been correctly decided by the High Court of Malaya, Kuala Lumpur in Kemayan Construction Sdn Bhd v Prestara Sdn Bhd 115 where the employer is entitled to recover the cost of rectification of the defective building works from the original contractor who failed to rectify the defects after being instructed by the Architect. It was held that the employer is entitled to engage independent contractor to rectify the defects and deducted the rectification cost from the original contractors account. Kamalanathan JC agreed that the owner may recover from the contractor or may deduct any money due or to become due to the contractor provided that the architect has issued a written notice to the contractor to rectify the defects and that at the expiry of seven days notice, it has been shown that the contractor has failed to rectify the defects.
113 114

Anon. Supra 13. Mohd Suhaimi Mohd Danuri. Supra 12. pp. 56 115 (1997) 5 MLJ 608

39

The PAM 2006 Form and PWD 203A (Rev.2007) Form respectively contain provisions that govern the contractors responsibility for defective building work after completion of the work apart from those above mentioned provisions which specify the contractors responsibility for defective work during the construction period. Thus, Clause 15 of PAM 2006 Form and Clause 48 of PWD 203A 2007 Form oblige the contractor to rectify any defect, imperfection, shrinkage or any other fault which appear after practical completion.

2.5.3 Provisions Deal with Defects Liability Period

A defects liability period clause will set out the length of the defects liability period and also the circumstances under which the defects liability period may be extended. Typically, the defects liability period starts upon completion of the works, which in many contracts will be signalled by the Employer's Representative's issue of a practical completion certificate. The actual period will vary depending on the nature of the contract; for straight forward building projects it is usually 6 or 12 months. For complex engineering projects such as a power station, it can be as long as 24 or 36 months. The defects liability period clause may also provide for sectional completion, for example116: "The Defects Liability Period is the period of 12 months commencing on the Date of Practical Completion. If the Works are taken over by the Employer in Sections, the Defects Liability Period for each Section must commence on the Date of Practical Completion for that Section."

Clause 15 of PAM 2006 Form and Clause 48 of PWD 203A (Rev.2007) Form govern the contractors defect liability to rectify defective works appear after practical completion. This clause is normally known as defect liability period clause.
116

Mallesons Stephen Jaques. Supra 103.

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This defect liability period will be of twelve (12) months from the day mentioned in the certificate of practical completion unless there is some other period is specified in the Appendix.

Under Clause 15.4 of PAM 2006 Form and sub-clause 27.1 of CIDB 2000 Form, it allow the architect or superintending officer to specify in the schedule of defect any defect, imperfection, shrinkage or any other fault appearing within the defect liability period which arise due to materials and workmanship not in accordance with the contract. The architect or superintending officer should subsequently deliver the schedule of defect to the contractor within 14 days after the expiry of the defect liability period. Once contractor receives such a schedule, he is obliged to make good such defect, imperfection, shrinkage or any other fault within a reasonable time, entirely at his own cost. What is a reasonable time to make good the defects is dependent on the nature of the defects and the methods used by the contractor to rectify them117.

PWD 203A (Rev.2007) Form sub-clause 48.1(b) is similar to the above PAM 2006 Form sub-clause 15.4 and CIDB 2000 Form sub-clause 27.1, except that it also requires the Contractor to make good the defects no later than three months after receipt of the defects Schedule.

However, when in the circumstances that the contractor fails to make good, the employer may recover such a cost of making good defect under clause 15.4 and 30.4 of PAM 2006 Form and clause 48.2 of PWD 203A (Rev.2007) Form, from the money due or become due to the contractor or from the performance bond. Apart from deducting money from performance bond and money which is due or become due to the contractor, the employer is allowed under clause 15.3(b), Clause 15.4 and Clause 15.5 to engage and pay another person or third party to rectify such defective work. Definitely, the cost which is incurred by employer to employ a third party to
117

Sundra Rajoo. Supra 58. pp.146.

41

carry out the rectification work is recovered from the original contractor. CIDB subclause 27.3 is similar to the clauses of the both forms mentioned, except for the Performance Bond and liquidated demand of money being excluded.

In addition, sub-clause 48.3 of PWD 203A Form and CIDB 2000 Form subclause 27.4 further provide that, if the defects, shrinkages or other faults are impracticable or inconvenient to the Employer to have the Contractor make good these defects and faults, it allows the Engineer to ascertain the diminution in value of the Works due to the said defective or faulty works and deduct such value in the same manner.

PAM 2006 Form sub-clause 15.6 requires the Architect to issue the Certificate of Making Good Defects (CMGD) when the defects, shrinkages or other faults have been made good. PWD 203A (Rev.2007) Form sub-clause 45.4 and CIDB 2000 Form sub-clause 27.6 are similar to PAM 2000 Form sub-clause 15.6. CIDB 2000 Form under the same sub-clause further provides that the said Certificate is to be copied to the Employer and Nominated Sub-Contractor(s)/ Nominated Supplier(s) and it shall discharge the Contractor from any physical attendance at the Works for the purposes of remedying defects. It will not however prejudice the Employers right on latent defects or other breaches of the Contract. Sub -clause 27.7 of CIDB 2000 Form further emphasised that the provisions of sub-clause 27.1 to 27.6 do not derogate or relieve the Contractor from liability under the Contract or at law.

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2.6 Conclusion

Under a construction contract, contractors primary obligation is to carry out and complete the work in accordance to the standard set out in the contract. During the defect liability period, if the work founded that does not comply with the contract requirements and causes a defect occurs, employer has the rights to require the contractor to repairs or remedy the defects that appear at the contractors own cost.

Defective building construction not only contributes to the final cost of the project but also to the cost of maintenance, which can be substantial. Defective construction includes activities such as compaction not done to specifications leading to ground subsidence and eventual early deterioration of foundations. This may lead to the complete failure of a structure. It was found that construction inspection is the factor that, not only ensures accurate building construction but also have an effect on the major portion of the listed causes leading to defects 118 . Defects resulting of inaccurate construction can be avoided by ensuring that proper inspection mechanisms are in place.

118

Zietsman R (2001), Defects In The Construction Industry-Then And Now.

CHAPTER 3

EMPLOYERS DEFECTIVE WORK CLAIMS DURING DEFECT LIABILITY PERIOD AND THE CONTRACTORS LIABILITIES

3.1 Introduction

Under construction contract, the contractor is liable to make good defects which appear within the defects liability period (DLP). A defect liability period commences on the date of practical completion and continues for a period as stated in the contract. Generally, most defects liability period provisions in standard form contracts constitute both an obligation on the part of the contractor and a right on the part of the employer, but do not limit defects claims to the defect liability period119. In addition to that, further defects appear within the statutory limitation period, the employer will normally have a common law rights to make a claim in damages against the contractor. However, rather than the employer making good the defects and suing for damages, it is usually more cost effective and efficient for the contractor responsible for the original work to make good the defects.

119

Jim Doyle. Supra 19.

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Defective works are works which fail to comply with both the express descriptions or requirements in the contract (drawings and specification), and implied terms of the contract which affecting the quality of the works, whether due to faulty materials, workmanship or even design (if such design is part of contractors obligations under the contract) 120. In most situations, contract includes provision that requires the contractor to take full responsibility and liability for the rectification works if the defects are due to a breach of contract.

In general term, it is the employers entitlement to require the contractor to return to the site and rectify the defects during defect liability period. It is also the rights of the employer (subject to the provisions of the particular contract) to have the defective work rectified by another contractor at the original contractors expense in certain circumstance. This would ordinarily means that the principal is entitled to deduct the costs of that rectification from retention money held by the principal121.

However, it would be much more efficient for the original contractor to carry out the rectification of the defective work. The main obligation throughout the defect liability period on the contractor is that upon being given reasonable notice, to attend the site and rectify the defective work122. The contractors obligation to put right the defective work during the defects liability period is at its own expense.

The employers claims and the liability of the defect by the contractor to the rectification works generally cover the following activities123:1. Preparation of defect lists identifying deficiencies against standards/ requirements (i.e. snagging list);

120 121

Ong See Lian. Supra 108. pp. 1. Mallesons Stephen Jaques. Supra 103 122 Mallesons Stephen Jaques. Supra 103 123 Anon. Supra 13.

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2. All remedial works are to be carried out within the specified time under the supervision of qualified and experienced contractors personnel; 3. Joint inspection, by the Architect/ Engineer/SO of the rectified works; 4. Further defects (if any) identified by the Architect/Engineer/SO to be listed on a schedule of defects, to be rectified within an agreed period for subsequent inspection, leading to the issuance of the CPC. 5. Upon completion and inspection of the rectified works, to be signed off by the Architect/Engineer/SO i.e. to close-out all rectified works. 6. Any further defects occurring/ identified within the DLP, to be rectified periodically, unless those requiring urgent repairs.

3.2 Provisions in the Standard Forms Of Contract

Under a construction standard form of contract, the contractor's primary obligation is to carry out and complete the works to the standard set out in the contract. The defects liability period provision under the standard form of contract is intended to complement this liability by setting out how and when the contractor must remedy defective work which becomes apparent during the defects liability period. In addition, provision in standard form of contract include the defects liability obligation which recognises that defects will arise in the period following completion and the obligation to repair those defects in the general obligation to complete the works to the required standard124. On the other hand, the employer is generally required to give the Contractor notice of the defects as soon as practicable, stating the nature of the defect and supporting evidence.

124

Mallesons Stephen Jaques. Supra 103.

46

3.2.1 Provision Deals with Defects Liability

A defects liability clause obliges a contractor to repair or rectify defects that appear in the works they have constructed between the period that a certificate of practical completion is issued and its expiry.

A defects liability clause will require the contractor to repair or make good defects which are the result of the contractors default. Usually the contractors will seek to exclude liability for defects not owing to the contractors default, for example125: "The Contractor is not responsible for the repair, replacement or making good of any defect or of any damage to the Works arising out of or resulting from any of the following causes: (a) any acts or omissions of the Employer, its employees, agents; (b) improper operation or maintenance of the Works; or (c) use and operation of the Works outside the Specification."

In a construction agreement, a contractor's main obligation is to carry out and complete building works until completion, free of defects and to the standard set out in that document. A defects liability clause is intended to supplement this obligation by ensuring that the contractor remedies any defective work which becomes noticeable during the defects liability period; and provide a mechanism whereby the repair or making good of defects, which may not be obvious before completion, can be achieved without the need to resort to dispute resolution.

125

Mallesons Stephen Jaques. Supra 103.

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A defects liability clause usually sets out the term of the defects liability period, the scope of defects the contractor is obliged to remedy/repair and any proportion of the contract sum retained by the principal, or a performance bond as a guarantee for the performance of the remedial work during the defects liability period126. A defects liability clause will set out the scope of defects the contractor is obliged to remedy and any part of the contract sum retained by the Employer as surety for the performance of the remedial work.

A defects liability clause may also address the procedures for notifying the contractor of the defects which require remedy, the circumstances under which the defects liability period may be extended, as well as any limits on such extensions to the defects liability period127.

In some construction contract, it included clauses that require the Contractor to make good defects irrespective the cause of the defect, with appropriate reimbursement where the contractor is not in default. This facilitates quick repairs of the works by the party most familiar with the works and, therefore, best able to undertake the repairs128.

However, in most cases, the Contractor may have an absolute liability to make good or repair the defects at its own cost. Defect liability clause of JCT Standard Form of Contract stated that: " after receipt of such schedule the defects, shrinkages and other fault therein specified shall be made good by the Contractor at no cost to the Employer "

126 127

Mallesons Stephen Jaques. Supra 103. Monica Neo (2005), Construction defects: your rights and remedies Sweet & Maxwell Asia, Singapore, pp.24. 128 Mallesons Stephen Jaques. Supra 103.

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There are liabilities and obligations imposed on the contractor after completion, notably by PWD203A (Rev.2007) Form, PAM 2006 Form and CIDB 2000 Form. Clause 48 of PWD 203A (Rev.2007) Form governs the rights and obligations of the parties on defects, imperfections, shrinkages and other faults in the works which arises during the Defects Liability Period (DLP) after achievement of practical completion of the works. Clause 48(a) specifies that the contractor is liable for any defect, imperfection, shrinkage and other fault appears during the DLP, which will be six months from the day named in the Certificate of Practical Completion (CPC), unless some other period is specified in the Appendix129. Clause 15.2 under PAM 2006 Form also specifies the liabilities of the contractor after the CPC has been issued. It establishes a formal DLP and a procedure for dealing with defects within that period130. CIDB 2000 Form also has the similar provision under Clause 27.1 where the contractor shall remedy any defect works within specified time. CIDB 2000 Form sub-clause 27.5 is unique as it allows the SO to instruct the Contractor to search for the causes of defects, and if the Contractor is liable for them, the Contractor shall bear such search cost and remedy the defects at his own cost. If not, the said cost shall be deemed a variation.

It is clear that during the defect liability period, the Employer via Architect/ Engineer/SO is required to issue the necessary notices to the contractor and the contractor under his defect liability shall be obliged within reasonable time to rectify the defects at his own cost.

129 130

Sundra Rajoo. Supra 58. pp. 145. Nigel M Robinson Supra 37. pp. 170

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3.2.2 Contractor's Rights to Rectify Works and Notification

It is another important consideration to determine whether the contractor has an exclusive right to remedy defects which appear during the defects liability period. From the contractors perspective, it is beneficial to have the exclusive right to remedy the defects during the defects liability period as the costs of remedying the defects will be cheaper than the employer having to pay the cost of another contractor performing such works131. If the contractor has an exclusive right to repair defects, and an employer who proceeds to remedy the works without offering the contractor the opportunity to do so constitute to the breach of the contract. JCT defect liability clause stated that: "Any defects, shrinkages or other default which shall appear within Defect Liability Period and which are due to materials or workmanship not in accordance with this contract or to frost occurring before practical completion of the works, shall be specified by the Architect in a schedule of defects which he shall deliver to the contractor as an instruction of the Architect "

Thus, it is obvious that contractor has the right to be given an opportunity to rectify any defects which falling within the defect liability period132. In the case of P&M Kaye Ltd v Hosier & Dickson Ltd 133 , the defect liability periods clause is included in the contract with an intention of giving opportunity to the contractor to make good the defects appear during that period. The Lord Diplock, commenting on JCT defects liability clause in the case said: Condition 15 imposes upon the contractor a liability to mitigate the damages caused by his breach by making good defects of construction at his own expense. It confers upon him the corresponding right to do so. It is necessary implication from this that the employer cannot, as he otherwise could, recover as damages
131 132

Mallesons Stephen Jaques. Supra 103 John Murdoch and Will Hughes. Supra 66. pp. 196. 133 (1972) 1 WLR 146, at p.166

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from the contractor the difference between the value of the works if there had been constructed in conformity with the contract and their value in their defective condition, without first giving to the contractor the opportunity of making good the defects.

However, some standard form of contract may also provide for circumstances where the employer has the right to engage another contractor to remedy the defects at the cost of the contractor i.e. the contractor fail to rectify the work 134 . Under standard form of contract, i.e. clause 15 of PAM form, the employer is allowed to engage and pay another person or third party to rectify such defective work, and the cost which is incurred by employer to employ a third party to carry out the rectification work is recovered from the original contractor. However, it is noted that before engaging a third party to make good the defective building work, the employer must give the original contractor a chance to rectify the defects135.

Therefore, during defects liability period, the contractor has the right as well as the obligation to put right any defects that appear. This gives the meaning that an employer who discovers defects should operate the contractual defects liability procedure, rather than appoint another contractor to carry out the repairs. In the case of William Tompkinson v Parochial Church Council of St Michael136, an employer refused to allow the original contractor access to the site to remedy defects, but instead sued the contractor for the cost of having these rectified by another contractor. It was held that the employers decision amounted to an unreasonable failure to mitigate the loss suffered, and the damages were reduced by the amount by which the employers costs exceeded what it would have cost the original contractor to carry out the work. The Court of Appeal has since approved this decision.

134 135

Mallesons Stephen Jaques. Supra 103 Monica Neo. Supra 127. pp.24. 136 (1990) 6 Const LJ 814

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3.3 Liability for Defects

Liability as indicated in Dictionary of English Law, is potentially subject to obligation, either generally as including every kind of obligation or in more special sense to denote inchoate, future unascertained or imperfect obligation, as opposed to debt, to essence of which is that they are ascertained and certain. While Burtons Legal Thesaurus Dictionary defined liability as accountability, accountable, amenability and answerability.

Similarly, liability as stated in Osborne Concise Law Dictionary is : an amount owed; or subject to legal obligation; or the obligation itself, he who commits a wrong or break on a contract or trust is said to be liable or responsible for it.

According to Borja and Stevens137 (2002), a liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. Meanwhile, Frankel138 defines liability in any legal responsibility, duty or obligation, the state of one who is bound in law and justice to do something which may be enforced by action.

Frank and James139 provided that in law, a person may owe a duty to another person by his own free will in a Contract or bay the operation of common law of Tort. The failure to perform or negligently perform these duties or responsibilities constitute a breach, therefore he or she will be answerable or accountable to the other party who may have suffered as a result of his/her wrongful act.

137

Borja, M. E and Stevens, S.T. (2002). No Accident, No Coverage: A Look at Breach Of Contract Claims In Construction Defects Cases. Mealeys Litigation Report: construction defects, Inc., King of Prussia, PA. Vol. 3. 138 Frankel E. R. Supra 21. pp 20. 139 Frank E. and James A. Supra 10.

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Under standard form of contract, the contractor is expected to be liable for any defects in building project. These standard forms usually contain detailed provisions in respect of the employers remedies to defective works, for example140: i. Defective work to be remedied by contractor ii. Defective work to be remedied by employer if contractor fails to do so iii. Employer may agree to a reduction of contract price instead of remedying the defect iv. Employer may deduct the cost of remedial works from the contract price until the remedial works are carried out v. Employer to withhold retention monies, to be released upon issuance of the Certificate of Practical Completion and/or Certificate of Making Good Defects.

In Greaves &Co. v Bayham Meikle and Partners 141 , Lord Denning M.R. stated: Apply this to the employment of a professional man. The law does not usually imply a warranty that he will achieve the desired result, but only a term that he will use reasonable care and skill. The surgeon does not warrant that he will cure the patient. Nor does the solicitor warrant that he will win case.

Liability must, of course, be established on balance of probabilities. In Bater v Bater142, Denning L.J. said: So also in civil cases, the case may be proved by a preponderance of probability, but there may be degrees of probability within that standard. The degree depends on the subject matter The degree of probability which a reasonable and just man would require to come to a conclusion.

140 141

Ong See Lian. Supra 108. pp. 1. (1975) 1 WLR 1095 142 (1951) P. 35

53

Moreover, liability to defect as Oliver J. pointed out in Midland Bank v Hett, Stubs & Kemp143, is that the obligation to exercise reasonable skill and care is not the only contractual term which ought to be considered in a professional negligence action, there are implied terms that he will draw up the option agreement and effects registration.

Furthermore, in respect to defect liability, the House of Lords in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd144, the court held that the recovery of damages for breach of contract was not dependent or conditional on the plaintiff having a proprietary interest in the subject matter of the contract at the date of the breach. It was stated that the present owner could recover damages for defective work even though the owner suffered no actual damage as the building had been sold for full value before the damage was discovered.

A similar case related to liability for defect, in the Supreme Court of Queensland, Sir Harry Gibbs in the case of Director of War Service Home v Harris145 said: If the owner subsequently sold the building, or gave it away, to a third person, that would not affect his accrued right against the builder of damages. In this case the defective works carried out by the defendant for the plaintiff were not discovered until after the houses were sold. By the verdict of learned judge and agreed with by Stable and Hart JJ, that the employer is entitled to recover damages for the cost of rectification of the defective works.

143 144

(1979) Ch. 384 (1993) 3. All E.R. 417 145 (1968) Qd R 275.

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3.3.1 Liability of Contractor to Employer

The contractor is expected to carry out the construction work in workmanlike manner so as to meet the requirement and specification for the project. Under construction contract, the contractor is entitled or has a contractual right to remedy any patent defect or latent defect becoming patent, at anytime during the construction to the date of handing over of the works to the employer and also during the defect liability period146. He is expected to be informed of any defective works by the employers representative of the defects and make good at contractors own cost. If the contractor fails to rectify such defects either on his own or upon instruction of the contract administrator, he is culpable of breach of contract.

Therefore, it is the liability of the contractor to the employer under the contract to rectify the defects that appears during defect liability period. According to Lord Diplock in P&M Kaye Ltd v Hosier & Dickinson Ltd147, the DLPs clause is included in the contract with an intention of giving opportunity to the contractor to make good the defects appear during that period. Lord Diplocks interpretation is easy to understand as we could see that most of the construction contracts require the superintendent to issue notice to the contractor for rectifying the defects appear during DLP. Further Lord Diplock said that: the contractor is under an obligation to remedy the defects in accordance with the architects instructions. If he does not do so, the employer can recover as damages the cost of remedying the defects, even though this cost is greater than the diminution in value of the works as a result of the unremedied defects.

146 147

Ayodeji S. Ojo (2010), Defect Liability Period: Employers Right and Contractors Liabilities Examined . (1972) 1 WLR 146

55

However, non-issuance of notice or schedule of defects by the employer sometimes brings legal issue on the liability of contractor to the employer. Referring to the decision of the judge in one of the case whereby the employer did not send the notice to contractor to make good the defects discovered. The decision had been held in the Court of Appeal in the case of Pearce & High Limited v Baxter148 Evans LJ pointed out clear that: In my judgment, the contractor is not liable for the full cost of repairs in those circumstances. The employer cannot recover more than the amount which it would have cost the contractor himself to remedy the defects. Thus, the employers failure to comply, whether by refusing to allow the contractor to carry out the repair or by failing to give notice of defects, limits the amount of damages which he is entitled to recover...

Therefore, in the case of the employers breach of contract whether by failure to give the notice of defects or refusing the contractor to rectify the defects during defect liability period, does not preclude employers right to damages, but the damages which entitle to recover will be deducted to the cost of rectification by the original contractor himself. The contractor is liable to the cost of rectification by which the cost exceeds what it would have cost himself to carry out the work.

The following flowcharts show the contractors liability to defects during DLP under PAM 2006 Standard Form of Contract, PWD 203A Standard Form of Contract and CIDB 2000 Standard Form of Contract.

148

(1999) 66 Con LR 110

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Figure 2.1 Flowchart of Contractors Liability to Defects during DLP under PAM 2006 Standard Form of Contract clause 15
(Source: Anon (2007), What Are The Obligation Of The Contractor During Defect Liability Period? The Entrusty Group, Master Builders, 1st quarter 2007)

57

Figure 2.2 Flowchart of Contractors Liability to Defects during DLP under PWD 203A Standard Form of Contract clause 48
(Source: Anon (2007), What Are The Obligation Of The Contractor During Defect Liability Period? The Entrusty Group, Master Builders, 1st quarter 2007)

58

Figure 2.3 Flowchart of Contractors Liability to defects during DLP under CIDB 2000 Standard Form of Contract clause 27
(Source: Anon (2007), What Are The Obligation Of The Contractor During Defect Liability Period? The Entrusty Group, Master Builders, 1st quarter 2007)

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3.4 Defective Work Claims by Employer during Defect Liability Period

When a party performing a contract does not do so in accordance to the standard as set out by the contract, the said party is in breach of contract. Therefore, in most circumstances, when contractor is in breach of his contractual obligations, employer will wish to seek for the relevant remedy that available to him. In terms of construction defects, the most common form of remedy is damages 149 . It is irrespective during the defect liability period, a contractor who is in breach of contract in respect of failing to rectify the defective work, has to pay damages to the employer, who being the injured party of contractors default.

In respect of defects, the employer is not entitled to terminate the contract but the remedy that is available to him is through seeking damages from court if the contractor fails to rectify the defects. The employer has the right to set off and claim damages for main contractors default in respect of defective work during the defect liability period. In fact, the right to set-off by employer is well spelt out in the Malaysian standard form of building contracts, i.e. PAM 2006 Form and PWD 203A 2007 Form.

A defective work claim is usually for the cost or estimated cost of rectification of the defective work. Sometimes, instead of the cost of rectification the courts award the plaintiff the difference in value between what the intended value of the work and the actual value of the work on account of the defective work.

Whilst most standard form of contracts specifically deal with the rectification of defective works, the employers entitlement to damages at common law for breach of contract for defective work is not usually precluded. The law relating damages is to award pecuniary compensation for injured party for the loss that he
149

Monica Neo. Supra 127. pp.77.

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suffered as a result of the wrongdoers default. A claimant, who has not, in fact, suffered any loss by reason of the breach, is nevertheless entitled to a verdict, but the damages recoverable will be purely nominal150.

Damages claims by the employer under the common law are usually included the damages as follows: i. Cost of Rectification. Cost of rectification is the measures of damages for defective building works as the consequences of default151. It is the full cost that awarded to the building owner for putting right the defects. Hence, whenever it is reasonable, the court will treat the cost of rectification as the general measure of damages152.

The High Courts decision of Bellgrove v Eldridge 153 is the leading


authority on the measure of damages work. The High Court affirmed that the general rules was that the measure of damages was the difference between the contract price of work and the cost of making the work conform to contract.

ii.

Diminution in Value Diminution in value may involve a sum that will be ordinarily lower than the cost of rectification154. It is the value of the building less its value as it stands155, that is to say the difference between the market

150 151

J. Beatson (2002), Ansons Law of contract. 28th edition, Oxford University Press, Oxford . pp. 590. John McGuinness (2004), The law and management of building subcontracts Athena Press, Twickenham. pp.430. 152 Michael F.James. Supra 50. pp. 25. 153 (1954) 90 CLR 613 154 Jim Doyle. Supra 19. 155 Michael F.James.Supra 50. pp. 26.

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value of the property without defects and the market value of the property with the defects156.

iii.

The difference in cost to the builder of the actual work done and work specified.

With regard to this, court may sometimes award measure of damages in


form of the difference in cost to the builder of the actual work done and work specified. It is the difference between the contract price and the price actually paid by employer157.

iv.

Loss of Amenity Loss of Amenity is another branch of measure of damages that adopted by court to award damages to building owner in respect of contractors breach. It is often referred in the literature as the "consumer surplus", which is usually incapable of precise valuation in terms of money, exactly because it represents a personal, subjective and non-monetary gain158. In D Galambos & Son159, the award of damages was in relation to the prevention of the owner from enjoying or using part of the building as intended.

The key factor in an action for general damages is able to support the claim with evidence of the loss suffered as a result of the breach 160. A vague allegations of loss suffered are unlikely to be recognised in law161. In Syarikat Tan Kim Beng and Rakan-rakan v Pulai Jaya Sdn Berhad162, the developer subsequently counterclaim

156

David L. Cornes, Winward Fearon and Richard Winward (2002), Winward Fearon on Collateral Warranties 2nd edition. Blackwell Publishing, Oxford. pp. 109. 157 J. R, Lewis (1976), Law for the Construction Industry. The Macmillan Press Ltd, London. pp. 62. 158 Ruxley Electronics & construction Ltd v Forsyth (1996) AC 344. 159 (1974) 5 ACTR 10 160 Nigel M. Robinson. Supra37. pp. 240. 161 Nigel M. Robinson. Supra37. pp. 241. 162 (1992) 1 MLJ 42

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for alleged defective work. It is held that developer is not entitled for all the cost that he claims for defective work as some allegation bills are not able to be verified. He is only entitled to those claims that he is able to prove.

Generally, the employer will claim for the damages under the contract which the damages reviewable may be limited by the provisions of the contract and damages at common low where one party breaches a contract he must indemnify the other in damages. In Burns v MAN Automotive (Aust) Pty Ltd 163, it provides that where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such a breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e. according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract as probable result of the breach of it.

However, the important issues surrounding the making or breaking the contractors liability towards a defective work claim made by the employer during defect liability period are as follows164: 1) Validity/failure of the notice to rectify defective work issued by the principal or superintendent.

2) The determination of whether the instruction to rectify relates to defective


works or is a variation.

3) The Reasonableness of the time allowed to carry out rectification works. 4) The liability as to the costs of rectification of the defective work. 5) The contractor to warn the employer of any design defect that he knew about.

163 164

(1986) 161 CLR 653 Jim Doyle. Supra 19.

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6) The accrual of the principals right to direct rectification works to be carried


out by another contractor.

7) Was the rectification reasonable165

3.5 Liability to Defective Work Claims

No contractor shall be liable for destruction or deterioration of/or defects in any work constructed, or under construction, by him if he constructed, or is constructing, the work according to plans or specifications furnished to him which he did not make or cause to be made, and if the destruction, deterioration, or defect was due to any fault or insufficiency of the plans or specifications. Thus, a contractor is statutorily immune from liability for destruction, deterioration or defects of things built if the contractor can prove the thing was built according to furnished plans and specifications, since a contractor is not a guarantor of sufficiency of the plans and specifications drawn by the person of another166.

A contractor is insulated from liability for defects in the materials specified by the owner to be used in the construction when the contractor does not know or is not expected to discover the defect. Therefore, in the absence of an actual or an implied warranty of the materials used in the performance of the contract, in order for the owner to recover from the contractor for defective material specified for use in the construction by the owner, the owner must prove want of skill or lack of care in the performance of the work because strict liability does not apply. It effectively relieves the contractor of liability for defective materials used in a building where those materials are specifically called for by the plans and specifications prepared by

165 166

Jim Doyle. Supra 19. Ayodeji S. Ojo. Supra 146.

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the owner and where the contractor has no knowledge that the materials are defective167.

From the contractors perspective, defending a defective work claim would necessarily translate to a high cost and time consuming process. This is regardless of the timing of the making of the defective work claim by the principal and/or the superintendent. Therefore, for sake of practically and in preparation for a possible defective claim by the employer, it would be in the interest of the contractor to do the following168: 1) Establish the ambit of its contractual responsibility in relation to design 2) Be clear as to any express and/or implied representation made in documentation relating to and part of the contract as to the quality of workmanship; 3) Be aware of any express and/or implied statements in the contract as to the purpose of the works; 4) Be clear as to any express, implied and/or actual reliance on the part of the employer as to any of the contractors obligation, skill or expertise, 5) Establish a contemporaneous documentation procedure to ensure all directions, instructions, notifications, possible waivers are recorded in a timely and relevant manner.

Meanwhile, there are some of the arguments by a contractor against their liability towards the allegations of defective works claims, where the defences include169:

167 168

Ayodeji S. Ojo. Supra 146. Jim Doyle. Supra 19. 169 Jim Doyle. Supra 19.

65

a) A proprietor may not under the guise of recovering as damages the cost of completing the work recover the cost of executing work significantly different from the contract work170. b) Incompatibility of details171 c) Work carried out on the instruction of the building owner and/or superintendent.172 d) Waiver or estoppels on the part of the principal or superintendent.173 e) Proof of the absence of an express term requiring particular quality, no implied warranty.174 f) Lack of reliance.175

3.6 Conclusion

It is important to understand the precise nature of the defects obligations under the contract. The contractor is liable to the employer, where it is the employers right to recall the contractor to return to the site to carry out rectification works even if the site was returned to the employer for occupation. It is prudent for the contractor to carries out the defects rectification works within a reasonable period.

Basically the contractor should be given the right to rectify the defects that appear during defect liability period. Thus if an employer who discovers such defects
170 171

Smail (as trustee of the assigned estates of L M Wilson and G R Wilson) v. D L Starbuck Pty Ltd. Dorter And Sharkey, Building and Construction Contracts in Australia Law and Practice, 2nd ed, Lawbook Co, Sydney, 990 at (11.30) 172 Elanore Country Ltd v V J Summersby & Pearce & Sons (Excavations) Pty Ltd (1988) 4 BCL 309 173 Apex Realty Pty Ltd v Walker Bros & Preece Pty Ltd (1958) 76 WN (NSW) 34 174 Helicopter Sales (Aust) Pty Ltd v Rotor-Works Pty Ltd (1974) 132 CLR 1 175 Cable (1956) ltd v Hutcherson Bros Pty Ltd (1969)123 CLR 143

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and has rectify them without giving the opportunity to the contractor to do the making good himself, he is in breach of contract and may not be able to recover the additional cost of doing the work by a third party contractor.

CHAPTER 4

ANALYSIS OF CASE STUDIES

4.1 Introduction

This chapter will discuss the analysis of cases to determine the situation arise that the contractor is not liable to the defects, shrinkage that apparent during the defect liability period. The contractor is generally obligated and has the rights under the standard form of contracts, returning to the site to rectify defects discovered during the defect liability period and it is in a contractors rights to ensure that the defects are dealt with by themselves efficiently at their own cost and usually it is cheaper than carry out by third party. Contrary to the commonly held belief, beyond the defect liability period a contractor does not have an automatic rights to return and remedy defects unless this is expressly provided for in their contract (such as a defects liability provision) 176.

176

Louise Shiels (2011), Defects-what are you rights, Construction Law Journal, February 2011

68

The employer will frequently (where the contract so allows) withhold a proportion of a contractors retention money until the expiry of the defects liability period and/or the issue of a making good defects certificate. When the contractor fails to comply with the instructions to rectify the defect during defect liability, the employer is entitled to deduct the retention money for the cost of rectification to be covered by another new contractor.

The employer would be considered as in breach of contract in the circumstances by refusing the original contractor access to the site. Where a third party is engaged by the employer to rectify the defects instead of allowing the original contractor to make good, it may be criticised for acting unreasonably and failing to mitigate their loss. The employers failure to comply with the requirements of defect liability provisions, whether he fails to comply with the notice requirements of defects liability provisions in failing to give notice of the defects, or by refusing to allow the contractor to carry out the repairs, was held to limit the amount of damages which it was entitled to recover. Where the employer refuses to allow the contractor to return to site to rectify a defect, this may not preclude the recovery of third party costs, but may mean that any claim is limited to which it would have cost that original contractor to remedy the defects177.

4.2 Contractors Liability to Rectify Defects during Defect Liability Period

The defect liability period (or maintenance period) typically runs from the date of practical completion for a specified period. During the defect liability period, the contractor is obliged to return to site and rectify the minor defects and defects notified to it during the defects liability period. Defects may be notified any time up

177

Louise Shiels. Supra 176.

69

to the end of the defects liability period and must generally be rectified within a reasonable time.

The liability for the contractor to rectify defects during the defects liability period is for the benefit of the contractor as much as it is for the principal. The contractor can usually rectify defects more efficiently than a third party, as he generally being able to mobilise more quickly given the familiarity with the job.

4.2.1 Rights and Liability of the Contractor to Return to Site to Rectify the Defects

During the defect liability period, the contractor will typically be obliged and can insist the right upon returning to rectify defects and it is in a contractors interest to ensure that defects are dealt with promptly and efficiently. The contractor will want to avoid being charged for a third party doing the work which he can do with cheaper cost.

Whether the contractor has the rights as well as an obligation to rectify defects and therefore avoid liability for damages was considered, the Court held in most cases that the contractor will not only have the obligations to return to site to rectify, but also probably the rights to do so. It follows that an employer who proceeds to repair the defects himself without giving the contractor an opportunity to do so would thereby be in breach of contract178.

178

I. N. Duncan Wallace. Supra 5. pp. 3.

70

The cases cited below are those that relate to the rights and liability of the contractor to return to site to rectify the defects.

Case 1: P & M Kaye Ltd v Hosier & Dickinson Ltd179

An agreement was made in between the contractors and the employers, where the contractors undertook to build a warehouse and offices. The contract was made in the standard form of the JCT 1963. Defects were discovered during defect liability period and in fact, contractor has the obligation as well as the right to rectify the defect. The defects liability clause under JCT standard forms of contract used in this case generally give the contractor a licence to return to the site for the purpose of remedying defects which occurred during the defects liability period, which starts on the completion of the works. Such condition of contract confers upon the contractor a right to repair or make good its defective works, which can be carried out more cheaply and more efficiently than by some outside contractor bought in by the employer.

In the judgement of Lord Diplock, it is stated that if latent defects are discovered during defects liability period it is extended until the contractor has made them good and the architect has so certified. During this period the contractor's obligation is to make good to the satisfaction of the architect any latent defects that may become apparent. After the end of this period the contractor is not liable to remedy any further defects; but the contract sum may be adjusted by reason of any defects which would not have been apparent on reasonable inspection or examination before the issue of the final certificate.

179

(1972) 1 WLR 146

71

Lock Diplock further said that: Condition 15 imposes upon the contractor a liability to mitigate the damages caused by his breach by making good defects of construction at his own expense. It confers upon him the corresponding right to do so. It is necessary implication from this that the employer cannot, as he otherwise could, recover as damages from the contractor the difference between the value of the works if there had been constructed in conformity with the contract and their value in their defective condition, without first giving to the contractor the opportunity of making good the defects.

Therefore, according to Lord Diplock in this case, the defect liability period clause is included in the contract with an intention of giving opportunity to the contractor to make good the defects which appear during the defect liability period. The contractor is liable and has the duty and rights to return to the site to remedy the defects during that period.

Case 2: Kemayan Construction Sdn Bhd v Prestara Sdn Bhd180

In this case, the respondent had signed a building contract ('the contract') with a contractor. On 6 October 1995, the architect to the project ('the architect') certified Interim Certificate No 15 for a sum of RM1,106,099.57. On 9 October 1995, the architect issued a certificate of practical completion with a list of defects to be rectified by the contractor within the 12-month defects liability period. On 16 November 1995, the architect issued Interim Certificate No 16 for a sum of RM1,646,782.94.

180

(1997) 5 MLJ 608

72

The contractor has failed to remedy the defects and complete the works. The respondent therefore refused to pay the contractor. The respondent disputed the debt on the basis that the building constructed had been found to have various defects. In its submission, the contractor contended that the balance one moiety of the retention sum was sufficient to cover all the rectification costs and that therefore the respondent ought to honour the two interim certificates. The architect's letter dated 11 April 1996 ('the architect's letter') that the costs of rectification would be deducted from the retention sum was produced.

It was held that, under the contract, the contractor had an obligation to comply with the architect's instructions and to rectify the defects at its own cost pursuant to the architect's instructions. It was not open to the contractor to argue that since it had not been paid it was entitled to disregard the architect's instructions and refuse to rectify the defects. Therefore, it was the contractor's breach in the first instance that prompted the respondent to exercise its rights under the contract to withhold payment.

The failure of the contractor to comply with the architect's directive with regard to the defects clearly and without doubt gave the respondent the right to dispute the payment. The respondent was thus justified in refusing to pay the contractor. As the contract required the contractor to rectify the defects within the 12-month defects liability period, it was uncertain from the available evidence and submission whether the retention sum was sufficient to cover all the rectification works, as the major rectification works had yet to be carried out. As a result of the breach on the part of the contractor, the respondent was entitled under the contract to deduct from the retention sum for the rectification works.

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4.2.2 The Employers Obligation to Notify the Contractor of Defects and the Contractors Liability

If the defects are such that a contractors liability during defect liability period, it is in the employers interest to notify early, and the contractor will be obliged to rectify the defect as soon as they are aware of a potential claim. In the case that the contractor is given notice of defect but had failed to take steps to rectify the defects, the employer is entitled to recover the cost of having the defect rectified by others. However, if no notice is given of defects which arose during the defect liability period, the contractor will not normally escape liability altogether, but will be liable for what it would have cost the original contractor to remedy the defect181.

Where an employers notice is condition precedent to its entitlement to claim for damages, the court in the case of London and SW Railway v Flower182, was held that: it would seem to be contrary to natural justice to hold that the plaintiffs can, without giving the defendants notice of the duty which is sought to be cast upon them, take upon themselves to perform that duty for the defendants and charge them with the expense.

The cases cited below are those that relate to the employers obligation to notify the contractor of defects and the contractors liability.

181
182

Louise Shiels. Supra 176. (1875) 1 CPD 77

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Case 1: Pearce & High Ltd v Baxter and Anor183

A dispute arises between the building contractors, Pearce & High Ltd and their employer, Mr. and Mrs. Baxter regarding the contract works consisted of internal and external alterations and extensions at Mr. and Mrs. Baxters home. Defects become apparent before the end of defect liability period and the contractor has the right to be given an opportunity to make good any defects which falling within the defect liability period, but the alleged defects are not notified to the contractor. It was accepted that the contractors obligation under Clause 2.5 of JCT1980 standard form of contract to remedy defects cannot be enforced unless a contractor has notice of the defects. However, in this case, the defects were not notified to the contractor. It was held that, at such notice was a condition precedent to employers right to require compliance with Clause 2.5 (but that different considerations might arise if the contractor became aware of the defects from another source), the obligation could not be enforced against the contractor unless he has notice of the defects.

It was held that the absence of the notice prevents the employer enforcing the right to require the contractor to rectify the defect, but subject to the contract terms the defect is still a breach contract with a right to recover damages. Such a right cannot be excluded except by clear, express words or by a clear and strong implication from the express words used.

It was held that the employers failure to comply with Clause 2.5, whether by refusing to allow the contractor to carry out the repairs or by failing to give notice of the defects, limits the amount of damages which he is entitled to recover. As a matter of legal analysis this is either:

183

(1999) BLR 101

75

i.

by permitting the contractor to set-off against the employers damages claim the amount by which he, the contractor, has been disadvantaged by not being able or permitted to carry out the repairs himself; or

ii.

by reference to the requirement for the employer to mitigate the loss for which is entitled to recover damages.

The Court of Appeal held that the obligation of the contractor to make good defects cannot be enforced on the contractor unless he is given notice of the defect. Failure of the employer in giving the notice does not preclude employer right to damages, it will however limit the amount of damages that the employer is entitled to recover.

Therefore, it was held that the contractors liability cannot be enforced and he was not liable to return to the site to rectify the defect when there was no notice of defects given to him. The measure of damages which the employer was entitled from the contractor was therefore the cost of repairs by the original contractor if he remedied the defects himself on the assumption that this is lower than the cost of repair by a third party.

4.2.3 The Contractors Liability for the Defective Works Caused by Materials Supplied by the Employer

A contractor is not liable for defects in the materials specified by the owner to be used in the construction when the contractor does not know or is not expected to discover the defect.

76

Therefore, in the absence of an actual or an implied warranty of the materials used in the performance of the contract, in order for the owner to claim for defective works, he has to prove that the contractors performance was lack of skill and care and the work was defect.

It effectively relieves the contractor of liability for defective materials used in a building where those materials are specifically use in the plans and specifications prepared by the owner and where the contractor has no knowledge that the materials are defective. The cases cited below are those that relate to the contractor liability to defective work caused by materials supplied by the employer.

Case 1: Young & Marten Ltd v McManus Childs Ltd184

The respondents, developing a housing estate at Gerrards Cross, contracted the roofing of the houses to the appellants. The roofing contract called for the use of Somerset 13 tiles, which were manufactured only by JB. The appellants obtained supplies of tiles from their own suppliers in London who in turn obtained then from JB. Some of the tiles supplied had a defect, apparently due to faulty manufacture, which was not discoverable by any reasonable inspection by the appellants. After less than 12 months (during defect liability period), the tiles began to disintegrate and the respondents claimed the cost of the re-roofing of the houses. The appellants argued that, as they had not chosen the type of tile and could not have discovered the defect, they were not liable.

184

(1969)] 9 BLR 77

77

Lord Reid stated that: This is a contract for the supply of work and materials and this case raises a general question as to the nature and extent of the warranties which the law implies in such a contract. As regards the contractors liability for the work done there is no dispute in this case: admittedly it must be done with all proper skill and care. The question at issue relates to his liability in respect of materials supplied by him under the contract. The appellants maintain that the warranty in respect of materials is similar to that in respect of work, so that, if the selection of material and of the person supply it is left to the contractor, he must exercise due skill and care in choosing the material and the person to supply it.

But where, in this case, the material and the supplier were chosen by the respondents, the appellants maintain that there was no warranty as to the fitness or quality of the tiles. The loss was not caused by Somerset 13 tiles being unsuitable for the contract purpose; it was caused by the tiles which were supplied being of defective quality. It would be unreasonable to put on the contractor a liability for latent defects when the employer had chosen the supplier with knowledge that the contractor could not have recourse against him.

Therefore, it was held that the contractor was not liable to the defects. The defects of work were caused by the quality of material, where the employer had chosen the supplier and materials. In this case, the contractor has to use the materials supplied by the employer.

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4.2.4 The Contractors Liability towards Design Defects

It is increasingly common for the contractor to expressly assume some liability for design185. The mere fact that a design lacks buildability would not be sufficient for the liability to be imposed on the architect/engineer or other design professional. It would have to be established that the architect/engineer has failed to exercise due skill and care so as to ensure that his design did not lack buildability. This presents a considerable legal and evidential hurdle to the contractor in attempting to recover a contribution from the architect/engineer.

The cases cited below are those that relate to the contractors liability towards design defects.

Case 1: Greaves & Co (Contractors) Ltd v. Baynham Meikle & Partners186

The plaintiff contractors were employed to build a warehouse which was to be used to store oil drums. The drums were to be kept on the first floor of the warehouse and to be moved about by fork-lift trucks. In this case, the contractors undertook an obligation towards the owners that the warehouse should be reasonably fit for the purpose for which, they knew, it was required, that is as a store in which to keep and move barrels of oil. In order to get the warehouse built, the contractors found they needed expert skilled assistance, particularly in regard to the structural steel work. An engineer is employed to design a building, the purpose of which is made known to him there will be an implied warranty by him that the design of the building will be suitable for its purpose. The engineer knew or, by virtue of the relevant British standard code of practice, ought to have known that the warehouse

185 186

Michael Furmston (2006), Powell-Smith & Furmstons building contract casebook, Blackwell Publishing. (1975) 4 BLR 56

79

was to carry loaded trucks and that there was a danger of vibration. The design was inadequate for the purpose of carrying such loaded trucks.

In fact during defect liability period, the warehouse as constructed was defective in that the movement of the fork-lift trucks caused vibrations which caused the floor to crack. The plaintiff claims against the defendant structural engineers, whom they had engaged to design the warehouse.

What was the cause of this cracking of the floor is the issue. The structural engineers said that it was due to the shrinkage of the concrete for which they were not responsible. There was nothing wrong, they said, with the design which they produced. But the judge did not accept that view. He found that the majority of the cracks were caused by vibration and not by shrinkage. He held that the floors were not designed with sufficient strength to withstand the vibration which was produces by the stacker trucks.

Lord Denning MR stated that, as between the owners and the contractors, it is plain that the owners made known to the contractors the purpose for which the building was required, so as to show that they relied on the contractors skill and judgement. It was therefore the duty of the contractors to see that the finishes work was reasonable fir for the purpose for which they knew it was required. It was not merely an obligation to use reasonable care. The contractors were obliged to ensure that the finished work was reasonable fit for the purpose.

On those findings, the first question is: what was the duty of the structural engineers? The judge found that there was an implied term that the design should be fit for the use of loaded stacker trucks, and that it was broken. Alternatively, that the structural engineers owed a duty of care in their design, which was a higher duty

80

than the law in general imposes on a professional man; and thus there was a breach of that duty.

It was held that the contractor's claim for the breach of contract and a declaration of liability by engineer, was not simply to exercise due care and skill but to the design of a building that fit for its purpose. Therefore, the contractor is not liable for the defective work but the engineer should be liable for it.

Case 2: Viking Grain Storage Limited v T.H. While Installations Limited187

In this case the defendant agreed with the plaintiff to design and construct a rain storage installation. The plaintiff alleged a variety of defects discovered during defect liability period which rendered the installation unfit for its intended purpose in respect of both its design and the materials used in its construction. The plaintiff argued in favour of implied terms that the defendant would use materials of good quality and reasonably fit for their purpose, and that the completed works should be reasonably fit for their intended purpose. The defendant accepted that there was an obligation to use good quality materials but disputed the requirement of fitness for purpose. In relation to design the defendant argued that it was his duty to use reasonable skill and care only.

It was held that there was nothing in the contract which prevented the implication of an additional term. The purposes for which the storage facility was required had been made known by the plaintiff to the defendant and they relied upon the defendant to provide a facility fit for those purposes.

187

(1985) 3 Con. L.R. 52

81

The court held that there was not any merit in breaking down the obligations of a contractor under a design and build contract. A term would be implied, that the finished product must be reasonably fit for its intended purpose and that the defendant should be liable to the plaintiff irrespective of whether the defects were defects in materials or workmanship or design. Therefore the defendant was liable for the defects discovered and required to make good the defects under his duty of defect liability.

4.2.5 Contractor to Warn Employer of Any Design Defects that They Knew About

At common law in contract, it is stated that unless there is an express term to the contrary, a contractor will be liable if its design fails to achieve the intended purpose even though there is no negligence on its part in preparing the design. This contrasts with the lesser standard of liability of a professional person, such as an architect or an engineer, who produces a design. They are only ordinarily liable if the design is defective due to their negligence188. However, in circumstances it may be possible to infer that the employer looked to the contractor to advise him that the design was faulty189.

The cases cited below are those that relate to the liability of the contractor to warn employer of any design defects that they knew about.

188 189

Louise Shiels. Supra 176. Michael Furmston. Supra 185.

82

Case 1: Brunkswick Construction v. Nowlan190

Nowlan engaged an architect to design a house and then contracted with the appellants to build the house according to architects design. The design was faulty and defect was found during the defect liability period, that it made no sufficient provision for ventilation of the roof space and timbers. The result was a serious attack of rot.

It was held that the appellants were liable for the defects. Ritchie J stated that: In my opinion a contractor of this experience should have recognized the defects in the plan which were so obvious to the architect subsequently employed by the respondents, and, knowing of the reliance which was being placed upon it, I think the appellant was under duty to warn the respondents of the danger inherent in executing the architects plans, having particular regard to the absence therein of any adequate provision for ventilation.

Therefore, in this case, the contractor is liable to the defects and the full cost of rectification for the defective works. He has the liability and duty to warn the employer of the faulty design that they knew about.

190

(1974) 21 BLR 27

83

Case 2: CGA Brown Limited v Carr & Anor191

CGA Brown Ltd ("CGA") where builders carried out works for the defendants ("Carr") at their house in Rochdale in 2003. CGA agreed to do the work to the roof shown on the drawings prepared by Carr's architect for the purposes of obtaining building regulation approval. The work included an extension to add two dormer windows set into the sloping part of the roof, and a corresponding extension to the flat roof constructed above these windows. Expert opinion was that the drawings did not provide a very detailed level of information and the annotations provided left many assumptions as to interpretation and decisions on actual intention.

An annotation stated that the new flat roof was "to align through with the existing arrangement". The actual roof slopes were different to those shown on the drawings so following this instruction meant that the falls on the new roof were unsatisfactory. By the time, CGA discovered this problem, they had completed work in accordance with the drawings, and had of their own initiative made a cold joint between the felt covering the existing roof, and the felt which they laid to cover the new roof. This joint was later condemned by the expert.After discovery of the problem, CGA had proposed a solution which involved constructing a slightly pitched roof above the flat roof. Although Carr accepted CGA's quotation for this modification, it was not carried out.

Before end of the defect liability period, the roof began to leak very badly. Carr called another contractor who carried out an emergency repair and then later refelted the whole of the flat roof.

191

(2006) EWCA Civ 785

84

The judge held that CGA were liable for the whole of the re-felting works as CGA should have spotted the problem with the drawings and advised Carr of it before they created a roof that was vulnerable to leakage because of the inadequacy of the joint that CGA decided to make. There was no double recovery. There had been two breaches of contract: the failure to spot the problem with the drawings and constructing an inadequate joint. The combination of these two failures left Carr with a roof which was inadequate and leaked. Compensation was awarded to compensate Carr for the fact that they had been left with an inadequate roof and the original agreement required the builders at least to leave them with roof that did not leak. There was no question of betterment in the work carried out by the second contractor. The builder, CGA Brown, had a duty to warn at this domestic consumer level. He did not. He pressed on. So then he became responsible for the choice.

The Court of Appeal upheld the court of first instance. In brief, the Court of Appeal decided that the builders were liable for the full cost of repairing a defective roof because they should have realised that the drawings prepared by the architect were defective. They should have warned the clients about this before they continued with the construction of the roof.

Therefore, it can be said that the contractor is liable to the employer for the full cost of rectification for the defective work, in the case that the contractor is under the knowledge of the design defects but he fail to warn the employer of any faulty design that will cause the defective building work.

85

Case 3: Plant Construction Plc v. Clive Adams Associates and JHM Construction Services Ltd192

The claimant (Plant) was the main contractor in a contract to install two new engine mount rigs and a suspension rig in a laboratory at the Ford Research Engineering Centre. The contract was under Form terms which put the risk of any damage to the works caused by Ford or its servants or agents on Plant. JMH Construction Services Ltd (JMH) were the sub-structure sub-contractors and Clive Adams Associates (Adams) were consulting structural engineers.

On 2 January 1994, before the end of defect liability period, the roof of the building collapsed. This was because of defects in the support provided. Plant paid Ford 1,313,031 in settlement of Fords claim and sought to recover its total loss of about 2 million from Adams and JMH. Adams and Plants reached a settlement and the action continued as a trial of Plants claim against JMH. It was accepted that the effective reason for adopting the faulty system of support was that it was insisted on by Fords chief engineer who was a dominating personality who did not brook dissent. The work should have been recognised by any competent engineer or contractor, and indeed was recognised by JMH, as dangerous.

As May LJ made clear, a contractual duty to warn may arise as an aspect of a contractor's implied duty of skill and care. Whether such a duty in fact arises will depend on all the circumstances of the case. At page 532, May LJ said that the "crucial" elements were that the temporary works were obviously dangerous and were known by JMH to be dangerous. As he said: JMH were not mere bystanders and, in my judgment, there is an overwhelming case on the particular facts that their obligation to perform their contract with the

192

(2000) 2 TCLR 513

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skill and care of an ordinarily competent contractor carried with it an obligation to warn of the danger which they perceived.

The fact that the details of the temporary works had been imposed by Ford and that Plant had Mr Adams as their consulting engineer do not, in my view, negate or reduce the extent of performance which the implied term required in this case. The fact that other people were responsible and at fault does not mean, in my judgment, that on the facts of this case JMH were not contractually obliged to warn of a danger.

It has now been held by the Court of Appeal that if the duty to warn arises, it is part of the duty to act with the skill and care of an ordinarily competent contractor. What is to be expected of such a contractor will depend on the particular facts of the case. The facts of the this case show that, where a contractor is asked to do work, he is likely to be under a duty to warn his client if he knows that the work is dangerous, and that duty will not be negated by the fact that the client is being advised by a professional person who knows, or ought himself to know, that the work is dangerous. In the circumstances, JMH was under a duty to warn Plant that the support system was defective. The matter should be remitted to decide what would have happened if Plant had given a more effective warning. (At a later hearing, Judge John Hicks QC held that if a more effective warning had been given, the collapse would not have occurred). Therefore, the contractor is liable to the employer for the defect that had become apparent before the end of the defects liability period.

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4.3 Assessment of Damages under Defective Work Claim by Employer

The basic principle is that awards of damages for breach of contract are intended to put the innocent party in the position they would have been in had the contract been properly performed 193 . However, in respect of defects, it is not reasonable to award all damages in the form of the full cost of rectification as damages are not meant to enrich the innocent party. As far as possible, damages in awarding a sum of money as compensation for the building owner who suffers by the breach and the purpose of this is to put him, as far as money can do, in the same situation, with respect to damages, as in the contract has been performed194.

When a building or construction contract is defectively performed, the proper measure of damages is the difference between the value of the property with the defective work, and its value had there been strict compliance with the contract. Where the contractor deliberately deviates from the contractual agreement, but there has been no substantial performance, damages are determined by the actual expense of reconstructing the building according to the terms of the contract.

Therefore, the usual measure of damages for defective work or materials is either the diminution in value of the property which results from the defects or the cost of putting the defects right, subject to considerations of reasonableness, mitigation of loss and so on195.

193 194

Monica Neo, Supra 127. Robinson v Harman (1848) 1 Exch 850 195 J. Beatson. Supra 150.

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4.3.1 Cost of Rectification

Cost of rectification is the traditional measures of damages for defective building works as the consequences of default196. It is the full cost that awarded to the building owner for putting right the defects. Hence, whenever it is reasonable, the Court will treat the cost of rectification/cost of reinstatement as the general measure of damages197.

However, the issue would be much difficult if the owner employ another contractor to rectify the defects without first giving the required notice to the original contractor and deprives the original contractor from having the opportunity to undertake the remedial works himself198. In the case that the employer refused to allow the original contractor access to the site to remedy defects, the employer is only entitled to recover the cost of rectification by which the costs exceeded what it would have cost the original contractor to carry out the work199.

The cases cited below are those that relate to the contractors liability towards employers claim for the cost of rectification

Case 1: Bellgrove v Eldridge200

In 1954, the builder had constructed a house with defective foundations, using a lean concrete mix and lean mortar that was likely to cause "grave instability". The

196 197

John McGuinness. Supra 151. pp.430. Michael F.James. Supra 50. pp. 25. 198 Mohd Suhaimi Mohd Danuri. Supra 12. pp. 56 199 William Tompkinson v Parochial Church Council of St Michael (1990) 6 Const LJ 814 200 (1954) 90 CLR 613

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builder claimed that he could rectify the works by underpinning and other methods, but the expert evidence inclined to the view that complete demolition and reconstruction would be necessary to properly rectify the works. Alternatively, the builder said that the owner could sell the house "as is" for appreciably more than land value and others could then rectify it at a lesser cost. The High Court awarded the owner the full cost of demolition and reconstruction, stating the following principles for assessing damages for breach of a construction contract: 1. if it is necessary and reasonable to undertake the rectification work, the true measure of loss is the cost of rectification; 2. in this circumstance the loss is not measured by comparing the value of the building actually erected with the value it would have had if erected in accordance with the contract; 3. if it is necessary to rectify to produce conformity with the contract, but not reasonable to do so, the true measure of loss is any reduction in value produced by the non conformity; 4. in any particular case, it is a question of fact whether rectification is both necessary and reasonable.

The High Court determined that it was both necessary and reasonable that the rectification work be performed. The expert evidence supported the conclusion that the only satisfactory way of rectification was to demolish and rebuild the home. The Court noted the owner might not demolish and rebuild the house and could end up living in the defective house as well as receiving payment sufficient to demolish and rebuild the home. The Court said that this was immaterial and the owner was entitled to compensation for the breach of contract in accordance with the principles set out above. It was necessary for the Court to reach finality by its award.

The principle in this case notes that it is an issue of "fact" as to whether or not it is both necessary and reasonable to rectify defects. Cost of Rectification was

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held to be the reasonable remedy because there was a substantial departure by the contractor from the specifications in the contract making the construction unsafe.

Case 2: Pearce & High Limited v Baxter201

P&H, the building contractor sued Baxter, the employer for amounts including the sum of BGP 3,919.23 outstanding under an architects certificate for work done under a contract in the JCT form for Minor Building Works. Defects had become apparent before the end of the defects liability period, but these were not notified to the contractor. The Court of Appeal held that the owner was under a duty to mitigate the loss by giving the opportunity to the original contractor to undertake the remedial works himself. The judge justified that the cost of employing another contractor to remedy the defects would be much higher than the cost to the original contractor. Refer to the decision of the Court of Appeal, Evans LJ said that: The cost of employing a third party repairer is likely to be higher that the cost to the contractor doing the work himself would have been. So the right to return in order to repair the defects is valuable to him. The question arises whether, if he is denied that right, the employer is entitled to employ another party and to recover the full cost of doing so as damages for the contractors original breach.

In my judgement, the contractor is not liable for the full cost of repairs in those circumstances. The employer cannot recover more than the amount which it would have cost the contractor himself to remedy the defects. Thus, the employers failure to comply with clause 2.5 (the clause relating to rectification of defects), whether by refusing to allow the contractor to carry out the repair or by failing to give notice of defects, limits the amount of damages which he is entitled to recover. The result is achieved as a matter of legal analysis by permitting the contractor to set off against
201

(1999) BLR 101

91

the employers damages the amount which he, the contractor, has been disadvantaged by not being able or permitted to carry out the repairs himself, or more simply, by reference to the employers duty to mitigate his loss.

It was held that it limits the amount of damages which the employer was entitled to recover when the employer fails to comply with Clause 2.5, whether by refusing to allow the contractor to carry out the rectification works or by failing to give notice of the defects to the original contractor for an opportunity to remedy the defect by himself. The measure of damages was therefore the cost of repairs by the contractor as if he had remedied the defects himself on the assumption that this is lower than the cost of repair by a third party.

Case 3: Ruxley Electronics & construction Ltd v Forsyth202

Mr Forsyth had entered into a contract with Ruxley Electronics to build a swimming pool in Mr Forsyths garden. This case arose where a swimming pool was constructed at a depth of 6'9" instead of 7'6'' as required by the Employer. He then refused to pay.

The parties were in agreement that the failure to provide the required depth for the pool amounted to a breach of contract. However, there was a conflict about what should be done about it. The expert evidence was that it was not possible to simply knock out the bottom of the pool and excavate it to a greater depth. The only sound engineering solution was to entirely remove the existing pool and rebuild it to the required depth. The cost of doing this would include 4,000 for the dismantling

202

(1996) AC 344

92

of the pool and the removal of waste, which when added to the original price would bring the total cost to some 21,560.

The issue for the court was that, apart from failing to meet the specification with regard to the depth of the pool at the deep end, the pool was in all respects useable, both for swimming and diving. Indeed, expert evidence was provided to the effect that even larger people such as Mr Forsyth could dive safely into the pool without hitting the bottom. However, the court also accepted that Mr Forsyth did suffer a real loss in that he personally did not feel safe diving into the pool. The extra depth would not increase the objective utility of the pool in any way, and neither would it make any difference to the market value of the pool or the property.

Mr Forsyth argued that it was all well and good for the experts to argue about its utility, and its value, but that all of this was really beside the point. He was someone who had expressly contracted for a swimming pool which was to be 76 deep. He did so because this would make him feel safe and happy, and anything less would not provide him with the degree of satisfaction and pleasure which he sought. He had explicitly contracted for something, and it was his view that he should get what he had contracted for - neither more nor less.

Mr Forsyth took his case on appeal, contending that the trial judge should have made an award for the construction of the pool to conform to the original specification of the contract.

In allowing the appeal, the Court of Appeal by a majority of 2:1(Staughton LJ and Mann LJ in the majority with Dillon LJ dissenting) held that it was not unreasonable in contracts of personal preferences to make an award of reinstatement costs. The Court of Appeal awarded the cost of reinstatement. This was because Forsyth had suffered a real loss which could only be measured by the cost of curing

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it. They said that in pursuing reinstatement, the owner was merely taking steps to secure the very thing which was promised under the contract, therefore there was no avoidable loss.

Ruxley Electronics then appealed to the House of Lords where the appeal was allowed unanimously. The House of Lords placed emphasis on the central importance of the concept of reasonableness in selecting the appropriate measure of damages. They agreed with the trial judge that the cost of reinstatement was not the appropriate measure of damages as the expenditure would be out of all proportion to the good to be obtained. They referred to the High Court of Australia in Bellgrove v Eldridge203 which discusses whether reinstatement is the necessary and reasonable course to undertake in such circumstances. Refer to the case of Bellgrove v Eldridge204, reinstatement costs were held to be the reasonable remedy because there was a substantial departure by the builder from the specifications in the contract making the construction unsafe.

Finally, the House of Lords held that, in this case the appropriate measure of damages is not cost of reinstatement, but is reasonableness as a factor to be considered in determining what that loss was and subsequently reinstate the trial decision. It was held that it would be unreasonable to award as damages the reinstatement cost since it would be out of all proportion to any benefit the client would enjoy if the defective work was rebuilt. It was held that to do otherwise the injured party would have recovered not compensation for loss but a very substantial gratuitous benefit. An undertaking by the injured party to spend any damages on remedial works made no difference since one could not create a loss, which does not exist, in order to punish the defendants for their breach of contract. The basic rule of damages, to which exemplary damages are the only exception, is that they are compensatory not punitive.

203 204

(1954) 90 CLR 613 (1954) 90 CLR 613

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4.3.2 Loss of Amenity

Loss of Amenity is a measure of damages that adopted by court to award damages to building owner in respect of contractors breach. It is often referred in the literature as the "consumer surplus", which is usually incapable of precise valuation in terms of money, exactly because it represents a personal, subjective and non-monetary gain205.

The cases cited below are those that relate to the contractors liability towards employers claim for the loss of amenity.

Case 1: Yap Boon Keng Sonny v Pacific Prince International Pte Ltd and Another206

The plaintiff, Sonny Yap Boon Keng, is the owners of the land and premises at No 25 Lorong K, Telok Kurau, Singapore. The defendant, Pacific Prince International Pte Ltd, is a company incorporated in Singapore which carries on business as a design and build contractor. On 7 December 2004, Sonny Yap has signed a memorandum of agreement (MOA) with the contractor which requires the latter to design and construct a three storey detached house.

Upon completion (during the defect liability period), Sonny Yap has commenced proceeding against the contractor for breach of the terms of the MOA and made claims for defective works and undersized bedrooms that do not meet his
205
206

Ruxley Electronics & construction Ltd v Forsyth (1996) AC 344 (2009) 1 SLR 385

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requirements. The contractor in turn counter-claims for a sum of $57,958.54 which is due to him under the contract. Judith Prakash J. has further given his judgment for the contractor on their counter-claim of $57,958.54 for outstanding balance of the contractual price.

This case happen that, in respect of the bedroom, the specifications provide five bedrooms to be built in the house. From the outset, Sonny Yap has informed the contractor to build the bedrooms at least between 18m to 19m. On 13 August 2004, the contractor has sent Sonny Yap an e-mail to confirm the revised layout plans and sizes of the rooms as being at least between 18m and 19m. Sonny Yap subsequently does not give any further instructions on the room sizes.

However, when the construction of the house is completed, Sonny Yap realizes that besides of master bedroom, four of other bedrooms are too small. Survey of these bedrooms revealed that the area of guest room 1 on the ground floor is 14.1m, the area of bedroom 3 on the second storey is 16.8m, the area of bedroom 4 on the third storey is 12.4 m, and the area of bedroom 5 on the third storey is 15.1m. Hence, if calculates in percentage, the shortfall in bedroom 3, it is being 6. 6% (from the minimum of 18m), 16% in the case of bedroom 5, 21% in the case of guest room 1 and 31% in the case of bedroom 4. In respect to this, Sonny Yap claims $141,080 cost of reconstruction of the undersized rooms based on the quotation that obtained from Osmosis Home Pte Ltd.

Judith Prakash J. has asserted that the defective construction not preventing the use of rooms as bedrooms. It doesnt matter that they are smaller than the 18m to 19m that Sonny Yap has required. If allow Sonny Yao to recover the cost of reconstructing, it will be wholly disproportionate to the loss suffered by him by reason of the undersize bedrooms. Reconstruction involves the demolition of rooms on the ground floor, second floor and third floor of the house and thus the cost of reconstruction will be substantial. The original cost of construction of the house is

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$ 736,400 and in relation to this figure, it is definitely excessive to spend $ 141,080 to reconstruct four bedrooms. Hence, court holds that Sonny Yao is not entitled to measure of damages based on the cost of reinstatement of these bedrooms as this will be unreasonable since his loss is not the lack of usable bedrooms but the lack of some additional space in the bedrooms. In present case, Judith Prakash J. has stressed that the entire contractual objective is to construct a house that is suitable for Sonny Yaps family to occupy. This objective has been achieved albeit three of the bedrooms are somewhat smaller than what Sonny Yap desired.

Judges agree that no doubt Sonny Yap who is experiencing cramped conditions in his flat and wants to provide a more spacious environment for his children in the new home. However, there is no evidence that the undersized bedrooms cannot be used as sleeping areas and does not make them unfit for their purpose. On this basis, Judith Prakash J. has awarded measure of damages in form of loss of amenity in relation to the bedrooms, which is assessed at $ 50,000.

Case 2: Ruxley Electronics & construction Ltd v Forsyth207

The respondent, Mr. Stephen Forsyth, has contracted with the appellant, Ruxley Electronics & Construction Ltd, who is trading as Home Countries Swimming Pools to build a swimming pool adjoining Mr. Stephen Forsyth house at Angley Park, Cranbrook, Kent. The contract expressly provided that the maximum depth of the pool should be 7 feet 6 inches. After completion (during the defect liability period), Mr. Stephen Forsyth has found that the maximum depth of pool is only 6 feet 9 inches. Mr. Stephen Forsyth refuses to pay the balance of the price due under the contract and counter claim for damages for breach of contract.

207

(1996) AC 344

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The breach is admitted but the measure of damages claimed as a consequence of the breach is disputed. The trial judge, Judge Diamond Q.C. has found certain crucial findings of fact in this case, there are: (a) The pool as constructed is safe for diving. According to the official handbook, the minimum safe depth is 5 feet. (b) Mr. Stephen Forsyth has no intention to fit a diving-board (c) The shortfall in depth does not decrease the value of the pool. (d) It is impossible to break out the bottom of the pool, and excavate to the required depth. The only way of increasing the depth of the pool is to demolish the existing pool altogether, and rebuild at a cost of 21,560. (e) Mr. Stephen Forsyth has no intention of building a new pool. (f) To spend 21,560 on a new pool will be unreasonable.

In respect to this, trial judge has awarded Mr. Stephen Forsyth 2,500 on his counter claim and give judgment for Ruxley Electronics & Construction Ltd on their claims for outstanding balance of the contractual price. The 2,500 is awarded for loss of amenity. Mr. Stephen Forsyth is however does not content with this judgment as his claims of 21,560 on rebuilding the pool has been rejected. With this, Mr. Stephen Forsyth now appeals.

On appeal, the Court of Appeal allows the appeal by Mr. Stephen Forsyth and holding that Mr. Stephen Forsyth's loss as a result of the Ruxley Electronics & Construction Ltds breach of contract is the amount required to place him in the same position as he will have been in if the contract has been fulfilled. Therefore, Court of Appeal has overturned the trial judges decision and awarded Mr. Stephen Forsyth cost of rebuilding the pool as they are contented that this is the only way in which Mr. Stephen Forsyth can achieve his contractual objective.

Nevertheless, Ruxley Electronics & Construction Ltd in this case is not pleased with the judgment of Court of Appeal and subsequently appeals to House of Lord. On appeal, it is held that the Court of Appeal is incorrect in their judgment as cost of reinstatement of the pool is not an appropriate measure of damages since it is

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unreasonable. Mr. Stephen Forsyths loss does not extend to cost of reinstatement as this cost will be wholly disproportionate to the non-monetary loss suffered by him. Mr. Stephen Forsyth has in fact acquired a perfectly serviceable swimming pool, albeit one lacking the specified depth. His loss is thus not the lack of a useable pool with consequent need to build a new one. If he receives the cost of rebuilding a new pool and retain the existing one, he will have recovered not compensation for loss but a very substantial gratuitous benefit, something which damages are not intended to provide.

Thus in this case, the House of Lord has contented that where there has been a breach of performance resulting in loss of expectation of performance, satisfaction of a personal preference or pleasurable amenity, the proper measure of damages is award a sum for the loss of amenity. Since there is no dispute over the amount awarded, the House of Lord has restored the judgment of the trial judge, that is to say, 2,500.

Mr. Forsyth in this present case in fact receives a perfectly satisfactorily swimming pool, only the pools depth does not conform to the specification. Contractors are contractually obliged to achieve the contractual requirement. As Ruxley Electronics & Construction Ltd has not done so, he has breached the contract. Judges are satisfied that Mr. Forsyth suffers loss in form of disappointment as the objective of contract unrealized. Hence, loss of amenity is awarded in the circumstance where the personal preference is not satisfied.

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4.3.3 Consequential loss

Generally, the satisfactory works of make good of defects does not amount to an exclusion of claims in respect of their consequences. The measure of damages will therefore not only be the cost of repair of the defects, but also such compensation as the loss of the use of the premises during repairs in accordance with the ordinary rules governing remoteness of damages. The fact that the existence of remedy provisions within contracts does not act as a bar to the recovery rights at both common law and the law in Malaysia208.

The cases cited below are those that relate to the contractors liability towards employers claim for the consequential loss.

Case 1: HW Nevill (Sunblest) Ltd v William Press & Son Ltd209

By a contract dated 7 December 1973, the plaintiffs agreed that the defendants should carry out works consisting of site clearance, piling, foundation and drainage works prior to the erection of a bakery at Walthamstow, London. The contract was in the JCT standard form, private edition with quantities, 1963 edition, July 1973 revision. The work was carried out between September 1973 and April 1974, when new contractors (Trenthams) commenced work.

In November 1974, before the end of defect liability period, the plaintiffs' architect discovered that the drains laid by the defendants were defective and that

208 209

HW Nevill (Sunblest) Ltd v William Press & Son Ltd (1981) 20 BLR 78 (1981) 20 BLR 78

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there were defects in the hard-standing. The defendants returned to the site and the defects were remedied. However Trenthams had been delayed by four weeks and the plaintiffs had to pay them for that delay and for additional work consequent on the defects in the defendants' work. The plaintiffs also incurred additional architects' fees and losses because the bakery was late in opening.

The plaintiffs commenced proceedings claiming that the defendants were in breach of contract and they were therefore liable for the plaintiffs' additional costs and other consequential losses. The defendants maintained that the plaintiffs were precluded from bringing any claim in respect of the alleged breach of contract and that the plaintiffs' remedies in respect of the alleged defective work were limited to those remedies set out in Clause 15 of the contract.

The court held that, the employer was justified in arguing that the defects constituted breaches of contract. The plaintiffs' remedies were not limited to the remedies specified in Clause 15 since the defects in the works were breaches of contract. Clause 15 merely created a simple way of dealing with part of a situation created by breaches of contract and was not to be read as depriving the injured party of his other rights. The plaintiffs could therefore claim damages for breach of contract to include consequential loss. The measure of damages not only be the cost of repair of the defect, but also such compensation as the loss of the use of the plant during repairs in accordance with the ordinary rules governing remoteness of damage.

Therefore, in this case, it was held that a plaintiffs claims for damages in respect of consequential losses arising from defective work was not limited by the making good provisions of the contract. The defendant was held to be liable to the plaintiff for the consequential losses suffer by the plaintiff.

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Case 2: P & M Kaye Ltd v Hosier & Dickinson Ltd210

An agreement was made in between the contractors and the employers, where the contractors undertook to build a warehouse and offices. The contract was in the standard form of the JCT and included an arbitration clause (clause 35) which provided that any dispute arising as to the construction of the contract was to be referred to an arbitrator. Work on the warehouse was substantially complete by June 1967 although, with the consent of the contractors, the employers had taken possession in the previous April. Interim certificates were issued by the architect in April and July following which the employers paid sums on account, leaving a balance unpaid of 14,861. They complained that the floor of the warehouse was faulty. The contractors relaid the floor and completing the work in August and started proceedings to recover the 14,861. However, the employers put in an affidavit of defence which alleged that the flooring was still faulty and that the previous defects had resulted in a loss of profits amounting to 13,500.

Following further correspondence, the architect issued the final certificate for the balance of money due to the contractor. Clause 30 (7) of the contract provided that: 'Unless a written request to concur in the appointment of an arbitrator shall have been given... by either party before the Final Certificate has been issued... the said certificate shall be conclusive evidence in any proceedings arising out of this Contract... that the Works have been properly carried out and completed in accordance with the terms of this Contract...'

Employers requested the contractors to concur in the appointment of an arbitrator. The contractors pointed out that it was too late and they issued a second writ for the amount. The action on the interim certificate was still on the file and the employers put in a defence and counterclaim in each action claiming 13,500 loss of profits because of the defective floor.
210

(1972) 1 WLR 146

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It was held that, the employers should not be debarred from pursuing their claims for consequential loss. The contractor is liable to the claim for consequential loss and the employer is entitled to recover the losses by consequential effect of defects which it has been remedied by the contractor during defect liability period.

4.4 Conclusion

Generally, the construction works must conform to the requirements of the contract, most importantly in the present context the specification. Any physical works that fail to comply with the requirements of the contract amount to a defect.

After analysing all the related court cases, it was found that to carry out the works in a defective manner amounts to a non-compliance with the contract for which the principal has two separate remedies. He may use the defects liability regime in the contract to compel the contractor to rectify the defects. Alternatively, the employer may sue the contractor in court or arbitration proceedings, claiming damages for breach of contract. However, there is some judicial authority that suggests that some defects liability clauses may amount to a code excluding the rights to general damages for breach of contract and limiting the employers remedy to the defect liability clause, at least until the contractor has failed to remedy in accordance with that clause.

The usual measure of damages for defective works is the cost of rectifying defects in order to produce conformity with the contract. Where this is considered an unreasonable or unnecessary course to adopt, the courts will consider an alternative measure of damages.

CHAPTER 5

CONCLUSION AND RECOMMENDATIONS

5.1 Introduction

During defect liability, it is the contractors liability to make good all the defects discovered. The contractor is liable and has the right to return to the site to rectify the defect at his own cost. The contractors liability towards the defects during defect liability is related with their right and liability during that period, the issue of whether the employer is obliged to notify the contractor of defect, whether the contractor is liable towards defective work caused by design defect, materials supplied by employer and whether the contractor is liable to warn the employer if any faulty design that they knew about.

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The contractor is in breach of contract when he failed to rectify the defect during the defect liability period and the employer is entitled to claim for damages. The damages are cost of rectification, loss of amenity and consequential lost. The judge will award the reasonable damages for the loss to the employer which the contractor is liable.

5.2 Summary of Research Findings

The objective of this study is to identify the possible claims made by the employer for the defective building works during defect liability period and the circumstances whether the contractor is liable to the claims. Overall, the objective of this study has been achieved through literature review and documentary analysis of law cases. This research is prepared by reviewing the legal position of the employers rights for the defective building work claims and the liabilities of the contractors towards the defective work during the defect liability period. The following findings can be drawn from the study.

Table below has been summarized based on cases and judgements given by the judges.

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Table 5.1 Summary of Research Findings

Items

Findings

Remarks

A) Contractors liabilities for defects, shrinkage, etc. during defect liability period 1 Generally, the contractor has the right and liability to return to site to rectify the defects. P & M Kaye Ltd v Hosier & Dickinson Ltd Kemayan Construction Sdn Bhd v Prestara Sdn Bhd The contractor has the rights during the defect liability period to return to the site to rectify the defects discovered. The contractor is liable to the employer to make good the defects of construction discovered during the defect liability period at his own cost. Failure of the contractor to comply with the obligation under the standard form of contract to rectify the defects during defect liability period, will entitle the employer to setoff the retention sum due to the contractor. The employer is in a breach of contract for the right of the contractor, if he proceeds to rectify the defects himself or employ a third party, without first giving to the original contractor the opportunity of make good the defects. The contractors obligation to remedy the defects discovered during defect liability period cannot be enforced unless a contractor has notice of the defects. The absence of notice prevent the employer enforcing the rights to require the contractor to rectify the defects. Failing to give notice of defects to the contractor which entitles the contractor to rectify the defects during defect liability period does not preclude employers rights to damages,

The general obligation of the employer is to notify the contractor of the defect discovered during defect liability period and the contractor is given opportunity to rectify the defects. Pearce & High Ltd v Baxter and Anor

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Items

Findings

Remarks but will limit the amount of damages which the employer is entitled to recover.

The contractors defect liability When the suppliers and materials of the construction towards the defective work caused were chosen by the employer, by material supplied/chosen by the the contractor has no obligation employer. to warranty the quality of the materials. Young & Marten Ltd v McManus The contractor is not liable for Childs Ltd the defect caused by defective quality of materials chosen by the employer. The contractor has to use the materials provided by the employer and he has no knowledge that the materials are defective.

The contractors defect liability towards the defective work caused by the design defect. Greaves & Co (Contractors) Ltd v. Baynham Meikle & Partners Viking Grain Storage Limited v T.H. While Installations Limited

The engineer would constitute a breach of duty of care in their design when the design was defectively design and cause the defective of the building work. The contractor is not liable to the defective work caused by engineer/designers defectively design and thus the contractor is allowed to claim for the breach of contract and the liability of engineer/ designer. In the case of design and build contract, the contractor is liable for the defects when the purposes for which the facility was required had been made known by the employer to the contractor and they relied upon the contractor to provide a facility fit for those purposes. Under a design and build contract, it is the obligations of a contractor to ensure that the finished product must be

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Items

Findings

Remarks reasonably fit for its intended purpose and that the contractor should be liable to the employer irrespective of whether the defects were defects in materials or workmanship or design.

The Contractor to warn employer of any design defect that they knew about that may cause the defect of the building work. Brunkswick Construction v. Nowlan CGA Brown Limited v Carr & Anor Plant Construction Plc v. Clive Adams Associates and JHM Construction Services Ltd

The contractor will be liable to the defective work, when in the opinion of the judge the contractor of certain experience should have recognized that the design would constitute a defect. It is the contractors liability to warn the employer of the faulty design which will later cause the defective work. The contractor will be liable for the full cost of rectification for the defective work in the case that the contractor is under the knowledge of the design defect that will cause certain defect but he did not warn the employer of the design defect.

B) Employers defective work claims for damages and contractors liability towards the claim 1 Cost of Rectification Bellgrove v Eldridge Pearce & High Limited v Baxter Ruxley Electronics & construction Ltd v Forsyth The contractor will liable to the cost of rectification as damages when the court found that it is not reasonable to carry out the rectification works. The contractor is liable to the cost of rectification by third party engaged by the employer for putting right the defects when the original contractor has failed to remedy the defects discovered during defect liability period.

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Items

Findings

Remarks When the employer refuse to allow the contractor to carry out the rectification works or fails to give notice of the defects to the original contractor for an opportunity to remedy the defect by himself, it will limits the amount of damages which the employer is entitled to recover. In the breach of contract by the employer, the contractor is not liable for the full cost of repairs by third party but only liable for the amount of rectification cost as if he had remedied the defects by himself.

Loss of Amenity Yap Boon Keng Sonny v Pacific Prince International Pte Ltd and Another Ruxley Electronics & construction Ltd v Forsyth

The contractor is liable to the claims for the loss of amenity when the cost of rectification is unreasonable / disproportionate to the loss suffered by the owners in the defective construction. The contractor is liable to the loss of amenity when the construction is entirely adequate for its design purpose/ fit for it intended purpose, albeit there is a lack of aesthetic pleasure or the personal preference was not satisfied.

Consequential loss

The satisfaction of making good the defects does not amount to an exclusion of claims in respect HW Nevill (Sunblest) Ltd v of their consequences. William Press & Son Ltd P & M Kaye Ltd v Hosier & The contractor will not only liable to the cost of repair of the Dickinson Ltd defect, but also the damages in respect of consequential losses arising from the defective work discovered during the defect liability period. It was also not

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Items

Findings

Remarks limited by the defect liability clause of contract. The employer is entitled to recover the losses by consequential effect of defects although the defects have been remedied by the contractor during defect liability period.

During the defect liability period, the contractor has the general obligation to return to the site to make good all the defects discovered. The contractor is liable to the employer to rectify the any defects apparent during the period at their own expenses. The contractor is in breach of contract if he has fails to comply with the obligation under the standard form of contractor to rectify the defects during defect liability period. Failures of the contractor to remedy the defects entitle the employer to engage a third party to rectify the defects and claim for the cost of rectification by set-off the retention sum due to the contactor.

The contractor has the right to remedy the defects during the defects liability period as the costs of remedying the defects will be cheaper than the employer having the pay the cost of another contractor performing such works. In the case of P & M Kaye Ltd v Hosier & Dickinson Ltd 211 , it was held that the defect liability clause under the contract giving the opportunity to the contractor to make good the defects which appear during the defect liability period. The contractor is liable and has the duty and rights to return to the site to rectify the defects. The employer who proceeds to remedy the works by his own or by third party without giving the original contractor the opportunity to do so would constitute to the breach of the contract.

211

(1972) 1 WLR 146

110

The employer is under the obligation to notify the contractor of the defects discovered during defect liability period. By receiving the notice, the contractor is given the opportunity to return to the site to rectify the defect. The employers breach of contract whether by failure to give the notice of defects or refusing the contractor to rectify the defects during defect liability period does not preclude employers right to damages, but the damages which entitle to recover will be deducted to the cost of rectification by the original contractor himself. In the case of Pearce & High Ltd v Baxter and Anor212, the employers failure to comply with the requirement of the defect liability provision, by failing to give the notice of defects to the contractor was held to limit the amount of damages which was entitled to recover.

In addition, in the circumstances when the materials or suppliers were chosen by the employer where the contractor has to use the materials provided by the employer, the contractor is not liable for the defective work caused by the quality of the materials. The contractor has no obligation to warranty the quality of the materials. Furthermore, the contractor is not liable to the defective work caused by the engineer/designers defectively design. The engineer/designer is in breach of duty of care when the building was defectively design. However, the contractor will be liable to the defective building works, when in the judges opinion, that the contractors of certain experience should have recognized that the design would constitute a defect. It is the contractors liability to warn the employer of the faulty design which later will cause the defect. The contractor will be liable to the full cost of rectification for the defective work, in the case that the contractor is under the knowledge to recognize the faulty design that will cause certain defect but he did not warn the employer of the design defect.

It is common for the employer to claim for the damages for the contractors breach of contract under defective work claims. If it is necessary and reasonable to undertake the rectification work, the true measure of loss is the cost of rectification.
212

(1999) BLR 101

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Refer to the case of Bellgrove v Eldridge213, rectification costs were held to be the reasonable remedy because it is both necessary and reasonable that the rectification work be performed. However, in the case that the employer refuses to allow the contractor to carry out the rectification or the employ another contractor to rectify the defects without first giving the notice of defects to the contractor, it deprives the original contractor from having the opportunity to undertake the remedial works himself. In respect to the claims for the cost of rectification as damages, the contractor is not liable for the full cost of rectification in these circumstances. The employer cannot recover more than the amount which it would have cost the original contractor himself to remedy the defects. In the case of Pearce & High Limited v Baxter214, the employer is only entitled to recover the cost of rectification by which the cost exceeds what it would have cost the original contractor to carry out the rectification works.

In respect of contractors breach of contract, loss of amenity is another award of damages to the employer by the court. It is the damages for what appears to be non-pecuniary loss on account of breach of contract for defective works. With reference to the case of Ruxley Electronics & construction Ltd v Forsyth215, loss of amenity is the proper measure of damages to be awarded when there has been a breach of performance resulting in loss of expectation, satisfaction of personal preference or pleasurable amenity. When the reinstatement is not reasonable, the loss that the contractor is liable does not extend to the cost of rectification as this cost will be wholly disproportionate to the non-monetary loss suffered by the employer. The contractor is liable to the damages for the loss of amenity where the employer suffers loss from the contractors breach of contract as the works are not up to the satisfaction of the employer.

Generally, the satisfactory of making good the defects does not amount to an exclusion of claims in respect of their consequences. The employer may be able to
213 214

(1954) 90 CLR 613 (1999) BLR 101 215 (1996) AC 344

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claim for losses consequential on a defect in addition to the cost of reinstatement. In the case of HW Nevill (Sunblest) Ltd v William Press & Son Ltd 216 , the remedies were not limited to the damages of cost of rectification, but the contractor is also liable to the compensation for the consequential loss. In P & M Kaye Ltd v Hosier & Dickinson Ltd217, the contractor is liable to the claim for consequential loss and the employer is entitled to recover the losses by consequential effect of defects although it has been remedied by the contractor during defect liability period.

2.2 Problem Encounter during Research

There are some constraints in conducting this study. Insufficiency of time was one of the problems encountered in writing up the report for this research. Hence, every process has been carried out in a very fast manner, especially during the data collection process, which involved assembling and sorting court cases from different law journals. Beyond this, the main constraint is that not many cases were collected to support the findings related to the defective building work claim, especially those cases decided by court for the claim during defect liability period.

2.3 Further Studies

Based on this research, the followings are some recommendations for future researches: (a) This research discusses all grounds of defect liability of the contractor towards the defective building work claim by the employer during defect liability period. Perhaps, future research can be done on contractors
216 217

(1981) 20 BLR 78 (1972) 1 WLR 146

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defect liability towards the defective building work claim by the third party during defect liability period. (b) Future study can focus on the defenses of the contractor towards those defective building work claims. In practice, the contractors defended that some of the defects were not caused by their default but some others defaults.

5.5 Conclusion

Generally, most standard form of contracts including PAM2006 Form, PWD203A (Rev.2007) Form of contract and CIDB2000 Form of contract provides a 12 months defects liability period from the date of Practical Completion, as advised on the Certificate of Practical Completion. Usually, the defect liability clause under standard form of contract also set out the specific timing and notification procedure with regard to defective work claim to prevent either party in the contract to become involve in protracted dispute with regard to loss of profit.

The findings of this study show that, during the defects liability period, the contractor is liable to the employer and has the right to rectify any defects that become apparent at his own expenses. It is beneficial for the contractor to have the exclusive right to remedy the defects during the defects liability period as the costs of remedying the defects will be cheaper than the employer having to pay the cost of another contractor performing such works. If the contractor has an exclusive right to repair defects, an employer who proceeds to remedy the works without offering the contractor the opportunity to do so will be in breach of the contract. Under most construction contract, the employer is obliged to give first priority to the original contractor to make good the defects discovered during defect liability period instead of engaging another contractor to remedy the defects. Failing to do so, the employer

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is in breach of his contractual obligation. In addition, the contractor is not liable to the defective work caused by the quality of materials supplied by the employer, suppliers choosen by the employer and designers faulty design. However, it is the contractors liability to warn the employer of the faulty design that they knew about.

Unless express words are used, a defects liability clause will generally not affect the parties remedies under common law. The analysis of cases show that, the contractor is in breach of contract if he refuses or fails to remedy the defect under the provision of the standard form of contract, and the employer will be able to bring an action to claim for damages against the contractor in respect of the defects which appear during the defects liability period. However its damages may be limited to the cost of the original contractor performing the remedial works, if the employer has acted unreasonably whether refusing to allow the original contractor to return the site for remedy the defect or failing to notify the contractor of the defects. The contractor is also liable for the damages for the loss of amenity and consequential loss under the common law.

As a conclusion for this research, by understanding the legal rights and liability in respect to the defective works which appear during defect liability period, both the employer and contractor can avoid unnecessary disputes and create a better relationship between both contracting parties.

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