the importance of condition of contract

THE IMPORTANCE OF CONDITION OF CONTRACT

IN CONTRACT DOCUMENT

NURULHUDA BINTI AHAMAD

Faculty of Built Environment

Universiti Teknologi Malaysia

OCTOBER 2009

PSZ 19:16 (Pind. 1/97)

UNIVERSITI TEKNOLOGI MALAYSIA

CATATAN: * Potong yang tidak berkenaan.

** Jika tesis ini SULIT atau TERHAD, sila lampirkan surat daripada pihak berkuasa/organisasi berkenaan dengan menyatakan sekali sebab dan tempoh tesis ini perlu dikelaskan sebagai SULIT atau TERHAD.

♦ Tesis dimaksudkan sebagai tesis bagi Ijazah Doktor Falsafah dan Sarjana secara penyelidikan, atau disertai bagi pengajian secara kerja kursus dan penyelidikan, atau Laporan Projek Sarjana Muda (PSM).

BORANG PENGESAHAN STATUS TESIS♦

JUDUL : THE IMPORTANCE OF CONDITION OF CONTRACT IN CONTRACT

DOCUMENT

SESI PENGAJIAN: 2009/2010/III

Saya

(HURUF BESAR)

mengaku membenarkan tesis (PSM / Sarjana / Doktor Falsafah)* ini disimpan di Perpustakaan Universiti Teknologi Malaysia dengan syarat-syarat kegunaan seperti berikut:

1. Tesis adalah hakmilik Universiti Teknologi Malaysia. 2. Perpustakaan Universiti Teknologi Malaysia dibenarkan membuat salinan untuk tujuan

pengajian sahaja. 3. Perpustakaan dibenarkan membuat salinan tesis ini sebagai bahan pertukaran antara

institusi pengajian tinggi. 4. **Sila tandakan ( √ )

SULIT (Mengandungi maklumat yang berdarjah keselamatan atau kepentingan Malaysia seperti yang termaktub di dalam AKTA RAHSIA RASMI 1972)

TERHAD (Mengandungi maklumat TERHAD yang telah ditentukan oleh organisasi/badan di mana penyelidikan dijalankan)

TIDAK TERHAD

Disahkan oleh

(TANDATANGAN PENULIS) (TANDATANGAN PENYELIA)

Alamat Tetap : No 64, Jalan USJ 5/1A 47610 Subang Jaya Selangor Darul Ehsan

Tarikh :________________ Tarikh : 12 MEI 2008


“I Hereby Declare That I Have Read This Project Report And In My Opinion This

Project Report Is Sufficient In Terms Of Scope And Quality For The Award Of The

Degree Of Master Of Sciences (Construction Contract Management).”

Signature : ..............................................................................

Name : ..............................................................................

Date : ..............................................................................

ASSOC. PROF. DR. ROSLI ABDUL RASHID


IN CONTRACT DOCUMENT


A thesis submitted in fulfillment of the

requirements for the award of the degree of

Master of Science in Construction Contracts Management

Faculty of Built Environment

Universiti Teknologi Malaysia

OCTOBER 2009

DECLARATION

I declare that this thesis entitled “The Importance of Condition of Contract in Contract

Document” is the result of my own research except as cited in the references. The thesis

has not been accepted for any degree and is not concurrently submitted in candidature of

any other degree.

Signature : .................................................................

Name : .....NURULHUDA BINTI AHAMAD...

Date : ….10th OCTOBER 2009.........................

To my parents for giving me such a good start,

and to my sisters and brothers for your love and the countless hours of

laughter

and joy we shared throughout the years.

ACKNOWLEDGEMENT

I wish to extend my sincere appreciation to everybody who contributed to the

accomplishment of this dissertation. My dissertation supervisor, Associate Professor Dr.

Rosli Abdul Rashid is specially remembered for his time, patience and efforts in

‘moulding’ me and my thought processes. The completion of this dissertation would not

have been possible without his conscientious guidance and encouragement. I would also

like to thank Encik Norazam Othman for his constructive criticisms.

In conducting the structured interview for the dissertation, I have incurred

intellectual debts to a few prominent professionals in the industry. In particular, I wish

to thank Encik Hakim, Encik Amran Majid, Encik Faridz, Encik Najib, Dr. Syed Alwee

Alsagoff and Ir. Oon Chee Kheng for taking their time out of their busy schedules in

participating in this study.

Also, without the support of my parents, Associate Professor Ahamad Abdullah

and Fuziah Ahmad and my most trusted friend Farid Yusof, completing this study would

not have been possible. My wish is they all share my happiness. Last but not least,

special thanks go to my sisters, Hanisah and Munirah, and also my brothers, Abdul

Rahman and Abdul Hadi. Their love, understanding and encouragement have been a

great help to the completion of my study. I dedicate this thesis to them.

ABSTRACT

The aim of this research is to grasp the significance of the inclusion of the terms

and conditions in construction contract. Terms and conditions of contract are very vital

to regulate the construction works. It states clearly the rights and obligations of the

contracting parties. At present the Standard Forms which are widely used which contain

the terms and conditions of contract. But, in new revision of P.W.D. Form 203A,

Condition of Contract does not expressly stated that Condition of Contract is one of the

documents in the Contract Document. Although it is said that it is understood that,

without expressing the term, the Condition of Contract is still one of the Contract

Document. Therefore, it is imperative for the contracting parties to ensure that the terms

and conditions are compiled together with the contract to avoid any disputes. The terms

and conditions also shall be prepared clearly and unambiguously. The contracting

parties should understand clearly the terms and conditions before they agreed executing

the contract. This research is based on documentation study about the terms and

conditions of construction contracts and also contract documents. It will be supported

by referring to court cases where there are incomplete terms and conditions and also

where the terms and conditions are not clear and ambiguous.

ABSTRAK

Penyelidikan ini adalah bertujuan untuk mengkaji dan memahami akan

kepentingan wujudnya terma dan syarat kontrak di dalam kontrak binaan. Terma dan

syarat kontrak adalah sangat penting kerana ia mengawal selia kerja pembinaan. Ia

menerangkan dengan jelas tentang hak dan tanggungjawab pihak yang berkontrak.

Namun, di masa kini, Borang Kontrak Setara telah digunakan di dalam kerja binaan

yang mengandungi terma dan syarat kontrak. Tetapi, Borang Kontrak Setara, Borang

P.W.D. 203A yang terbaru, tidak menyatakan bahawa Syarat-syarat Kontrak sebagai

salah satu dokumen di dalam Dokumen Kontrak. Isu besar akan timbul sekiranya

pertikaian berlaku di dalam kerja pembinaan dengan ketiadaan Syarat-syarat Kontrak

kerana tidak ada terma dan syarat tentang kerja pembinaan tersebut. Oleh itu, adalah

sangat penting untuk pihak yang berkontrak untuk memastikan bahawa terma dan syarat

kontrak ada semasa berkontrak untuk mengelakkan pertikaian berlaku. Semua terma

dan syarat kontrak juga perlu disediakan dengan jelas dan tanpa ragu. Pihak yang

berkontrak perlu faham dengan jelas setiap terma dan syarat kontrak sebelum bersetuju

untuk menandatangani kontrak. Penyelidikan ini adalah berdasarkan kepada kajian

dokumen tentang terma dan syarat kontrak dan juga dokumen kontrak. Ianya juga

disokong oleh beberapa kes mahkamah mengenai terma dan syarat kontrak yang tidak

lengkap dan juga terma dan syarat kontrak yang tidak jelas.

TABLE OF CONTENTS

CHAPTER TITLE PAGE

1 INTRODUCTION 1

1.0 Background of the Research 1

1.1 Problem Statement 4

1.2 Objectives of the Research 7

1.3 Scope and Limitation 7

1.4 Research Methodology

1.4.1 Documentary Study 8

1.4.2 Interview 8

1.4.3 Synthesized 9

1.4.4 Assimilation 9

1.5 Chapter Organization 11

2 TERMS AND CONDITIONS OF CONTRACT 13

2.0 Introduction 13

2.1 Contract 14

2.2 Agreement 15

2.3 Manner of Agreement 20

2.3.1 Principle of Documentation 21

2.3.2 The requirement of Writing 22

2.4 Vogue or Incomplete Agreement 25

2.5 Terms and Representations 26

2.6 Conditions and Warranties 28

2.7 Non-Standard Forms and Standard Forms

2.7.1 Non-Standard Forms 30

2.7.2 Standard Forms 31

2.7.3 Standardization 33

2.7.4 Sources of Standard Forms 33

2.7.5 Use and Content of Standard Forms 33

2.7.6 Advantages of Standard Forms 34

2.8 Chapter’s Conclusion 35

3 CONTRACT DOCUMENT 37

3.0 Introduction 37

3.1 Contract Document 38

3.2 Purpose and Functions of the

Contract Documents 43

3.3 Contractual Obligation in the Absence of

Condition of Contract in Contract Document 44


4 THE IMPORTANCE OF CONDITION

OF CONTRACT 49

4.0 Introduction 49

4.1 Court case 1 50

4.2 Court Case 2 53

4.3 Court Case 3 54

4.4 Court Case 4 58

4.5 Court Case 5 59

4.6 Interviews

4.6.1 Legal Advisor 1 61



4.6.4 Legal Advisor 62


5 CONCLUSION AND RECOMMENDATIONS 64

5.0 Introduction 64

5.1 Conclusion 64

5.2 Recommendation 67

5.3 Limitation of the Research 68

REFERENCES

APPENDIX

LIST OF TABLE

TABLE NO TITLE PAGE

1.1 Definition of Contract Document 6

LIST OF FIGURE

FIGURE NO TITLE PAGE

1.1 Research Methodology Flowchart 10

LIST OF CASES

PAGE

Butler Machine Tool Co. Ltd. v Ex-Cell-O Corporation (England) Ltd.

[1979] 1 All ER 965 15

Cheng Hang Guan & Ors v Perumahan Farlim (Penang) Sdn. Bhd. & Ors

[1993] 3 MLJ 352 52

Consort Engineering Co. Ltd v Leung Wai Ying @

Tommy Leung t/a Kin Ming Company [2002] 22

Diamond Peek Sdn. Bhd. & Anor v D.R. Tweedie [1982] 1 MLJ 97 20

Gibson v Manchester City Council [1979] 1 All ER 972 16

Kam Mah Theatre Sdn. Bhd. V Tan Lay Soon [1994] 1 MLJ 108 53

Limited Choice Construction Company Limited v Dillingham Construction

(HK) Limited [1991] 21

Linden Gardens Trust Ltd. v Lenesta Sludge Disposal Ltd [1994] 1 AC 85 44

Liverpool City Council v Irwin [1977] AC 239 54

Mitsui Construction Co Ltd v Attorney General [1987] HKLR 1076 36

Olley v Marlborough Court Ltd. [1949] 1 KB 532 28

Percy Trentham Ltd v Archital Luxfer Ltd [1993] 2 Lloyds LR 25 24

Perry v Suffields [1916] 2 CH 187 25

Photo Production Ltd. v Securicor Transport Ltd. [1980] AC 827 59

Produce Brokers Co. Ltd. v Olympia Oil & Cake Co. Ltd. [1916] 1 AC 314 30

Scammell v Ouston [1941] 1 AC 251 25

Sri Kajang Rock Products Sdn. Bhd. V Maybank Finance Bhd. [1992]

1 CLJ 205 16

Trollope & Colls v Northwest Metropolitan Regional Hospital Board

[1973] 1 WLR 601 57

Young & Marten Ltd. v McManus Childs Ltd. [1969] 1 AC 454,465 55

CHAPTER 1

INTRODUCTION

1.0 Background of the Research

The formation of a contract is the start of the parties’ contractual

relationship, which will affect their rights and obligations during the execution of the

contract. A contract is a legal document and governs the rights of the parties1. It

refers to an agreement between two or more parties and contains what to be done and

also what should not be done in the construction work2.

A contract is an agreement enforceable by law3. According to section 10 of

the Contract Act 1950, an agreement becomes a contract if it is made by the free

consent of parties competent to contract, for a lawful consideration, and with a

lawful object, and is not hereby expressly declared to be void. If this provision is

analyzed, it can be conclude that the following are the essential conditions which

must be satisfied for an agreement to become a contract:

a) The parties must be competent to contract

b) There must be free consent of the parties 1 Cheng, Wong, Soo (2004), Construction Law and Practice in Hong Kong, Sweet & Maxwell Asia 2 Vohrah, Wu Min Aun (2000), The Commercial Law of Malaysia, Pearson Malaysia Sdn. Bhd. 3 Contract Act 1950, Sec 2(h)

c) The consideration and object must be lawful

d) The agreement must not be expressly declared to be void

Where one or more of the ingredients mentioned above is missing, the

agreement is not a contract which the law will enforce. An agreement may be made

in any manner whatsoever, provided the parties are in communication. An

agreement may be made4

a) in writing

b) by orally

c) by inference from the conduct of the parties and the circumstances of

the case

d) by any combination of the above modes

Basically, the terms and conditions is what are being agreed by the parties

to a contract. The word ‘term’ in contract law refers to a stipulation which gives

efficacy to the intention of the parties. Terms of a contract are variously called

stipulations, covenants, provisions and clauses depending on the nature of particular

contracts.

Statements made in the course of negotiations leading to a contract may be

incorporated into the contract and become terms while others remain as mere

representations. Terms are contractually binding, and in the event of a breach, the

injured party is entitled to claim damages and may also terminate the performance of

the contract where a condition is breached. On the other hand, if a statement is a

representation and it is untrue, the party that is mislead may only rescind the

contract, that is, treat it as never having existed.

4 W.T. Major (1983), The Law of Contract, 6th edn, Macdonald & Evans Ltd

In the case of construction contract, the contracting parties may include any

term and condition in the contract in order to complete and fulfill the requirement of

the construction works. Normally, the terms and conditions are about the rights and

obligations of the contracting parties. The terms and conditions set out in printed

Condition of Contract must be clear and unambiguous to avoid any dispute to arise.

Today, the construction industry have used Standard Forms in order to

explain the terms and conditions of the contracting parties. These Standard Forms

comprise the general conditions of the contract, which are frequently, if not

inevitably, supplemented by special conditions. As a general rule, special conditions

take precedence over general conditions. Constructions contracts also comprise

other documents, such as specifications and bills of quantities5. Standard Forms are

even provided by legislation or under statutory authority.

Condition of Contract is an important document in a construction contract.

It is important because it states the roles and responsibilities of the parties involved

in the construction, the solution of any discrepancies and conflicts, defined the

purpose and reasonable skill and care, variation and their valuation, written and

verbal instructions, damages to works, insurance, health and safety, extension of

time, etc.

Construction contract is normally between the owner and the contractor.

Contract Documents is a term used to represent all executed agreements between the

owner and contractor; any general, supplementary, or other contract conditions; the

drawings and specifications; all addenda issued prior to execution of the contract;

5 Cheng, Wong, Soo (2004), Construction Law and Practice in Hong Kong, Sweet & Maxwell Asia

and any other items specifically stipulated as being included in the contract

documents6.

1.1 Problem Statement

There are various types of Standard Forms in Malaysia. As stated in

Agreement & Conditions of PAM Contract 2006 (with quantities), CIDB Standard

Form of Contract for Building Works (2000 Edition), MAHB (Malaysia Airport

Holding Berhad) Form of Contract, and most of other Standard Forms, their

definition of Contract Document include the Article of Agreement and Condition

of Contract. Clause 1.1 (b), in P.W.D. Form 203A (Rev 2007), the definition of

Contract Document which stated that:

“Contract Document means the documents forming the tender and

acceptance thereof including:

a) Form of Tender

b) Letter of Acceptance

c) Contract Drawings

d) Bills of Quantities

e) Specifications

f) Treasury’s Instructions

g) ………………………

h) ………………………

i) ………………………

6 McDermott P et al (1999), Procurement Systems : A Guide to Best Practice in Construction, E&FN Spon, London

and all these documents shall be complementary to one another.”

P.W.D Form 203A (Rev 2007) did not expressly state that Condition of

Contract is part of the Contract Document. It is impliedly part of the Contract

Document. In other Form of Contract, Condition of contract is expressly stated as

part of the Contract Document. See below;

TYPES OF

STANDARD FORM

Contract or Contract Documents comprise the following

documents;

Agreement &

Conditions of PAM

Contract 2006 (with

quantities)

Article 7 (q)

a) Letter of Award

b) Article of Agreement

c) Condition of Contract

d) Contract Drawings

e) Contract Bills

f) Other documents incorporated in the Contract

Documents, unless expressly stated to be excluded

P.W.D. Form 203A

(Rev 2007)

Clause 1.1 (b)

j) Form of Tender

k) Letter of Acceptance

l) Contract Drawings

m) Bills of Quantities

n) Specifications

o) Treasury’s Instructions

p) ………………………

q) ………………………

r) ………………………

MAHB (Malaysia

Airport Holding

Clause 1

a) Letter of Award

Berhad) Form of

Contract

b) Article of Agreement

c) Form of Tender

d) Condition of Contract

e) Contract Drawings

f) Bills of Quantities

g) Sum of Tender

h) Extracts of Employer’s Procurement Policies

CIDB Standard Form

of Contract for

Building Works (2000

Edition)

Clause 3

a) Article of Agreements

b) The Letter of Award

c) The Conditions

d) The Addenda

e) The Drawings

f) The Specifications

g) The Bills of Quantities or Schedule of Works

h) Other Documents

Table 1.1: Definition of Contract Document

Can a construction Contract Document comprise of only;

a) Form of Tender

b) Letter of Acceptance

c) Contract Drawings

d) Bills of Quantities

e) Specifications

f) Treasury Instructions

Does it mean that, by not expressly stating that Condition of Contract is

part of Contract Document, the Contract Document is not complete? As in other

Forms of Contract, the Condition of Contract should be the main document which is

complemented by other documents. When it is not expressly mention, it can be

taken that the Condition of Contract is not to be read as part of the contract. It means

something outside of the others.

What it would be like if there is no Condition of Contract for a contract?

As a matter of principle, a contract is formed when there is offer and acceptance.

Condition of Contract are mere written construction of what have been agreed

between the contracting parties.

Such questions have to be considered useful as the foundation of this

research in searching the most relevant answers to those questions. Hence, it is

important and necessary for understanding the contract, terms and conditions,

agreement, Standard Forms or Condition of Contract, and also Contract Document.

1.2 Objective of the Research

The objective of this research is to ascertain the importance of Condition of

Contract, as part of construction contract document.

1.3 Scope and Limitation

This research will mainly focus on the provision in Malaysia Standard

Form of Contract. It is P.W.D. Form 203A (Rev. 2007). The discussion also will be

supported with international court cases, not only focusing on Malaysian court cases.

1.4 Research Methodology

In order to achieve the said objectives, there are a number of methods used

by the writer in obtaining appropriate source of information and data. The

implementations stage is planned in detail in order to ensure the success of this

research.

1.4.1 Documentary Study

In order to obtain full information for this research, various sources

of documentation such as technical journal or magazines, books, paper

works, internet, Standard Forms in Malaysia and etc have been collected.

Law cases also will be referred. The purpose of referring the law cases is to

describe the real situation and environment.

1.4.2 Interview

Interview means the interviewer works directly with the

respondent. Interviews are completed by the interviewer based on what the

respondent says. It is far more personal form of research than questionnaires.

There are many types of interview methods. For this research, the

interviewer chooses the informal conversational interview. For this method,

there are no predetermined questions, in order to remain as open and

adaptable as possible to the interviewee’s nature and priorities, during the

interview the interviewer ‘goes with the flow’.

Interview will be done to one person in JKR which is familiar to

the P.W.D 203A Standard Form and also to three practicing lawyers. These

practicing lawyers will give their opinion based on the statement made by

the person from JKR and explain more detail about the issue for this

research.

1.4.3 Synthesized

Synthesis means a process of making a compound by putting the

ingredient together. It is the combination of separate elements of thought into

a whole, individual proposition into systems. The documentary study and

interviews are synthesized together to get a final findings that relate to the

objective of this research.

1.4.4 Assimilation

The agreements between theoretical and synthesized findings are

being written in the report.

The methodology

process for

this

dissertation

is as

shown in

Figure

1.1

Figure 1.1: Research Methodology Flowchart

1.5 Chapter Organization

a) Chapter 1 – INTRODUCTION

Chapter one of this dissertation explains the background of this

dissertation topic. It also specifies the problem statement, objectives of the

research, scope of the research, methodology and the chapter outline.

b) Chapter 2 – TERMS AND CONDITIONS OF CONTRACT

This chapter explains the formation of the contracts including the

essential elements of a contract and manner of a contract. It also undertakes a

clear understanding of the Standard Forms used in Malaysia.

c) Chapter 3 – CONTRACT DOCUMENT

In order to know the validity of the Contract Document, this chapter

will focus on Contract Document. It will also cover the scope about the

contractual obligation in the absence of the Condition of Contract in Contract

Document.

d) Chapter 4 – THE IMPORTANCE OF CONDITION OF CONTRACT

The court cases about ‘terms and conditions of construction contract’

will be synthesized in this chapter. The judgments of each court cases will be

related to the issues arise in this research together with the documentary study

and all the explanations from each interviewee to achieve the objectives of this

dissertation.

e) Chapter 5 – CONCLUSIONS AND RECOMMENDATIONS

This is the final chapter of this dissertation. In this chapter, the

conclusion of the study, the achievement of the author’s objective and overall

conclusion of the author’s report are made.

CHAPTER 2

TERMS AND CONDITIONS OF CONTRACT

2.0 Introduction

The law of contract is the law relating to the enforcement of obligations by

the courts. Some obligations are enforced and some are not. The law has developed

a series of rules which guide them into making decisions about whether obligations

shall be enforced. For a construction contract to be entered into there has to be an

agreement between two or more parties whereby one party offers to execute work for

the other for a price. This is a minimum requirement for a contract enforceable at

law to be entered into.

This chapter explains the formation of the contracts including the essential

elements of a contract and manner of a contract. It also undertakes a clear

understanding of terms and conditions of contract and the used of Standard Forms.

2.1 Contract

For many years, the construction industry has relied on formal contracts to

define and enforce the obligations and rights of contracting parties7. It is essential to

remember that construction contracts are first and foremost is contract, and therefore,

the general law applicable is the law of contract8. Anyone involved in the

7 Cheung, Kenneth, T.W. and Chim, (2006), How Rational Construction Contract? Journal of Professional Issues in Engineering Education and Practice 8 Netto (1982), Dispute Arising Out of the Main Contract and Subcontract. Seminar on Avoiding Disputes in Construction Contracts. Institute of International Research

management of building and engineering industry must have a sound working

knowledge of the general principles of contract law.

Construction contracts are the basis of legally binding parties to a

construction project. Typically, a construction contract may be between a client and

a contractor. A construction contract could also be between a contractor and

subcontractor. Or the construction contract may be between a subcontractor and a

sub-subcontractor or supplier.

Treitel in The Law of Contract defines a contract as:

“An agreement giving rise to obligations which are enforce or

recognized by law. The factor which distinguishes contractual from other

legal obligations is that they are based on the agreement of the

contracting parties”9.

Beatson, in Anson’s Law of Contract, takes his definition a little further than this,

defining it as:

“A legally binding agreement made between two or more persons, by

which rights are acquired by one or more to acts or forbearance on the

part of the other or others”10.

Based on both definitions, the question has arised as to what point an

agreement actually materializes. It is worth re-stating the fact that the law requires

9 Treitel, The Law of Contract, 11th edn, (2003), Sweet & Mwawell Limited 10 Beatson, Anson’s Law of Contract, 28th edn, (2002), Oxford University Press

more than some subjective indication of agreement between the parties. There is a

clear need for some degree of evidence of the fact of agreement, otherwise there

would be uncertainty when one attempts to reconcile the theoretical basis of the law

of contract with the actual intentions of the parties. An individual could escape his

obligations merely by stating that he had no intention of being bound by any

agreement.

2.2 Agreement

Two very different approaches have been used to assess the presence of an

agreement. The first is a liberal laissez-faire approach which anything at all could

potentially be used in assessing the presence of an agreement. Such an approach

almost invariably results in a subjective assessment of the parties’ actions taking

place and has the disadvantage of rendering the law uncertain and unpredictable.

This approach found favour with Lord Denning who, in Butler Machine Tool Co.

Ltd v Ex-Cell-O Corporation (England) Ltd11, stated:

“In many cases our traditional analysis of offer, counter-offer, rejection,

acceptance and so forth is out of date…..The better way is to look at all

the documents passing between the parties and glean from them or from

the conduct of the parties, whether they have reached agreement on all

material points….”

Similarly, in Gibson v Manchester City Council12, he also stated that one ought to:

11 [1979] 1 All ER 965 12 [1979] 1 All ER 972

“look at the correspondence as a whole and at the conduct of the parties

and see therefrom whether the parties have come to an agreement on

everything that was material”

In both of these cases Lord Denning’s approach was rejected in favour of

the second approach which is to find the objective intention of the parties to enter

into an agreement by reducing the agreement in terms of offers, counter-offers,

acceptance, revocations and rejections. This method of finding whether an

agreement has come into existence or not provides a more predictable, certain and

objective means assessment, though one which is artificial.

Basically, a contract is based on agreement, which arises from offer and

acceptance. One person makes an offer, another person accepts that offer. When

that has happened, and provided that the other necessary factors, consideration and

intention to contract, are present, there is a contract13. If any of these requirements

are not present in an agreement, the arrangement remains unenforceable. This issue

is stressed in case the Malaysian High Court decision of Sri Kajang Rock Products

Sdn Bhd v Mayban Finance Bhd14, VC George J judicially summarized the

aforementioned thus:

“To constitute a valid contract there must be separate and definite

parties thereto; those parties must be in agreement, that is there must be

a consensus ad idem; those parties must be intend to create legal

relations in the sense that he promises of each side are to be enforceable

simply because they are contractual promises and the promises of each

party must be supported by consideration”.

13 Upex & Bennett (2004), Davies on Contract 9th edn, Sweet & Maxwell Limited 14 [1992] 1 CLJ 205

a) Offer

An offer is an expression of willingness to contract on certain terms

made with the intention that a binding agreement will exist once the offer is

accepted15. It may be regarded as a proposal to make a contract.

There are two kinds of offer. First, the offer may call for an acceptance

in the form of an unqualified promise to perform according to the terms

contained in the offer. The acceptance of this kind of offer leads to the most

usual kind of contract, generally known as the bilateral contract. Secondly, the

offeror’s offer may be in terms which call for an act to be performed, e.g. the

return of specific lost property. A unilateral contract is made upon performance

according to the terms of the offer.

b) Acceptance

Acceptance consists of any act which signifies the final consent of the

offeree to the terms of the offer. As the mechanics of offer and acceptance are

observed from an objective standpoint, there can be no binding agreement unless

an acceptance has been communicated to the offeror which corresponds exactly

with the terms of the offer.

15 Richards, Law of Contract, 6th edn (2004), Pearson Education Limited

In some cases, the offeror may have specified a particular mode of

acceptance, in which event no contract will result unless the assent takes the

required form. Otherwise, acceptance may be made in any form which is

deemed reasonable16.

c) Intention

The contractual intention is the intention to create a contractual

relationship between the parties to the contract. A unilateral intention to contract

is insufficient to establish a legally binding agreement. That is why it is

frequently said that there needs to be a ‘meeting of minds’ before a contract can

be said to have been formed17.

By referring to the English common law principle, there are two

presumptions in the determination of intention with respect to agreement.

• In business agreements, there is a presumption that the parties intend

legal consequences to follow unless the parties specifies otherwise.

• In social, domestic or family agreements, it is implied as a matter of

course that no legal relations are contemplated, but such presumption

may be rebuttable.

16 Wilson, Principle of the Law of Contract (1962), Sweet & Maxwell Limited 17 Cheng, Wong, Soo, Construction Law and Practice in Hong Kong, (2004), Sweet & Maxwell Asia

d) Consideration

Section 2(d), Contract Act 1950, defined consideration as;

“when, at the desire of the promisor, the promise or any other person has

done or abstained from doing, or does or abstains from doing, or promise

to do or to abstain from doing, something, such act or abstinence or

promise is called a consideration of the promise,”

Section 26 of Contract Act 1950 provides that an ‘agreement made

without consideration is void’ unless they belong to one of those categories of

agreements listed in the same section as being exempted from the rule. There

must be sufficient consideration exchanged between the parties. The law then

requires the parties to give sufficient consideration to the promise made to it. In

building contracts, the consideration given by the employer is the price paid or

the promise to pay for the works to be executed by the other party. The

consideration by the contractor or consultant is the carrying out of the works or

the promise to carry them out.

Consideration is not always in monetary terms and can take other

forms, e. g. forbearance to sue. Consideration is an important concept, but can

also be a complex one. A promise without consideration would not be

enforceable in law.

2.3 Manner of Agreement

The general rule is that a contract can be made orally, by writing, by

conduct or by any combination of these three manners. Obviously in commercial

contracts, where the terms may be very extensive, it is highly desirable to have those

terms set down in writing in a formal document in case any dispute should occur.

The same is also true where the contract involves very large amounts of money and

thereby carries an inordinate degree of risk. But, there is no requirement at common

law that a contract should be in any particular form although important contracts or

contracts with complex terms are often enshrines in written form18.

The English Statute of Frauds 1677 which requires certain types of contract

to be in writing has no application in Malaysia. In Diamond Peek Sdn. Bhd. &

Anor. v D.R. Tweedie19, Gunn Chit Tuan J. in accepting this view with respect to an

oral agreement for the sale of land, observed:

“Under our law, as in India, an oral contract for the sale of immovable

property is valid and enforceable. The mere fact that the parties desired

to have that agreement put in writing and drawn up in proper form does

not affect its validity”

2.3.1 Principle of Documentation

18 Vohrah & Wu Min Aun, The Commercial Law of Malaysia, 2nd edn (2007), Pearson Malaysia Sdn. Bhd. 19 [1982] 1 MLJ 97

a) Contracts required to be made orally

Where a contract is made orally only, the ascertainment of its terms is

a mere question of fact as to what the parties said. For construction contract,

quite a number of the subcontracts are still made orally, notwithstanding that

millions of ringgits are in issue. Such cases give rise to heated disputes as to

what the express terms of the contracts are. It may well be noted that the

resolution of these disputes normally takes place some years after the

incident of contract and perhaps with some of the personnel involved having

already left the picture. This is what happened in Limited Choice

Construction Company Limited v Dillingham Construction (HK) Limited

[1991].

“In this case, dispute arose between the main contractor and the

subcontractor in relation to an expansion project for the Hong Kong

International School, where it was alleged that the provisions of the

main contract were expressly agreed to be binding on the

subcontractor and payment to the subcontractor would be upon

receipt of payment by the main contractor from the employer. As one

of the persons involved in the subcontract had left the main

contractor, the court had to deal with the matters relying on what it

was alleged that he said or agreed, without actually hearing from

him. In the circumstances, the court held that no such express terms

had been incorporated into the contract.”

b) Contracts required to be in writing

Apart from those contracts requiring being by deed, some contracts

are required to be set out in order to be enforceable. Where a contract is, or

appear to be, reduced in writing, the court will not normally look beyond the

writing to determine what the express terms are. Neither of the parties is

allowed to put forward extrinsic evidence, which means that the evidence

external to the document such as what was said or intended at the time of the

contract, to vary or qualify the written document. This rule is known as the

parol evidence rule.

In Consort Engineering Co Ltd v Leung Wai Ying alias Tommy

Leung t/a Kin Ming Company [2002] (unrep, DCCJ 11356 of 2001, Judge

HC Wong), in respect of a written subcontractor between a main contractor

and an electrical works contractor, a statement made to the main contractor

after the signing of the subcontract that low voltage work would not be

included was found to be extrinsic evidence and, as such, could not be

accepted as part of the subcontract.

2.3.2 The Requirement of Writing

The Statute of Frauds provided that “the agreement upon which such

action shall be brought, or some memorandum or note thereof, shall be in writing

and signed by the party to be charged therewith or some other person thereunto

by him lawfully authorized.”

a) Form

The record of the contract need not be made in any particular form so

long as it contains the names of the parties and all material terms of their

agreement. There is no requirement that the agreement should have been

committed to writing for the express purpose of satisfying the relevant

statute. The purpose for which the written statement was made is immaterial

so long as it acknowledges the existence and the terms of the contract.

b) Contents

Whatever forms the writing may take, it must present the court with a

complete record of the material terms of the contract which it is called upon

to enforce. First, it must identify the parties and the subject matter of their

agreement. It is not essential that the parties be actual named, so long as an

adequate description is provided from which they can easily be identified.

Secondly, the document must set out the consideration provided for

the agreement, though this requirement has been statutorily waived in the

case of a contract of guarantee. Finally, it must contain all the remaining

terms of the particular agreement which are considered material by the

parties to it.

c) Joinder of documents

While the terms of the contract shall be in writing, it does not

necessarily in a single document. If the terms are not contained in any one

document, the parties will be allowed to satisfy the statutory requirements by

submitting several documents which will be read together to form a complete

memorandum, provided that there is a reference in one document to the

others.

d) Signature

The written document must be signed either by the party to be

charged or by his duly authorized agent. There is no requirement that it

should be signed by both parties to the action, so that a contract may be

enforceable against one while being unenforceable against the other.

The courts will look hard to see whether in fact there is a contract, by

reference to any oral and written exchanges and the performance of the

obligations as to construction and payment. The best example of this is G

Percy Trentham Ltd v Archital Luxfer Ltd20 where Steyn LJ said:

“The fact that the contract was performed on both sides will often

make it unrealistic to argue that there was no intention to enter into

legal relations. It will often make it difficult to submit that the

contract is void for vagueness or uncertainty. Specifically, the fact

that the transaction is executed makes it easier to imply a term

resolving any uncertainty, or alternatively, it may make it possible to

treat a matter not finalized in negotiations as inessential.”

2.4 Vague or Incomplete Agreement

20 [1993] 2 Lloyds LR 25 at 27

The agreement having been reached on the basis of offer and acceptance,

contractual intention is established and consideration has been given. Then as a

matter of reality, parties tend to continue to negotiate, especially if by conduct they

have started to perform the main terms of the contract. In that case, further

negotiations by the parties would amount to variations to the contract that has been

reached.

In Perry v Suffields21, the court said:

“When once it is shown that there is a complete contract, further

negotiations between the parties cannot, without the consent of both, get

rid of the contract already arrived at.”

Sometimes, whilst the contract is still being negotiated, a party may require the other

party to start to perform before the terms are finalized.

In order to be a binding contract, an agreement must not be unduly vague,

or obviously incomplete. In Scammell v Ouston22, Ouston agreed to buy a van from

Scammell, providing his old lorry in part-exchange and paying the balance ‘on hire-

purchase terms’ over two years. Before the precise nature of those terms could be

negotiated, Scammell decided not to go ahead with the deal, and claimed there was

no contract between the parties. The House of Lords agreed, pointing out that

although the courts aimed to uphold an agreement if there really was one, the terms

used were too vague to signify any true agreement. The phrase ‘hire-purchase

terms’ could be used to describe many different arrangements. Consequently, the

parties could not be said to have made a sufficiently certain agreement to constitute a

contract.

21 [1916] 2 CH 187 22 [1941] 1 AC 251

2.5 Terms and Representations

Although a valid contract has been made, it may still be necessary to

ascertain the exact language and its meaning within the contract, so as to determine

the extent of obligations.23 This may involve dispute as to the exact terms as

expressed or incorporated in the contract. This is a matter of proof. The court may

also get involved to determine the sense that should be attributed to the terms in the

circumstances. This is a matter of interpretation of the contract.

A term of a contract is an expression of a willingness by the parties to agree

to abide by that obligation and breach of it will enable the parties to sue for breach of

contract. As well as the contractual terms laid down by the parties themselves,

called express terms, the courts may find that a contract contains what are called

implied terms which are the terms that are read into a contract because of the facts of

the agreement and the apparent intention of the parties, or the law on specific types

of contract.

According to Upez and Bennett24, the terms of the contract and exemption

clauses are what contain within the agreement. Defects in the agreement will occur

when there is an absence of required formality, misrepresentation, duress and undue

influence, mistake, illegality, and also incapacity.

23 Cheng, Wong, Soo (2004), Construction Law and Practice in Hong Kong, Sweet and Maxwell Asia 24 Upex and Geoffrey Bennett (2004), Davies on Contract 9th edn, Sweet & Maxwell Limited, p. 1

Not every statement made by the parties in the course of negotiation

leading to the contract is a term of the contract. Those statements which have been

incorporated into the contract become terms while others remain as representations.

Those that are terms become contractually binding.

The importance of the distinction between terms and misrepresentations

lies in the remedies available for their breach. Under normal circumstances, if a

statement is untrue the remedy is that of rescission, that is to say, the innocent party

may rescind the contract and treat it as if it has never existed. There is no right to

claim damages although in limited circumstances, such as where fraud is involved in

the misrepresentation, the representee may have a remedy outside contract law as a

claim for damages in tort. In contrast, if a statement is a term of the contract,

damages may be claimed and there may also be the right to terminate the

performance of the contract25.

Where the parties put their eventual contract in writing, any statement that

appears in the written contract will usually be regarded as a term. Any statement

made before the written contract but not included in it is likely to be regarded as

representation, on the grounds that if the parties draw up a written contract which

leaves out an earlier statement, it is likely that they did not regard that statement as

an important one26.

Written terms can be incorporated into a contract in three ways. There are

by signature, by reasonable notice and also by a previous course of dealing. Where

25 Vohrah and Wu Min Aun(2000), The Commercial Law of Malaysia, Pearson Malaysia Sdn. Bhd. p. 70 – p. 73 26 Elliott & Quinn, Contract Law 6th edn (2007), Pearson Education Limited

the parties enter into a written contract after one party has made oral assurance, there

are at least three possibilities as to the status of those oral statement.

a) The contract may be contained exclusively in the written document, with the oral

statements being merely representations

b) The contract may be partly written and partly oral

c) There may be two contracts, the main written one and a collateral one based on

oral statements

The terms of a contract may be contained in more than one document. The

parties may purport to incorporate one document in another by express reference.

For example, this may occur where there is a clause in the conditions of contract

incorporating the terms in the bills of quantities into a construction contract. In this

regard, the general rule is that the terms of a contract must be brought to the attention

of the other party before the contract is formed.

As in Olley v Marlborough Court Ltd27, a notice on the wall of a hotel

room seeking to absolve the hotel from liability for theft was ineffective, as the

contract was made at the reception desk before entering the room. Yet, where the

contract was in writing, a failure to actual read its terms and conditions did not, in

itself, make those terms and conditions inapplicable.

2.6 Conditions and Warranties

27 [1949] 1 KB 532

Terms of a contract may be variously classified such as that between

express and implied terms. Another classification is that between conditions and

warranties, and more recently, a third group called ‘intermediate’ or ‘innominate’

term has emerged. The terms ‘condition’ can be confusing because in the ordinary

use of the word, it may be used to describe any one of the following:

a) The occurrence or non-occurrence of an uncertain event which has been agreed

by the parties to have a particular result.

b) Used rather loosely to describe any term of a contract.

c) An important term of a contract the breach of which gives rise to the right to

terminate the further performance of the contract. In this sense, a condition may

be distinguished from a warranty which is also a term of a contract but its breach

would give rise only to a right to damages and not a right to terminate the further

performance of the contract.

Whether a term is a condition or a warranty really depends on the intention

of the parties. Labeling a particular term a condition or a warranty is not conclusive.

Much depends in each case on the construction of the contract, irrespective of the

names the parties have given to the stipulation. A stipulation may be condition

though called a warranty. It is not uncommon to find the word condition routinely

employed to describe both essential and not so essential terms. Conversely, the word

warranty has also been used to convey the essential nature of the terms.

Section 12 of the Sale of Goods Act gives both terms a definite meaning. Subsection

(2) states that:

A condition is a stipulation essential to the main purpose of the contract,

the breach of which gives rise to a right to treat the contract as

repudiated

In contrast, subsection (3) states,

A warranty is a stipulation collateral to the main purpose of the contract,

the breach of which gives rise to a claim for damages but not a right to

reject the goods and treat the contract as repudiated

A term which is clearly an important one, in the sense that a breach of it

would have very significant consequences for the innocent party, will usually be

regarded by the courts as a condition. Where a condition is breached, the innocent

party is entitled to regard the contract as repudiated, and so need not render any

further performance, and can also sue for damages. If a warranty is breached the

innocent party can sue for damages, but is not entitled to terminate the contract.

2.7 Non-Standard Forms and Standard Forms

2.7.1 Non-Standard Forms

Terms may acquire non-standard or technical meanings in certain industries

or trades. For these technical term or terms or trade, the court will give effect to

their technical, trade or customary meaning if the circumstances indicate that the

parties intended to use the technical meaning of the terms. In Produce Brokers Co

Ltd v Olympia Oil & Cake Co Ltd28, the House of Lords considered the situation

28 [1916] 1 AC 314

where such custom in the trade was not inconsistent with the terms of the contract. In

his judgement, Lord Atkinson said:

“The language expressing a trade custom is taken to be imported into the

language used by the contracting parties, whether written or verbal,

because it is presumed that they had the usage in their minds when they

made their contract, made it in reference to that usage, and intended that

the usage or custom should form part of it. If they have used language in

their contract inconsistent with the custom, that is one of the most

effectual ways of negativing this presumption, excluding the custom, and

declaring that their contract is unaffected by it.”

The contracts not prepared by lawyers or other likewise professionals, the

parties may have meant by using the words something different from the term of art

meaning29. Non-Standard Forms of contract are not to be recommended. They

create doubt and uncertainty in the minds of the contracting parties, and prevent

those operating the procedures from drawing upon previous experience.

2.7.2 Standard Forms

Nigel and others30 mentioned that the construction industries is generally

divided between the client’s side and the contractor’s side in terms of structure, and

between pre-contract and post-contract in terms of focus of responsibility. They

have different and even opposing commercial objectives. The interfaces between the

29 Cheng, Wong & Soo, Construction Law and Practice in Hong Kong (2004), Sweet & Maxwell Asia 30 Nigel M. Robinson, Anthony P. Lavers, George Tan Keok Heng & Raymond Chan (1996), Construction Law in Singapore and Malaysia 2nd edn, Butterworths Asia

client and his consultants and his builders are inevitably difficult and potentially

fractious. The professional providers of construction services do not need to be

further motivated if they know clearly what is required of them.

Technical requirements can only be communicated in words and in

pictures, and it is generally conceded that both of these modes are needed if adequate

definition is to be achieved. The most common standard form of contracts for

construction that are used in Malaysia is governed within the following authority and

professional bodies:

a) Institution of Architect Malaysia (Pertubuhan Arkitek Malaysia – PAM)

b) Institution of Engineering Malaysia (IEM)

c) Construction Industry Development Board (CIDB)

d) PUTRAJAYA

The authority and professional bodies various types of standard form of

contracts for construction were produced as follows:

a) Government Projects

• JKR 203 A with Bills of Quantities

• JKR 203 with Drawings and Specifications

• JKR N for Nominated Subcontractor

• JKR P for Nominated Supplier

• PWD Form DB/T (2000Edn) for Design and Built or Turnkey project

• PUTRAJAYA Form of Contract for general construction

b) Private Building Construction

• PAM 2006 with Bills of Quantities

• PAM 2006 without Bills of Quantities

• PAM 2006 Nominated Subcontractor Form

• CIDB Standard Form of Contract for Building Works (2000Edn)

c) Private Engineering Construction

• IEM.CE 1/89 Form for Civil Engineering Works

• IEM.ME 1/94 Form for Mechanical and Electrical Works

• IEM.CES 1/90 Form for Subcontractor for Civil Engineering Works

2.7.3 Standardization

Standardization is very important. Those whose work it is to draw up

contracts must understand what the contracting parties have always understood. It

means that the standardization in communications is a key factor in reliability. In

construction, while faced with problems of great complexity, have perhaps the

greatest opportunity to exploit the benefits of standardization.

2.7.4 Sources of Standard Forms

Standard Forms are generally written or commissioned by government

agencies for use on the contracts that they sponsor, or by professional institution

which takes it upon itself to represent its private sector clientele by producing one

for adoption by its member practitioners. The Malaysian government does so

through the Public Works Departments and through various statutory boards that has

developed forms to meet their specific requirement. The private sector is

represented (following the early UK Royal Institute of British Architects (RIBA)

model) by the architects, Pertubuhan Arkitek Malaysia (PAM) together with the

Institution of Surveyors Malaysia (ISM).

2.7.5 Use and Content of Standard Forms

The main purpose of the Standard Form is to regulate the construction

between the parties involved. It stated the rights and liability of the parties. Nigel

and others (1996), describe the use and content of Standard Forms are as follows:

a) To define the work to be executed by the contractor

b) To define the sum to be paid as consideration, or the formula by which that sum

may be determine

c) In as much as the terms and conditions which would otherwise be implied in the

agreement by operation of law are considered inadequately detailed or wrongly

biased, to modify such terms and conditions

d) In as much as the contract might otherwise be construed as one of strict entirety,

to modify the consequences of its entirety

e) In as much as the contractual relationships are governed by statute, to attempt to

ameliorate the effects of such statutes

f) To impose such further specific conditions and procedures as may be deemed

desirable including those relating to the settlement of disputes

g) To identify the officers of the contract and their roles and responsibilities

2.7.6 Advantages of Standard Forms

Construction Law in Singapore and Malaysia has stated the advantages of standard

forms are as follows:

a) They were originally drafted by experts

b) If successful, they enjoy a long life during which they are revised periodically to

close the loopholes that are inevitably exposed in litigated disputes, and thus they

become increasingly reliable

c) Similarly, over their life-span, they accumulate a body of case law which

provides authoritative interpretation and explanation of their detailed provision

d) They become familiar to practitioners, so that they may be used to advantage and

known pitfalls avoided: their terminology gradually becomes part of the

everyday language of the industry and tents to shape attitudes and relationships

towards a readily recognizable pattern

e) They provide a basis for academic study and analysis leading to better

understanding by way of a body of textbooks and discussion articles in

professional journals.

2.8 Chapter’s Conclusion

Standard Forms of Contract Documents are widely used in the construction

industry. The use of a Standard Form serves many functions. It is clear record of the

business deal and avoids confusion. It also a plan for allocating risks and providing for

contingencies, act as a manual of management procedures and as a tool for dispute

resolution. Standard Forms is a benchmark standard for the industry.

In using Standard Forms, one thing to keep in mind is that a construction contract

is often drawn up by the engineer, architect or surveyor from traditional, often

inconsistent and sometimes mutually destructive stipulations and provisions of various

kinds that have been consolidated for years or been put forward brand-new, with a view

to producing various legal results. When put into practice, the problems with Standard

Forms of contracts are further escalated by the incorporation, or simply pulling together,

or other provisions into a contract, whether derived from in-house practice or from the

last similar project, without an overview of the legal implications. This obviously runs

more risk of producing a poorly drafted contract, which fails to accurately achieve the

desired legal effects or to provide sufficient contingencies against the inherent

uncertainty in construction works. Yet, once a contract is entered into, the potential

problems for both parties are locked in. The damage is done. It is only a matter of time,

as to when and how it surfaces.

In Mitsui Construction Co Ltd v Attorney General31, the contract for the

construction of a tunnel, modified from sstandard documents, was remarked by the Privy

Council as obviously a bad drafted contract and it was held, even so, the court would

revert to the fundamental rule of construction of contractual documents that the intention

of the parties was so be ascertained from the language thay had used, interpreted in light

of the relevant factual situation in which the contract was made.

31 [1987] HKLR 1076

CHAPTER 3

CONTRACT DOCUMENT

3.0 Introduction

Basically, Contract Document is an important document in construction

project. This is because, the Contract Document is an agreement between the parties

involved in the project. Each Standard Forms have defined Contract Document in its

own definition. The similarity of these Standard Forms is they have been stated or

listed all documents that should be included in the Contract Document. But, P.W.D.

Form 203A (Rev 2007) have not expressly stated Condition of Contract as one

document that should be in the Contract Document.

The Condition of Contract is very important in order to describe or explain

the rights and liability of each party involve in the construction project and also as

one of the tools to manage any dispute that will arise.

With the absence of the Condition of Contract in the Contract Document,

the completeness of the Contract Document or the contract itself is being

questionable. This chapter will give clear understanding about Contract Document

and also the contractual obligation in the absence of the Condition of Contract.

3.1 Contract Document

Generally, Contract Document means the set of documents that form a part

of the legal contract for services between two or more parties. These typically

include detailed instructions to the contractor, tender forms, construction documents

and specifications. Contract Documents is also a term used to represent all executed

agreements between the owner and contractor; any general, supplementary, or other

contract conditions; the drawings and specifications; all addenda issued prior to

execution of the contract; and any other items specifically stipulated as being

included in the contract documents32. Contract Document can be in three manners to

explain the works to be done. There are by graphic, in numbers and also in writing.

Basically, by graphic refer to the drawings. The drawings will describe the shape,

types and also requirement of the construction works. In numbers is normally

referred to the amount of payment. Written form is basically the specification and

also the Condition of Contract.

Construction contract document is a compendium of articles for

construction agreement that contain related items to erection and fabrication of a

project33. Construction contract document initially was a Tender Document prepared

by a Quantity Surveyor for the purpose of prizing and selection of contractor bidding

for a project. Once the contractor is selected and the tender document is accepted.

The tender document is then converted to a binding agreement to become a

construction contract document between the client and the contractor to build and

complete the construction project.

A more versatile well known definition of Contract Document by Professor

Vincent Power Smith (1989) is:

“A document is anything on which marks have been made with the

intention of communicating information. Such things as writing, printing,

32 McDermott P et al (1999), Procurement Systems : A Guide to Best Practice in Construction, E&FN Spon, London 33 Rowlinson S & McDermott P (2006), Procurement Systems : A Guide to Best Practice in Construction, R&FN Spon London UK

transcripts, drawing, and photographs are documents. Many standard

forms of contracts define what are to be contract documents.”

Azizan bin Supardi34 also said that the Contract Document should include

the following document:

a) Articles of Agreement

Article of Agreement is clauses or rules in a document. It record in

general terms matters that the parties have agreed to do. For example;

• For the consideration hereinafter mentioned the Contractor will upon the

subject to the Contract Documents carry out and completes the Works as

shown upon and described by or referred to in those Documents.

b) Condition of Contract

Condition of Contract is detailed clauses that follow on the Articles of

Agreement. The purposes of Condition of Contract are;

• To amplify and explain further the duties of the parties

• To set out the conditions and procedures

• Example: Extension of Time

34 Azizan bin Supardi (2008), Malaysian Construction Contract (Law and Management), Department of Quantity Surveying UiTM, p. 240, 241, and 242.

• To provide the administrative mechanism

• Example: Architect’s instruction, Certificates

c) Appendices

Appendices record important particulars of the contract. The purpose is

to enable the standard form to be used in a variety of situations despite of the

differences in the facts of each contract;

• Dates for commencement and completion

• Amount of LAD

• Percentage of retention fund

• Period of honouring certificates

d) Specifications

A specification is a document that defines materials and goods to be used,

the standard of workmanship, method of working and the conditions for

execution of their execution. It determines the method of construction, quality of

finishes and workmanship. Their functions are similar to bills of quantity. Most

projects require either specifications or bills of quantity and not both.

e) Bills of Quantities

Define the whole of the contractor’s obligations for quality and quantity

of works. They are prepared in accordance with standard method of

measurement. Bills of Quantities form the basis for the contractor’s estimates of

the tender price.

f) Drawings

Types of drawings; architectural, isometric, scheme design, engineering,

working or detailed drawings. These drawings are prepared in stages as the

construction progresses for various purposes:

• Presentation of designer’s idea and creativity

• Instructions to contractor

• Basic for extracting information regarding materials, methods of working

• Set out the contractor’s scope of work

• Record the contractor’s work

g) Tender Form

Tender Form consist the title of the project, name of the contractor, name

of the client and other details about the construction project.

h) Letter of Acceptance

Letter of Acceptance is a written communication by a successful

contractor formally accepting the offered contract. It normally confirms the

details of the client’s offer including the cost of the project, title of the project,

date of possession and completion of the project, defect liability period and also

the amount of liquidated damages.

i) Schedule of Rates

Schedule of rates is a table of information about the standard rates used

for the project. It list out the rates for the labour and also the plants and

machineries.

j) Treasury Instructions

This is for JKR or Government contracts only. Treasury issues

instruction from time to time. Normally, these instructions are not immediately

enforceable against contracts created prior to their issuance. The term in JKR

contracts causes these instructions to be immediately enforceable as and when

they are issued.

k) Schedule

Tables of information that summaries the quantities and dimensions of

generic items such as: windows or ironmongery. It will be useful information for

various functions by getting quotations and placing orders.

3.2 Purpose and Functions of the Contract Documents

The perception that the cardinal motivation for contract documentation

being the satisfaction of the prevailing legal requirements of a particular jurisdiction.

The fact remains that there a host of other peripheral but equally important purposed

and served in finalizing such documents35. Therefore the purpose and function of

the documents are as follows:

a) The contract documents serve as the primary evidence of the agreements

extended by the parties and the ensuring legal relationships between these

parties

b) The contract documents expressed in an express manner the terms and

conditions of the agreement reached by the parties to the contract. It means,

the employer, contractor and other third parties involved. For example,

statutory authorities.

c) The document defined the scope and details of the work to be undertaken by

the contractor in accordance with the agreements

d) They define the sum of money to be paid by the employer to the contractor in

accordance with the agreements

e) The documents identify the officers of the contract and defines their roles and

responsibility

f) The contract documents circumscribe the administrative procedures necessary

to the fulfillment of the legal relationship between the parties

Hence, it should be appreciated that the Contract Documents perform

various functions from the legal (evidential) facets at one aspect at the other hand of

the spectrum. Recognition of these functions or purposes is that contract

documentation is a merely mechanical process to satisfy the requirement of the law.

35 Harban, K S (2002), Engineering and Construction Contract Management, Commencement and Administration, Lexis Nexis, Singapore

3.3 Contractual Obligation in the Absence of Condition of Contract in Contract

Document

Lord Browne Wilkinson has said in Linden Gardens Trust Ltd v Lenesta Sludge

Disposal Ltd36:

“Building contract are pregnant with disputes. Some employers are much

more reasonable than others in dealing with such disputes. The disputes

frequently arise in the context of the contractor suing for the price and

being met by a claim for abatement of the price or cross-claims founded

on an allegation that the performance of the contract has been

defective…..”

There would be fewer disputes and less disappointment in the construction

industry if all parties to construction contracts clearly understood their obligations

and were fully aware of their obligations, rights, and privileges. These are to be

found primarily in the Contract Documents. The term Contract Document is

uniformly used in all Standard Form agreements to designate the group of

documents that comprise the construction contract between the owner and

contractor. The contract represents the entire and integrated agreement between the

parties.

There are two basic warranties which are either expressly or impliedly

given by each of the parties. The contractor’s warranty is that they will carry out and

complete the works shown on the contract drawings and described in any

36 [1994] 1 AC 85

specification or bills of quantities. The employer’s warranty is that it will provide

the contractor with the information needed in order to construct the works. In

P.W.D. Form 203A (Rev 2007), the obligation of the contractor is stated in clause

10.1. The contractor will have no problem if this clause is not provided because they

have already known their obligation as contractor, which is to complete the works.

But, this clause will express clearly their obligation as contractor more than only

complete the works. Without this provision clause, the contractor will not know

their obligations and responsibilities under the contract as a whole.

When making claims against the other, owners and contractors often will

attempt to enforce the provisions of conversations and inferences of actions.

Similarly, architects will often search the documents seeking authority to compel the

owner or contractor to perform some duty. However, only those documents and

promises, that have been reduced to writing and incorporated into the contract, can

be relied upon as being legally enforceable. Without the provision clause in

Condition of Contract, claims are difficult to make because the promises without any

written contract will not be legally enforceable. This is due to the fact that promises

that made by orally can easily be denied by the fault party.

Some forms will prohibit the sub-letting of any work. Today, most work is

done by sub-contractors. The obligations of the contractor are vicariously performed

by sub-contractors. However, the contractor could, unless there is a prohibition,

assign to another parties the benefit of the contract. That will usually be done by the

assignment of the right to receive the contract sum and interim payments under the

sub-contractor. If there is no Condition of Contract, the sub-contractor will not

know their rights and responsibility to the contractor and the employer in sub-letting

or assignment of the construction project. Clause 47 in P.W.D. Form 203A (Rev

2007) have stated that the contractor cannot let the sub-contractor to do the works

without the consent of the S.O. If this clause is not read, the contractor might let the

whole work to be done by the sub-contractor without the consent by the S.O.

The specification or bills of quantity and drawings will provide

identification of the materials and workmanship which is to be provided. This is

usually an express term that the work shall be carried out in accordance with the

Contract Documents. This can be done by normal inspection by a clerk of works.

Hence, there is also a provision that the contract professional may order the work to

be opened up for checking. This might involve the uncovering of executed works

and also include the taking of samples. The clauses will state that if the works

inspected or tested is not in accordance with the contract, the testing is at the

contractor’s cost. Without the clause, the parties will not know the level of quality

that the contractor should achieved.

In Condition of Contract, there will be a provision that the contractor will

comply with instructions given by the S.O. Such instructions are normally required

to be given or confirmed in writing. This is to avoid confusion and ensure that each

party knows exactly what the other is supposed to do. This also is to ensure that if

there is ambiguity, S.O. will issue instruction. In the absence of the Condition of

Contract, the S.O. will not know their scope limit in issuing the instruction. The

contractor also will be confuse, whether to obey all the S.O.’s instruction or only

written instruction should be obeyed.

The contractor will be expressly required to comply with all statutes and

statutory instruments. In construction contracts, the most important ones are the

Building Regulations. Standard Forms have developed based on the Building

Regulations. If the construction work is not based on the Condition of Contract, the

contractor would be in danger of being held liable to the employer in the event of the

design defective in that the foundations were inadequate or the walls were not a

sufficient barrier to moisture. In the event of discrepancy between the design and the

Building Regulations, then the contractor should give the S.O. notice and the S.O.

must issue instructions to the contractor remedying the divergence thus ensuring the

compliance of the structure. This is the procedure contain in the Condition of

Contract.

Condition of Contract provides a clause for the payment of loss and

expense in the event of certain specified defaults of the employer or the employer’s

agents or the contractors. Other than the specified event, the claim for loss and

expense will be difficult to make. If this Condition of Contract is not compiled

together with Contract Document, the parties will not know their right in claiming

the loss and expense.

Condition of Contract will make the provision for insurance. The insurance

is related to the works, injury to people and also damage to property. Insurance of

works and the risk in the works provided for in the contract as those to be insured

against. Without the Condition of Contract, there are some issues raised such as who

will insure the project and who will bear the premium cost.

These are some of the problems which are related to the contractual

obligation in the absence of the Condition of Contract.

3.4 Chapter’s Conclusion

A Contract Documents is a term used to represent all executed agreements

between the owner and contractor. Any general, supplementary, or other contract

conditions, the drawings and specifications, all addenda issued prior to execution of

the contract, and any other items specifically stipulated as being included in the

Contract Documents. It is important to ensure that all the documents needed are

compiling together in the Contract Document to avoid any dispute.

In the event that Condition of Contract is not compiling together in the

Contract Document, it is still being question the completeness of the Contract

Document. This is because Condition of Contract is very important to express the

responsibility and obligation of the contracting parties. This chapter have been

discussed the contractual obligation in the absence of Condition of Contract in the

Contract Document.

CHAPTER 4


4.0 Introduction

Chapter 3 discussed the importance of Condition of Contract in a Contract

Document based on the principles of Law of Contract. It suggested that the

Condition of Contract to be compiling together with construction Contract

Document to make sure that the contracting parties know the existence of the

Condition of Contract. This is important for the contracting parties to understood

and aware of their obligations, rights, and privileges.

This chapter looks into the several case laws in order to establish the status

and the importance of Condition of Contract in a construction Contract Document.

This chapter also considers the expert opinion of several lawyers and professionals

on the subject matters.

Each court cases were retrieved from lexis nexis website. The terms used

for searching the court cases are “terms and conditions of construction contract”.

There are 100 court cases listed. Only five court cases that relate to the incomplete

document, incomplete terms and conditions and also ambiguous terms and condition.

These five court cases are being synthesized to get a conclusion to answer the

problem statement for this research.

4.1 Court Case 1

CHENG HANG GUAN & ORS V PERUMAHAN FARLIM (PENANG)

SDN BHD & ORS [1993] 3 MLJ 352

In this case, the plaintiffs’ family had been staying on part of holding

Nos 3632 and 2497, Mukim 13, NED, Penang. They have been staying there

for more than 100 years. The place were situated their dwelling houses, No

258K and No 259H respectively, and their vegetable farm. The registered

proprietor of holding No 3532 were and are trustees of the Khoo Kongsi.

Plaintiff 2’s grandfather’s (Cheong’s) family had converted what was once

swampy jungle land into a productive farm. On Cheong’s death, plaintiff 2

took over management of the farm, which was worked on by the family

members. House No 258K had been on the plot concerned before December

1938 and, in 1972, plaintiff 1 and plaintiff 2 were registered as tenants in place

of Cheong. House No 259H was built by Cheong in 1963 with the consent of

the Khoo Kongsi and registered in the name of plaintiff 2. After Cheong’s

death, plaintiff 2 spent RM1,500 in providing a ceiling for the house. No

conditions were printed on the rent receipts issued to Cheong and plaintiff 2

until late 1981. Conditions, which were in English, were endorsed on receipts

for the farm after 1976 and for the two dwelling houses in 1981. The plaintiffs

were illiterate farmers and could not understand these conditions which

included a condition that a period of one month’s notice would be sufficient to

terminate the tenancy. Sometime in 1972, plaintiff 2 was informed by the

visiting trustee of the Khoo Kongsi that it was not necessary to change the

tenancy into her name and that she could continue planting vegetables as long

as she wished provided she paid rent.

The issue arises here relating to the terms and conditions are when the

conditions were in English, which the plaintiffs, who were illiterate farmers,

did not understand the content of the contract. So, it would be wrong to infer

that the plaintiffs had, by conduct, accepted them as such. Accordingly, it was

said that there was no material upon which it could be said that the plaintiffs

had, by their conduct, accepted the conditions. The judge has said that;

“A receipt is in law only evidence of the payment of a sum of money. It

does not constitute a contract nor can it have the effect of an estoppel.

The true intention of the parties must be established by evidence at the

trial. There was no evidence that the conditions appearing in the rent

receipts in respect of the farm or the two dwelling houses had been

introduced from the inception of the tenancies nor was there anything to

show that the plaintiffs, who had no knowledge of the English language,

could be said to have accepted the ‘conditions’. The onus of proving that

the conditions on the receipt had contractual force was upon the

defendants who were relying on the same and not upon the plaintiffs to

prove the converse. No adverse inference could therefore be drawn

against the plaintiffs for this omission. That the plaintiffs themselves had

used the rent receipts bearing the conditions aforesaid as evidence does

not in any way debar them from contending at the final hearing that those

conditions were invalid in law. The conditions appearing in the rent

receipts were devoid of legal effect and must be disregarded in

considering the question of the sufficiency of the notice to quit”

This statement states that the receipt, which is the evidence of payment

showed the conditions of rent. When the plaintiff did not understand English

language, he knew nothing about the conditions appeared on the receipt. In law, the

receipt is only the evidence of payment. It cannot be a contract. The intention of the

parties is the most important in constitute a contract. In this case, when the plaintiff

did not understand the language used to describe the condition, it means that he

knew nothing about the condition. The plaintiff does not have any intention towards

the conditions stated in the receipt. As such, it could not be saying that the plaintiff

had accepted the conditions.

This is supported by the practicing lawyer, by saying that, the terms and

conditions is important in a contract. It must be clear and unambiguous which also

means that the parties involves must understand clearly all the terms and conditions.

In the event, the terms and conditions is not clear, the intention of the parties will

take into account. Is there any intention by the parties to the contract? This is the

first question should be asked when the terms and conditions is not clear and

unambiguous. For this court case, the plaintiff has no intention at all to the contract

because he knew nothing about the appearance of the conditions on the receipt. The

contract is not complete without intention of the parties and it is not valid. Hence,

with the absence of Condition of Contract from Contract Document, but the parties

involved are aware and agree about the conditions of the contract, the Contract

Document is complete and the contact is valid. As such, there must be written terms

and conditions which is perfectly written and must be clear and unambiguous.

4.2 Court Case 2

KAM MAH THEATRE SDN. BHD. V TAN LAY SOON [1994] 1 MLJ 108

In this case, the respondent claimed to have entered into a binding

agreement with the appellant for the sale of certain lands, relying on a letter (‘the

said document’) addressed from the appellant, as vendor, to the respondent, as

purchaser. The terms of the said document contained a proviso, namely, “that

the sale and purchase agreement shall incorporate all terms and conditions

herein and other usual terms and conditions and shall be signed on or before 18

March 1989”. Sale and purchase agreement was prepared and signed by the

respondent only, which contains two more provision. These two more provision

is not agreed by the appellant. The trial judge found that there was a binding and

concluded agreement and ordered specific performance. The appellants then

appealed to the Supreme Court. The Supreme Court held that;

“The words ‘usual terms and conditions’ failed to reveal certainty and

were too ambiguous. What would be the usual terms and conditions

remained largely a matter of conjecture, thus the words would create

uncertainty unless a contract containing these agreed ‘usual terms and

conditions’ had been signed by the parties.”

This Supreme Court judge have said that the word used to describe the

terms and conditions of contract must be certain and unambiguous. If the terms

and conditions are not certain, it will give other interpretation to the other parties.

The issue arise here is only one party signed the contract because the other party

does not agree to the ambiguous terms used. There is no intention from one

party and also no acceptance is made in this contract. However, if all the parties

agreed with the terms and conditions used, the contract can be then executed.

This court case show that, even though the Condition of Contract is not

include in the Contract Document, but the contracting parties agree with the clear

terms and conditions used and they have the intention towards the contract, the

Contract Document is still complete. The contract is also valid.

4.3 Court Case 3

LIVERPOOL CITY COUNCIL V IRWIN [1977] AC 239

In this case, the Liverpool City Council “(LCC)” owned a large block

of flats and they brought action against some tenants for possession for non

payment of rent. The tenants claimed that the LCC was in breach of its duty to

repair and maintain. The condition of the flats deteriorated. There were defects

in the stairs and lifts and internal rubbish chutes became blocked. There was no

formal lease to govern the arrangement, just a document called “conditions of

tenancy” which was signed by the tenants, but not the LCC. This document

listed the duties of the tenants but said nothing about the duties of the LCC.

Here, the court is trying to establish what the contract is where the contracting

parties have not stated it.

Presumably there must be implied a letting of the premises with a right

of exclusive possession and a covenant of quiet enjoyment. With this lease it is

useless unless there is an access to the common staircase and given the height of

the block a lift service and the right to use the rubbish chutes. There must be

implied easements to use the stairs, lifts and chutes. The LCC argues that such

easement brings with it only the obligations under the Occupiers Liability Act

1957 - the safety of those using the facilities and liability in tort. The alternative

is for some easement with some maintenance obligation. It is not difficult to

define the test to be applied. There is no more than the nature of the contract

requires. The matter is one of necessity. These facilities are essential to life in

the dwellings.

This case was a case dealing with whether there was an implied term

that common parts and services of a house of a block of flats would be

maintained by the LCC at its expense. The House of Lords held that there was

an implied term. Lord Salmon gave the most pungent statement about the

criterion for implication in the following terms;

“Can a pregnant woman accompanied by a young child be expected to

walk up 15, or for that matter nine storeys in the pitch dark to reach her

home? Unless the law, in circumstances such as these, imposes an

obligation upon the council at least to use reasonable care to keep the

lifts working properly and the staircase lit, the whole transaction

becomes inefficacious, futile and absurd. I cannot go so far as Lord

Denning M.R. and hold that the courts have any power to imply a term

into a contract merely because it seems reasonable to do so. Indeed, I

think that such a proposition is contrary to all authority. To say, as Lord

Reid, said in Young & Marten Ltd. v McManus Childs Ltd. [1969] 1

A.C. 454,465, that ‘…… no warranty ought to be implied in a contract

unless it is in all the circumstances reasonable ‘ is, in my view, quite

different from saying that any warranty or term which is, in all the

circumstances, reasonable ought to be implied in a contract. I am

confident that Lord Reid meant no more than that unless a warranty or

term is in all the circumstances reasonable there can be no question of

implying it into a contract, but before it is implied much else besides is

necessary, for example that without it the contract would be inefficacious,

futile and absurd.”

It was an implied term of a lease of a maisonette in a flat block that the

LCC should take reasonable care to keep the common parts of the block in a

reasonable state of repair. The implication arose because the nature of the

relationship made it desirable to place some obligation on the LCC as to the

maintenance of the common parts of the premises. It amounted to the imposition

of a legal duty, in spite of the fact that no term could be implied in fact.

However, on the facts there had been no breach of the obligation.

This case arises because there is no formal lease to govern the

arrangement that listed the duties of the tenants and LCC. The duties of the

contracting parties must be written very clearly. It shows the importance of

Condition of Contract.

This is same as the issue arises in this research. The Condition of

Contract is not expressly stated in the definition of Contract Document under

P.W.D 203A (rev 2007). As such, it may become not clear about the existence

of the Condition of Contract in the Contract Document in the eye of contractor.

It must be clearly stated for the parties involved knew the existence and the

relationship between Condition of Contract and the Contract Document and the

parties will be well known the terms and conditions of the contract. Even though

the Condition of Contract is not stated as part of the Contract Documents, it does

not make the Contract Document to be incomplete and invalid. The contract is

still binding. The Contract Document also still complete with the absence of

Condition of Contract under P.W.D 203A (rev 2007).

This is due to the fact that, when the contractor enter into a contract

under P.W.D 203A (rev2007), the contract is between the contractor and the

government. The government’s term and condition is only what have been stated

in the P.W.D 203A (rev 2007), and are considered thoroughly cover the interest

of both parties; the government and the main contractor. This is due to the fact

that the government also particular on the status of the project to avoid any

distractions, complications and disruption that may delay the project and

indirectly ruin the public interest. If that happen, it will tarnish the image of the

government. That is the different to that of the above LCC v Irwin [1977] on

their intention on drafting the contract as compared to the P.W.D 203A (rev

2007), that is not only cover the interest of the government, but also the main-

contractor, as well as the public interest. Hence, the standard form of P.W.D

203A (rev 2007) is well received by the main-contractor without contention prior

signing the contract.

4.4 Court Case 4

TROLLOPE & COLLS V NORTHWEST METROPOLITAN REGIONAL

HOSPITAL BOARD [1973] 1 WLR 601

This case was a case where the question of an implied term was

considered in relation to the phasing of work and the extension of time provision.

Lord Pearson said;

“The court will not even improve the contract which the parties have

made for themselves, however desirable the improvement might be. The

court’s function is to interpret and apply the contract which the parties

have made for themselves. If the express terms are perfectly clear and

free from ambiguity, there is no choice to be made between different

possible meanings: the clear terms must be applied even if the courts

thinks some other terms would have been more suitable. An unexpressed

term can be implied if and only if the court finds that the parties must

have intended that term to form part of their contract: it is not enough for

the court to find that such a term would have been adopted by the parties

as reasonable men if it had been suggested to them: it must have been a

term that went without saying, a term necessary to give business efficacy

to the contract, a term which, though tacit, formed part of the contract

which the parties made for themselves.”

This case and Liverpool City Council case discussed the same thing in

different ways. The issue is whether the term is necessary. It is not whether the

term is reasonable, but whether it is necessary. If the contract does not work

without the term, then the term will be implied into the contract. If the contract

works without it, then the term will not be implied, no matter how desirable the

implication of the term might be.

The criterion is sometimes stated as the ‘officious bystander’ or ‘of

course’ test. The court will imagine someone, a busybody or an ‘officious

bystander’, overhearing the contract being made and telling them that they have

forgotten a term. He is shushed ‘testily’ and told that ‘of course’ the term the

bystander has mentioned is in the contract.

‘Of course’ is a branch of necessity. If the term is necessary to make

the contract work or to give effect to it, then of course it will be implied into the

contract. However, this officious bystander illustrates the point that the implied

term which ‘of course’ exists in fact fills in a gap in an incomplete contract and

the implication of the term is a matter of implication from an understanding of

what the parties intended.

4.5 Court Case 5

PHOTO PRODUCTION LTD. V SECURICOR TRANSPORT LTD. [1980] AC

827

In this case, the defendant contracted with the plaintiff to provide a

night patrol service at the plaintiff’s factory. An employee of the defendant who

had been satisfactorily employed by them for some three months deliberately

started a small fire in the factory and the fire got out of control and burned down

the factory. Although the starting of the fire was deliberate, it was not intended

to destroy the factory. The contract contained an exemption clause excluding

liability on the defendant for default of any employee of the defendant unless

such default could have been foreseen and avoided by the exercise of due

diligence on the part of the defendant. The exemption also excluded the liability

for any loss suffered through fire or any other cause except being solely

attributable to the negligence of the defendant’s employee acting within the

cause of their employment. The House of Lords held that;

“The exemption clause was effective in excluding the defendant from

liability. This decision was reached having regard of the wording of the

clause and the surrounding circumstances, including the very modest

charge for the service. Thus, whether an exclusion clause is option to

exclude or limit liability is a matter of construction of the contract and,

generally, parties to a contract, when they bargain on equal terms,

should be at liberty to apportion liability in the contract as they see fit.”

The agreement between the defendant and the plaintiff contained an

exclusion clause that absolved the defendant from any liability for ‘injurious act

or default by any employee of the company’. The plaintiff argued that the clause

could not apply under the doctrine of fundamental breach. That is, the breach of

the contract was so huge that it invalided the whole agreement.

At the trial court, Lord Denning found that the doctrine of fundamental

breach did apply. However, at the Court of Appeal, Lord Wilberforce,

overturned Denning and found that the exclusion clause indeed be relied upon.

Lord Wilberforce explicitly rejected Denning’s application of the doctrine of

fundamental breach and opted for a ‘rule of construction’ approach. Exemption

clauses were judged to be interpreted the same as any other term regardless of

whether a breach has occurred and the scope of the exclusion must be determined

by examining the construction of the contract. On the facts, Lord Wilberforce

found that the exclusion clause precluded all liability, even when harm was

caused intentionally.

The above case indicates the importance of the clear and unambiguous

term and condition in the contract. Though was contested and was initialed won

by the plaintiff, who argued that the liability clause be aborted due to huge

losses, however, the appeal court judge was adamant and firm to overturn the

trial court judge whose judgment was initially in favor of the plaintiff. As such,

it is imperative the clauses, terms and conditions in the contract be very clear and

unambiguous and agreed by both parties.

4.6 Interviews

Four legal practitioners and legal advisors have been interviewed to seek their

opinion on the importance of Condition of Contract in the construction Contract

Document. The interview pointed out that although the Condition of Contract is

separated from Contract Document, there is no major implication to the Contract

Document. The Contract Document is still sufficient, and complete. This is because, the

contract under P.W.D 203A (rev2007), the Contract Document and the Condition of

Contract have to be read together and complement to each other.

4.6.1 LEGAL ADVISOR 1

According to legal advisor 1, “The separation of Condition of Contract

from Contract Document was implemented in 2007 in their awareness that both

documents is still legal binding which means it is accepted by law.”

The statement made by legal advisor 1 is supported by the practicing lawyer.


“Although the Condition of Contract is separated, the Condition of

Contract and Contract Document are still link and complementary to each

other.” He added, “Clause 1.1(b), P.W.D 2007 is the linkage clause to both

document.”

“Condition of Contract is very important in the contract. Contract

Document is just the supporting document in the contract.”


“Separated of Condition of Contract from Contract Document can be defined in

two ways;

a) There is Condition of Contract but it is not include together in the

Contract Document

b) There is no Condition of Contract

Whether the Condition of Contract is in the Contract Document or not,

the construction project still can be proceeding, but there will be a risk to the

contracting parties. The interest of the contracting parties will not be protected

without the Condition of Contract since the roles and obligation of the

contracting parties is stated in the Condition of Contract.”


Legal advisor 4 defined P.W.D 203A as a “constitution of contract. The

P.W.D 203A is a contract to bind two parties according to the term and

condition. It is done based on the intention of the parties. The definition of

Contract Document is an elaboration of what has been defined in the Condition

of Contract (P.W.D 203A).”

He added, “In the event Contract Document is not consistent with the

Condition of Contract, Condition of Contract shall prevail. Contract Document

and Condition of Contract shall be read together to form part of the agreement.

The Contract Document is still valid and complete.”

4.7 Conclusion

Based on the study of the cases, it is found that terms and conditions are very

important to spell out the intention and linkage between two parties. The term and

conditions must be clear and not ambiguous so that both parties understand their roles

and responsibilities in undertaking their jobs. It is imperative to grasp the term and

condition so that if any conflict and misunderstanding, the contract will be used as a

reference to settle the differences amicably.

It is agreed by the legal advisor 4, by saying that the terms and conditions is done

based on the intention of both parties which may or may not be included in the contract.

In the event the intention is not elaborate in the contract as per Court Cases no 3, both

parties have to go to court for judge to use implied term to make decision.

CHAPTER 5

CONCLUSIONS AND RECOMMENDATIONS

5.1 Introduction

This chapter summaries and concludes the synthesized court cases and

interviews and also make recommendation based on the conclusion. Prior of that, it

is important to note that the objectives of the research have been achieved.

5.2 Conclusion

Chapter 1 discusses generally about the background of the research.

Basically, Contract Document is very important in construction industry. Each of

the Standard Forms used in Malaysia will define Contract Document on its own

definition. Each of these Standard Forms will list out the documents that should be

including in the Contract Document. The issues of this dissertation arises when

comparison are made among the Standard Forms used in Malaysia. P.W.D. Form

203A (Rev 2007) however, do not mention Condition of Contract as one of the

documents that should be included in the Contract Document.

In Chapter 2, it has been stated that Condition of Contract is a set of rights

and obligations of the contracting parties, when a contract is awarded into. It is a

formal agreement for construction work and very important. It is important because

it states the roles and responsibilities of the parties involved in the construction, the

solution of any discrepancies and conflicts. It also defines the purpose and

reasonable skill and care, variation and their valuation, written and verbal

instructions, damages to works, insurance, health and safety, extension of time, etc.

As discussed before, the Condition of Contract is very crucial to regulate

the construction works. As a result, Chapter 3 discusses the implication of the

contractual obligation in the absence of the Condition of Contract.

In clarifying the objective of this research (to ascertain the importance of

Condition of Contract, as part of construction Contract Document), all the judgment

of the court cases will take into account. Condition of Contract contains the terms

and conditions of the construction contract. The main function of Condition of

Contract is to regulate the construction works because it stated clearly the rights and

obligations of the contracting parties.

The absence of the Condition of Contract will not make the contract to be

invalid, because of the facts that the validity of the contract will be referred to the

essential elements of the contract. The essential elements of contract are offer,

acceptance, intention and also consideration. If the contract has all of these essential

elements of contract, the contract will be valid.

However, in the event that there is no Condition of Contract, the

contracting parties will not have clear understanding on their rights and obligations

especially if the construction work is a massive project, which involved many

parties, many works and also huge amount of money. The parties can easily not

perform the work because there is no terms and conditions saying that they should

do the work. Many of the parties involved can escape from doing work without the

terms and conditions. The parties also can deny their fault of not doing the work

because there is no terms and conditions.

From the court cases, it is important to have clear terms and conditions in a

contract. Terms and conditions should be prepared by the contracting parties. The

court do not involve in creating the terms and conditions. The court will only make

a decision on the obligation of the parties if dispute arise from the terms and

conditions which is not clear or if there is a missing terms. However, when the

terms and conditions in the contract are not clear and ambiguous, the intention of the

contracting parties will take into account. If the parties have the intention towards

the contract, the contract is binding.

Chapter 2 also has listed the requirement of good contract. The

requirements are form, contents, joinder of documents and signature. It stressed that,

written document does not necessarily in a single document. The parties will be

allowed to satisfy the statutory requirements by submitting several documents which

will be read together to form a complete memorandum, provided that there is a

reference in one document to the others.

As such as the P.W.D 203A (rev 2007) is not expressly stated Condition of

Contract as part of the Contract Document, the Contract Document is still complete

because the Contract Document have to be read together with the P.W.D Form 203A

(rev 2007) to form part of the agreement. The P.W.D Form 203A (rev 2007) is a

contract to bind two parties according to the terms and conditions. It is done based

on the intention of the contracting parties. It also is the mother of agreement.

Contract Document is an elaboration of what has been defined in the P.W.D Form

203A (rev 2007). In the event, the Contract Document is not consistent with the

P.W.D Form (rev 2007), the P.W.D Form 203A shall prevail.

5.3 Recommendation

Therefore, it is recommended that:

1. Terms and conditions should be prepared clearly and without any ambiguities to

the contracting parties.

2. The contracting parties should have same understanding about the terms and

conditions to avoid wrong interpretation.

3. Terms and conditions should be prepared according to the work to be done

without any missing terms and conditions.

4. Terms and conditions should be prepared completely and agreed by the

contracting parties before the work started.

5. The terms and conditions should be compiled with all other related documents

pertaining to the work undertaken for completion of legal binding documents.

The terms and conditions shall be included in any of the contract. But,

normally the contracting parties will not read all the terms before they have been

agreed to the terms. The terms only be read when dispute arise and relate to the

obligation of the parties. Therefore, the contracting parties should understand clearly

their obligation before the work started. The contracting parties should prepared and

understand clearly the terms and conditions.

5.4 Limitation of the Research

In completing this research, there is a few limitation occurred. There is no

court case on the absence of Condition of Contract, which include the terms and

conditions. This research is depends on the court case about incomplete terms and

conditions and also terms and conditions which is not clear and ambiguous and

supported by the interviewees which is the practicing lawyers.

REFERENCES

Azizan bin Supardi (2008), Malaysian Construction Contract (Law and Management),

Department of Quantity Surveying UiTM, p. 240, 241, and 242.

Beatrix Vohrah, Wu Min Aun (2000), The Commercial Law of Malaysia, Pearson

Malaysia Sdn. Bhd.

Beatson (2002), Anson’s Law of Contract, 28th edn, Oxford University Press

Contract Act 1950, Sec 2(h)

Elliott & Quinn (2007), Contract Law 6th edn, Pearson Education Limited

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INTERVIEWEE LIST

INTERVIEWEE’S

NAME

ORGANISATION

1. INTERVIEWEE 1 EN. AMRAN MAJID

JKR

2. INTERVIEWEE 2 EN. HAKIM HAKIM & LOKMAN

ASSOCIATES

3. INTERVIEWEE 3 EN. NAJIB NAJIB & CO.

4. INTERVIEWEE 4 EN. FARIDZ FARIDAH FARIDZ &

ASSOCIATES ADVOCATES &

SOLICITORS