TABLE OF CONTENTS

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

OCTOBER 2010

QUESTION 3
a) Explain by mean of annotated diagram the main contractual activities under a government contract starting from issuance of letter of acceptance to issuance of final certificate.

b)

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

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

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

Public Liability Policy. d. 4.O for the Project.4 P. stating the amount of the award. Site Possession Date.W. a. Contractor signature with witness and date. Also called award letter or notice of award.CONTRACTOR SIGN AND RETURNS LETTER OF ACCEPTANCE OF TENDER.O must issue instruction in regard to the revision of date of possession and the date for completion as stated in clause 38. 5. Performance Bond. Liability Period. 38.4 In the event of any delay in giving possession of the site from the ³Date for Possession´ as stated in Letter of Acceptance or delay in giving any section or part of the . Date of Completion. FORM 203A(Rev.2007) The Clause. it is sometimes also used in lieu of a purchase order to a vendor. 3. and when the contract will be signed. 2. Insurance Policy for the Work. (BusinessDictionary. Social Security Scheme. SITE POSSESSION Contractor is definitely entitled to exclusive possession of the whole construction site.com) Essential information to include in a letter of award include the following 1. c. the award date. It may also contain a notice to proceed. 7.D. Document that contractor must submit such as. 6. S. Amount of award ± Contract Amount. If the employer fail to give the contractor site possession on the date stated in LA (Letter of Acceptance) The S. b. Letter of Acceptance Definition Written confirmation of an award of a contract by a customer (owner or principal) to a successful bidder.

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

D. 15. 15. Where and excess amount is specified in Appendix. or in the course of. breach of contract or default of the Contractor or any sub-contractor. nominated or otherwise). tools and equipment owned or hired by the Contractor or any Sub-contractor. moveable or immovable. effect and maintain such insurances whether with or without an excess amount as specified in Appendix hereto as are necessary to cover the liability of the Contractor. Such insurance shall cover from period of the date of possession of site until the date of issuance of certificate of Making Good Defect for any claim occasioned by the contractor or any subcontractor in the course of . FORM 203A (Rev. plants. (c) Such insurance as referred to under sub-clause (a) hereof shall be effected with an insurance company as approved by the Government and maintained in the joint names of the government and Contractor and all sub-contractor. 2007). damage or loss to property.thereof (but excluding temporary buildings.W. or by reason of the execution of the work and cause by any negligence. P. whether nominated or otherwise. whether nominated or otherwise. arising out of . Insurance Policy Clause . the Contractor shall. the Contractor shall bear the amount of such excess. omission.0 INSURANCE AGAINST PERSONAL INJURIES AND DAMAGE TO PROPERTY. The policy or policies of insurance shall contain a cross liability clause indemnifying each of the jointly insured against claims made by on him by the other jointly insured.1 (a) Taking of insurance Without prejudice to his liability to indemnify the government under clause 14 hereof. (b) Such insurance shall be for the purpose of personal injuries or death. as condition precedent to the commencement of any work under this contract. whether nominated or otherwise. All the relevant insurance must submit to employer before Contractor start their works or the Contractor can submit Cover Note of the insurance policy and all the premium receipt that had been paid.

whether demand or not. CONTRACTOR DEPOSITS OR SUBMIT PERFORMANCE BOND OR BANK GUARANTEE Performance Bond Definition A bond issued to one party of a contract as a guarantee against the failure of the other party to meet obligations specified in the contract.80. the client is guaranteed to use the money for any monetary loss.00 the bond value was RM 124. Performance Bond Clause. a contractor may issue a bond to a client for whom a building is being constructed.O. 269. 15. P. whichever is the later.396. The Performance Bond shall remain valid and effective until twelve (12) month after the expiry of the Defect Liability Period or issuance of the Certificate of Completion of Making Good Defect.W.D.. 485.any operations carried out by the Contractor or any sub-contractor for the purpose of complying with his obligations under Clause 48 hereof. on the date of the possession of site. FORM 203A (Rev. If the contractor fails to construct the building according to the specifications laid out by the contract. . provide a Performance Bond or Performance Guarantee Sum as the case may be substantially in the form as in Appendix issued by and approved licensed bank or financial institution incorporated in Malaysia in favour of the Government for a sum equivalent to five percent (5%) of the total Contract Sum as specified in Appendix to secure the due performance of the obligations under this contract by the Contractor. 13. The value of the bond must 5% from the total amount of the contract. (investopedia) For example. If the contract amount was RM 2.0 PERFORMANCE BOND / PERFORMANCE GUENTEE SUM 13.1(a) The Contractor shall.2 Production of Polices It shall be the duty of the Contractor to produce and shall deposit the relevant policy or policies of the insurance together with receipt in respect of premiums paid to the S. 2007).

deadlines. The extent to which a proposal addresses the objectives of the work programme is an evaluation criterion (i. Tiles sample. shall reasonably determained.O. instruments used..e.W. 2007). roadmaps). c. 12.13. wholly or partially. in the event that the Contractor fails to perform or fulfil its obligation under this Contract and such failure is not remedied in accordance with this Contract. d. Window material. evaluation criteria. 2006) The Contractor must submit the work programme to show and to ensure the construction activity and Contractor meet the dateline. the Government shall be entitled at any time to call upon the Performance Bond. submit to the S. CONTRACTOR SUBMIT WORK PROGRAMME Work Programme Definition Specifies the detailed implementation of the specific programmes.O. one has to read carefully the work programme related to the call addressed). in order to prepare a successful proposal.0 12.1 PROGRAMME OF WORK Where a programme of work is not provided by the S.3 Notwithstanding anything contained in the Contract. FORM 203A (Rev. P. the Contractor shall within fourteen (14) days after the date of the Letter of Acceptance. . It comprises detailed descriptions of the activities (detailed thematic priorities. Work Programme Clause. Ceiling and other relevant material. Together with work programme the Contractor has to submit construction method and the entire material sample such as. Sanitary. for his approval a programme of work of the execution of the works in such forms and details as the S.D. (Marie Cure Actions. a. It provides all information necessary to launch calls for proposals. b.O.

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

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

The Certification of Completion shall be issue by the S. 39. if the contractor fulfill their contract within the dateline and The Contractor shall notify the S.O. or the Government the relevant insurance policies under clause 15 and 18 hereof. the Contractor shall notify the S. 39.O. be the estimated total value of the work properly executed and up to ninety percent (90%) of the value of the unfixed materials and goods delivered to or adjacent to the Site intended for incorporation into the permanent Work up to and including the date the valuation was made.W. shall issue Certification of Practical Completion to the Contractor ast stated in P.O. 28.D. FORM 203A (Rev. PROVIDED THAT such certificate shall only include the value of the said unfixed materials and goods as and from such time as they are reasonably and properly and not prematurely delivered to or adjacent to the Site and adequately protected against weather.3 Within fourteen (14) days from the date of any such valuation being made and subject to the provision mentioned in the clause 28. 2007) in clause. the S. the S. shall issue an Interim Certificate starting the amount due to the Contractor from the Government.O. shall . the S.O ISSUES CERTIFICATION OF COMPLETION.O.28.4 The amount stated as due in an Interim Certificate shall. PROVIDED THAT the signing of this Contract shall not be a condition precedent for the issue of the first Interim certification (and no other) so long as the Contractor has returned the Letter of Acceptance of Tender duly signed and has deposited with the S.1. in writing to that effect. damage or deterioration. shall carry out testing/inspection of the Works.O. subject to any agreement between the Parties as to payment by stages.2 If the Contractor considers that the works have achieved practical completion.O. Pursuant to such inspection/testing. S. less any payment (including advance payment) previously made paid under the Contract.3 Within 14 days of receipt of such notice. if the works achieve practical completion and the S.O.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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