Download - Contractor's Laibility_Lim Tze Shwan
CONTRACTOR’S LIABILITIES TOWARDS EMPLOYER’S DEFECTIVE
BUILDING WORK CLAIMS DURING DEFECT LIABILITY PERIOD
LIM TZE SHWAN
UNIVERSITI TEKNOLOGI MALAYSIA
NOTES : * If the thesis is CONFIDENTIAL or RESTRICTED, please attach with the letter from
the organisation with period and reasons for confidentiality or restriction.
PSZ 19:16 (Pind. 1/07)
DECLARATION OF THESIS / UNDERGRADUATE PROJECT PAPER AND COPYRIGHT
Author’s full name : LIM TZE SHWAN
Date of birth : 29 August 1987
Title : CONTRACTOR’S LIABILITIES TOWARDS EMPLOYER’S DEFECTIVE
BUILDING WORK CLAIMS DURING DEFECT LIABILITY PERIOD
Academic Session: 2010/2011/3
I declare that this thesis is classified as :
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 ASSOC. PROF. DR. MAIZON HASHIM
(870829-35-5348) (NAME OF SUPERVISOR)
Date : 8 AUGUST 2011 Date : 8 AUGUST 2011
UNIVERSITI TEKNOLOGI MALAYSIA
CONFIDENTIAL (Contains confidential information under the Official Secret
Act 1972)*
RESTRICTED (Contains restricted information as specified by the
organisation where research was done)*
OPEN ACCESS I agree that my thesis to be published as online open access
(full text)
“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 : ................................................................
Name of Supervisor I : ................................................................
Date : ................................................................
* Delete as necessary
ASSOC. PROF. DR. MAIZON HASHIM
8 AUGUST 2011
CONTRACTOR‟S LIABILITIES TOWARDS EMPLOYER‟S 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
ii
I declare that this project report entitled “Contractor‟s Liability towards Employer‟s
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
iii
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.
iv
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.
v
ABSTRACT
The contractor‟s 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 employer‟s obligation to notify the contractor of defects, the
contractor‟s liability towards defective work caused by design defects, materials
supplied by employer and whether the contractor‟s 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 designer‟s defective
designs. But, it is the contractor‟s 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
employer‟s 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.
vi
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.
vii
TABLES OF CONTENTS
CHAPTER TITLE PAGE
DECLARATION ii
DEDICATION iii
ACKNOWLEDGEMENT iv
ABSTRACT v
ABSTRAK vi
TABLES OF CONTENT vii
LIST OF TABLES x
LIST OF FIGURES xi
LIST OF ABBRIEVATIONS xii
LIST OF CASES xiii
1 INTRODUCTION
1.1 Research Background 1
1.2 Problem Statement 7
1.3 Objective of Research 11
1.4 Scope of Research 11
1.5 Significant of Research 12
1.6 Research Methodology 12
1.7 Structure of Research 15
viii
2 DEFECTIVE BUILDING WORKS DURING DEFECT
LIABILITY PERIOD
2.1 Introduction 17
2.2 Definition of Defect 18
2.3 Types of Defect
2.3.1 Patent Defects
2.3.2 Latent Defects
20
21
22
2.4 Causes of Defective Work
2.4.1 Standard of Design
2.4.2 Quality of Building Materials
2.4.3 Quality of Workmanship
24
26
29
32
2.5 Defect Liability Period 34
2.5.1 Defects Discovered during Defect Liability
Period
36
2.5.2
2.5.3
Contractor‟s Obligation during Defect
Liability Period
Provisions Deal with Defect Liability Period
38
39
2.6 Conclusion 42
3 EMPLOYER’S DEFECTIVE WORK CLAIMS
DURING DEFECT LIABILITY PERIOD AND THE
CONTRACTOR’S LIABILITIES
3.1 Introduction 43
3.2 Provisions in the Standard Form of Contract
3.2.1 Provision Deals with Defect Liability
3.2.2 Contractor‟s Rights to Rectify Works and
Notification
45
46
49
3.3 Liability for Defects
3.3.1 Liability of Contractor to Employer
51
54
3.4 Defective Work Claims by Employer during Defect
Liability Period
59
3.5 Liability to Defective Work Claims 63
3.6 Conclusion 65
ix
4 ANALYSIS OF CASE STUDIES
4.1 Introduction 67
4.2 Contractor‟s Defect Liability during Defect Liability
Period
4.2.1 Rights and Liability of the Contractor to
Return to Site to Rectify the Defects
4.2.2 The Employer‟s Obligation to Notify the
Contractor of Defects and the Contractor‟s
Liability
4.2.3 The Contractor‟s Liability for the Defective
Works Caused by the Materials Supplied by
the Employer
4.2.4 The Contractor‟s Liability towards Design
Defects
4.2.5 Contractor to Warn Employer of Any Design
Defects that They Knew About
68
69
73
75
78
81
4.3 Assessment of Damages under Defective Work
Claim by Employer
87
4.3.1 Cost of Rectification 88
4.3.2 Loss of Amenity 94
4.3.3 Consequential Loss 99
4.4 Conclusion 102
5 CONCLUSION AND RECOMMENDATIONS
5.1 Introduction 103
5.2 Summary of Research Findings 104
5.3 Problem Encounter during Research 112
5.4 Further Studies 112
5.5 Conclusion 113
REFERENCES 115
x
LIST OF TABLES
TABLE NO TITLE PAGE
5.1 Summary of Research Findings 105
xi
LIST OF FIGURES
FIGURE NO. TITLE PAGE
1.1 Flowcart of Research Methodology 14
2.1 Flowcart of Contractor‟s Liability to Defects during DLP
under PAM 2006 Standard Form of Contract Clause 15
56
2.2
2.3
Flowcart of Contractor‟s Liability to Defects during DLP
under PWD203A Standard Form of Contract Clause 48
Flowcart of Contractor‟s Liability to Defects during DLP
under CIDB 2000 Standard Form of Contract Clause 27
57
58
xii
LIST OF ABBRIEVATIONS
AC Appeal Cases, House of Lords
All ER All England Law Reports
ALJR Australia Law Journal Reports
AMR All Malaysia Reports
BCL Building and Construction Law Cases
BLR Building Law Reports, UK
Con LR Construction Law Reports
ER Equity Reports
ICR Industrial Cases Reports
ILR International Law Reports
IR Irish Reports
JP Justice of the Peace / Justice of the Peace Reports
LIL Rep Lloyd‟s List Reports
MLJ Malayan Law Journal
NSWLR New South Wales Law Reports
QB Law Reports: Queen‟s Bench Division
QSR Queensland State Reports
SC Session Cases
SCR Supreme Court Reporter
SLR Singapore Law Reports
WLR Weekly Law Report
xiii
LIST OF CASES
CASES PAGE
Adcock’s Trustee v Bridge R.D.C.(1911) 75 J.P. 241 29
Apex Realty Pty Ltd v Walker Bros & Preece Pty Ltd (1958) 76 WN
(NSW) 34
65
Aubum Municipal Council v ARC Engineering Pty Ltd (1973) NSWLR
513
29
Australian Knitting Mills Ltd. v. Grant (1933) 50 CLR. 387, 413 31
Bater v Bater (1951) P. 35 52
Bellgrove v Eldridge (1954) 90 CLR 613 60,88,93,111
Brunkswick Construction v Nowlan (1974) 21 BLR 27 28,82
Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653 62
Cable (1956) ltd v Hutcherson Bros Pty Ltd (1969)123 CLR 143 65
Carr v JA Berriman Pty Ltd (1953) 27 ALJR 273 37
CGA Brown Limited v Carr & Anor (2006) EWCA Civ 785 83
Crown Estate Commissioners v. John Mowlem (1995) 70 BLR 1 7
D Galambos & Son (1974) 5 ACTR 10 61
Director of War Service Home v Harris (1968) Qd R 275 53
Elanore Country Ltd v V J Summersby & Pearce & Sons (Excavations)
Pty Ltd (1988) 4 BCL 309
65
Gloucestershire Country Council v Richardson (1969) 1 AC 480 32
Greaves & Co (Contractors) Ltd v Baynham Meikle & Partners (1975)
1 WLR 1095
29,52,78
H.W. Nevill (Sublest) v William Press and Son (1981) 20 BLR 78 6,99,112
Hancock and others v BW Brazier (Anerly) Ltd (1966) 2 All ER 901 34
xiv
Helicopter Sales (Aust) Pty Ltd v Rotor-Works Pty Ltd(1974)132 CLR1 65
Henry Kendall & sons v William Lillico & sons Ltd (1968) 2 All ER
444, (1969) 2 AC 31, (1968) 3 WLR 110
31
IBA v EMI Electronics Ltd & BICC Construction Ltd (1980) 14 BLR 1 28
Kemayan Construction Sdn Bhd v Prestara Sdn Bhd (1997) 5 MLJ 608 38,71
Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd (1993) 3. All
E.R. 417
53
London and SW Railway v Flower (1875) 1 CPD 77 73
Lynch v Thorne (1956) 1 WLR 303 34
Martin v McNamara (1951) QSR 225.8 32
Midland Bank v Hett, Stubs & Kemp(1979) Ch. 384 53
Oldschool v Gleeson (Construction) Ltd (1976) 4 BLR 103, 131 28
P & M Kaye Ltd v Hosier & Dickinson Ltd (1972) 1 WLR 146 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
85
Robinson v Harman (1848) 1 Exch 850 86
Ruxley Electronics & Construction Ltd v Forsyth (1996) AC 344 8,90,93,
95,111
Syarikat Tan Kim Beng and Rakan-rakan v Pulai Jaya Sdn Berhad
(1992) 1 MLJ 42
61
Tate v Latham (1897)66 LJQB 351 19
Victoria University of Manchester v Hugh Wilson & Lewis Wormsley
and Pochin Ltd (1984) 2 ConLR 43
21,23
Viking Grain Storage Limited v T.H. While Installations (1985) 3 Con.
L.R. 52
80
William Tompkinson v Parochial Church Council of St Michael (1990)
6 Const LJ 814
50,87
xv
Yap Boon Keng Sonny v Pacific Prince International Pte Ltd and
Another (2009) 1 SLR 385
94
Young and Marten Ltd v Mc Manus Child Ltd (1969) 1 AC 454 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 construction1. 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 contractor‟s 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 engineers3. The
contractor is required to perform and complete the construction fully in accordance
1 Ter, Kah Leng (1989). Builders’s 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.
2
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 contractor‟s 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 contractor‟s 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:
4 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). “Hudson‟s 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
3
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.
9 I. N. Duncan Wallace. Supra 5. pp. 474
4
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 Employer‟s Rights and the Contractor‟s 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
5
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 Appendix15
. 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 Mohd Suhaimi Mohd Danuri. Supra 12. pp. 54 15 Lim Chong Fong. “The Malaysian PWD Form of Construction Contract.” (Malaysia: Sweet & Maxwell Asia,
2004) pp. 105
6
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 Murdoch, J and Hughes, W. Supra 6. pp. 184 17(1981) 20 Build LR 78
7
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 employer19
. 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
.
Frankel21
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
, Stuart-
Smith 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 Kevin Barrett (2008). “Defective Construction Work”. 19 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
8
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 architect‟s
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 architect’s 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 (1996) AC 344 24 (1972) 1 WLR 146 25 Anon. Supra 13.
9
It is essential that the contractor‟s 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 employer’s 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 Mohd Suhaimi Mohd Danuri. Supra 12. pp. 57 27(1999) BLR 101
10
analysis by permitting the contractor to set off against the
employer’s 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 employer’s 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 employer‟s rights to
require the contractor‟s compliance with the defects liability clause. It was held that
the employer‟s failure in giving the required notice would limit the employer‟s
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 client‟s 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 didn‟t stated the situation that the contractor is not
liable to the full cost of the rectification. The contract also didn‟t 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 contractor‟s 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 employer‟s 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 UTM‟s 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 contractor‟s liabilities
towards employer‟s 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 - Employer’s Defective Work Claims during Defect Liability
Period and the Contractor’s Liabilities
This Chapter is the literature review on the contractor‟s 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.
16
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 contractor‟s
liability towards employer‟s 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 contractor’s 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.
18
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 Chan31
, defective building work is defined as “defect or
deficiency in the design, construction, or materials in a construction project”.
Meanwhile, Alan32
has described defective building work as premature failure
resulting from errors of design, workmanship, maintenance or the use of faulty
materials.
29
Cho, Y. J., Hyun, C. T., Lee, S. B. and Diekmann, J. Supra 28. pp. 180-186. 30 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.
19
Atkinson33
defines defects as: “breaches of terms and conditions of contract
by the contractors.” While Cama34
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, Sweet36
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 contract37
. 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 design38
. 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 34Cama, J. (2004). Who Pays to Fix Building Defects? American Systems USA inc. Berrymans Legal Consultants. 35Marianne, 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. 37Nigel M. Robinson (1996): “Construction Law in Singapore and Malaysia.” 2nd Edition. (Butterworths Asia
Malaysia). pp. 159-160. 38Atkinson, D. Supra 33. 39 (1897)66 LJQB 351
20
or absence of something essential to completeness40
. 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
.
40Chan CF. F. Supra 3. pp. 68. 41 Anon. Supra 13. 42 Chan CF. P. Supra 3. pp. 69. 43 Chan CF. P. Supra 3. pp. 68
21
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 engineer‟s representative must be
expected to find and bring to the contractor‟s 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 Cama, J. Supra 34. 45 (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
22
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 inspection49
. Normally, latent
defects only become apparent at some later date or upon an investigation of some
consequential effects caused by the defect.
Michael F. James50
has defined latent defects as defects which cannot
reasonably be discovered at the stage of a building‟s 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 words53
: “a defect that cannot be discovered by normal
examination and testing”.
49 Cama, J. Supra 34. 50 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
23
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 Michael F.James. Supra 50. pp. 145. 55 Cama, J. Supra 34. 56 (1984) 2 Con LR 43 57 Chan CF. P. Supra 3.
24
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 contract‟s 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 builder‟s 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
.
60Lim Chong Fong. “The Malaysian PWD Form of Construction Contract.” (Malaysia: Sweet & Maxwell Asia,
2004). pp. 29 61Mohd 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 party‟s undertaking
contractual responsibility to supply design services65
. 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
construction66
. The responsibility of design is under the employer‟s 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 Mohd Suhaimi Mohd Danuri. Supra 12. pp. 55 65 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 as68
: “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 architect‟s 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 architect‟s
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 Harbans Singh. Supra 47. pp. 698 69 John Murdoch and Will Hughes, Supra 66. pp. 187.
28
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
employer‟s 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 (1974) 21 BLR 27. 71Harbans Singh. Supra 47. pp. 698 72 (1976) 4 BLR 103, 131 73 IBA v EMI Electronics Ltd & BICC Construction Ltd (1980) 14 BLR 1 74John 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 negligent76
. 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 engineer‟s design,
the employer can sue the engineer for breach of contract77
. On the other hand, if the
defect is flowing from the contractor‟s fault, the contractor should be liable to
remedy the defect78
.
2.4.2 Quality of the Building Materials
As a general rule, the contractor‟s 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
architect‟s and engineer‟s choice of the material79
.
75 Greaves & Co (Contractors) Ltd v Baynham Meikle & Partners (1975) 1 WLR 1095 76 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 Adcock’s 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, employer‟s
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 Harbans Singh. Supra 47. pp. 697 81 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 Ltd86
has defined
merchantable quality as: “commercially saleable…the 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 employer‟s knowledge, excludes or limits liability for
84Sundra Rajoo. Supra 58. pp. 95. 85John 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 88John Murdoch and Will Hughes, Supra 66, pp.161. 89(1969) 1 AC 454
32
defects. In Gloucestershire Country Council v Richardson90
, 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(1969) 1 AC 480. 91(1951) QSR 225.8 92 Murdoch, J and Hughes, W. Supra 6. pp. 148
33
importance of special care in the execution of some important scope of work93
.
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 contractor‟s 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 competence98
. It is to be noted that where a
93 Alan Crocker. Supra 32. pp. 7. 94 Sundra Rajoo. Supra 58. pp. 95 95John 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 97Chan CF. P. Supra 3. pp. 51. 98Hancock 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 contractor‟s
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
.
99Lynch v Thorne [1956] 1 WLR 303 100(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
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 contractor‟s 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
employer‟s 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 contractor‟s physical return to the site after the employer has taken over the
103Mallesons 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.
36
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 contractor‟s 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 works108
. In fact, the employer‟s 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 contract110
. 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 Nigel M Robinson. Supra 37. pp. 171 110 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
38
2.5.2 Contractor’s 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 contractor‟s 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 contractor114
. This has been
correctly decided by the High Court of Malaya, Kuala Lumpur in Kemayan
Construction Sdn Bhd v Prestara Sdn Bhd115
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 contractor‟s 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.
113Anon. Supra 13. 114 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 contractor‟s responsibility for defective building work
after completion of the work apart from those above mentioned provisions which
specify the contractor‟s 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 contractor‟s 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.
40
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 sub-
clause 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 sub-
clause 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
Employer‟s 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.
42
2.6 Conclusion
Under a construction contract, contractor‟s 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 contractor‟s 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 defects118
. 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
EMPLOYER’S DEFECTIVE WORK CLAIMS DURING DEFECT
LIABILITY PERIOD AND THE CONTRACTOR’S 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.
119Jim Doyle. Supra 19.
44
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
contractor‟s 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 employer‟s 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 contractor‟s 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 contractor‟s obligation to put right the
defective work during the defects liability period is at its own expense.
The employer‟s 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);
120Ong See Lian. Supra 108. pp. 1. 121Mallesons Stephen Jaques. Supra 103 122Mallesons Stephen Jaques. Supra 103 123 Anon. Supra 13.
45
2. All remedial works are to be carried out within the specified time under the
supervision of qualified and experienced contractor‟s 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 contractor‟s default. Usually the contractors will
seek to exclude liability for defects not owing to the contractor‟s 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.
47
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 Mallesons Stephen Jaques. Supra 103. 127 Monica Neo (2005), “Construction defects: your rights and remedies” Sweet & Maxwell Asia, Singapore,
pp.24. 128 Mallesons Stephen Jaques. Supra 103.
48
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 Sundra Rajoo. Supra 58. pp. 145. 130 Nigel M Robinson Supra 37. pp. 170
49
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 contractor‟s 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 Ltd133, the defect liability period‟s 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 Mallesons Stephen Jaques. Supra 103 132 John Murdoch and Will Hughes. Supra 66. pp. 196. 133 (1972) 1 WLR 146, at p.166
50
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 work134
. 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 employer‟s decision amounted to an unreasonable
failure to mitigate the loss suffered, and the damages were reduced by the amount by
which the employer‟s 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 Mallesons Stephen Jaques. Supra 103 135 Monica Neo. Supra 127. pp.24. 136 (1990) 6 Const LJ 814
51
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 Burton‟s
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.
137Borja, M. E and Stevens, S.T. (2002). No Accident, No Coverage: A Look at Breach Of Contract Claims In
Construction Defects Cases. Mealey‟s Litigation Report: construction defects, Inc., King of Prussia, PA. Vol. 3. 138Frankel E. R. Supra 21. pp 20. 139 Frank E. and James A. Supra 10.
52
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 employer‟s 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 Partners141, 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 Ong See Lian. Supra 108. pp. 1. 141 (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(1979) Ch. 384 144(1993) 3. All E.R. 417 145(1968) Qd R 275.
54
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 employer‟s representative of the defects and make good at contractor‟s 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 DLP‟s 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 Diplock‟s 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 architect’s 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 Ayodeji S. Ojo (2010), “Defect Liability Period: Employer’s Right and Contractor’s Liabilities Examined”. 147 (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 employer’s 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 employer‟s 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 employer‟s 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 contractor‟s 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
56
Figure 2.1 Flowchart of Contractor’s 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 Contractor’s 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 Contractor’s 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)
59
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 damages149
. 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 contractor‟s 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 contractor‟s 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 employer‟s 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.
60
suffered as a result of the wrongdoer‟s 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 Court‟s decision of Bellgrove v Eldridge153
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
150J. Beatson (2002), “Anson‟s Law of contract.” 28th edition, Oxford University Press, Oxford. pp. 590. 151John McGuinness (2004), “The law and management of building subcontracts” Athena Press, Twickenham.
pp.430. 152Michael F.James. Supra 50. pp. 25. 153(1954) 90 CLR 613 154Jim Doyle. Supra 19. 155Michael F.James.Supra 50. pp. 26.
61
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 contractor‟s
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 breach160
. 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
62
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 Ltd163
, 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
contractor‟s 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(1986) 161 CLR 653 164Jim Doyle. Supra 19.
63
6) The accrual of the principal‟s 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
165Jim Doyle. Supra 19. 166Ayodeji S. Ojo. Supra 146.
64
the owner and where the contractor has no knowledge that the materials are
defective167
.
From the contractor‟s 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 contractor‟s 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:
167Ayodeji S. Ojo. Supra 146. 168Jim Doyle. Supra 19. 169Jim 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
employer‟s 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
170Smail (as trustee of the assigned estates of L M Wilson and G R Wilson) v. D L Starbuck Pty Ltd. 171Dorter And Sharkey, Building and Construction Contracts in Australia Law and Practice, 2nd ed, Lawbook Co,
Sydney, 990 at (11.30) 172Elanore Country Ltd v V J Summersby & Pearce & Sons (Excavations) Pty Ltd (1988) 4 BCL 309 173Apex Realty Pty Ltd v Walker Bros & Preece Pty Ltd (1958) 76 WN (NSW) 34 174Helicopter Sales (Aust) Pty Ltd v Rotor-Works Pty Ltd (1974) 132 CLR 1 175Cable (1956) ltd v Hutcherson Bros Pty Ltd (1969)123 CLR 143
66
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 contractor‟s 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 contractor‟s 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 employer‟s 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 Contractor’s 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 contractor‟s 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.
73
4.2.2 The Employer’s Obligation to Notify the Contractor of Defects and the
Contractor’s Liability
If the defects are such that a contractor‟s liability during defect liability
period, it is in the employer‟s 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 employer‟s 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 employer‟s obligation to
notify the contractor of defects and the contractor‟s liability.
181 Louise Shiels. Supra 176. 182 (1875) 1 CPD 77
74
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. Baxter‟s 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 contractor‟s 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 employer‟s
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 employer‟s 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 employer‟s 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 contractor‟s 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 Contractor’s 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 contractor‟s 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 contractor’s 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.
78
4.2.4 The Contractor’s 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 contractor‟s 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 Michael Furmston (2006), “Powell-Smith & Furmston‟s building contract casebook”, Blackwell Publishing. 186(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 Louise Shiels. Supra 176. 189 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 architect‟s 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 architect’s 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 re-
felted 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 Ford‟s 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 Plant‟s claim against JMH. It was accepted that the
effective reason for adopting the faulty system of support was that it was insisted on
by Ford‟s 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
86
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.
87
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 performed193
. 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
.
193Monica Neo, Supra 127. 194Robinson v Harman (1848) 1 Exch 850 195J. Beatson. Supra 150.
88
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 contractor‟s liability towards
employer‟s 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
196John McGuinness. Supra 151. pp.430. 197Michael F.James. Supra 50. pp. 25. 198Mohd Suhaimi Mohd Danuri. Supra 12. pp. 56 199William Tompkinson v Parochial Church Council of St Michael (1990) 6 Const LJ 814 200(1954) 90 CLR 613
89
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
90
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 architect‟s 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 contractor’s 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 employer’s 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 employer’s 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 employer’s 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 Forsyth‟s 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 7‟6”
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
93
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(1954) 90 CLR 613 204(1954) 90 CLR 613
94
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 contractor‟s 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 contractor‟s liability towards
employer‟s 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 Ruxley Electronics & construction Ltd v Forsyth (1996) AC 344 206 (2009) 1 SLR 385
95
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 doesn‟t 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
96
$ 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 Yap‟s 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
97
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 Ltd‟s 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 judge‟s 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
98
unreasonable. Mr. Stephen Forsyth‟s 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 pool‟s 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.
99
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 contractor‟s liability towards
employer‟s 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
208HW Nevill (Sunblest) Ltd v William Press & Son Ltd (1981) 20 BLR 78 209(1981) 20 BLR 78
100
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 plaintiff‟s 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.
101
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
102
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 employer‟s 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 contractor‟s 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 contractor‟s 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.
104
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.
105
Table 5.1 Summary of Research Findings
Items Findings Remarks
A) Contractor‟s 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 set-
off 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.
2 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
The contractor‟s 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
employer‟s rights to damages,
106
Items Findings Remarks
but will limit the amount of
damages which the employer is
entitled to recover.
3 The contractor‟s defect liability
towards the defective work caused
by material supplied/chosen by the
employer.
Young & Marten Ltd v McManus
Childs Ltd
When the suppliers and
materials of the construction
were chosen by the employer,
the contractor has no obligation
to warranty the quality of the
materials.
The contractor is not liable for
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.
4 The contractor‟s 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/designer‟s 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
107
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.
5 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 contractor‟s 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) Employer‟s defective work claims for damages and contractor‟s 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.
108
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.
2 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.
3 Consequential loss
HW Nevill (Sunblest) Ltd v
William Press & Son Ltd
P & M Kaye Ltd v Hosier &
Dickinson Ltd
The satisfaction of making good
the defects does not amount to
an exclusion of claims in respect
of their consequences.
The contractor will not only
liable to the cost of repair of the
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
109
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 Ltd211
, 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 employer‟s
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
employer‟s 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 employer‟s 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/designer‟s 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 judge‟s opinion, that the
contractors of certain experience should have recognized that the design would
constitute a defect. It is the contractor‟s 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 contractor‟s
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
111
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 contractor‟s 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 contractor‟s 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 (1954) 90 CLR 613 214 (1999) BLR 101 215(1996) AC 344
112
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 Ltd216
, 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 contractor‟s
216(1981) 20 BLR 78 217(1972) 1 WLR 146
113
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
114
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 designer‟s faulty design. However, it is the
contractor‟s 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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Alan Crocker (1990), “Building failures – recovering the cost.” BSP Professional
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Anon (2007), “What Are The Obligation Of The Contractor During Defect Liability
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Atkinson, D. (1999), “Measures of Damages for Defects.”, from
http://www.atkinsonlaw.com/cases /CasesArticles /Articles/ Defects.htm
Ayodeji S. Ojo (2010), “Defect Liability Period: Employer’s Right and Contractor’s
Liabilities Examined”.
Borja, M. E and Stevens, S.T. (2002). No Accident, No Coverage: A Look at Breach
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