CONTRACTOR’S LIABILITIES TOWARDS EMPLOYER’S DEFECTIVE

BUILDING WORK CLAIMS DURING DEFECT LIABILITY PERIOD

LIM TZE SHWAN

UNIVERSITI TEKNOLOGI MALAYSIA

NOTES : * If the thesis is CONFIDENTIAL or RESTRICTED, please attach with the letter from

the organisation with period and reasons for confidentiality or restriction.

PSZ 19:16 (Pind. 1/07)

DECLARATION OF THESIS / UNDERGRADUATE PROJECT PAPER AND COPYRIGHT

Author’s full name : LIM TZE SHWAN

Date of birth : 29 August 1987

Title : CONTRACTOR’S LIABILITIES TOWARDS EMPLOYER’S DEFECTIVE

BUILDING WORK CLAIMS DURING DEFECT LIABILITY PERIOD

Academic Session: 2010/2011/3

I declare that this thesis is classified as :

I acknowledged that Universiti Teknologi Malaysia reserves the right as follows :

1. The thesis is the property of Universiti Teknologi Malaysia.

2. The Library of Universiti Teknologi Malaysia has the right to make copies for the

purpose of research only.

3. The Library has the right to make copies of the thesis for academic exchange.

Certified by :

SIGNATURE SIGNATURE OF SUPERVISOR

LIM TZE SHWAN ASSOC. PROF. DR. MAIZON HASHIM

(870829-35-5348) (NAME OF SUPERVISOR)

Date : 8 AUGUST 2011 Date : 8 AUGUST 2011

UNIVERSITI TEKNOLOGI MALAYSIA

CONFIDENTIAL (Contains confidential information under the Official Secret

Act 1972)*

RESTRICTED (Contains restricted information as specified by the

organisation where research was done)*

OPEN ACCESS I agree that my thesis to be published as online open access

(full text)

“I/We* hereby declare that I/we* have read this project report and in my/our*

opinion this project report is sufficient in terms of scope and quality for the

award of the degree of Master of Construction Contract Management

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

Name of Supervisor I : ................................................................

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

* Delete as necessary

ASSOC. PROF. DR. MAIZON HASHIM

8 AUGUST 2011

CONTRACTOR‟S LIABILITIES TOWARDS EMPLOYER‟S DEFECTIVE

BUILDING WORK CLAIMS DURING DEFECT LIABILITY PERIOD

LIM TZE SHWAN

A project report submitted in partial fulfillment of the

requirement for the award of the degree of

Master of Science (Construction Contract Management)

Faculty of Built Environment

Universiti Teknologi Malaysia

JULY 2011

ii

I declare that this project report entitled “Contractor‟s Liability towards Employer‟s

Defective Building Work Claims during Defect Liability Period” is the result of my own

research except as cited in the references. The project report has not been accepted for

any degree and is not concurrently submitted in candidature of any other degree.

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

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

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

LIM TZE SHWAN

8 AUGUST 2011

iii

DEDICATION

To my parents for giving me such a good start,

and to my beloved friends for your love and the countless hours of laughter and joy we

shared throught the years.

Thanks for support, guidance and everything.

iv

ACKNOWLEDGEMENT

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

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

complete this dissertation throughout the semester.

Appreciation also goes to all the lecturers on the Master of Science (Construction

Contract Management) course, for their patience and advice during the process of

completing this master project.

Very importantly, I would like to thank my parents and family members for their

support and encouragement throughout the research. Finally, my appreciation goes to my

fellow coursemates with whom I exchanged much information and those who had

contributed directly and indirectly to this master project.

v

ABSTRACT

The contractor‟s liability towards the defects discovered during defect liability

period is related to the issue of their rights and liability during that period. The issues

included are the employer‟s obligation to notify the contractor of defects, the

contractor‟s liability towards defective work caused by design defects, materials

supplied by employer and whether the contractor‟s liability to warn the employer if any

faulty design that they knew about. The objective of this research is to identify the

defective building work claims made by the employer for the defective building works

during defect liability period and the circumstances whether the contractor is liable to the

claims. The findings of this study show that, during the defect liability period, the

contractor is liable and has the duty and rights to return to the site to rectify the defects

and the employer is under the obligation to notify the contractor of the defects

discovered. The contractor is not liable for the defective work caused by the quality of

materials provided by employer, supplier choosen by employer and designer‟s defective

designs. But, it is the contractor‟s liability to warn the employer of the faulty designs.

The contractor is in breach of contract when he fails to rectify the defect during the

defect liability period, and is liable to pay damages to the employer. The damages under

employer‟s defective work claims are cost of rectification, loss of amenity and

consequential loss. The contractor is not liable for the full cost of rectification when the

employer fails to give the notice of defects or refuses the contractor to rectify the defects.

The contractor is liable to the damages for the loss of amenity when the work is not up to

the satisfaction of the employer. The contractor is also liable to compensation for the

consequential loss. The case analysis show that the employer can claims under the

contract and common law. This study can use as a guidance for the employer and

contractor on their legal rights and liability in respect to the defective works which

appear during defect liability period.

vi

ABSTRAK

Liabiliti kontraktor terhadap penampilan kecacatan dalam tempoh liabiliti

kecacatan adalah berkaitan dengan masalah hak-hak dan kewajipan selama tempoh itu.

Masalah tertakluk kewajipan majikan untuk memberitahu tentang penampilan kecacatan,

samada kontraktor bertanggungjawab terhadap kecacatan kerja yang disebaban oleh

kecacatan rekabentuk, bahan-bahan pembinaan yang disediakan oleh majikan, dan

samada kontraktor bertanggungjawab untuk memberi amaran kepada majikan jikalau

mereka tahu tentang sebarang kecacatan rekabentuk. Tujuan kajian ini bertujuan untuk

mengenal pasti tuntutan kecacatan yang dibuat oleh majikan untuk kerja-kerja cacat

selama tempoh liabiliti kecacatan dan keadaan sama ada kontraktor nertanggungjawab

kepada tuntutan itu. Keputusan kajian menunjukkan bahawa, selama tempoh liabiliti

kecacatan, kontraktor bertanggungjawab dan menpunyai tugas dan hak-hak untuk

kembali ke tapak pembinaan untuk memperbaiki sebarang kecacatan. Majikan adalah

berkewajiban untuk memberitahu kontraktor tentang kecacatan yang ditemui. Kontraktor

adalah tidak bertanggungjawab untuk kecacatan kerja yang disebabkan oleh qualitinya

bahan-bahan yang dibekal atau pembekal yang dipilih oleh majikan, kecacatan

rekabentuk daripada pereka bentuk. Namun, kontraktor berliabiliti untuk memberi

amaran kepada majikan tentang kecacatan rekabentuk. Kontraktor yang melanggar

kontrak dengan gagal untuk memperbaikan kerja-kerja cacat selama tempoh liabiliti

kecacatan, dan bertanggungjawab untuk membayar ganti rugi kepada majikan. Tuntutan

gantirugi adalah kos pembaikan, kehilangan kepuasan, dan kerugian atas sebab.

Kontraktor adalah tidak bertanggungjawab kepada pembayaran penuh kos pembaikan

jika majikan gagal untuk memberi notis kocacatan atau tidak memberi peluang untuk

kontraktor membaiki kecacatan. Kontraktor adalah bertanggungjawab terhadap gantirugi

atas kehilangan kepuasan jika kerja tidak menemui tahap kepuasan majikan. Kontraktor

juga bertanggungjawab untuk pampasan kepada kerugian atas sebab. Analisis kes-kes

menunjukkan bahawa majikan boleh menuntut di bawah kontrak dan “common law”.

Kajian ini baleh digunakan sebagai rujukan kepada majikan dan kontractor untuk

memahami hak-hak dan kewajipan berkaitan kecacatan kerja yang menampil sepanjang

tempoh liabiliti kecacatan.

vii

TABLES OF CONTENTS

CHAPTER TITLE PAGE

DECLARATION ii

DEDICATION iii

ACKNOWLEDGEMENT iv

ABSTRACT v

ABSTRAK vi

TABLES OF CONTENT vii

LIST OF TABLES x

LIST OF FIGURES xi

LIST OF ABBRIEVATIONS xii

LIST OF CASES xiii

1 INTRODUCTION

1.1 Research Background 1

1.2 Problem Statement 7

1.3 Objective of Research 11

1.4 Scope of Research 11

1.5 Significant of Research 12

1.6 Research Methodology 12

1.7 Structure of Research 15

viii

2 DEFECTIVE BUILDING WORKS DURING DEFECT

LIABILITY PERIOD

2.1 Introduction 17

2.2 Definition of Defect 18

2.3 Types of Defect

2.3.1 Patent Defects

2.3.2 Latent Defects

20

21

22

2.4 Causes of Defective Work

2.4.1 Standard of Design

2.4.2 Quality of Building Materials

2.4.3 Quality of Workmanship

24

26

29

32

2.5 Defect Liability Period 34

2.5.1 Defects Discovered during Defect Liability

Period

36

2.5.2

2.5.3

Contractor‟s Obligation during Defect

Liability Period

Provisions Deal with Defect Liability Period

38

39

2.6 Conclusion 42

3 EMPLOYER’S DEFECTIVE WORK CLAIMS

DURING DEFECT LIABILITY PERIOD AND THE

CONTRACTOR’S LIABILITIES

3.1 Introduction 43

3.2 Provisions in the Standard Form of Contract

3.2.1 Provision Deals with Defect Liability

3.2.2 Contractor‟s Rights to Rectify Works and

Notification

45

46

49

3.3 Liability for Defects

3.3.1 Liability of Contractor to Employer

51

54

3.4 Defective Work Claims by Employer during Defect

Liability Period

59

3.5 Liability to Defective Work Claims 63

3.6 Conclusion 65

ix

4 ANALYSIS OF CASE STUDIES

4.1 Introduction 67

4.2 Contractor‟s Defect Liability during Defect Liability

Period

4.2.1 Rights and Liability of the Contractor to

Return to Site to Rectify the Defects

4.2.2 The Employer‟s Obligation to Notify the

Contractor of Defects and the Contractor‟s

Liability

4.2.3 The Contractor‟s Liability for the Defective

Works Caused by the Materials Supplied by

the Employer

4.2.4 The Contractor‟s Liability towards Design

Defects

4.2.5 Contractor to Warn Employer of Any Design

Defects that They Knew About

68

69

73

75

78

81

4.3 Assessment of Damages under Defective Work

Claim by Employer

87

4.3.1 Cost of Rectification 88

4.3.2 Loss of Amenity 94

4.3.3 Consequential Loss 99

4.4 Conclusion 102

5 CONCLUSION AND RECOMMENDATIONS

5.1 Introduction 103

5.2 Summary of Research Findings 104

5.3 Problem Encounter during Research 112

5.4 Further Studies 112

5.5 Conclusion 113

REFERENCES 115

x

LIST OF TABLES

TABLE NO TITLE PAGE

5.1 Summary of Research Findings 105

xi

LIST OF FIGURES

FIGURE NO. TITLE PAGE

1.1 Flowcart of Research Methodology 14

2.1 Flowcart of Contractor‟s Liability to Defects during DLP

under PAM 2006 Standard Form of Contract Clause 15

56

2.2

2.3

Flowcart of Contractor‟s Liability to Defects during DLP

under PWD203A Standard Form of Contract Clause 48

Flowcart of Contractor‟s Liability to Defects during DLP

under CIDB 2000 Standard Form of Contract Clause 27

57

58

xii

LIST OF ABBRIEVATIONS

AC Appeal Cases, House of Lords

All ER All England Law Reports

ALJR Australia Law Journal Reports

AMR All Malaysia Reports

BCL Building and Construction Law Cases

BLR Building Law Reports, UK

Con LR Construction Law Reports

ER Equity Reports

ICR Industrial Cases Reports

ILR International Law Reports

IR Irish Reports

JP Justice of the Peace / Justice of the Peace Reports

LIL Rep Lloyd‟s List Reports

MLJ Malayan Law Journal

NSWLR New South Wales Law Reports

QB Law Reports: Queen‟s Bench Division

QSR Queensland State Reports

SC Session Cases

SCR Supreme Court Reporter

SLR Singapore Law Reports

WLR Weekly Law Report

xiii

LIST OF CASES

CASES PAGE

Adcock’s Trustee v Bridge R.D.C.(1911) 75 J.P. 241 29

Apex Realty Pty Ltd v Walker Bros & Preece Pty Ltd (1958) 76 WN

(NSW) 34

65

Aubum Municipal Council v ARC Engineering Pty Ltd (1973) NSWLR

513

29

Australian Knitting Mills Ltd. v. Grant (1933) 50 CLR. 387, 413 31

Bater v Bater (1951) P. 35 52

Bellgrove v Eldridge (1954) 90 CLR 613 60,88,93,111

Brunkswick Construction v Nowlan (1974) 21 BLR 27 28,82

Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653 62

Cable (1956) ltd v Hutcherson Bros Pty Ltd (1969)123 CLR 143 65

Carr v JA Berriman Pty Ltd (1953) 27 ALJR 273 37

CGA Brown Limited v Carr & Anor (2006) EWCA Civ 785 83

Crown Estate Commissioners v. John Mowlem (1995) 70 BLR 1 7

D Galambos & Son (1974) 5 ACTR 10 61

Director of War Service Home v Harris (1968) Qd R 275 53

Elanore Country Ltd v V J Summersby & Pearce & Sons (Excavations)

Pty Ltd (1988) 4 BCL 309

65

Gloucestershire Country Council v Richardson (1969) 1 AC 480 32

Greaves & Co (Contractors) Ltd v Baynham Meikle & Partners (1975)

1 WLR 1095

29,52,78

H.W. Nevill (Sublest) v William Press and Son (1981) 20 BLR 78 6,99,112

Hancock and others v BW Brazier (Anerly) Ltd (1966) 2 All ER 901 34

xiv

Helicopter Sales (Aust) Pty Ltd v Rotor-Works Pty Ltd(1974)132 CLR1 65

Henry Kendall & sons v William Lillico & sons Ltd (1968) 2 All ER

444, (1969) 2 AC 31, (1968) 3 WLR 110

31

IBA v EMI Electronics Ltd & BICC Construction Ltd (1980) 14 BLR 1 28

Kemayan Construction Sdn Bhd v Prestara Sdn Bhd (1997) 5 MLJ 608 38,71

Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd (1993) 3. All

E.R. 417

53

London and SW Railway v Flower (1875) 1 CPD 77 73

Lynch v Thorne (1956) 1 WLR 303 34

Martin v McNamara (1951) QSR 225.8 32

Midland Bank v Hett, Stubs & Kemp(1979) Ch. 384 53

Oldschool v Gleeson (Construction) Ltd (1976) 4 BLR 103, 131 28

P & M Kaye Ltd v Hosier & Dickinson Ltd (1972) 1 WLR 146 8,49,54,70,

101,109,112

Pearce & High Limited v Baxter (1999) BLR 101 9,55,74,89,

110,111

Plant Construction Plc v. Clive Adams Associates and JHM

Construction Services Ltd (2000) 2 TCLR 513

85

Robinson v Harman (1848) 1 Exch 850 86

Ruxley Electronics & Construction Ltd v Forsyth (1996) AC 344 8,90,93,

95,111

Syarikat Tan Kim Beng and Rakan-rakan v Pulai Jaya Sdn Berhad

(1992) 1 MLJ 42

61

Tate v Latham (1897)66 LJQB 351 19

Victoria University of Manchester v Hugh Wilson & Lewis Wormsley

and Pochin Ltd (1984) 2 ConLR 43

21,23

Viking Grain Storage Limited v T.H. While Installations (1985) 3 Con.

L.R. 52

80

William Tompkinson v Parochial Church Council of St Michael (1990)

6 Const LJ 814

50,87

xv

Yap Boon Keng Sonny v Pacific Prince International Pte Ltd and

Another (2009) 1 SLR 385

94

Young and Marten Ltd v Mc Manus Child Ltd (1969) 1 AC 454 31,76

CHAPTER 1

INTRODUCTION

1.1 Research Background

In construction, there are number of factors that cause defect to building

works, including negligent design, inferior materials, inadequate supervision, shoddy

workmanship or other forms of negligent construction1. Defective construction

works give the bad implications and effects to parties involved, and it was found that

poor quality workmanship can result in a long list of defects2.

In a traditional contract, it is the contractor‟s obligation to carry out and

complete the building works which require him to provide the workmanship and

materials as required by the specifications given by the architect and engineers3. The

contractor is required to perform and complete the construction fully in accordance

1 Ter, Kah Leng (1989). Builders’s Tort Liability for Economic Loss Arising from Defective Buildings. Malayan

Law Journal. 2 Summerlin & Ogborn. (2006). Construction Defects. Construction Law Attorneys, Thomson Business. 3 Chan CF. P. (2002), “Commonwealth construction cases-the Singapore perspective.” Sweet & Maxwell Asia,

Singapore, a Thomson Company.

2

with the contract documents, usually consisting of at least plans, specifications and

the building code within required time4. Thus, if the contractor fails to construct in

accordance with applicable contract documents, he is responsible for the resulting

damages.

So far as the standard of work is concerned, the contractor‟s basic obligation

is to comply with the terms of the contract. Most formal building or engineering

contracts contain an initial express obligation of the contractor in some such words

as to “carry out and complete the works in accordance with the contract”. This is, in

fact a dual obligations that are, both to carry out and to complete the works.5

The terms of contract include both express terms (such as the requirement of

contract that work shall be of the standards described in the bills) and implied terms

(such as the principle that all materials shall be of „satisfactory quality‟)6. It was too

often that contractors believe that liability is limited to what is written in the contract

which is a crucial misconception. There are many areas of contractual liability which

are implied and not expressed7. Practically, this implied contractual liability might

be the contractor‟s obligation to perform its work in a good workmanlike manner.

Therefore, even when dealing with contractual liability, the contractor is often

subject to a scope of liability which is usually different from, the written contract and

often more comprehensive.

In a construction contract, a contractor undertakes to do works and supplies

materials impliedly, including8:

4 Ficken. B. W. (2006). Legal Consideration and Dispute Resolution: The Water-Related Construction Failure.

American Society for Testing and Materials. Race Street, Philadelphia, PA 19103. 5 I. N. Duncan Wallace (1995). “Hudson‟s Building and Engineering Contracts.” 11th Edition. (Sweet &

Maxwell) pp. 472 6 Murdoch, J and Hughes, W. “Construction Contracts: Law and Management.” (London: Spon Press, 2000) pp.

147 7 Simon, S. M. (1979), Construction Contracts and Claims. New York: McGraw-Hill Book Company. 8 I. N. Duncan Wallace. Supra 5. pp. 519

3

a) to do the work undertaken with care and skill or, as sometimes expressed,

in a workmanlike manner;

b) to use materials of good quality. In the case of materials described

expressly this will mean good of their expressed kind and free from

defects. (In the case of goods not described, or not described in sufficient

detail, there will be reliance on the contractor to that extent, and the

warranty (c) below will apply);

c) that both the workmanship and materials will be reasonably fit for the

purpose for which they are required, unless the circumstances of the

contract are such as to exclude any such obligation (this obligation is

additional to that in (a) and (b), and will only become relevant, for

practical purposes in any dispute, if the contractor has fulfilled his

obligations under (a) and (b)).

In addition to the principal express or implied obligation to complete the

construction, there are express reference to “substantial completion” or “practical

completion” in formal English-style contracts which often used as definitions in

formal contracts to donate the begin of the maintenance or defect liability period.

This is also significant to secure the release to the contractor of the first portion of

any “retention moneys”. In general, what is contemplated by these expressions is a

state of apparent completion free of known defects which will enable the employer

to enter into occupation and make use of the project, with the result that they will

usually bring any possible liability of the contractor for liquidated damages for delay

to an end. The scheme of this type of contract thus contemplates the commencement

of a period when the employer enters into occupation but at the end of which any

then known omissions or defects will be made good by the contractor9.

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

4

The liability, obligations and responsibilities of the contractor do not stop

with the contract10

. There are broader and more inclusive. Liability may rest in the

field of torts. Although the contract may specify that the contractor is obligated to

act in a reasonable manner or even if the contract does not specify it, the law of torts

does. Under the law of torts, every person owes every other the obligation to exercise

reasonable care and skill11

. This obligation extends beyond the contracting party, and

it applies to all persons. Therefore, the contractor may be liable for its failure to

exercise reasonable care in the performance of his duties, even though it is fulfilling

its contractual obligations. It can be said that a contractor who lives by its contract is

merely inviting potential liability.

In construction industry, most of the standard forms of building or

engineering contract contain provisions that deal with defective works where

defective works could be in the forms of design fault, defective building materials or

bad workmanships. In construction contracts, it cannot be said that the works have

been practically completed, if the work is so defective that it would prevent the

owner from using the building as intended by the contract.12

Defect Liability Period (DLP) is a common feature in all the standard form of

construction contracts in Malaysia, i.e. Pertubuhan Arkitek Malaysia (PAM) 2006 /

Public Work Department (PWD) 203A (Rev.2007) / Institution of Engineer

Malaysia (IEM) / Construction Industry Development Board (CIDB) 2000. During

the DLP, the Contractor is obliged and liable to rectify defects that appear between

the period the Certificate of Practical Completion (CPC) is issued and the expiry of

the DLP13

. Defects can be classified into two main categories, patent defects and

latent defects. Patent defects are defects that can be discovered by normal

10 Frank E. and James A. (1988). Building Subsidence: Liability and Insurance. London: Oxford BSP

Professional Books. 11 Simon, S. M. Supra 7. 12 Mohd Suhaimi Mohd Danuri (2005), “The Employer‟s Rights and the Contractor‟s Liabilities in Relation to

the Defects Liability Period.” (The Malaysian Surveyor). pp. 54 13 Anon (2007), “What Are The Obligation Of The Contractor During Defect Liability Period?” The Entrusty

Group, Master Builders, 1st quarter 2007

5

examination or testing during the defects liability period whereas latent defects are

by its very nature concealed and may not manifest itself for many years.

Although each contract will obviously be unique, broad conceptual types of

contract may be identified, and even a contract created specifically to meet the

individual requirement of a given situation, it will inevitably have points of

similarity to other contracts. The DLP provisions are found under the following

clauses of the standard forms of construction contracts:-

PAM 2006: Clause 15 – Practical Completion & Defects Liability.

PWD 203A 2007: Clause 48 – Defects Liability and Making Good.

CIDB 2000: Clause 27 – Defects Liability after Completion.

According to the standard form of construction contract, sub-clause 15.1 of

PAM 2006 form of contract specifies that the works shall be deemed to be

practically completed if the architect is of the opinion that all necessary works

specified by the contract have been completed and the defects existing in such works

are „de minimis‟14. Clause 45(a) of JKR 203 form of contract specifies that the

contractor is responsible for any defect, imperfection, shrinkage, or any other fault

which appears during the Defects Liability Period, which will be six (6) months from

the day named in the Certificate of Practical Completion issued, unless some other

period is specified in the Appendix15

. Similarly in CIDB 2000 form of contract,

Clause 27.1 specifies that the contractor shall complete any outstanding work and

remedying defects during the Defects Liability Period.

Once the works have been practically completed and the issuance of the

Certificate of Practical Completion, the Defects Liability Period will begin. Any

defects, shrinkages or other faults arising during this period due to defective

14 Mohd Suhaimi Mohd Danuri. Supra 12. pp. 54 15 Lim Chong Fong. “The Malaysian PWD Form of Construction Contract.” (Malaysia: Sweet & Maxwell Asia,

2004) pp. 105

6

materials or workmanship must be put right by the contractor at his own expense16

.

Refer to this, sub-clause 9(a) of PWD 203A requires the contractor to use materials

and workmanships that comply with the specifications, further, sub-clause 9(b)

entitles the superintending officer to instruct the contractor to demolish or open up

the work done and the associated cost will be borne by the contractor if the works

have not carried out in accordance with the contract.

Where in the case of H.W. Nevill (Sublest) v William Press and Son17

, which

the Joint Contracts Tribunal (JCT) standard form of contract was used, Judge Newey

QC said that:

“the clause 15(2) and (3) (the clause relating to DLP) provided an

efficient way of dealing with defects to the advantage of both parties.

If the owner have had seek contractors new to the site to do the

remedial work it might well have had difficulty in finding them. It

would also almost certainly have had to pay them more and would

then have sought to have recovered from the Contractor more than

the cost to the Contractor of making good the defects.”

Therefore, under the contract, the contractor is liable for the defective works

and has the rights and duty to return to the site to remedy the defects during defect

liability period. The employer is under an obligation to give first priority to the

ordinary contractor to rectify the defects before engaging another contractor to

remedy the defects. The ordinary contractor who responsible, is usually carrying out

the repairs with more cheaper cost and more efficient than the employer engaging a

third party to repair the defects.

16 Murdoch, J and Hughes, W. Supra 6. pp. 184 17(1981) 20 Build LR 78

7

1.2 Problem Statement

Defective construction work, whether the result of inadequate design, faulty

workmanship or poor materials, or some combination of these failings, is a frequent

cause of legal disputes18

.

Defective work claim is the most common claim made by employer19

. A

contractor is someone who is usually to be blamed, other than the other building

team members. Unless otherwise stated in the contract, defective work entitles a

building owner to rectify the defective work and/or claim damages against the

contractor in contract and/or at common law. Hence, it is important that the

contractor should possess a good knowledge of their responsibilities and liabilities20

.

Frankel21

noted that the construction defects can arise from improper soil

analysis / preparation, site selection and planning, architectural design, civil and

structural engineering, negligent construction or defective building materials.

Frankel further stated that the recent explosion in new construction has spawned,

increased construction defect litigation.

Where in the case of Crown Estate Commissioners v. John Mowlem22

, Stuart-

Smith LJ indentified three cases for dealing with defects in quality of the work:

i. Case A - the criteria stipulated in the contract documents (standard

specification).

18 Kevin Barrett (2008). “Defective Construction Work”. 19 Jim Doyle (2005). “Defective Work Claims”. Doyles Construction Lawyers 20 Kevin Barrett. Supra 18 21 Frankel E. R. (2005). Insurance Coverage for Construction Defect Claims. Real Estate Finance; ABI/INFORM

Global. pp 20. 22 (1995) 70 BLR 1

8

ii. Case B – standards and quality not stated in the contract documents, in

quality and case there is an implied term that materials will be of a

reasonable quality and fit for their purpose and workmanship will be to a

reasonable standard.

iii. Case C – the standards and quality is expressed to be to the architect‟s

satisfaction.

For instance, the case of Ruxley Electronics & Construction Ltd v Forsyth23

,

relates to damages for defective works. This case arose where a swimming pool was

constructed at a depth of 6'9" instead of 7'6'' as required by the Employer. The House

of Lords had awarded damages regarding reasonableness as a factor to be considered

in determining what that loss was to the employer.

In another case of P & M Kaye Ltd v Hosier & Dickinson Ltd24

, where the

JCT form of contract was used, Lord Diplock stated that:

“….the contractor is under an obligation to remedy the defects in

accordance with the architect’s instructions. If he does not do so, the

employer can recover as damages the cost of remedying the defects,

even though this cost is greater than the diminution in value of the

works as a result of the unremedied defects.”

In every construction projects, the contracts envisage that the defects might

occur during the DLP, and such defects shall not be considered as a breach of

contract. Upon receipt of notice, the contractor is obliged to return to the site to make

good the defects and the employer is obliged to allow the contractor to do so25

. The

contractor is considered as breaching the contract, once he denies or fails to rectify

the defective work, and the employer is entitled to damages.

23 (1996) AC 344 24 (1972) 1 WLR 146 25 Anon. Supra 13.

9

It is essential that the contractor‟s liability for defective works which lies

prior to practical completion and during defect liability period is however undeniable.

The failure of the contractor to rectify the defects which appear during Defect

Liability Period (DLP) as required by the contract would constitute a breach of

contract that will entitles the employer to be remedied in the forms of damages as per

Section 74(3) of Contract Act 1950. Furthermore, if the contractor has failed to

rectify the defects as instructed by the contract administrator or upon receipt of the

notice, the employer is entitled to appoint another contractor and recover the cost of

rectifying the defects from the original contractor within the ambit of the contract

provision.26

It is noted that the Defect Liability Period (DLP) provision requires such a

notice to be given to the Contractor. However, what would the scenario be if the

Employer/Architect/ Engineer/SO fails to issue the required notice to the contractor?

Is the contractor still liable to the defect works and the damages? Yet, would the

employer lose its rights and remedies to recover the cost of remedying the defects?

In considering this issue, it is essential to appreciate that the requirement of

such notices impliedly imposes a duty to mitigate the loss on the part of the

Employer. The decision had been held in the Court of Appeal (UK) in the case

Pearce & High Limited v Baxter 27

, where Evans LJ said that:-

“In my judgment, the contractor is not liable for the full cost of

repairs in those circumstances. The employer cannot recover more

than the amount which it would have cost the contractor himself to

remedy the defects. Thus, the employer’s failure to comply with

clause 2.5 (the clause relating to rectification of defects), whether by

refusing to allow the contractor to carry out the repair or by failing

to give notice of defects, limits the amount of damages which he is

entitled to recover. The result is achieved as a matter of legal

26 Mohd Suhaimi Mohd Danuri. Supra 12. pp. 57 27(1999) BLR 101

10

analysis by permitting the contractor to set off against the

employer’s damages the amount by which he, the contractor, has

been disadvantaged by not being able or permitted to carry out the

repairs himself, or more simply, by reference to the employer’s duty

to mitigate his loss.”

Evan LJ in the above case accepted that the giving of a notice with regard to

defects should be regarded as a condition precedent to the employer‟s rights to

require the contractor‟s compliance with the defects liability clause. It was held that

the employer‟s failure in giving the required notice would limit the employer‟s

recovery if the rectification cost were more than the cost of the original contractor to

rectify the defects.

The contractor is under the duty to rectify the defects during the defect

liability period. the contract stated that it is the client‟s rights to get another person to

rectify the defects and has the rights to claims for the cost of rectification. However,

does it mean that the contractor has to pay everything that the client claimed? The

clauses in standard form of contract has stated that the employer can employ a 3rd

party to rectify the defects, but it didn‟t stated the situation that the contractor is not

liable to the full cost of the rectification. The contract also didn‟t state the situation

or exception that the contractor is not liable to the defects.

The following discussions give rise of the several questions:

i. Are the contractor responsible to all the cost of rectification,

ii. Are the contractor abligated to rectify the works, and are there any

exception,

iii. If the employer direct another party to rectify the defects, is that mean

the contractor has to pay all the cost.

11

Therefore, this study will analyse the defective building works claims during

defect liability period and the contractor‟s liability towards the defects, so that

through this study, the contractor will be able to have better understanding on the

possible defective building work claims that the employer may claim during defect

liability period and their legal positions and liabilities to the claims.

1.3 Objectives of Research

The above aim of research is supported with the following objective:

To determine the circumstances that the contractor is not liable for the defect,

imperfection, shrinkage or any other fault which appeared during defect

liability period.

1.4 Scope of Research

The following are the scopes for this study:

1. Only cases related to defective building works during defect liability period

will be discussed in the study.

2. The circumstances discussed are those concerning between both the main

contractor and employer only.

3. Standard forms of contract commonly referred to and examined in this

research are Pertubuhan Arkitek Malaysia (PAM) Standard Form of Contract

2006, Public Works Department (P.W.D) Form 203A (Rev.2007),

Construction Industry Development Board (CIDB) Standard Form of

Contract for Building Works (2000 Edition).

12

1.5 Significant of Research

This research is important in order to find out and define the liabilities of the

contractor when there is defective building works. Through this study, the

contractors may have the knowledge on their liability towards the employer‟s claims

in relation to defective building works.

1.6 Research Methodology

The methodologies of this study has been separated into few steps, namely

indentifying the research issue, literature review, data collection, research analysis

and conclusion and recommendation. This approach is to ensure that the collection

of the information and the data analyzing can be precisely implemented.

I. Initial Study and Identifying the Research Issue

The overview of concept for the study was obtained through intensive reading of

books, journals, articles and newspaper cutting which can easily attained from the

library of faculty and UTM‟s Library. Discussions with supervisor, lecturers, as well

as course mates, were held so that more ideas and knowledge relating to the topic

could be collected. Related information concerning current scenario of construction

industry in Malaysia and the contract issues in the industry were referred. From the

research issue, the objectives of the study are identified.

13

II. Literature Review

Various documentation and literature review regarding to contractor‟s liabilities

towards employer‟s damages in relation to defective building works are collected to

achieve the research objectives. Books, journals, research papers, reports, newspaper

as well as sources from the internet are referred. Primary data: electronic database;

secondary data: books, act, articles, seminar papers and etc. Related legal cases

based on previous court cases, journals, papers, and reports are collected from

Malayan Law Journals via UTM library collection and electronic database.

III. Data and Information Collection

In this stage, all the collected data, information, ideas, opinions and comments will

be arranged, analysed and interpreted. The relevant case laws collected will be

carefully reviewed, with special attention on the facts of the case, issues and

judgments presented by each case law. The proper arrangement of data tends to

streamline the process of writing up.

IV. Writing-up and Completion

The final stage of the research process mainly involved the writing up and checking

of the writing. In this stage, the whole process of the study will be reviewed to

identify whether the research objective had been achieved. Lastly, conclusion and

recommendations will be made based on the findings from the analysis of data.

14

Figure 1.1 Flowchart of Research Methodology

15

1.7 Structure of Research

This dissertation is divided into five (5) chapters and each chapter covered different

scope of studies. The outlines for each chapter are as follows:

I. Chapter 1 – Introduction

First Chapter is basically an introduction on the topics, problem statement, research

aims and objectives, scope of research, research methodology and methods of

approach and outline of structure of research.

II. Chapter 2 – Defective Building Works During Defect Liability Period

Second Chapter is the literature review about the definition of defect liabilities and

the discussion on the common type of building defects, general causes of building

defects and classification of building defects.

III. Chapter 3 - Employer’s Defective Work Claims during Defect Liability

Period and the Contractor’s Liabilities

This Chapter is the literature review on the contractor‟s liability towards the

defective work claims and liability of contractor to employer in respect of defects

discovered during defect liability period. Provision of the construction industry form

of contract in relation of defect liabilities will be referred and discussed.

16

IV. Chapter 4 – Data Analysis

Forth chapter is focusing on the court cases review and analyse the results from the

judicial decisions as reported in law reports which concerning the contractor‟s

liability towards employer‟s claims in relation to defective building works during

defect liability period and the circumstances that the contractor liable or not liable.

V. Chapter 5 – Conclusion

This last chapter comprises of the discussion on findings and interpretation of the

data collected conclusion and recommendation. The findings and analysis,

conclusion and recommendation are utilized in order to answer the objectives of the

research.

CHAPTER 2

DEFECTIVE BUILDING WORKS DURING DEFECT

LIABILITY PERIOD

2.1 Introduction

Defective building works can be defined as works which fell short of

complying with the express descriptions or requirements of the contract, especially

any drawings or specifications, together with any implied terms and conditions as to

its quality, workmanship, durability, aesthetic, performance or design28

. Construction

defects are the unacceptable quality of a project which can be identified and

remedied. Thus, construction defects are inevitable in construction projects delivery

and are usually contentious between the employer and the contractor or

subcontractors.

28

Cho, Y. J., Hyun, C. T., Lee, S. B. and Diekmann, J. (2006): “Characteristics of contractor’s liabilities for

defects and defective works in Korean public projects”, Journal of Professional Issues in Engineering

Education and Practice, Volume 132, Issue 2, pp. 180-186.

18

Nowadays, most modern buildings and civil structures are complex and

involve the use of a great variety of engineering methods and processes. Therefore

most projects face the possibility of defects and defective work, which generally

result in structures that cannot perform their originally intended roles29

.

Commonly, defects take place in any part of a construction project and at any

stage of construction. Defects in construction projects are attributable to various

reasons for example, improper fixing of water pipe, poor quality of materials

supplied by building merchants or by combination of poor quality of materials and

poor workmanship. In respect to this, Summerlin and Ogborn30

acknowledge that

construction defects can be the result of design error by the architect, a

manufacturing flaw, defective materials, improper use or installation of materials,

lack of adherence to the blueprint by the contractor, or any combination thereof.

2.2 Definition of Defects

According to Chan31

, defective building work is defined as “defect or

deficiency in the design, construction, or materials in a construction project”.

Meanwhile, Alan32

has described defective building work as premature failure

resulting from errors of design, workmanship, maintenance or the use of faulty

materials.

29

Cho, Y. J., Hyun, C. T., Lee, S. B. and Diekmann, J. Supra 28. pp. 180-186. 30 Summerlin & Ogborn. Supra 2. 31 Chan CF. F. Supra 3. pp. 49. 32 Alan Crocker (1990), “Building failures – recovering the cost.” BSP Professional Books, Oxford. pp. 2.

19

Atkinson33

defines defects as: “breaches of terms and conditions of contract

by the contractors.” While Cama34

defines a defect in the context of a building

contract as: “a failure of the completed project to satisfy the express or implied

quality or quantity obligations of the construction contract.” Meanwhile, Marianne35

defines construction defect as: “a failure of a building component to be erected in the

appropriate manner.” The definition of defects in Oxford Concise English Dictionary

is “lack of something essential or required; imperfection; a shortcoming or failing; a

blemish; the amount by which a thing falls short”.

Defective building work is defined in a slightly different ways from the legal

perspective. In respects to that, Sweet36

has acknowledge that the construction

defects defined by the law as failure of the building or any building component to be

erected in a reasonably workmanlike manner. Oxford Dictionary of Law defines

defect as: “a fault or failing in a thing.”

Legally, defective building work is defined as an element supplied or

constructed which is in some respect, not in accordance with the contract, or as some

action having consequences not authorised by the contract37

. In addition, it was also

described as work which fails to comply with the express descriptions or

requirements of the contract, including any drawings and specifications, together

with any implied terms as to quality, workmanship, performance and design38

. For

instance, Bruce J in Tate v Latham39

has defined defective building work as a lack

33 Atkinson, D. (1999), “Measures of Damages for Defects.”, from http://www.atkinsonlaw.com/cases

/CasesArticles /Articles/ Defects.htm 34Cama, J. (2004). Who Pays to Fix Building Defects? American Systems USA inc. Berrymans Legal Consultants. 35Marianne, J. (2005). Building defects spoil homeowners‟ dreams. Portland: The Oregonian News. The Aldrich

Law Office, P.C. 522 SW 5th Avenue. 36 Sweet, J. J. (1993). Avoiding or Minimizing Construction Litigation. San Jose California: Wiley Law

Publication. 37Nigel M. Robinson (1996): “Construction Law in Singapore and Malaysia.” 2nd Edition. (Butterworths Asia

Malaysia). pp. 159-160. 38Atkinson, D. Supra 33. 39 (1897)66 LJQB 351

20

or absence of something essential to completeness40

. In other words, defective

building work means violation of contract.

2.3 Types of Defect

The works is considered as defects or defective building works when the

standard and quality of workmanship and materials as specified in the contract is

deficient. Generally, defects can be classified into two main categories which are

„Patent‟ defects and „Latent‟ defects41

.

The Patent defects are defects that can be discovered by normal examination

or testing. Patent defects encompasses the usual defects encounted in routine

inspections.

Latent Defects are defects which are not discoverable by normal examination

or testing which manifests itself after a period of time.

By definition, defects that become noticeable within the defect liability

period may be discovered in time for the employer to take action against the

contractor under the term of the building contract42

.

In the construction industry, the cases on disputes triggered by defects have

attributed strongly in the development of construction law, although the issues raised

have varied depending on whether the defect is patent or latent43

.

40Chan CF. F. Supra 3. pp. 68. 41 Anon. Supra 13. 42 Chan CF. P. Supra 3. pp. 69. 43 Chan CF. P. Supra 3. pp. 68

21

2.3.1 Patent Defects

Patent defects are the defects which can be discoverable upon examination or

deficiency in a structure that is obvious to reasonable inspection for example a roof

leak or a foundation crack44

. Normally, defects are readily apparent to the naked eye

and are therefore capable of being assessed and measured relatively easily and then,

if necessary, rectified. In the case of Victoria University of Manchester v Hugh

Wilson & Lewis Wormsley and Pochin Ltd45

, patent defect has been defined as defect

which could be discovered by the exercise of ordinary care46

. Hence, patent defects

are defects that are apparent and can be discovered by means of reasonable

inspection, examination or testing.

Vincent Powell-Smith describes a „patent‟ defect as: “A defect which is

discoverable by reasonable inspection” 47

. In the context of engineering contracts, the

term embraces all the items which the engineer or engineer‟s representative must be

expected to find and bring to the contractor‟s attention so the remedial works can be

carried out. Patent defects are plain to see, or at least, that is the theory. Whether the

engineer could or should have seen defects on site during site visits has exercised

more than one judicial mind…”. Meanwhile, Robinson, the authors in „Construction

Law in Singapore and Malaysia‟, ascribe a rather simple definition to the term

„patent defects‟; this being48

: “a defect that can be discovered by normal examination

or testing”.

44 Cama, J. Supra 34. 45 (1984) 2 ConLR 43

46 Chan CF. P. Supra 3. pp. 69. 47 Harbans Singh. Supra 47. pp. 695 48 Nigel M Robinson. Supra 37. pp. 160

22

2.3.2 Latent Defects

A latent defect is by definition considered as something that cannot be easily

discovered. Latent defects can be said as those hidden or concealed defects which

would not be discovered by the nature of a reasonable inspection49

. Normally, latent

defects only become apparent at some later date or upon an investigation of some

consequential effects caused by the defect.

Michael F. James50

has defined latent defects as defects which cannot

reasonably be discovered at the stage of a building‟s practical completion or during

the period of contractual liability for defects. While Susan Hodges51

alleges that a

latent defect is defect which “could not be discovered on such an examination as a

reasonably careful skilled man would make”. Hence, by definition latent defects are

contrary to patent defects which it cannot be discovered by the exercise of due

diligence or ordinary care.

Vincent Powell-Smith52

describes „latent‟ defects as the following definitions:

“A defect which is not discoverable during the course of ordinary and reasonable

examination but which manifests itself after a period of time. In building and civil

engineering work the most common application is defects becoming apparent after

the maintenance period expired.” Meanwhile, Robinson and Lavers describe a „latent‟

defect in the following words53

: “a defect that cannot be discovered by normal

examination and testing”.

49 Cama, J. Supra 34. 50 Michael F.James (2994), “Construction Law.” The Macmillan Press Ltd, London. pp. 145. 51 Susan Hodges (1996), “Law of marine insurance.” Cavendish Publishing Limited, London. pp. 133. 52 Harbans Singh. Supra 47. pp. 696 53 Nigel M Robinson. Supra 37. pp. 161

23

Hence, latent defects will only be noticeable after a period of times, and this

has created challenges and places difficulties to those who suffer as a result of the

said defects and wish to obtain compensation for loss suffered when54

:

1. The notice of latent defect becomes obvious only after the developer/owners

have sold the completed structure.

2. The valid limitation period has expired when the latent defects becomes

apparent.

Generally, the courts will award monetary damages for the latent defects. In

most of the instances, patent defects that have been covered up by the owners, will

often be interpreted as latent defects by the courts, in order to award some kind of

relief. Most often to clearly differentiate the patent from latent defects depend on the

direction of examination and the expertise of the judge in the court of law. Therefore,

whether a defect is classified as a patent defect or latent defect is up to the judge and

the outcome sometimes surprising55

.

In the case of Victoria University of Manchester v Hugh Wilson & Lewis

Wormsley (a Firm) and Pochin (Contractor)56

, it was held that the latent defects is

one which could not be discovered by such an examination as a reasonably careful

man skilled in that matter would make. Thus, as stated by its nature, a latent defect

cannot be discovered until it becomes patent and yet it may not be discovered

immediately since there may be no immediately apparent signs to indicate the

presence of the defects57

.

54 Michael F.James. Supra 50. pp. 145. 55 Cama, J. Supra 34. 56 (1984) 2 Con LR 43 57 Chan CF. P. Supra 3.

24

2.4 Causes of Defective Work

Generally, there are various reasons that will give rise to the building defects.

It may either be poor design, low quality workmanship or the building was not

constructed according to the design or because it has been subjected to factors not

allowed for in the design. It was said that, before the contractor is liable to remedy

the defects, it must be shown that they have arisen from materials and workmanship

not being in accordance with the contract58

.

Therefore, a defective work can be defined as an element supplied or

constructed which is in some respect not in accordance with the contract. It also can

be considered as some action having consequences which are not authorised by the

contract. Thus, the acceptability of performance must, in contract, be limited to those

express or implied terms in the contract. Express terms are commonly either

compliance with the contract‟s specification content and the drawings, satisfaction of

the architect (or other supervisor) or both. The implied require „merchantable

quality‟, „workmanlike‟ workmanship and fitness for purpose. 59

.

In most of the construction contract, the construction work is defined as

defective when it does not be in accordance with the standard that is required by the

contract. Article 7 of PAM 2006 has defined defective work as defects, shrinkage or

other faults due to materials and workmanship not in accordance with the contract

and/or due to any faulty design undertaken by the contractor. Thus, it is found that

the defective works are triggered by improper materials, workmanship and faulty

design.

Clause 9(a) of JRK 203A 2007 Form and Clause 6.1 of PAM 2006 Form

requires the contractor to use materials and workmanships that comply with

58 Sundra Rajoo (1999), “The Malaysian Standard Form of building contract – the PAM 1998 Form.” Malayan

Law Journal Sdn Bhd, Kuala Lumpur, pp.146. 59 Nigel M Robinson. Supra 37. pp. 160

25

the specifications. The obligation of the contractor to procure and achieve the

specified kind and standard is an absolute one. If the contractor fails to do so,

he would be in breach of contract unless the Superintending Officer is willing

to permit a substitution by way of a variation instruction60

.

Clause 9(b) of JKR 203A Form and Clause 6.3 of PAM 2006 Form

empowers the Superintendent Officer / Architect to require the contractor to

demolish or open up the work done for inspection and associated cost will be

borne by the contractor if the works have not been carried out in accordance

with the contract61

. The purpose for opening up and testing is to ensure that

the works, materials, workmanship and goods are „in accordance to the

contract‟. If the contractor is not in default, he can recover the cost of

opening up, testing and making good.

A number of analyses of building failures have been carried out to determine

whether they were due to poor design, construction, materials or misuse by the

occupier. Most of the failures were due to faulty design (design in this context is

often building construction design and detailing and not necessarily engineering),

following by fault were due to the builder‟s faulty execution of the work, failure of

components or materials to meets acceptable performance, and failure were due to

misuse by the use of the building62

.

However, there are two respects of defects that are seldom considered. One is

the buildability of the design which determines whether good workmanship can ever

be achieved if the necessary reasonable care and skill are presented. Another aspect

is that the durability of the materials which represents the life span of each material

in given environment before it deteriorates, wither partially or wholly63

.

60Lim Chong Fong. “The Malaysian PWD Form of Construction Contract.” (Malaysia: Sweet & Maxwell Asia,

2004). pp. 29 61Mohd Suhaimi Mohd Danuri. Supra 12. pp. 55 62 Holland, R. , Montgomery B.E. , Smith and Moore J. F.A.(1992). “Appraisal and Repair of Building

Structures”. London: Thomas Telford. 63 Chan CF. P. Supra 3.

26

Generally, defects in the construction industry can be well divided into three

(3) main categories64

as follows:

a) Standard of design

b) Quality of the building materials

c) Quality of the workmanship

2.4.1 Standard of Design

Liability for design is mainly determined today by a party‟s undertaking

contractual responsibility to supply design services65

. Design, includes both the

broad concept of building and also matters of considerable detail. In traditional

building procurement, there is a clear separate function between the design and

construction66

. The responsibility of design is under the employer‟s design team

(normally consist of architect, civil engineer and structural engineer). Meanwhile,

construction is the responsibility of the contractor, whose duty is to construct in strict

accordance with the contract documents.

Generally, scope of design include not only structural calculations and the

dimensions, shape and location of the work, but also the choice of particular

materials for particular functions and, similarly, the choice of particular work

processes. In other words, in sophisticated contracts the designs includes the

drawings as well as the specifications 67

.

64 Mohd Suhaimi Mohd Danuri. Supra 12. pp. 55 65 Nigel M. Robinson. Supra 37. pp. 136. 66 John Murdoch and Will Hughes (2008), “Construction contracts – law and management.” 4th edition, Taylor

& Francis, London, pp. 179. 67 I. N. Duncan Wallace. Supra 5. pp. 274.

27

The term „design‟ has been explained by Vincent Powell-Smith as68

: “A

rather vague denoting a scheme or plan of action. In the construction and engineering

industry, it may be applied to the works of the engineer in formulating the function,

structure and appearance of a works or to a structural engineer in determining the

sizes of structural members…”

In traditional construction procurement, contractor bears no liability for

defect which arises due to design error or faulty design. Under the contract used by

traditional method of procurement, designs are the exclusive province of the

architect, plus such specialist as are necessary. In fact, in practice, contractor under a

traditional form of contract are however tending to take on a measure of design

responsibility in the following ways69

:

a) When the contract documents give insufficient fine detail such as how far

apart to place a fixing screw, a contractor who exercises discretion is in

fact taking on a design function. Contractor who uses his own initiative

without seeking an architect‟s instruction, will be liable for any defects

that arise.

b) Contractors are often asked during the progress of construction, for their

opinion to overcome a particular problem that has arisen. If such an

opinion is given (at least where the person giving it is a specialist) a duty

of care will arise.

c) Where the contractors are required to produce drawings for the architect‟s

approval, any matters of designs that are included, the contractor may be

liable. This is regardless of the possibility where the architect may be held

jointly liable.

d) Where the contractor is required to warn the employer of any design

defects that he knew about. This point was considered in the case of

68 Harbans Singh. Supra 47. pp. 698 69 John Murdoch and Will Hughes, Supra 66. pp. 187.

28

Brunkswick Construction v Nowlan70

, Supreme Court of Canada has held

contractor is liable for employer to warn him of faulty design which

subsequently has resulted in defects.

By that as it may, the undertaking of the design may not be confined to the

employer‟s designers but may be the obligation of the contractor whereby quality

standards may be either71

:

a) Stipulated expressly in the contract i.e. in the specifications, standards,

codes of practice, etc and reaffirmed through specific clauses in the

conditions of contract.

b) In the absence of express provisions, established by necessary implication.

Therefore, under traditional contracting method, the design responsibility

shall remain under the responsibility of the consulting engineer or the architect. In

Oldschool v Gleeson (Construction) Ltd72

, Judge Stabb QC said:“The responsibility

of the consulting engineer is for the design of the engineering components of the

works and his supervisory responsibility is to his client to ensure the works are

carried out in accordance with that design.”

Contrary, when the contractor is required to use a design and construct

method (where an architect or engineer is not engaged by the employer), the

contractor shall be responsible for the proposed design73

. Under this type of contract,

the contractor undertakes design responsibility, not only to the reasonable care and

skill standard which an architect or engineer will owe, but with a duty of fitness for

purpose consistent with the overall construction obligation74

.

70 (1974) 21 BLR 27. 71Harbans Singh. Supra 47. pp. 698 72 (1976) 4 BLR 103, 131 73 IBA v EMI Electronics Ltd & BICC Construction Ltd (1980) 14 BLR 1 74John Murdoch and Will Hughes, Supra 66. pp. 179.

29

Generally, a contractor undertaking a contract on a design and build/design

and construct basis implicitly warrants that where the purpose of the required works

has been adequately brought to his notice, it imposes on the contractor a duty to

ensure that the design undertaken by him would be reasonably fit for its purpose 75

.

This fitness for purpose warranty is strict in the sense that the design and build

contractor will be strictly liable to the employer for any defects resulting from an

error in his design even though he has not been negligent76

. The same also apply to

other procurement system such as “turnkey” which is a variance of design and build

procurement system.

Consequently, if the defects were proven to be faulty of engineer‟s design,

the employer can sue the engineer for breach of contract77

. On the other hand, if the

defect is flowing from the contractor‟s fault, the contractor should be liable to

remedy the defect78

.

2.4.2 Quality of the Building Materials

As a general rule, the contractor‟s obligation will not extend beyond

supplying a material of good quality conforming to the express description of it in

the contract documents, if the description is precise and certainty with to the

architect‟s and engineer‟s choice of the material79

.

75 Greaves & Co (Contractors) Ltd v Baynham Meikle & Partners (1975) 1 WLR 1095 76 Monica Neo, “Construction defects: your rights and remedies.” Sweet & Maxwell Asia, Singapore, 2005, pp.

27-28. 77 Aubum Municipal Council v ARC Engineering Pty Ltd (1973) NSWLR 513 78 Mohd Suhaimi Mohd Danuri. Supra 12. pp. 55 79 Adcock’s Trustee v Bridge R.D.C.(1911) 75 J.P. 241

30

The quality standards expected of the contractor are either80

:

a) Expressed in the contract, i.e. in the form of specifications, employer‟s

requirements, etc; these being reaffirmed vide appropriately drafted

conditions of contract, which set out those matters on kind, quality and

standard of materials.

Clause 1.1 and 6.1 of PAM 2006 Form respectively state that the

contractor shall provide materials and goods of the respective quality

and standard as described in the contract document or as required by

the architect.

Clause 35.1 of PWD 203A 2007 Form provides that all materials and

goods shall be of respective kinds and standard described in the

specification and of good quality.

Clause 15.1 of CIDB 2000 Form provides that the materials and

goods provided by the contractor shall be the respective kind and

quality described in the Contract or required by the Superintending

Officer in accordance with the provisions of the Contract.

b) Established by necessary implication, such as materials supplied must be of

„merchantable quality‟ and fit for their purpose81

, where these two criteria

operating independently and exclusively82

.

Building contracts usually define the precision specification of materials to

be used by the contractor. The contractor shall be held responsible if the building

materials appear to be defective although its usage has been specified by the contract

specification, where materials may be said to be of poor quality83

.

80 Harbans Singh. Supra 47. pp. 697 81 Khong Seng v Ng Teong Kiat Biscuit Factory Ltd (1963) MLJ 388 82 Rumbelows Ltd v Firesnow Sprinkler AMK and Installations Ltd (1980) 19 BLR 25 83 I. N. Duncan Wallace. Supra 5. pp 274.

31

Nevertheless, there are situations where the contract documents fail to specify

the kind, quality or standard of materials and goods, and then the usual implied

duties of the contractor apply. And these implied duties or terms require that the

materials and goods will be of merchantable quality84

. With respect to that, John

Murdoch and Will Hughes has given the merchantable quality as meanings that,

goods and materials are to be free from any defects as it is reasonable to expect,

given such factors as their price and the way they are described85

.

Reid LJ in Henry Kendall & sons v William Lillico & sons Ltd86

has defined

merchantable quality as: “commercially saleable…the lowest quality commercially

so sold”. There is also another explanation brought by Dixon J in Australian Knitting

Mills Ltd. v. Grant87

: "The condition that goods are of merchantable quality requires

that they should be in such an actual state that a buyer fully acquainted with the facts

and, therefore, knowing what hidden defects exist and not being limited to their

apparent condition would buy them without abatement of the price obtainable for

such goods if in reasonable sound order and condition and without special terms."

Accordingly, a contractor is liable to supply goods and materials which are

merchantable quality88

. However, the House of Lords in Young and Marten Ltd v Mc

Manus Child Ltd89

held that, the contractor was not liable for an implied warranty of

the defective material bought from the manufacturer specified by the owner.

In addition, under certain condition, the contractor will not be liable for

defective materials where he is forced by the employer to obtain those materials

from a supplier who, to the employer‟s knowledge, excludes or limits liability for

84Sundra Rajoo. Supra 58. pp. 95. 85John Murdoch and Will Hughes. Supra 66, pp.161. 86 (1968) 2 All ER 444, (1969) 2 AC 31, (1968) 3 WLR 110 87 (1933) 50 CLR. 387, 413 88John Murdoch and Will Hughes, Supra 66, pp.161. 89(1969) 1 AC 454

32

defects. In Gloucestershire Country Council v Richardson90

, under a contract to

build an extension to a college, the contractor is directed to enter into contract for

supply of concrete columns without any reference to the contractor. The design,

materials, specification, quality and price are fixed between the employer and his

supplier. It is held that the contractor is not liable since the circumstances of this case

indicates an intention to exclude from main contract any implied terms that the

column will be fit for their purpose or of good quality.

In another case of Martin v McNamara91

, the Court held that, the employer

was relying on the skill and judgement of the contractor that the materials were fit

for the intended purpose when the contractor had suggested to use a different type of

roof tiles that turned out to be faulty. The owner should be entitled to the cost of

removing and replacing the faulty materials if the repair work was unreasonably to

be carried out. However, it would be unreasonable to put the liability on the

contractor, if the owner has accepted the material to be used although the contractor

has made known to the owner that the specified manufacturer excluded any warranty

of quality.

2.4.3 Quality of the Workmanship

In respect to quality of workmanship, the standard of workmanship may be

expressly defined in considerable detail by the contract document, for example by

requiring it to comply with an appropriate code of practice92

. Where the standards

are described in the contract documents, the workmanship must be of those standards.

The deficiencies in the labour of both main and sub-contractors are mainly the

outcomes of lack of skill, lack of care and interest, or lack of knowledge on the

90(1969) 1 AC 480. 91(1951) QSR 225.8 92 Murdoch, J and Hughes, W. Supra 6. pp. 148

33

importance of special care in the execution of some important scope of work93

.

Anyhow, if there are no express terms in regard of workmanship, then the implied

duties of the contractor apply94

. The court will imply a term in the contract that the

work will be carried out with proper skill and care, i.e. workmanlike manner95

.

The standards of workmanship to which the contractor must aspire to work

towards are either96

:

a) Prescribed in the contract in an express manner. These are usually contained

in the form of the specifications, standards, code of practice, etc, and

endorsed by the relevant express clauses. It is essential that the standard of

workmanship for each item of work in a building project should be expressly

provided in the building contract to avoid creating uncertainties in the scope

of the contractor‟s obligation97

.

Clause 1.1 and 6.1 of PAM 2006 Form provide that the workmanship

for the work shall be of the standard as described in the contract

document or as required by the architect.

Clause 35.1 of PWD 203A 2007 Form provides that the workmanship

shall be of respective kinds and standard described in the specification

and in accordance with the standard of workmanship in the industry.

b) Implied under the general corpus of the law, e.g. workmanship has to be of

„workmanlike‟ standard such that an employer could reasonably expect of an

ordinarily skilled and experienced contractor of the type the employer has

elected to employ and having regard to any relevant claims made by the

contractor as to his level of competence98

. It is to be noted that where a

93 Alan Crocker. Supra 32. pp. 7. 94 Sundra Rajoo. Supra 58. pp. 95 95John Murdoch and Will Hughes. Supra 66. pp. 160. 96 Harbans Singh. (2003), “Engineering and Construction Contracts Management – Post Commencement

Practice.” (Singapore: LexisNexis, 2003.) pp. 698 97Chan CF. P. Supra 3. pp. 51. 98Hancock v BW Brazier (Annerley) Ltd (1966) 2 All ER 901

34

contractor has complied exactly with a detail express specification, there is

no room for implication of further provision as to the standard required to be

achieved99

.

In Hancock and others v BW Brazier (Anerly) Ltd100

, a builder sells an estate

of houses, which he is then erecting, to a purchaser under a contract which provided

by Clause 9 that the builder will in a proper and workmanlike manner erect, build

and complete a dwelling-house in accordance with the plan and specification prior to

completion. It is held that the purchaser is entitled to damages for breach by the

builder of implied warranty in doing his work in a good and workmanlike manner

and supply good and proper materials so that the house will be reasonably fit for

human habitation.

2.5 Defects Liability Period

Upon completion of the works, the architect will usually issue a certificate of

practical completion (CPC) to certify that the works have been completed in

accordance with the contract101

. Then the defect liability period (DLP) begins. The

exact status of the „Defects Liability Period‟, is a period defined in the construction

contract which during this period, the appearance of defects is at the contractor‟s

own risk in that he may be called upon to return to site to rectify them as necessary.

This was traditionally a period of six months but is now commonly specified as

twelve (12) months after issuance of CPC 102

.

99Lynch v Thorne [1956] 1 WLR 303 100(1966) 2 All ER 901 101 James B. Longbottom of Brian E. Rawling & Associates (BERA), 2001, “Defective Work - Minimising the

Problems”, Hong Kong Institute of Surveyors. 102 Nigel M Robinson. Supra 37. pp. 170

35

Most standard forms of contract will include a defects liability clause which

provides that the contractor will make good defects which appear within the defects

liability period. The Contractor will be liable to rectify any defects, shrinkages or

other faults arising during this period due to defective materials or workmanship at

the contractor‟s own cost. In practice, such defect liability period clauses also work

to the advantage that making the ordinary contractor responsible for carrying out the

repairs is usually cheaper and more efficient than either the employer repairing the

defect himself or engaging a third party to repair the defect103

.

The contractual procedure for dealing with defects arising during the Defects

Liability Period is that the contract administrator should issue a schedule of such

defects to the contractor not later than fourteen days after the end of the defects

liability period, and the contractor then has a reasonable time to rectify the defect

works. Once the work had been rectified, the contract administrator will issue a

„Certificate of Completion of Making Good Defects‟, and following the contractor

becomes entitled to the remaining part of the retention money104

.

It is common in construction contracts to require the contractor to warrant

that the works upon completion are free from defects and to make good defects

which appear during the defects liability period. The defects liability period provides

a practical mechanism to the Employer for the repair or making good of defects

which may not be apparent before completion, without resorting to dispute

resolution105. Defects appeared after the expiry of the defects liability period and the

employer‟s remedy in most cases is limited to pursuing a legal claim in damages.

It is during the defects liability period that the employer has the right to call

for the contractor‟s physical return to the site after the employer has taken over the

103Mallesons Stephen Jaques, 2003. “Defects Liability Period - an introduction. Asian Projects and Construction

Update.” 104 Murdoch, J and Hughes, W. Supra 6. pp.185. 105 Mallesons Stephen Jaques. Supra 103.

36

works. The employer must serve a notification of defect on the contractor and the

contractor is required to make good the defect within a reasonable period. Remedies

available to the employer in the event the contractor fails to make good defects

during DLP may include the right to106

:

a) carry out the remedial works himself or employ other contractors and

deduct all reasonable costs incurred from the retention monies;

b) determine a reasonable reduction in contract price to reflect the diminution

in value of the works by reason of the defects;

c) call on the performance security;

d) terminate the contract

2.5.1 Defects Discovered during Defect Liability Period

Defects discovered during defect liability period normally covers the period

from the date of completion or handing over up to the certification by the contract

administrator of the contractor‟s obligation to remedy defects, i.e. by the issue of the

Certificate of Making Good Defects107

. In all cases, the strict entirety of the contract

is modified and provision is made for the making good of defects by the contractor

subsequent to handing over possession. Standard forms of contract generally give the

contractor a licence to return to the site for the purpose of remedying defects. In

effects, such condition of contract confers upon the contractor a right to repair or

make good its defective works108

. In fact, the employer‟s right to have defects

106 N. Pathmavathy and Kamraj Nayagam, Skrine & Co. (2004), “Drafting Construction Contraccts”, The

Ingenieur Volume 35 Sept-Nov 2007, cover feature 21. 107 Harbans Singh. Supra 47. pp. 711 108 Ong See Lian. 2005. “Defective Works.” International Conference on Construction Law & Arbitration. (26th

– 28th April 2005, Kuala Lumpur.). pp. 3.

37

remedied within this stipulated period after completion is in substitution for his

rights to a damages claim in respect of the cost of remedial work.109

.

Accordingly, it is generally accepted that if the original contractor had failed

to comply with the said notice for rectification, the employer would be entitled to

appoint another contractor to make good the defects. However, the issue would be

raise up if the employer employs another contractor to rectify the defects without

first giving the required notice and rights to the original contractor. In another words,

it deprives the original contractor from having their rights and opportunity to

undertake the remedial works himself. Therefore, it must be noted that the employer

cannot employ another contractor to do work that the original contractor is obliged to

do under the contract110

. The common law principle has justified that the works

under the contract cannot be omitted with an intention of giving it to another

contractor111

.

Clause 15 of PAM 2006 Form, Clause 48 of PWD203A 2007 Form and

clause 27 of CIDB 2000 Form provide two ways of notifying the contractor for

rectifying the defects during DLP as follows112

:

a) At any time during DLP, the Architect/Superintending Officer can request the

contractor in writing to make good the defects within reasonable time; and

b) Architect/Superintending Officer not later than fourteen (14) days after the

expiry of DLP issues schedule of defects to be made good by the contractor

within reasonable time; but in PWD 203A it clearly specifies that the defects

to be made good by the contractor not later than three (3) months after

receiving the schedule.

109 Nigel M Robinson. Supra 37. pp. 171 110 Mohd Suhaimi Mohd Danuri. Supra 12. pp. 56 111 Carr v JA Berriman Pty Ltd (1953) 27 ALJR 273 112 Mohd Suhaimi Mohd Danuri. Supra 12. pp. 54

38

2.5.2 Contractor’s Obligation during Defect Liability Period

As the contracts envisage that the defects might occur during the defect

liability period, such defective building works shall not be considered as a breach of

contract by the contractor113

. Upon receipt of notice of defect and rectification, the

contractor is obliged to return to the site to make good the defects and the employer

is obliged to allow the contractor to do so. However, failure of the contractor to

rectify the defects upon receipt of notice constitutes a breach of contract and

therefore the employer has the rights to recover the cost in the form of damages per

Section 74(3) of Contracts Act 1950. It is an alternative of recovering the cost of the

remedying defective works by another contractor within the ambit of the contract

provisions. Therefore, it is the contractor‟s obligation under the contract to rectify

the defects which appears during defect liability period.

Therefore, in the event that the contractor fails to rectify the defects after

being given notice or the employer is not satisfied with the remedial works, the

employer is entitled to appoint another contractor to undertake the remedial work

and claims the cost of rectification from the original contractor114

. This has been

correctly decided by the High Court of Malaya, Kuala Lumpur in Kemayan

Construction Sdn Bhd v Prestara Sdn Bhd115

where the employer is entitled to

recover the cost of rectification of the defective building works from the original

contractor who failed to rectify the defects after being instructed by the Architect. It

was held that the employer is entitled to engage independent contractor to rectify the

defects and deducted the rectification cost from the original contractor‟s account.

Kamalanathan JC agreed that the owner may recover from the contractor or may

deduct any money due or to become due to the contractor provided that the architect

has issued a written notice to the contractor to rectify the defects and that at the

expiry of seven days notice, it has been shown that the contractor has failed to rectify

the defects.

113Anon. Supra 13. 114 Mohd Suhaimi Mohd Danuri. Supra 12. pp. 56 115 (1997) 5 MLJ 608

39

The PAM 2006 Form and PWD 203A (Rev.2007) Form respectively contain

provisions that govern the contractor‟s responsibility for defective building work

after completion of the work apart from those above mentioned provisions which

specify the contractor‟s responsibility for defective work during the construction

period. Thus, Clause 15 of PAM 2006 Form and Clause 48 of PWD 203A 2007

Form oblige the contractor to rectify “any defect, imperfection, shrinkage or any

other fault which appear after practical completion”.

2.5.3 Provisions Deal with Defects Liability Period

A defects liability period clause will set out the length of the defects liability

period and also the circumstances under which the defects liability period may be

extended. Typically, the defects liability period starts upon completion of the works,

which in many contracts will be signalled by the Employer's Representative's issue

of a practical completion certificate. The actual period will vary depending on the

nature of the contract; for straight forward building projects it is usually 6 or 12

months. For complex engineering projects such as a power station, it can be as long

as 24 or 36 months. The defects liability period clause may also provide for sectional

completion, for example116:

"The Defects Liability Period is the period of 12 months commencing on the Date of

Practical Completion. If the Works are taken over by the Employer in Sections, the

Defects Liability Period for each Section must commence on the Date of Practical

Completion for that Section."

Clause 15 of PAM 2006 Form and Clause 48 of PWD 203A (Rev.2007)

Form govern the contractor‟s defect liability to rectify defective works appear after

practical completion. This clause is normally known as defect liability period clause.

116 Mallesons Stephen Jaques. Supra 103.

40

This defect liability period will be of twelve (12) months from the day mentioned in

the certificate of practical completion unless there is some other period is specified

in the Appendix.

Under Clause 15.4 of PAM 2006 Form and sub-clause 27.1 of CIDB 2000

Form, it allow the architect or superintending officer to specify in the schedule of

defect any defect, imperfection, shrinkage or any other fault appearing within the

defect liability period which arise due to materials and workmanship not in

accordance with the contract. The architect or superintending officer should

subsequently deliver the schedule of defect to the contractor within 14 days after the

expiry of the defect liability period. Once contractor receives such a schedule, he is

obliged to make good such defect, imperfection, shrinkage or any other fault within a

reasonable time, entirely at his own cost. What is a reasonable time to make good the

defects is dependent on the nature of the defects and the methods used by the

contractor to rectify them117.

PWD 203A (Rev.2007) Form sub-clause 48.1(b) is similar to the above PAM

2006 Form sub-clause 15.4 and CIDB 2000 Form sub-clause 27.1, except that it also

requires the Contractor to make good the defects no later than three months after

receipt of the defects Schedule.

However, when in the circumstances that the contractor fails to make good,

the employer may recover such a cost of making good defect under clause 15.4 and

30.4 of PAM 2006 Form and clause 48.2 of PWD 203A (Rev.2007) Form, from the

money due or become due to the contractor or from the performance bond. Apart

from deducting money from performance bond and money which is due or become

due to the contractor, the employer is allowed under clause 15.3(b), Clause 15.4 and

Clause 15.5 to engage and pay another person or third party to rectify such defective

work. Definitely, the cost which is incurred by employer to employ a third party to

117 Sundra Rajoo. Supra 58. pp.146.

41

carry out the rectification work is recovered from the original contractor. CIDB sub-

clause 27.3 is similar to the clauses of the both forms mentioned, except for the

Performance Bond and liquidated demand of money being excluded.

In addition, sub-clause 48.3 of PWD 203A Form and CIDB 2000 Form sub-

clause 27.4 further provide that, if the defects, shrinkages or other faults are

impracticable or inconvenient to the Employer to have the Contractor make good

these defects and faults, it allows the Engineer to ascertain the diminution in value of

the Works due to the said defective or faulty works and deduct such value in the

same manner.

PAM 2006 Form sub-clause 15.6 requires the Architect to issue the

Certificate of Making Good Defects (CMGD) when the defects, shrinkages or other

faults have been made good. PWD 203A (Rev.2007) Form sub-clause 45.4 and

CIDB 2000 Form sub-clause 27.6 are similar to PAM 2000 Form sub-clause 15.6.

CIDB 2000 Form under the same sub-clause further provides that the said Certificate

is to be copied to the Employer and Nominated Sub-Contractor(s)/ Nominated

Supplier(s) and it shall discharge the Contractor from any physical attendance at the

Works for the purposes of remedying defects. It will not however prejudice the

Employer‟s right on latent defects or other breaches of the Contract. Sub-clause 27.7

of CIDB 2000 Form further emphasised that the provisions of sub-clause 27.1 to

27.6 do not derogate or relieve the Contractor from liability under the Contract or at

law.

42

2.6 Conclusion

Under a construction contract, contractor‟s primary obligation is to carry out

and complete the work in accordance to the standard set out in the contract. During

the defect liability period, if the work founded that does not comply with the contract

requirements and causes a defect occurs, employer has the rights to require the

contractor to repairs or remedy the defects that appear at the contractor‟s own cost.

Defective building construction not only contributes to the final cost of the

project but also to the cost of maintenance, which can be substantial. Defective

construction includes activities such as compaction not done to specifications leading

to ground subsidence and eventual early deterioration of foundations. This may lead

to the complete failure of a structure. It was found that construction inspection is the

factor that, not only ensures accurate building construction but also have an effect on

the major portion of the listed causes leading to defects118

. Defects resulting of

inaccurate construction can be avoided by ensuring that proper inspection

mechanisms are in place.

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

CHAPTER 3

EMPLOYER’S DEFECTIVE WORK CLAIMS DURING DEFECT

LIABILITY PERIOD AND THE CONTRACTOR’S LIABILITIES

3.1 Introduction

Under construction contract, the contractor is liable to make good defects

which appear within the defects liability period (DLP). A defect liability period

commences on the date of practical completion and continues for a period as stated

in the contract. Generally, most defects liability period provisions in standard form

contracts constitute both an obligation on the part of the contractor and a right on the

part of the employer, but do not limit defects claims to the defect liability period119

.

In addition to that, further defects appear within the statutory limitation period, the

employer will normally have a common law rights to make a claim in damages

against the contractor. However, rather than the employer making good the defects

and suing for damages, it is usually more cost effective and efficient for the

contractor responsible for the original work to make good the defects.

119Jim Doyle. Supra 19.

44

Defective works are works which fail to comply with both the express

descriptions or requirements in the contract (drawings and specification), and

implied terms of the contract which affecting the quality of the works, whether due

to faulty materials, workmanship or even design (if such design is part of

contractor‟s obligations under the contract) 120. In most situations, contract includes

provision that requires the contractor to take full responsibility and liability for the

rectification works if the defects are due to a breach of contract.

In general term, it is the employer‟s entitlement to require the contractor to

return to the site and rectify the defects during defect liability period. It is also the

rights of the employer (subject to the provisions of the particular contract) to have

the defective work rectified by another contractor at the original contractor‟s expense

in certain circumstance. This would ordinarily means that the principal is entitled to

deduct the costs of that rectification from retention money held by the principal121

.

However, it would be much more efficient for the original contractor to carry

out the rectification of the defective work. The main obligation throughout the defect

liability period on the contractor is that upon being given reasonable notice, to attend

the site and rectify the defective work122

. The contractor‟s obligation to put right the

defective work during the defects liability period is at its own expense.

The employer‟s claims and the liability of the defect by the contractor to the

rectification works generally cover the following activities123

:-

1. Preparation of defect lists identifying deficiencies against standards/

requirements (i.e. snagging list);

120Ong See Lian. Supra 108. pp. 1. 121Mallesons Stephen Jaques. Supra 103 122Mallesons Stephen Jaques. Supra 103 123 Anon. Supra 13.

45

2. All remedial works are to be carried out within the specified time under the

supervision of qualified and experienced contractor‟s personnel;

3. Joint inspection, by the Architect/ Engineer/SO of the rectified works;

4. Further defects (if any) identified by the Architect/Engineer/SO to be listed

on a schedule of defects, to be rectified within an agreed period for

subsequent inspection, leading to the issuance of the CPC.

5. Upon completion and inspection of the rectified works, to be signed off by

the Architect/Engineer/SO i.e. to “close-out” all rectified works.

6. Any further defects occurring/ identified within the DLP, to be rectified

periodically, unless those requiring urgent repairs.

3.2 Provisions in the Standard Forms Of Contract

Under a construction standard form of contract, the contractor's primary

obligation is to carry out and complete the works to the standard set out in the

contract. The defects liability period provision under the standard form of contract is

intended to complement this liability by setting out how and when the contractor

must remedy defective work which becomes apparent during the defects liability

period. In addition, provision in standard form of contract include the defects

liability obligation which recognises that defects will arise in the period following

completion and the obligation to repair those defects in the general obligation to

complete the works to the required standard124

. On the other hand, the employer is

generally required to give the Contractor notice of the defects as soon as practicable,

stating the nature of the defect and supporting evidence.

124 Mallesons Stephen Jaques. Supra 103.

46

3.2.1 Provision Deals with Defects Liability

A defects liability clause obliges a contractor to repair or rectify defects that

appear in the works they have constructed between the period that a certificate of

practical completion is issued and its expiry.

A defects liability clause will require the contractor to repair or make good

defects which are the result of the contractor‟s default. Usually the contractors will

seek to exclude liability for defects not owing to the contractor‟s default, for

example125

:

"The Contractor is not responsible for the repair, replacement or making good of

any defect or of any damage to the Works arising out of or resulting from any of the

following causes:

(a) any acts or omissions of the Employer, its employees, agents;

(b) improper operation or maintenance of the Works; or

(c) use and operation of the Works outside the Specification."

In a construction agreement, a contractor's main obligation is to carry out and

complete building works until completion, free of defects and to the standard set out

in that document. A defects liability clause is intended to supplement this obligation

by ensuring that the contractor remedies any defective work which becomes

noticeable during the defects liability period; and provide a mechanism whereby the

repair or making good of defects, which may not be obvious before completion, can

be achieved without the need to resort to dispute resolution.

125 Mallesons Stephen Jaques. Supra 103.

47

A defects liability clause usually sets out the term of the defects liability

period, the scope of defects the contractor is obliged to remedy/repair and any

proportion of the contract sum retained by the principal, or a performance bond as a

guarantee for the performance of the remedial work during the defects liability

period126

. A defects liability clause will set out the scope of defects the contractor is

obliged to remedy and any part of the contract sum retained by the Employer as

surety for the performance of the remedial work.

A defects liability clause may also address the procedures for notifying the

contractor of the defects which require remedy, the circumstances under which the

defects liability period may be extended, as well as any limits on such extensions to

the defects liability period127

.

In some construction contract, it included clauses that require the Contractor

to make good defects irrespective the cause of the defect, with appropriate

reimbursement where the contractor is not in default. This facilitates quick repairs of

the works by the party most familiar with the works and, therefore, best able to

undertake the repairs128

.

However, in most cases, the Contractor may have an absolute liability to

make good or repair the defects at its own cost. Defect liability clause of JCT

Standard Form of Contract stated that:

"… after receipt of such schedule the defects, shrinkages and other fault therein

specified shall be made good by the Contractor at no cost to the Employer … "

126 Mallesons Stephen Jaques. Supra 103. 127 Monica Neo (2005), “Construction defects: your rights and remedies” Sweet & Maxwell Asia, Singapore,

pp.24. 128 Mallesons Stephen Jaques. Supra 103.

48

There are liabilities and obligations imposed on the contractor after

completion, notably by PWD203A (Rev.2007) Form, PAM 2006 Form and CIDB

2000 Form.

Clause 48 of PWD 203A (Rev.2007) Form governs the rights and obligations

of the parties on defects, imperfections, shrinkages and other faults in the

works which arises during the Defects Liability Period (DLP) after

achievement of practical completion of the works. Clause 48(a) specifies that

the contractor is liable for any defect, imperfection, shrinkage and other fault

appears during the DLP, which will be six months from the day named in the

Certificate of Practical Completion (CPC), unless some other period is

specified in the Appendix129

.

Clause 15.2 under PAM 2006 Form also specifies the liabilities of the

contractor after the CPC has been issued. It establishes a formal DLP and a

procedure for dealing with defects within that period130

.

CIDB 2000 Form also has the similar provision under Clause 27.1 where the

contractor shall remedy any defect works within specified time.

CIDB 2000 Form sub-clause 27.5 is unique as it allows the SO to instruct the

Contractor to search for the causes of defects, and if the Contractor is liable

for them, the Contractor shall bear such search cost and remedy the defects at

his own cost. If not, the said cost shall be deemed a variation.

It is clear that during the defect liability period, the Employer via Architect/

Engineer/SO is required to issue the necessary notices to the contractor and the

contractor under his defect liability shall be obliged within reasonable time to rectify

the defects at his own cost.

129 Sundra Rajoo. Supra 58. pp. 145. 130 Nigel M Robinson Supra 37. pp. 170

49

3.2.2 Contractor's Rights to Rectify Works and Notification

It is another important consideration to determine whether the contractor has

an exclusive right to remedy defects which appear during the defects liability period.

From the contractor‟s perspective, it is beneficial to have the exclusive right to

remedy the defects during the defects liability period as the costs of remedying the

defects will be cheaper than the employer having to pay the cost of another

contractor performing such works131

. If the contractor has an exclusive right to repair

defects, and an employer who proceeds to remedy the works without offering the

contractor the opportunity to do so constitute to the breach of the contract. JCT

defect liability clause stated that:

"Any defects, shrinkages or other default which shall appear within Defect Liability

Period and which are due to materials or workmanship not in accordance with this

contract or to frost occurring before practical completion of the works, shall be

specified by the Architect in a schedule of defects which he shall deliver to the

contractor as an instruction of the Architect… "

Thus, it is obvious that contractor has the right to be given an opportunity to

rectify any defects which falling within the defect liability period132

. In the case of

P&M Kaye Ltd v Hosier & Dickson Ltd133, the defect liability period‟s clause is

included in the contract with an intention of giving opportunity to the contractor to

make good the defects appear during that period. The Lord Diplock, commenting on

JCT defects liability clause in the case said:

“Condition 15 imposes upon the contractor a liability to mitigate

the damages caused by his breach by making good defects of

construction at his own expense. It confers upon him the

corresponding right to do so. It is necessary implication from this

that the employer cannot, as he otherwise could, recover as damages

131 Mallesons Stephen Jaques. Supra 103 132 John Murdoch and Will Hughes. Supra 66. pp. 196. 133 (1972) 1 WLR 146, at p.166

50

from the contractor the difference between the value of the works if

there had been constructed in conformity with the contract and their

value in their defective condition, without first giving to the

contractor the opportunity of making good the defects.”

However, some standard form of contract may also provide for circumstances

where the employer has the right to engage another contractor to remedy the defects

at the cost of the contractor i.e. the contractor fail to rectify the work134

. Under

standard form of contract, i.e. clause 15 of PAM form, the employer is allowed to

engage and pay another person or third party to rectify such defective work, and the

cost which is incurred by employer to employ a third party to carry out the

rectification work is recovered from the original contractor. However, it is noted that

before engaging a third party to make good the defective building work, the

employer must give the original contractor a chance to rectify the defects135

.

Therefore, during defects liability period, the contractor has the right as well

as the obligation to put right any defects that appear. This gives the meaning that an

employer who discovers defects should operate the contractual defects liability

procedure, rather than appoint another contractor to carry out the repairs. In the case

of William Tompkinson v Parochial Church Council of St Michael136

, an employer

refused to allow the original contractor access to the site to remedy defects, but

instead sued the contractor for the cost of having these rectified by another

contractor. It was held that the employer‟s decision amounted to an unreasonable

failure to mitigate the loss suffered, and the damages were reduced by the amount by

which the employer‟s costs exceeded what it would have cost the original contractor

to carry out the work. The Court of Appeal has since approved this decision.

134 Mallesons Stephen Jaques. Supra 103 135 Monica Neo. Supra 127. pp.24. 136 (1990) 6 Const LJ 814

51

3.3 Liability for Defects

Liability as indicated in Dictionary of English Law, is potentially subject to

obligation, either generally as including every kind of obligation or in more special

sense to denote inchoate, future unascertained or imperfect obligation, as opposed to

debt, to essence of which is that they are ascertained and certain. While Burton‟s

Legal Thesaurus Dictionary defined liability as accountability, accountable,

amenability and answerability.

Similarly, liability as stated in Osborne Concise Law Dictionary is: “an

amount owed; or subject to legal obligation; or the obligation itself, he who commits

a wrong or break on a contract or trust is said to be liable or responsible for it”.

According to Borja and Stevens137 (2002), a liability is a present obligation of

the enterprise arising from past events, the settlement of which is expected to result

in an outflow from the enterprise of resources embodying economic benefits.

Meanwhile, Frankel138 defines liability in any legal responsibility, duty or obligation,

the state of one who is bound in law and justice to do something which may be

enforced by action.

Frank and James139 provided that in law, a person may owe a duty to another

person by his own free will in a Contract or bay the operation of common law of

Tort. The failure to perform or negligently perform these duties or responsibilities

constitute a breach, therefore he or she will be answerable or accountable to the other

party who may have suffered as a result of his/her wrongful act.

137Borja, M. E and Stevens, S.T. (2002). No Accident, No Coverage: A Look at Breach Of Contract Claims In

Construction Defects Cases. Mealey‟s Litigation Report: construction defects, Inc., King of Prussia, PA. Vol. 3. 138Frankel E. R. Supra 21. pp 20. 139 Frank E. and James A. Supra 10.

52

Under standard form of contract, the contractor is expected to be liable for

any defects in building project. These standard forms usually contain detailed

provisions in respect of the employer‟s remedies to defective works, for example140:

i. Defective work to be remedied by contractor

ii. Defective work to be remedied by employer if contractor fails to do so

iii. Employer may agree to a reduction of contract price instead of remedying

the defect

iv. Employer may deduct the cost of remedial works from the contract price

until the remedial works are carried out

v. Employer to withhold retention monies, to be released upon issuance of the

Certificate of Practical Completion and/or Certificate of Making Good

Defects.

In Greaves &Co. v Bayham Meikle and Partners141, Lord Denning M.R.

stated: “Apply this to the employment of a professional man. The law does not

usually imply a warranty that he will achieve the desired result, but only a term that

he will use reasonable care and skill. The surgeon does not warrant that he will cure

the patient. Nor does the solicitor warrant that he will win case.”

Liability must, of course, be established on balance of probabilities. In Bater

v Bater142, Denning L.J. said: “So also in civil cases, the case may be proved by a

preponderance of probability, but there may be degrees of probability within that

standard. The degree depends on the subject matter… The degree of probability

which a reasonable and just man would require to come to a conclusion”.

140 Ong See Lian. Supra 108. pp. 1. 141 (1975) 1 WLR 1095 142(1951) P. 35

53

Moreover, liability to defect as Oliver J. pointed out in Midland Bank v Hett,

Stubs & Kemp143, is that the obligation to exercise reasonable skill and care is not the

only contractual term which ought to be considered in a professional negligence

action, there are implied terms that he will draw up the option agreement and effects

registration.

Furthermore, in respect to defect liability, the House of Lords in Linden

Gardens Trust Ltd v Lenesta Sludge Disposals Ltd144, the court held that the recovery

of damages for breach of contract was not dependent or conditional on the plaintiff

having a proprietary interest in the subject matter of the contract at the date of the

breach. It was stated that the present owner could recover damages for defective

work even though the owner suffered no actual damage as the building had been sold

for full value before the damage was discovered.

A similar case related to liability for defect, in the Supreme Court of

Queensland, Sir Harry Gibbs in the case of Director of War Service Home v

Harris145 said: “If the owner subsequently sold the building, or gave it away, to a

third person, that would not affect his accrued right against the builder of damages.”

In this case the defective works carried out by the defendant for the plaintiff were not

discovered until after the houses were sold. By the verdict of learned judge and

agreed with by Stable and Hart JJ, that the employer is entitled to recover damages

for the cost of rectification of the defective works.

143(1979) Ch. 384 144(1993) 3. All E.R. 417 145(1968) Qd R 275.

54

3.3.1 Liability of Contractor to Employer

The contractor is expected to carry out the construction work in workmanlike

manner so as to meet the requirement and specification for the project. Under

construction contract, the contractor is entitled or has a contractual right to remedy

any patent defect or latent defect becoming patent, at anytime during the

construction to the date of handing over of the works to the employer and also during

the defect liability period146. He is expected to be informed of any defective works by

the employer‟s representative of the defects and make good at contractor‟s own cost.

If the contractor fails to rectify such defects either on his own or upon instruction of

the contract administrator, he is culpable of breach of contract.

Therefore, it is the liability of the contractor to the employer under the

contract to rectify the defects that appears during defect liability period. According

to Lord Diplock in P&M Kaye Ltd v Hosier & Dickinson Ltd147

, the DLP‟s clause is

included in the contract with an intention of giving opportunity to the contractor to

make good the defects appear during that period. Lord Diplock‟s interpretation is

easy to understand as we could see that most of the construction contracts require the

superintendent to issue notice to the contractor for rectifying the defects appear

during DLP. Further Lord Diplock said that:

“…the contractor is under an obligation to remedy the defects in

accordance with the architect’s instructions. If he does not do so, the

employer can recover as damages the cost of remedying the defects,

even though this cost is greater than the diminution in value of the

works as a result of the unremedied defects.”

146 Ayodeji S. Ojo (2010), “Defect Liability Period: Employer’s Right and Contractor’s Liabilities Examined”. 147 (1972) 1 WLR 146

55

However, non-issuance of notice or schedule of defects by the employer

sometimes brings legal issue on the liability of contractor to the employer. Referring

to the decision of the judge in one of the case whereby the employer did not send the

notice to contractor to make good the defects discovered. The decision had been held

in the Court of Appeal in the case of Pearce & High Limited v Baxter148 Evans LJ

pointed out clear that:

“In my judgment, the contractor is not liable for the full cost of

repairs in those circumstances. The employer cannot recover more

than the amount which it would have cost the contractor himself to

remedy the defects. Thus, the employer’s failure to comply, whether

by refusing to allow the contractor to carry out the repair or by

failing to give notice of defects, limits the amount of damages which

he is entitled to recover...”

Therefore, in the case of the employer‟s breach of contract whether by failure

to give the notice of defects or refusing the contractor to rectify the defects during

defect liability period, does not preclude employer‟s right to damages, but the

damages which entitle to recover will be deducted to the cost of rectification by the

original contractor himself. The contractor is liable to the cost of rectification by

which the cost exceeds what it would have cost himself to carry out the work.

The following flowcharts show the contractor‟s liability to defects during

DLP under PAM 2006 Standard Form of Contract, PWD 203A Standard Form of

Contract and CIDB 2000 Standard Form of Contract.

148 (1999) 66 Con LR 110

56

Figure 2.1 Flowchart of Contractor’s Liability to Defects during DLP under PAM 2006 Standard Form of Contract clause 15

(Source: Anon (2007), “What Are The Obligation Of The Contractor During Defect Liability Period?” The Entrusty Group, Master Builders, 1st quarter 2007)

57

Figure 2.2 Flowchart of Contractor’s Liability to Defects during DLP under PWD 203A Standard Form of Contract clause 48

(Source: Anon (2007), “What Are The Obligation Of The Contractor During Defect Liability Period?” The Entrusty Group, Master Builders, 1st quarter 2007)

58

Figure 2.3 Flowchart of Contractor’s Liability to defects during DLP under CIDB 2000 Standard Form of Contract clause 27

(Source: Anon (2007), “What Are The Obligation Of The Contractor During Defect Liability Period?” The Entrusty Group, Master Builders, 1st quarter 2007)

59

3.4 Defective Work Claims by Employer during Defect Liability Period

When a party performing a contract does not do so in accordance to the

standard as set out by the contract, the said party is in breach of contract. Therefore,

in most circumstances, when contractor is in breach of his contractual obligations,

employer will wish to seek for the relevant remedy that available to him. In terms of

construction defects, the most common form of remedy is damages149

. It is

irrespective during the defect liability period, a contractor who is in breach of

contract in respect of failing to rectify the defective work, has to pay damages to the

employer, who being the injured party of contractor‟s default.

In respect of defects, the employer is not entitled to terminate the contract but

the remedy that is available to him is through seeking damages from court if the

contractor fails to rectify the defects. The employer has the right to set off and claim

damages for main contractor‟s default in respect of defective work during the defect

liability period. In fact, the right to set-off by employer is well spelt out in the

Malaysian standard form of building contracts, i.e. PAM 2006 Form and PWD 203A

2007 Form.

A defective work claim is usually for the cost or estimated cost of

rectification of the defective work. Sometimes, instead of the cost of rectification the

courts award the plaintiff the difference in value between what the intended value of

the work and the actual value of the work on account of the defective work.

Whilst most standard form of contracts specifically deal with the rectification

of defective works, the employer‟s entitlement to damages at common law for

breach of contract for defective work is not usually precluded. The law relating

damages is to award pecuniary compensation for injured party for the loss that he

149 Monica Neo. Supra 127. pp.77.

60

suffered as a result of the wrongdoer‟s default. A claimant, who has not, in fact,

suffered any loss by reason of the breach, is nevertheless entitled to a verdict, but the

damages recoverable will be purely nominal150

.

Damages claims by the employer under the common law are usually included

the damages as follows:

i. Cost of Rectification.

Cost of rectification is the measures of damages for defective building

works as the consequences of default151

. It is the full cost that awarded

to the building owner for putting right the defects. Hence, whenever it

is reasonable, the court will treat the cost of rectification as the general

measure of damages152

.

The High Court‟s decision of Bellgrove v Eldridge153

is the leading

authority on the measure of damages work. The High Court affirmed

that the general rules was that the measure of damages was the

difference between the contract price of work and the cost of making

the work conform to contract.

ii. Diminution in Value

Diminution in value may involve a sum that will be ordinarily lower

than the cost of rectification154

. It is the value of the building less its

value as it stands155

, that is to say the difference between the market

150J. Beatson (2002), “Anson‟s Law of contract.” 28th edition, Oxford University Press, Oxford. pp. 590. 151John McGuinness (2004), “The law and management of building subcontracts” Athena Press, Twickenham.

pp.430. 152Michael F.James. Supra 50. pp. 25. 153(1954) 90 CLR 613 154Jim Doyle. Supra 19. 155Michael F.James.Supra 50. pp. 26.

61

value of the property without defects and the market value of the

property with the defects156

.

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

specified.

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

form of the “difference in cost to the builder of the actual work done

and work specified”. It is the difference between the contract price and

the price actually paid by employer157

.

iv. Loss of Amenity

Loss of Amenity is another branch of measure of damages that adopted

by court to award damages to building owner in respect of contractor‟s

breach. It is often referred in the literature as the "consumer surplus",

which is usually incapable of precise valuation in terms of money,

exactly because it represents a personal, subjective and non-monetary

gain158

. In D Galambos & Son159

, the award of damages was in relation

to the prevention of the owner from enjoying or using part of the

building as intended.

The key factor in an action for general damages is able to support the claim

with evidence of the loss suffered as a result of the breach160

. A vague allegations of

loss suffered are unlikely to be recognised in law161

. In Syarikat Tan Kim Beng and

Rakan-rakan v Pulai Jaya Sdn Berhad162

, the developer subsequently counterclaim

156 David L. Cornes, Winward Fearon and Richard Winward (2002), “Winward Fearon on Collateral Warranties”

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

62

for alleged defective work. It is held that developer is not entitled for all the cost that

he claims for defective work as some allegation bills are not able to be verified. He is

only entitled to those claims that he is able to prove.

Generally, the employer will claim for the damages under the contract which

the damages reviewable may be limited by the provisions of the contract and

damages at common low where one party breaches a contract he must indemnify the

other in damages. In Burns v MAN Automotive (Aust) Pty Ltd163

, it provides that

“where two parties have made a contract which one of them has broken, the damages

which the other party ought to receive in respect of such a breach of contract should

be such as may fairly and reasonably be considered either arising naturally, i.e.

according to the usual course of things, from such breach of contract itself, or such

as may reasonably be supposed to have been in the contemplation of both parties, at

the time they made the contract as probable result of the breach of it.”

However, the important issues surrounding the making or breaking the

contractor‟s liability towards a defective work claim made by the employer during

defect liability period are as follows164:

1) Validity/failure of the notice to rectify defective work issued by the principal

or superintendent.

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

works or is a variation.

3) The Reasonableness of the time allowed to carry out rectification works.

4) The liability as to the costs of rectification of the defective work.

5) The contractor to warn the employer of any design defect that he knew about.

163(1986) 161 CLR 653 164Jim Doyle. Supra 19.

63

6) The accrual of the principal‟s right to direct rectification works to be carried

out by another contractor.

7) Was the rectification reasonable165

3.5 Liability to Defective Work Claims

No contractor shall be liable for destruction or deterioration of/or defects in

any work constructed, or under construction, by him if he constructed, or is

constructing, the work according to plans or specifications furnished to him which he

did not make or cause to be made, and if the destruction, deterioration, or defect was

due to any fault or insufficiency of the plans or specifications. Thus, a contractor is

statutorily immune from liability for destruction, deterioration or defects of things

built if the contractor can prove the thing was built according to furnished plans and

specifications, since a contractor is not a guarantor of sufficiency of the plans and

specifications drawn by the person of another166

.

A contractor is insulated from liability for defects in the materials specified

by the owner to be used in the construction when the contractor does not know or is

not expected to discover the defect. Therefore, in the absence of an actual or an

implied warranty of the materials used in the performance of the contract, in order

for the owner to recover from the contractor for defective material specified for use

in the construction by the owner, the owner must prove want of skill or lack of care

in the performance of the work because strict liability does not apply. It effectively

relieves the contractor of liability for defective materials used in a building where

those materials are specifically called for by the plans and specifications prepared by

165Jim Doyle. Supra 19. 166Ayodeji S. Ojo. Supra 146.

64

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

defective167

.

From the contractor‟s perspective, defending a defective work claim would

necessarily translate to a high cost and time consuming process. This is regardless of

the timing of the making of the defective work claim by the principal and/or the

superintendent. Therefore, for sake of practically and in preparation for a possible

defective claim by the employer, it would be in the interest of the contractor to do

the following168

:

1) Establish the ambit of its contractual responsibility in relation to design

2) Be clear as to any express and/or implied representation made in

documentation relating to and part of the contract as to the quality of

workmanship;

3) Be aware of any express and/or implied statements in the contract as to the

purpose of the works;

4) Be clear as to any express, implied and/or actual reliance on the part of the

employer as to any of the contractor‟s obligation, skill or expertise,

5) Establish a contemporaneous documentation procedure to ensure all

directions, instructions, notifications, possible waivers are recorded in a

timely and relevant manner.

Meanwhile, there are some of the arguments by a contractor against their

liability towards the allegations of defective works claims, where the defences

include169:

167Ayodeji S. Ojo. Supra 146. 168Jim Doyle. Supra 19. 169Jim Doyle. Supra 19.

65

a) A proprietor may not under the guise of recovering as damages the cost of

completing the work recover the cost of executing work significantly

different from the contract work170.

b) Incompatibility of details171

c) Work carried out on the instruction of the building owner and/or

superintendent.172

d) Waiver or estoppels on the part of the principal or superintendent.173

e) Proof of the absence of an express term requiring particular quality, no

implied warranty.174

f) Lack of reliance.175

3.6 Conclusion

It is important to understand the precise nature of the defects obligations

under the contract. The contractor is liable to the employer, where it is the

employer‟s right to recall the contractor to return to the site to carry out rectification

works even if the site was returned to the employer for occupation. It is prudent for

the contractor to carries out the defects rectification works within a reasonable period.

Basically the contractor should be given the right to rectify the defects that

appear during defect liability period. Thus if an employer who discovers such defects

170Smail (as trustee of the assigned estates of L M Wilson and G R Wilson) v. D L Starbuck Pty Ltd. 171Dorter And Sharkey, Building and Construction Contracts in Australia Law and Practice, 2nd ed, Lawbook Co,

Sydney, 990 at (11.30) 172Elanore Country Ltd v V J Summersby & Pearce & Sons (Excavations) Pty Ltd (1988) 4 BCL 309 173Apex Realty Pty Ltd v Walker Bros & Preece Pty Ltd (1958) 76 WN (NSW) 34 174Helicopter Sales (Aust) Pty Ltd v Rotor-Works Pty Ltd (1974) 132 CLR 1 175Cable (1956) ltd v Hutcherson Bros Pty Ltd (1969)123 CLR 143

66

and has rectify them without giving the opportunity to the contractor to do the

making good himself, he is in breach of contract and may not be able to recover the

additional cost of doing the work by a third party contractor.

CHAPTER 4

ANALYSIS OF CASE STUDIES

4.1 Introduction

This chapter will discuss the analysis of cases to determine the situation arise

that the contractor is not liable to the defects, shrinkage that apparent during the

defect liability period. The contractor is generally obligated and has the rights under

the standard form of contracts, returning to the site to rectify defects discovered

during the defect liability period and it is in a contractor‟s rights to ensure that the

defects are dealt with by themselves efficiently at their own cost and usually it is

cheaper than carry out by third party. Contrary to the commonly held belief, beyond

the defect liability period a contractor does not have an automatic rights to return and

remedy defects unless this is expressly provided for in their contract (such as a

defects liability provision) 176

.

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

68

The employer will frequently (where the contract so allows) withhold a

proportion of a contractor‟s retention money until the expiry of the defects liability

period and/or the issue of a making good defects certificate. When the contractor

fails to comply with the instructions to rectify the defect during defect liability, the

employer is entitled to deduct the retention money for the cost of rectification to be

covered by another new contractor.

The employer would be considered as in breach of contract in the

circumstances by refusing the original contractor access to the site. Where a third

party is engaged by the employer to rectify the defects instead of allowing the

original contractor to make good, it may be criticised for acting unreasonably and

failing to mitigate their loss. The employer‟s failure to comply with the requirements

of defect liability provisions, whether he fails to comply with the notice requirements

of defects liability provisions in failing to give notice of the defects, or by refusing to

allow the contractor to carry out the repairs, was held to limit the amount of damages

which it was entitled to recover. Where the employer refuses to allow the contractor

to return to site to rectify a defect, this may not preclude the recovery of third party

costs, but may mean that any claim is limited to which it would have cost that

original contractor to remedy the defects177

.

4.2 Contractor’s Liability to Rectify Defects during Defect Liability Period

The defect liability period (or maintenance period) typically runs from the

date of practical completion for a specified period. During the defect liability period,

the contractor is obliged to return to site and rectify the minor defects and defects

notified to it during the defects liability period. Defects may be notified any time up

177 Louise Shiels. Supra 176.

69

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

reasonable time.

The liability for the contractor to rectify defects during the defects liability

period is for the benefit of the contractor as much as it is for the principal. The

contractor can usually rectify defects more efficiently than a third party, as he

generally being able to mobilise more quickly given the familiarity with the job.

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

Defects

During the defect liability period, the contractor will typically be obliged and

can insist the right upon returning to rectify defects and it is in a contractor‟s interest

to ensure that defects are dealt with promptly and efficiently. The contractor will

want to avoid being charged for a third party doing the work which he can do with

cheaper cost.

Whether the contractor has the rights as well as an obligation to rectify

defects and therefore avoid liability for damages was considered, the Court held in

most cases that the contractor will not only have the obligations to return to site to

rectify, but also probably the rights to do so. It follows that an employer who

proceeds to repair the defects himself without giving the contractor an opportunity to

do so would thereby be in breach of contract178

.

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

70

The cases cited below are those that relate to the rights and liability of the

contractor to return to site to rectify the defects.

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

An agreement was made in between the contractors and the employers, where

the contractors undertook to build a warehouse and offices. The contract was made

in the standard form of the JCT 1963. Defects were discovered during defect liability

period and in fact, contractor has the obligation as well as the right to rectify the

defect. The defects liability clause under JCT standard forms of contract used in this

case generally give the contractor a licence to return to the site for the purpose of

remedying defects which occurred during the defects liability period, which starts on

the completion of the works. Such condition of contract confers upon the contractor

a right to repair or make good its defective works, which can be carried out more

cheaply and more efficiently than by some outside contractor bought in by the

employer.

In the judgement of Lord Diplock, it is stated that if latent defects are

discovered during defects liability period it is extended until the contractor has made

them good and the architect has so certified. During this period the contractor's

obligation is to make good to the satisfaction of the architect any latent defects that

may become apparent. After the end of this period the contractor is not liable to

remedy any further defects; but the contract sum may be adjusted by reason of any

defects which would not have been apparent on reasonable inspection or

examination before the issue of the final certificate.

179 (1972) 1 WLR 146

71

Lock Diplock further said that: “Condition 15 imposes upon the contractor a

liability to mitigate the damages caused by his breach by making good defects of

construction at his own expense. It confers upon him the corresponding right to do

so. It is necessary implication from this that the employer cannot, as he otherwise

could, recover as damages from the contractor the difference between the value of

the works if there had been constructed in conformity with the contract and their

value in their defective condition, without first giving to the contractor the

opportunity of making good the defects.”

Therefore, according to Lord Diplock in this case, the defect liability period

clause is included in the contract with an intention of giving opportunity to the

contractor to make good the defects which appear during the defect liability period.

The contractor is liable and has the duty and rights to return to the site to remedy the

defects during that period.

Case 2: Kemayan Construction Sdn Bhd v Prestara Sdn Bhd180

In this case, the respondent had signed a building contract ('the contract') with

a contractor. On 6 October 1995, the architect to the project ('the architect') certified

Interim Certificate No 15 for a sum of RM1,106,099.57. On 9 October 1995, the

architect issued a certificate of practical completion with a list of defects to be

rectified by the contractor within the 12-month defects liability period. On 16

November 1995, the architect issued Interim Certificate No 16 for a sum of

RM1,646,782.94.

180 (1997) 5 MLJ 608

72

The contractor has failed to remedy the defects and complete the works. The

respondent therefore refused to pay the contractor. The respondent disputed the debt

on the basis that the building constructed had been found to have various defects. In

its submission, the contractor contended that the balance one moiety of the retention

sum was sufficient to cover all the rectification costs and that therefore the

respondent ought to honour the two interim certificates. The architect's letter dated

11 April 1996 ('the architect's letter') that the costs of rectification would be deducted

from the retention sum was produced.

It was held that, under the contract, the contractor had an obligation to

comply with the architect's instructions and to rectify the defects at its own cost

pursuant to the architect's instructions. It was not open to the contractor to argue that

since it had not been paid it was entitled to disregard the architect's instructions and

refuse to rectify the defects. Therefore, it was the contractor's breach in the first

instance that prompted the respondent to exercise its rights under the contract to

withhold payment.

The failure of the contractor to comply with the architect's directive with

regard to the defects clearly and without doubt gave the respondent the right to

dispute the payment. The respondent was thus justified in refusing to pay the

contractor. As the contract required the contractor to rectify the defects within the

12-month defects liability period, it was uncertain from the available evidence and

submission whether the retention sum was sufficient to cover all the rectification

works, as the major rectification works had yet to be carried out. As a result of the

breach on the part of the contractor, the respondent was entitled under the contract to

deduct from the retention sum for the rectification works.

73

4.2.2 The Employer’s Obligation to Notify the Contractor of Defects and the

Contractor’s Liability

If the defects are such that a contractor‟s liability during defect liability

period, it is in the employer‟s interest to notify early, and the contractor will be

obliged to rectify the defect as soon as they are aware of a potential claim. In the

case that the contractor is given notice of defect but had failed to take steps to rectify

the defects, the employer is entitled to recover the cost of having the defect rectified

by others. However, if no notice is given of defects which arose during the defect

liability period, the contractor will not normally escape liability altogether, but will

be liable for what it would have cost the original contractor to remedy the defect181

.

Where an employer‟s notice is condition precedent to its entitlement to claim

for damages, the court in the case of London and SW Railway v Flower182

, was held

that: “it would seem to be contrary to natural justice to hold that the plaintiffs can,

without giving the defendants notice of the duty which is sought to be cast upon them,

take upon themselves to perform that duty for the defendants and charge them with

the expense”.

The cases cited below are those that relate to the employer‟s obligation to

notify the contractor of defects and the contractor‟s liability.

181 Louise Shiels. Supra 176. 182 (1875) 1 CPD 77

74

Case 1: Pearce & High Ltd v Baxter and Anor183

A dispute arises between the building contractors, Pearce & High Ltd and

their employer, Mr. and Mrs. Baxter regarding the contract works consisted of

internal and external alterations and extensions at Mr. and Mrs. Baxter‟s home.

Defects become apparent before the end of defect liability period and the contractor

has the right to be given an opportunity to make good any defects which falling

within the defect liability period, but the alleged defects are not notified to the

contractor.

It was accepted that the contractor‟s obligation under Clause 2.5 of JCT1980

standard form of contract to remedy defects cannot be enforced unless a contractor

has notice of the defects. However, in this case, the defects were not notified to the

contractor. It was held that, at such notice was a condition precedent to employer‟s

right to require compliance with Clause 2.5 (but that different considerations might

arise if the contractor became aware of the defects from another source), the

obligation could not be enforced against the contractor unless he has notice of the

defects.

It was held that the absence of the notice prevents the employer enforcing the

right to require the contractor to rectify the defect, but subject to the contract terms

the defect is still a breach contract with a right to recover damages. Such a right

cannot be excluded except by clear, express words or by a clear and strong

implication from the express words used.

It was held that the employer‟s failure to comply with Clause 2.5, whether by

refusing to allow the contractor to carry out the repairs or by failing to give notice of

the defects, limits the amount of damages which he is entitled to recover. As a matter

of legal analysis this is either:

183 (1999) BLR 101

75

i. by permitting the contractor to set-off against the employer‟s damages claim

the amount by which he, the contractor, has been disadvantaged by not being

able or permitted to carry out the repairs himself; or

ii. by reference to the requirement for the employer to mitigate the loss for

which is entitled to recover damages.

The Court of Appeal held that the obligation of the contractor to make good

defects cannot be enforced on the contractor unless he is given notice of the defect.

Failure of the employer in giving the notice does not preclude employer right to

damages, it will however limit the amount of damages that the employer is entitled

to recover.

Therefore, it was held that the contractor‟s liability cannot be enforced and he

was not liable to return to the site to rectify the defect when there was no notice of

defects given to him. The measure of damages which the employer was entitled from

the contractor was therefore the cost of repairs by the original contractor if he

remedied the defects himself on the assumption that this is lower than the cost of

repair by a third party.

4.2.3 The Contractor’s Liability for the Defective Works Caused by Materials

Supplied by the Employer

A contractor is not liable for defects in the materials specified by the owner

to be used in the construction when the contractor does not know or is not expected

to discover the defect.

76

Therefore, in the absence of an actual or an implied warranty of the materials

used in the performance of the contract, in order for the owner to claim for defective

works, he has to prove that the contractor‟s performance was lack of skill and care

and the work was defect.

It effectively relieves the contractor of liability for defective materials used in

a building where those materials are specifically use in the plans and specifications

prepared by the owner and where the contractor has no knowledge that the materials

are defective.

The cases cited below are those that relate to the contractor liability to

defective work caused by materials supplied by the employer.

Case 1: Young & Marten Ltd v McManus Childs Ltd184

The respondents, developing a housing estate at Gerrards Cross, contracted

the roofing of the houses to the appellants. The roofing contract called for the use of

„Somerset 13‟ tiles, which were manufactured only by JB. The appellants obtained

supplies of tiles from their own suppliers in London who in turn obtained then from

JB. Some of the tiles supplied had a defect, apparently due to faulty manufacture,

which was not discoverable by any reasonable inspection by the appellants. After

less than 12 months (during defect liability period), the tiles began to disintegrate

and the respondents claimed the cost of the re-roofing of the houses. The appellants

argued that, as they had not chosen the type of tile and could not have discovered the

defect, they were not liable.

184 (1969)] 9 BLR 77

77

Lord Reid stated that:

“This is a contract for the supply of work and materials and this case raises

a general question as to the nature and extent of the warranties which the law

implies in such a contract. As regards the contractor’s liability for the work done

there is no dispute in this case: admittedly it must be done with all proper skill and

care. The question at issue relates to his liability in respect of materials supplied by

him under the contract. The appellants maintain that the warranty in respect of

materials is similar to that in respect of work, so that, if the selection of material and

of the person supply it is left to the contractor, he must exercise due skill and care in

choosing the material and the person to supply it.

But where, in this case, the material and the supplier were chosen by the

respondents, the appellants maintain that there was no warranty as to the fitness or

quality of the tiles. The loss was not caused by Somerset 13 tiles being unsuitable for

the contract purpose; it was caused by the tiles which were supplied being of

defective quality. It would be unreasonable to put on the contractor a liability for

latent defects when the employer had chosen the supplier with knowledge that the

contractor could not have recourse against him.”

Therefore, it was held that the contractor was not liable to the defects. The

defects of work were caused by the quality of material, where the employer had

chosen the supplier and materials. In this case, the contractor has to use the materials

supplied by the employer.

78

4.2.4 The Contractor’s Liability towards Design Defects

It is increasingly common for the contractor to expressly assume some

liability for design185

. The mere fact that a design lacks buildability would not be

sufficient for the liability to be imposed on the architect/engineer or other design

professional. It would have to be established that the architect/engineer has failed to

exercise due skill and care so as to ensure that his design did not lack buildability.

This presents a considerable legal and evidential hurdle to the contractor in

attempting to recover a contribution from the architect/engineer.

The cases cited below are those that relate to the contractor‟s liability towards

design defects.

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

The plaintiff contractors were employed to build a warehouse which was to

be used to store oil drums. The drums were to be kept on the first floor of the

warehouse and to be moved about by fork-lift trucks. In this case, the contractors

undertook an obligation towards the owners that the warehouse should be reasonably

fit for the purpose for which, they knew, it was required, that is as a store in which to

keep and move barrels of oil. In order to get the warehouse built, the contractors

found they needed expert skilled assistance, particularly in regard to the structural

steel work. An engineer is employed to design a building, the purpose of which is

made known to him there will be an implied warranty by him that the design of the

building will be suitable for its purpose. The engineer knew or, by virtue of the

relevant British standard code of practice, ought to have known that the warehouse

185 Michael Furmston (2006), “Powell-Smith & Furmston‟s building contract casebook”, Blackwell Publishing. 186(1975) 4 BLR 56

79

was to carry loaded trucks and that there was a danger of vibration. The design was

inadequate for the purpose of carrying such loaded trucks.

In fact during defect liability period, the warehouse as constructed was

defective in that the movement of the fork-lift trucks caused vibrations which caused

the floor to crack. The plaintiff claims against the defendant structural engineers,

whom they had engaged to design the warehouse.

What was the cause of this cracking of the floor is the issue. The structural

engineers said that it was due to the shrinkage of the concrete for which they were

not responsible. There was nothing wrong, they said, with the design which they

produced. But the judge did not accept that view. He found that the majority of the

cracks were caused by vibration and not by shrinkage. He held that the floors were

not designed with sufficient strength to withstand the vibration which was produces

by the stacker trucks.

Lord Denning MR stated that, as between the owners and the contractors, it is

plain that the owners made known to the contractors the purpose for which the

building was required, so as to show that they relied on the contractors‟ skill and

judgement. It was therefore the duty of the contractors to see that the finishes work

was reasonable fir for the purpose for which they knew it was required. It was not

merely an obligation to use reasonable care. The contractors were obliged to ensure

that the finished work was reasonable fit for the purpose.

On those findings, the first question is: what was the duty of the structural

engineers? The judge found that there was an implied term that the design should be

fit for the use of loaded stacker trucks, and that it was broken. Alternatively, that the

structural engineers owed a duty of care in their design, which was a higher duty

80

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

of that duty.

It was held that the contractor's claim for the breach of contract and a

declaration of liability by engineer, was not simply to exercise due care and skill but

to the design of a building that fit for its purpose. Therefore, the contractor is not

liable for the defective work but the engineer should be liable for it.

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

In this case the defendant agreed with the plaintiff to design and construct a

rain storage installation. The plaintiff alleged a variety of defects discovered during

defect liability period which rendered the installation unfit for its intended purpose in

respect of both its design and the materials used in its construction. The plaintiff

argued in favour of implied terms that the defendant would use materials of good

quality and reasonably fit for their purpose, and that the completed works should be

reasonably fit for their intended purpose. The defendant accepted that there was an

obligation to use good quality materials but disputed the requirement of fitness for

purpose. In relation to design the defendant argued that it was his duty to use

reasonable skill and care only.

It was held that there was nothing in the contract which prevented the

implication of an additional term. The purposes for which the storage facility was

required had been made known by the plaintiff to the defendant and they relied upon

the defendant to provide a facility fit for those purposes.

187(1985) 3 Con. L.R. 52

81

The court held that there was not any merit in breaking down the obligations

of a contractor under a design and build contract. A term would be implied, that the

finished product must be reasonably fit for its intended purpose and that the

defendant should be liable to the plaintiff irrespective of whether the defects were

defects in materials or workmanship or design. Therefore the defendant was liable

for the defects discovered and required to make good the defects under his duty of

defect liability.

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

About

At common law in contract, it is stated that unless there is an express term to

the contrary, a contractor will be liable if its design fails to achieve the intended

purpose even though there is no negligence on its part in preparing the design. This

contrasts with the lesser standard of liability of a professional person, such as an

architect or an engineer, who produces a design. They are only ordinarily liable if the

design is defective due to their negligence188

. However, in circumstances it may be

possible to infer that the employer looked to the contractor to advise him that the

design was faulty189

.

The cases cited below are those that relate to the liability of the contractor to

warn employer of any design defects that they knew about.

188 Louise Shiels. Supra 176. 189 Michael Furmston. Supra 185.

82

Case 1: Brunkswick Construction v. Nowlan190

Nowlan engaged an architect to design a house and then contracted with the

appellants to build the house according to architect‟s design. The design was faulty

and defect was found during the defect liability period, that it made no sufficient

provision for ventilation of the roof space and timbers. The result was a serious

attack of rot.

It was held that the appellants were liable for the defects. Ritchie J stated

that:

“In my opinion a contractor of this experience should have recognized the

defects in the plan which were so obvious to the architect subsequently employed by

the respondents, and, knowing of the reliance which was being placed upon it, I

think the appellant was under duty to warn the respondents of the danger inherent in

executing the architect’s plans, having particular regard to the absence therein of

any adequate provision for ventilation.”

Therefore, in this case, the contractor is liable to the defects and the full cost

of rectification for the defective works. He has the liability and duty to warn the

employer of the faulty design that they knew about.

190(1974) 21 BLR 27

83

Case 2: CGA Brown Limited v Carr & Anor191

CGA Brown Ltd ("CGA") where builders carried out works for the

defendants ("Carr") at their house in Rochdale in 2003. CGA agreed to do the work

to the roof shown on the drawings prepared by Carr's architect for the purposes of

obtaining building regulation approval. The work included an extension to add two

dormer windows set into the sloping part of the roof, and a corresponding extension

to the flat roof constructed above these windows. Expert opinion was that the

drawings did not provide a very detailed level of information and the annotations

provided left many assumptions as to interpretation and decisions on actual

intention.

An annotation stated that the new flat roof was "to align through with the

existing arrangement". The actual roof slopes were different to those shown on the

drawings so following this instruction meant that the falls on the new roof were

unsatisfactory. By the time, CGA discovered this problem, they had completed work

in accordance with the drawings, and had of their own initiative made a cold joint

between the felt covering the existing roof, and the felt which they laid to cover the

new roof. This joint was later condemned by the expert.After discovery of the

problem, CGA had proposed a solution which involved constructing a slightly

pitched roof above the flat roof. Although Carr accepted CGA's quotation for this

modification, it was not carried out.

Before end of the defect liability period, the roof began to leak very badly.

Carr called another contractor who carried out an emergency repair and then later re-

felted the whole of the flat roof.

191 (2006) EWCA Civ 785

84

The judge held that CGA were liable for the whole of the re-felting works as

CGA should have spotted the problem with the drawings and advised Carr of it

before they created a roof that was vulnerable to leakage because of the inadequacy

of the joint that CGA decided to make. There was no double recovery. There had

been two breaches of contract: the failure to spot the problem with the drawings and

constructing an inadequate joint. The combination of these two failures left Carr with

a roof which was inadequate and leaked. Compensation was awarded to compensate

Carr for the fact that they had been left with an inadequate roof and the original

agreement required the builders at least to leave them with roof that did not leak.

There was no question of betterment in the work carried out by the second

contractor. The builder, CGA Brown, had a duty to warn at this domestic consumer

level. He did not. He pressed on. So then he became responsible for the choice.

The Court of Appeal upheld the court of first instance. In brief, the Court of

Appeal decided that the builders were liable for the full cost of repairing a defective

roof because they should have realised that the drawings prepared by the architect

were defective. They should have warned the clients about this before they continued

with the construction of the roof.

Therefore, it can be said that the contractor is liable to the employer for the

full cost of rectification for the defective work, in the case that the contractor is

under the knowledge of the design defects but he fail to warn the employer of any

faulty design that will cause the defective building work.

85

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

Services Ltd192

The claimant (Plant) was the main contractor in a contract to install two new

engine mount rigs and a suspension rig in a laboratory at the Ford Research

Engineering Centre. The contract was under Form terms which put the risk of any

damage to the works caused by Ford or its servants or agents on Plant. JMH

Construction Services Ltd (JMH) were the sub-structure sub-contractors and Clive

Adams Associates (Adams) were consulting structural engineers.

On 2 January 1994, before the end of defect liability period, the roof of the

building collapsed. This was because of defects in the support provided. Plant paid

Ford £1,313,031 in settlement of Ford‟s claim and sought to recover its total loss of

about £2 million from Adams and JMH. Adams and Plants reached a settlement and

the action continued as a trial of Plant‟s claim against JMH. It was accepted that the

effective reason for adopting the faulty system of support was that it was insisted on

by Ford‟s chief engineer who was a dominating personality who did not brook

dissent. The work should have been recognised by any competent engineer or

contractor, and indeed was recognised by JMH, as dangerous.

As May LJ made clear, a contractual duty to warn may arise as an aspect of a

contractor's implied duty of skill and care. Whether such a duty in fact arises will

depend on all the circumstances of the case. At page 532, May LJ said that the

"crucial" elements were that the temporary works were obviously dangerous and

were known by JMH to be dangerous. As he said:

“JMH were not mere bystanders and, in my judgment, there is an overwhelming

case on the particular facts that their obligation to perform their contract with the

192 (2000) 2 TCLR 513

86

skill and care of an ordinarily competent contractor carried with it an obligation to

warn of the danger which they perceived.

The fact that the details of the temporary works had been imposed by Ford and that

Plant had Mr Adams as their consulting engineer do not, in my view, negate or

reduce the extent of performance which the implied term required in this case. The

fact that other people were responsible and at fault does not mean, in my judgment,

that on the facts of this case JMH were not contractually obliged to warn of a

danger.”

It has now been held by the Court of Appeal that if the duty to warn arises, it

is part of the duty to act with the skill and care of an ordinarily competent contractor.

What is to be expected of such a contractor will depend on the particular facts of the

case. The facts of the this case show that, where a contractor is asked to do work, he

is likely to be under a duty to warn his client if he knows that the work is dangerous,

and that duty will not be negated by the fact that the client is being advised by a

professional person who knows, or ought himself to know, that the work is

dangerous. In the circumstances, JMH was under a duty to warn Plant that the

support system was defective. The matter should be remitted to decide what would

have happened if Plant had given a more effective warning. (At a later hearing,

Judge John Hicks QC held that if a more effective warning had been given, the

collapse would not have occurred). Therefore, the contractor is liable to the employer

for the defect that had become apparent before the end of the defects liability period.

87

4.3 Assessment of Damages under Defective Work Claim by Employer

The basic principle is that awards of damages for breach of contract are

intended to put the innocent party in the position they would have been in had the

contract been properly performed193

. However, in respect of defects, it is not

reasonable to award all damages in the form of the full cost of rectification as

damages are not meant to enrich the innocent party. As far as possible, damages in

awarding a sum of money as compensation for the building owner who suffers by

the breach and the purpose of this is to put him, as far as money can do, in the same

situation, with respect to damages, as in the contract has been performed194

.

When a building or construction contract is defectively performed, the proper

measure of damages is the difference between the value of the property with the

defective work, and its value had there been strict compliance with the contract.

Where the contractor deliberately deviates from the contractual agreement, but there

has been no substantial performance, damages are determined by the actual expense

of reconstructing the building according to the terms of the contract.

Therefore, the usual measure of damages for defective work or materials is

either the diminution in value of the property which results from the defects or the

cost of putting the defects right, subject to considerations of reasonableness,

mitigation of loss and so on195

.

193Monica Neo, Supra 127. 194Robinson v Harman (1848) 1 Exch 850 195J. Beatson. Supra 150.

88

4.3.1 Cost of Rectification

Cost of rectification is the traditional measures of damages for defective

building works as the consequences of default196

. It is the full cost that awarded to

the building owner for putting right the defects. Hence, whenever it is reasonable, the

Court will treat the cost of rectification/cost of reinstatement as the general measure

of damages197

.

However, the issue would be much difficult if the owner employ another

contractor to rectify the defects without first giving the required notice to the original

contractor and deprives the original contractor from having the opportunity to

undertake the remedial works himself198

. In the case that the employer refused to

allow the original contractor access to the site to remedy defects, the employer is

only entitled to recover the cost of rectification by which the costs exceeded what it

would have cost the original contractor to carry out the work199

.

The cases cited below are those that relate to the contractor‟s liability towards

employer‟s claim for the cost of rectification

Case 1: Bellgrove v Eldridge200

In 1954, the builder had constructed a house with defective foundations, using

a lean concrete mix and lean mortar that was likely to cause "grave instability". The

196John McGuinness. Supra 151. pp.430. 197Michael F.James. Supra 50. pp. 25. 198Mohd Suhaimi Mohd Danuri. Supra 12. pp. 56 199William Tompkinson v Parochial Church Council of St Michael (1990) 6 Const LJ 814 200(1954) 90 CLR 613

89

builder claimed that he could rectify the works by underpinning and other methods,

but the expert evidence inclined to the view that complete demolition and

reconstruction would be necessary to properly rectify the works. Alternatively, the

builder said that the owner could sell the house "as is" for appreciably more than

land value and others could then rectify it at a lesser cost. The High Court awarded

the owner the full cost of demolition and reconstruction, stating the following

principles for assessing damages for breach of a construction contract:

1. if it is necessary and reasonable to undertake the rectification work, the true

measure of loss is the cost of rectification;

2. in this circumstance the loss is not measured by comparing the value of the

building actually erected with the value it would have had if erected in

accordance with the contract;

3. if it is necessary to rectify to produce conformity with the contract, but not

reasonable to do so, the true measure of loss is any reduction in value

produced by the non conformity;

4. in any particular case, it is a question of fact whether rectification is both

necessary and reasonable.

The High Court determined that it was both necessary and reasonable that the

rectification work be performed. The expert evidence supported the conclusion that

the only satisfactory way of rectification was to demolish and rebuild the home. The

Court noted the owner might not demolish and rebuild the house and could end up

living in the defective house as well as receiving payment sufficient to demolish and

rebuild the home. The Court said that this was immaterial and the owner was entitled

to compensation for the breach of contract in accordance with the principles set out

above. It was necessary for the Court to reach finality by its award.

The principle in this case notes that it is an issue of "fact" as to whether or

not it is both necessary and reasonable to rectify defects. Cost of Rectification was

90

held to be the reasonable remedy because there was a substantial departure by the

contractor from the specifications in the contract making the construction unsafe.

Case 2: Pearce & High Limited v Baxter201

P&H, the building contractor sued Baxter, the employer for amounts

including the sum of BGP 3,919.23 outstanding under an architect‟s certificate for

work done under a contract in the JCT form for Minor Building Works. Defects had

become apparent before the end of the defects liability period, but these were not

notified to the contractor. The Court of Appeal held that the owner was under a duty

to mitigate the loss by giving the opportunity to the original contractor to undertake

the remedial works himself. The judge justified that the cost of employing another

contractor to remedy the defects would be much higher than the cost to the original

contractor. Refer to the decision of the Court of Appeal, Evans LJ said that:

“The cost of employing a third party repairer is likely to be higher that the cost to

the contractor doing the work himself would have been. So the right to return in

order to repair the defects is valuable to him. The question arises whether, if he is

denied that right, the employer is entitled to employ another party and to recover the

full cost of doing so as damages for the contractor’s original breach.

In my judgement, the contractor is not liable for the full cost of repairs in those

circumstances. The employer cannot recover more than the amount which it would

have cost the contractor himself to remedy the defects. Thus, the employer’s failure

to comply with clause 2.5 (the clause relating to rectification of defects), whether by

refusing to allow the contractor to carry out the repair or by failing to give notice of

defects, limits the amount of damages which he is entitled to recover. The result is

achieved as a matter of legal analysis by permitting the contractor to set off against

201(1999) BLR 101

91

the employer’s damages the amount which he, the contractor, has been

disadvantaged by not being able or permitted to carry out the repairs himself, or

more simply, by reference to the employer’s duty to mitigate his loss.”

It was held that it limits the amount of damages which the employer was

entitled to recover when the employer fails to comply with Clause 2.5, whether by

refusing to allow the contractor to carry out the rectification works or by failing to

give notice of the defects to the original contractor for an opportunity to remedy the

defect by himself. The measure of damages was therefore the cost of repairs by the

contractor as if he had remedied the defects himself on the assumption that this is

lower than the cost of repair by a third party.

Case 3: Ruxley Electronics & construction Ltd v Forsyth202

Mr Forsyth had entered into a contract with Ruxley Electronics to build a

swimming pool in Mr Forsyth‟s garden. This case arose where a swimming pool was

constructed at a depth of 6'9" instead of 7'6'' as required by the Employer. He then

refused to pay.

The parties were in agreement that the failure to provide the required depth

for the pool amounted to a breach of contract. However, there was a conflict about

what should be done about it. The expert evidence was that it was not possible to

simply knock out the bottom of the pool and excavate it to a greater depth. The only

sound engineering solution was to entirely remove the existing pool and rebuild it to

the required depth. The cost of doing this would include £4,000 for the dismantling

202(1996) AC 344

92

of the pool and the removal of waste, which when added to the original price would

bring the total cost to some £21,560.

The issue for the court was that, apart from failing to meet the specification

with regard to the depth of the pool at the deep end, the pool was in all respects

useable, both for swimming and diving. Indeed, expert evidence was provided to the

effect that even larger people such as Mr Forsyth could dive safely into the pool

without hitting the bottom. However, the court also accepted that Mr Forsyth did

suffer a real loss in that he personally did not feel safe diving into the pool. The extra

depth would not increase the objective utility of the pool in any way, and neither

would it make any difference to the market value of the pool or the property.

Mr Forsyth argued that it was all well and good for the experts to argue about

its „utility‟, and its „value‟, but that all of this was really beside the point. He was

someone who had expressly contracted for a swimming pool which was to be 7‟6”

deep. He did so because this would make him feel safe and happy, and anything less

would not provide him with the degree of satisfaction and pleasure which he sought.

He had explicitly contracted for something, and it was his view that he should get

what he had contracted for - neither more nor less.

Mr Forsyth took his case on appeal, contending that the trial judge should

have made an award for the construction of the pool to conform to the original

specification of the contract.

In allowing the appeal, the Court of Appeal by a majority of 2:1(Staughton

LJ and Mann LJ in the majority with Dillon LJ dissenting) held that it was not

unreasonable in contracts of personal preferences to make an award of reinstatement

costs. The Court of Appeal awarded the cost of reinstatement. This was because

Forsyth had suffered a real loss which could only be measured by the cost of curing

93

it. They said that in pursuing reinstatement, the owner was merely taking steps to

secure the very thing which was promised under the contract, therefore there was no

avoidable loss.

Ruxley Electronics then appealed to the House of Lords where the appeal

was allowed unanimously. The House of Lords placed emphasis on the central

importance of the concept of „reasonableness‟ in selecting the appropriate measure

of damages. They agreed with the trial judge that the cost of reinstatement was not

the appropriate measure of damages as the expenditure would be out of all

proportion to the good to be obtained. They referred to the High Court of Australia in

Bellgrove v Eldridge203

which discusses whether reinstatement is the „necessary and

reasonable‟ course to undertake in such circumstances. Refer to the case of

Bellgrove v Eldridge204

, reinstatement costs were held to be the reasonable remedy

because there was a substantial departure by the builder from the specifications in

the contract making the construction unsafe.

Finally, the House of Lords held that, in this case the appropriate measure of

damages is not cost of reinstatement, but is reasonableness as a factor to be

considered in determining what that loss was and subsequently reinstate the trial

decision. It was held that it would be unreasonable to award as damages the

reinstatement cost since it would be out of all proportion to any benefit the client

would enjoy if the defective work was rebuilt. It was held that to do otherwise the

injured party would have recovered not compensation for loss but a very substantial

gratuitous benefit. An undertaking by the injured party to spend any damages on

remedial works made no difference since one could not create a loss, which does not

exist, in order to punish the defendants for their breach of contract. The basic rule of

damages, to which exemplary damages are the only exception, is that they are

compensatory not punitive.

203(1954) 90 CLR 613 204(1954) 90 CLR 613

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4.3.2 Loss of Amenity

Loss of Amenity is a measure of damages that adopted by court to award

damages to building owner in respect of contractor‟s breach. It is often referred in

the literature as the "consumer surplus", which is usually incapable of precise

valuation in terms of money, exactly because it represents a personal, subjective and

non-monetary gain205

.

The cases cited below are those that relate to the contractor‟s liability towards

employer‟s claim for the loss of amenity.

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

Another206

The plaintiff, Sonny Yap Boon Keng, is the owners of the land and premises

at No 25 Lorong K, Telok Kurau, Singapore. The defendant, Pacific Prince

International Pte Ltd, is a company incorporated in Singapore which carries on

business as a design and build contractor. On 7 December 2004, Sonny Yap has

signed a memorandum of agreement (MOA) with the contractor which requires the

latter to design and construct a three storey detached house.

Upon completion (during the defect liability period), Sonny Yap has

commenced proceeding against the contractor for breach of the terms of the MOA

and made claims for defective works and undersized bedrooms that do not meet his

205 Ruxley Electronics & construction Ltd v Forsyth (1996) AC 344 206 (2009) 1 SLR 385

95

requirements. The contractor in turn counter-claims for a sum of $57,958.54 which is

due to him under the contract. Judith Prakash J. has further given his judgment for

the contractor on their counter-claim of $57,958.54 for outstanding balance of the

contractual price.

This case happen that, in respect of the bedroom, the specifications provide

five bedrooms to be built in the house. From the outset, Sonny Yap has informed the

contractor to build the bedrooms at least between 18m to 19m. On 13 August 2004,

the contractor has sent Sonny Yap an e-mail to confirm the revised layout plans and

sizes of the rooms as being at least between 18m and 19m. Sonny Yap subsequently

does not give any further instructions on the room sizes.

However, when the construction of the house is completed, Sonny Yap

realizes that besides of master bedroom, four of other bedrooms are too small.

Survey of these bedrooms revealed that the area of guest room 1 on the ground floor

is 14.1m, the area of bedroom 3 on the second storey is 16.8m, the area of bedroom 4

on the third storey is 12.4 m, and the area of bedroom 5 on the third storey is 15.1m.

Hence, if calculates in percentage, the shortfall in bedroom 3, it is being 6. 6% (from

the minimum of 18m), 16% in the case of bedroom 5, 21% in the case of guest room

1 and 31% in the case of bedroom 4. In respect to this, Sonny Yap claims $141,080

cost of reconstruction of the undersized rooms based on the quotation that obtained

from Osmosis Home Pte Ltd.

Judith Prakash J. has asserted that the defective construction not preventing

the use of rooms as bedrooms. It doesn‟t matter that they are smaller than the 18m to

19m that Sonny Yap has required. If allow Sonny Yao to recover the cost of

reconstructing, it will be wholly disproportionate to the loss suffered by him by

reason of the undersize bedrooms. Reconstruction involves the demolition of rooms

on the ground floor, second floor and third floor of the house and thus the cost of

reconstruction will be substantial. The original cost of construction of the house is

96

$ 736,400 and in relation to this figure, it is definitely excessive to spend $ 141,080

to reconstruct four bedrooms. Hence, court holds that Sonny Yao is not entitled to

measure of damages based on the cost of reinstatement of these bedrooms as this will

be unreasonable since his loss is not the lack of usable bedrooms but the lack of

some additional space in the bedrooms. In present case, Judith Prakash J. has

stressed that the entire contractual objective is to construct a house that is suitable for

Sonny Yap‟s family to occupy. This objective has been achieved albeit three of the

bedrooms are somewhat smaller than what Sonny Yap desired.

Judges agree that no doubt Sonny Yap who is experiencing cramped

conditions in his flat and wants to provide a more spacious environment for his

children in the new home. However, there is no evidence that the undersized

bedrooms cannot be used as sleeping areas and does not make them unfit for their

purpose. On this basis, Judith Prakash J. has awarded measure of damages in form of

loss of amenity in relation to the bedrooms, which is assessed at $ 50,000.

Case 2: Ruxley Electronics & construction Ltd v Forsyth207

The respondent, Mr. Stephen Forsyth, has contracted with the appellant,

Ruxley Electronics & Construction Ltd, who is trading as Home Countries

Swimming Pools to build a swimming pool adjoining Mr. Stephen Forsyth house at

Angley Park, Cranbrook, Kent. The contract expressly provided that the maximum

depth of the pool should be 7 feet 6 inches. After completion (during the defect

liability period), Mr. Stephen Forsyth has found that the maximum depth of pool is

only 6 feet 9 inches. Mr. Stephen Forsyth refuses to pay the balance of the price due

under the contract and counter claim for damages for breach of contract.

207(1996) AC 344

97

The breach is admitted but the measure of damages claimed as a consequence

of the breach is disputed. The trial judge, Judge Diamond Q.C. has found certain

crucial findings of fact in this case, there are: (a) The pool as constructed is safe for

diving. According to the official handbook, the minimum safe depth is 5 feet. (b) Mr.

Stephen Forsyth has no intention to fit a diving-board (c) The shortfall in depth does

not decrease the value of the pool. (d) It is impossible to break out the bottom of the

pool, and excavate to the required depth. The only way of increasing the depth of the

pool is to demolish the existing pool altogether, and rebuild at a cost of £21,560. (e)

Mr. Stephen Forsyth has no intention of building a new pool. (f) To spend £21,560

on a new pool will be unreasonable.

In respect to this, trial judge has awarded Mr. Stephen Forsyth £2,500 on his

counter claim and give judgment for Ruxley Electronics & Construction Ltd on their

claims for outstanding balance of the contractual price. The £2,500 is awarded for

loss of amenity. Mr. Stephen Forsyth is however does not content with this judgment

as his claims of £21,560 on rebuilding the pool has been rejected. With this, Mr.

Stephen Forsyth now appeals.

On appeal, the Court of Appeal allows the appeal by Mr. Stephen Forsyth

and holding that Mr. Stephen Forsyth's loss as a result of the Ruxley Electronics &

Construction Ltd‟s breach of contract is the amount required to place him in the

same position as he will have been in if the contract has been fulfilled. Therefore,

Court of Appeal has overturned the trial judge‟s decision and awarded Mr. Stephen

Forsyth cost of rebuilding the pool as they are contented that this is the only way in

which Mr. Stephen Forsyth can achieve his contractual objective.

Nevertheless, Ruxley Electronics & Construction Ltd in this case is not

pleased with the judgment of Court of Appeal and subsequently appeals to House of

Lord. On appeal, it is held that the Court of Appeal is incorrect in their judgment as

cost of reinstatement of the pool is not an appropriate measure of damages since it is

98

unreasonable. Mr. Stephen Forsyth‟s loss does not extend to cost of reinstatement as

this cost will be wholly disproportionate to the non-monetary loss suffered by him.

Mr. Stephen Forsyth has in fact acquired a perfectly serviceable swimming pool,

albeit one lacking the specified depth. His loss is thus not the lack of a useable pool

with consequent need to build a new one. If he receives the cost of rebuilding a new

pool and retain the existing one, he will have recovered not compensation for loss

but a very substantial gratuitous benefit, something which damages are not intended

to provide.

Thus in this case, the House of Lord has contented that where there has been

a breach of performance resulting in loss of expectation of performance, satisfaction

of a personal preference or pleasurable amenity, the proper measure of damages is

award a sum for the loss of amenity. Since there is no dispute over the amount

awarded, the House of Lord has restored the judgment of the trial judge, that is to

say, £2,500.

Mr. Forsyth in this present case in fact receives a perfectly satisfactorily

swimming pool, only the pool‟s depth does not conform to the specification.

Contractors are contractually obliged to achieve the contractual requirement. As

Ruxley Electronics & Construction Ltd has not done so, he has breached the

contract. Judges are satisfied that Mr. Forsyth suffers loss in form of disappointment

as the objective of contract unrealized. Hence, loss of amenity is awarded in the

circumstance where the personal preference is not satisfied.

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4.3.3 Consequential loss

Generally, the satisfactory works of make good of defects does not amount to

an exclusion of claims in respect of their consequences. The measure of damages

will therefore not only be the cost of repair of the defects, but also such

compensation as the loss of the use of the premises during repairs in accordance

with the ordinary rules governing remoteness of damages. The fact that the

existence of remedy provisions within contracts does not act as a bar to the recovery

rights at both common law and the law in Malaysia208

.

The cases cited below are those that relate to the contractor‟s liability towards

employer‟s claim for the consequential loss.

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

By a contract dated 7 December 1973, the plaintiffs agreed that the

defendants should carry out works consisting of site clearance, piling, foundation

and drainage works prior to the erection of a bakery at Walthamstow, London. The

contract was in the JCT standard form, private edition with quantities, 1963 edition,

July 1973 revision. The work was carried out between September 1973 and April

1974, when new contractors (Trenthams) commenced work.

In November 1974, before the end of defect liability period, the plaintiffs'

architect discovered that the drains laid by the defendants were defective and that

208HW Nevill (Sunblest) Ltd v William Press & Son Ltd (1981) 20 BLR 78 209(1981) 20 BLR 78

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there were defects in the hard-standing. The defendants returned to the site and the

defects were remedied. However Trenthams had been delayed by four weeks and the

plaintiffs had to pay them for that delay and for additional work consequent on the

defects in the defendants' work. The plaintiffs also incurred additional architects' fees

and losses because the bakery was late in opening.

The plaintiffs commenced proceedings claiming that the defendants were in

breach of contract and they were therefore liable for the plaintiffs' additional costs

and other consequential losses. The defendants maintained that the plaintiffs were

precluded from bringing any claim in respect of the alleged breach of contract and

that the plaintiffs' remedies in respect of the alleged defective work were limited to

those remedies set out in Clause 15 of the contract.

The court held that, the employer was justified in arguing that the defects

constituted breaches of contract. The plaintiffs' remedies were not limited to the

remedies specified in Clause 15 since the defects in the works were breaches of

contract. Clause 15 merely created a simple way of dealing with part of a situation

created by breaches of contract and was not to be read as depriving the injured party

of his other rights. The plaintiffs could therefore claim damages for breach of

contract to include consequential loss. The measure of damages not only be the cost

of repair of the defect, but also such compensation as the loss of the use of the plant

during repairs in accordance with the ordinary rules governing remoteness of

damage.

Therefore, in this case, it was held that a plaintiff‟s claims for damages in

respect of consequential losses arising from defective work was not limited by the

“making good” provisions of the contract. The defendant was held to be liable to the

plaintiff for the consequential losses suffer by the plaintiff.

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

An agreement was made in between the contractors and the employers, where

the contractors undertook to build a warehouse and offices. The contract was in the

standard form of the JCT and included an arbitration clause (clause 35) which

provided that any dispute arising as to the construction of the contract was to be

referred to an arbitrator. Work on the warehouse was substantially complete by June

1967 although, with the consent of the contractors, the employers had taken

possession in the previous April. Interim certificates were issued by the architect in

April and July following which the employers paid sums on account, leaving a

balance unpaid of £14,861. They complained that the floor of the warehouse was

faulty. The contractors relaid the floor and completing the work in August and

started proceedings to recover the £14,861. However, the employers put in an

affidavit of defence which alleged that the flooring was still faulty and that the

previous defects had resulted in a loss of profits amounting to £13,500.

Following further correspondence, the architect issued the final certificate for

the balance of money due to the contractor. Clause 30 (7) of the contract provided

that: 'Unless a written request to concur in the appointment of an arbitrator shall

have been given... by either party before the Final Certificate has been issued... the

said certificate shall be conclusive evidence in any proceedings arising out of this

Contract... that the Works have been properly carried out and completed in

accordance with the terms of this Contract...'

Employers requested the contractors to concur in the appointment of an

arbitrator. The contractors pointed out that it was too late and they issued a second

writ for the amount. The action on the interim certificate was still on the file and the

employers put in a defence and counterclaim in each action claiming £13,500 loss of

profits because of the defective floor.

210(1972) 1 WLR 146

102

It was held that, the employers should not be debarred from pursuing their

claims for consequential loss. The contractor is liable to the claim for consequential

loss and the employer is entitled to recover the losses by consequential effect of

defects which it has been remedied by the contractor during defect liability period.

4.4 Conclusion

Generally, the construction works must conform to the requirements of the

contract, most importantly in the present context the specification. Any physical

works that fail to comply with the requirements of the contract amount to a defect.

After analysing all the related court cases, it was found that to carry out the

works in a defective manner amounts to a non-compliance with the contract for

which the principal has two separate remedies. He may use the defects liability

regime in the contract to compel the contractor to rectify the defects. Alternatively,

the employer may sue the contractor in court or arbitration proceedings, claiming

damages for breach of contract. However, there is some judicial authority that

suggests that some defects liability clauses may amount to a code excluding the

rights to general damages for breach of contract and limiting the employer‟s remedy

to the defect liability clause, at least until the contractor has failed to remedy in

accordance with that clause.

The usual measure of damages for defective works is the cost of rectifying

defects in order to produce conformity with the contract. Where this is considered

an unreasonable or unnecessary course to adopt, the courts will consider an

alternative measure of damages.

CHAPTER 5

CONCLUSION AND RECOMMENDATIONS

5.1 Introduction

During defect liability, it is the contractor‟s liability to make good all the

defects discovered. The contractor is liable and has the right to return to the site to

rectify the defect at his own cost. The contractor‟s liability towards the defects

during defect liability is related with their right and liability during that period, the

issue of whether the employer is obliged to notify the contractor of defect, whether

the contractor is liable towards defective work caused by design defect, materials

supplied by employer and whether the contractor is liable to warn the employer if

any faulty design that they knew about.

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The contractor is in breach of contract when he failed to rectify the defect

during the defect liability period and the employer is entitled to claim for damages.

The damages are cost of rectification, loss of amenity and consequential lost. The

judge will award the reasonable damages for the loss to the employer which the

contractor is liable.

5.2 Summary of Research Findings

The objective of this study is to identify the possible claims made by the

employer for the defective building works during defect liability period and the

circumstances whether the contractor is liable to the claims. Overall, the objective of

this study has been achieved through literature review and documentary analysis of

law cases. This research is prepared by reviewing the legal position of the

employers‟ rights for the defective building work claims and the liabilities of the

contractors towards the defective work during the defect liability period. The

following findings can be drawn from the study.

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

the judges.

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Table 5.1 Summary of Research Findings

Items Findings Remarks

A) Contractor‟s liabilities for defects, shrinkage, etc. during defect liability period

1 Generally, the contractor has the

right and liability to return to site to

rectify the defects.

P & M Kaye Ltd v Hosier &

Dickinson Ltd

Kemayan Construction Sdn Bhd v

Prestara Sdn Bhd

The contractor has the rights

during the defect liability period

to return to the site to rectify the

defects discovered.

The contractor is liable to the

employer to make good the

defects of construction

discovered during the defect

liability period at his own cost.

Failure of the contractor to

comply with the obligation

under the standard form of

contract to rectify the defects

during defect liability period,

will entitle the employer to set-

off the retention sum due to the

contractor.

The employer is in a breach of

contract for the right of the

contractor, if he proceeds to

rectify the defects himself or

employ a third party, without

first giving to the original

contractor the opportunity of

make good the defects.

2 The general obligation of the

employer is to notify the contractor

of the defect discovered during

defect liability period and the

contractor is given opportunity to

rectify the defects.

Pearce & High Ltd v Baxter and

Anor

The contractor‟s obligation to

remedy the defects discovered

during defect liability period

cannot be enforced unless a

contractor has notice of the

defects.

The absence of notice prevent

the employer enforcing the

rights to require the contractor

to rectify the defects.

Failing to give notice of defects

to the contractor which entitles

the contractor to rectify the

defects during defect liability

period does not preclude

employer‟s rights to damages,

106

Items Findings Remarks

but will limit the amount of

damages which the employer is

entitled to recover.

3 The contractor‟s defect liability

towards the defective work caused

by material supplied/chosen by the

employer.

Young & Marten Ltd v McManus

Childs Ltd

When the suppliers and

materials of the construction

were chosen by the employer,

the contractor has no obligation

to warranty the quality of the

materials.

The contractor is not liable for

the defect caused by defective

quality of materials chosen by

the employer. The contractor

has to use the materials

provided by the employer and

he has no knowledge that the

materials are defective.

4 The contractor‟s defect liability

towards the defective work caused

by the design defect.

Greaves & Co (Contractors) Ltd

v. Baynham Meikle & Partners

Viking Grain Storage Limited v

T.H. While Installations Limited

The engineer would constitute a

breach of duty of care in their

design when the design was

defectively design and cause the

defective of the building work.

The contractor is not liable to

the defective work caused by

engineer/designer‟s defectively

design and thus the contractor is

allowed to claim for the breach

of contract and the liability of

engineer/ designer.

In the case of design and build

contract, the contractor is liable

for the defects when the

purposes for which the facility

was required had been made

known by the employer to the

contractor and they relied upon

the contractor to provide a

facility fit for those purposes.

Under a design and build

contract, it is the obligations of

a contractor to ensure that the

finished product must be

107

Items Findings Remarks

reasonably fit for its intended

purpose and that the contractor

should be liable to the employer

irrespective of whether the

defects were defects in materials

or workmanship or design.

5 The Contractor to warn employer

of any design defect that they knew

about that may cause the defect of

the building work.

Brunkswick Construction v.

Nowlan

CGA Brown Limited v Carr &

Anor

Plant Construction Plc v. Clive

Adams Associates and JHM

Construction Services Ltd

The contractor will be liable to

the defective work, when in the

opinion of the judge the

contractor of certain experience

should have recognized that the

design would constitute a

defect.

It is the contractor‟s liability to

warn the employer of the faulty

design which will later cause the

defective work.

The contractor will be liable for

the full cost of rectification for

the defective work in the case

that the contractor is under the

knowledge of the design defect

that will cause certain defect but

he did not warn the employer of

the design defect.

B) Employer‟s defective work claims for damages and contractor‟s liability

towards the claim

1 Cost of Rectification

Bellgrove v Eldridge

Pearce & High Limited v Baxter

Ruxley Electronics &

construction Ltd v Forsyth

The contractor will liable to the

cost of rectification as damages

when the court found that it is

not reasonable to carry out the

rectification works.

The contractor is liable to the

cost of rectification by third

party engaged by the employer

for putting right the defects

when the original contractor has

failed to remedy the defects

discovered during defect

liability period.

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Items Findings Remarks

When the employer refuse to

allow the contractor to carry out

the rectification works or fails to

give notice of the defects to the

original contractor for an

opportunity to remedy the defect

by himself, it will limits the

amount of damages which the

employer is entitled to recover.

In the breach of contract by the

employer, the contractor is not

liable for the full cost of repairs

by third party but only liable for

the amount of rectification cost

as if he had remedied the defects

by himself.

2 Loss of Amenity

Yap Boon Keng Sonny v Pacific

Prince International Pte Ltd and

Another

Ruxley Electronics &

construction Ltd v Forsyth

The contractor is liable to the

claims for the loss of amenity

when the cost of rectification is

unreasonable / disproportionate

to the loss suffered by the

owners in the defective

construction.

The contractor is liable to the

loss of amenity when the

construction is entirely adequate

for its design purpose/ fit for it

intended purpose, albeit there is

a lack of aesthetic pleasure or

the personal preference was not

satisfied.

3 Consequential loss

HW Nevill (Sunblest) Ltd v

William Press & Son Ltd

P & M Kaye Ltd v Hosier &

Dickinson Ltd

The satisfaction of making good

the defects does not amount to

an exclusion of claims in respect

of their consequences.

The contractor will not only

liable to the cost of repair of the

defect, but also the damages in

respect of consequential losses

arising from the defective work

discovered during the defect

liability period. It was also not

109

Items Findings Remarks

limited by the defect liability

clause of contract.

The employer is entitled to

recover the losses by

consequential effect of defects

although the defects have been

remedied by the contractor

during defect liability period.

During the defect liability period, the contractor has the general obligation to

return to the site to make good all the defects discovered. The contractor is liable to

the employer to rectify the any defects apparent during the period at their own

expenses. The contractor is in breach of contract if he has fails to comply with the

obligation under the standard form of contractor to rectify the defects during defect

liability period. Failures of the contractor to remedy the defects entitle the employer

to engage a third party to rectify the defects and claim for the cost of rectification by

set-off the retention sum due to the contactor.

The contractor has the right to remedy the defects during the defects liability

period as the costs of remedying the defects will be cheaper than the employer

having the pay the cost of another contractor performing such works. In the case of P

& M Kaye Ltd v Hosier & Dickinson Ltd211

, it was held that the defect liability

clause under the contract giving the opportunity to the contractor to make good the

defects which appear during the defect liability period. The contractor is liable and

has the duty and rights to return to the site to rectify the defects. The employer who

proceeds to remedy the works by his own or by third party without giving the

original contractor the opportunity to do so would constitute to the breach of the

contract.

211 (1972) 1 WLR 146

110

The employer is under the obligation to notify the contractor of the defects

discovered during defect liability period. By receiving the notice, the contractor is

given the opportunity to return to the site to rectify the defect. The employer‟s

breach of contract whether by failure to give the notice of defects or refusing the

contractor to rectify the defects during defect liability period does not preclude

employer‟s right to damages, but the damages which entitle to recover will be

deducted to the cost of rectification by the original contractor himself. In the case of

Pearce & High Ltd v Baxter and Anor212

, the employer‟s failure to comply with the

requirement of the defect liability provision, by failing to give the notice of defects

to the contractor was held to limit the amount of damages which was entitled to

recover.

In addition, in the circumstances when the materials or suppliers were chosen

by the employer where the contractor has to use the materials provided by the

employer, the contractor is not liable for the defective work caused by the quality of

the materials. The contractor has no obligation to warranty the quality of the

materials. Furthermore, the contractor is not liable to the defective work caused by

the engineer/designer‟s defectively design. The engineer/designer is in breach of

duty of care when the building was defectively design. However, the contractor will

be liable to the defective building works, when in the judge‟s opinion, that the

contractors of certain experience should have recognized that the design would

constitute a defect. It is the contractor‟s liability to warn the employer of the faulty

design which later will cause the defect. The contractor will be liable to the full cost

of rectification for the defective work, in the case that the contractor is under the

knowledge to recognize the faulty design that will cause certain defect but he did not

warn the employer of the design defect.

It is common for the employer to claim for the damages for the contractor‟s

breach of contract under defective work claims. If it is necessary and reasonable to

undertake the rectification work, the true measure of loss is the cost of rectification.

212 (1999) BLR 101

111

Refer to the case of Bellgrove v Eldridge213

, rectification costs were held to be the

reasonable remedy because it is both necessary and reasonable that the rectification

work be performed. However, in the case that the employer refuses to allow the

contractor to carry out the rectification or the employ another contractor to rectify

the defects without first giving the notice of defects to the contractor, it deprives the

original contractor from having the opportunity to undertake the remedial works

himself. In respect to the claims for the cost of rectification as damages, the

contractor is not liable for the full cost of rectification in these circumstances. The

employer cannot recover more than the amount which it would have cost the original

contractor himself to remedy the defects. In the case of Pearce & High Limited v

Baxter214

, the employer is only entitled to recover the cost of rectification by which

the cost exceeds what it would have cost the original contractor to carry out the

rectification works.

In respect of contractor‟s breach of contract, loss of amenity is another award

of damages to the employer by the court. It is the damages for what appears to be

non-pecuniary loss on account of breach of contract for defective works. With

reference to the case of Ruxley Electronics & construction Ltd v Forsyth215

, loss of

amenity is the proper measure of damages to be awarded when there has been a

breach of performance resulting in loss of expectation, satisfaction of personal

preference or pleasurable amenity. When the reinstatement is not reasonable, the loss

that the contractor is liable does not extend to the cost of rectification as this cost will

be wholly disproportionate to the non-monetary loss suffered by the employer. The

contractor is liable to the damages for the loss of amenity where the employer suffers

loss from the contractor‟s breach of contract as the works are not up to the

satisfaction of the employer.

Generally, the satisfactory of making good the defects does not amount to an

exclusion of claims in respect of their consequences. The employer may be able to

213 (1954) 90 CLR 613 214 (1999) BLR 101 215(1996) AC 344

112

claim for losses consequential on a defect in addition to the cost of reinstatement. In

the case of HW Nevill (Sunblest) Ltd v William Press & Son Ltd216

, the remedies

were not limited to the damages of cost of rectification, but the contractor is also

liable to the compensation for the consequential loss. In P & M Kaye Ltd v Hosier &

Dickinson Ltd217

, the contractor is liable to the claim for consequential loss and the

employer is entitled to recover the losses by consequential effect of defects although

it has been remedied by the contractor during defect liability period.

2.2 Problem Encounter during Research

There are some constraints in conducting this study. Insufficiency of time

was one of the problems encountered in writing up the report for this research.

Hence, every process has been carried out in a very fast manner, especially during

the data collection process, which involved assembling and sorting court cases from

different law journals. Beyond this, the main constraint is that not many cases were

collected to support the findings related to the defective building work claim,

especially those cases decided by court for the claim during defect liability period.

2.3 Further Studies

Based on this research, the followings are some recommendations for future

researches: -

(a) This research discusses all grounds of defect liability of the contractor

towards the defective building work claim by the employer during defect

liability period. Perhaps, future research can be done on contractor‟s

216(1981) 20 BLR 78 217(1972) 1 WLR 146

113

defect liability towards the defective building work claim by the third

party during defect liability period.

(b) Future study can focus on the defenses of the contractor towards those

defective building work claims. In practice, the contractors defended that

some of the defects were not caused by their default but some others‟

defaults.

5.5 Conclusion

Generally, most standard form of contracts including PAM2006 Form,

PWD203A (Rev.2007) Form of contract and CIDB2000 Form of contract provides a

12 months „defects liability‟ period from the date of Practical Completion, as advised

on the Certificate of Practical Completion. Usually, the defect liability clause under

standard form of contract also set out the specific timing and notification procedure

with regard to defective work claim to prevent either party in the contract to become

involve in protracted dispute with regard to loss of profit.

The findings of this study show that, during the defects liability period, the

contractor is liable to the employer and has the right to rectify any defects that

become apparent at his own expenses. It is beneficial for the contractor to have the

exclusive right to remedy the defects during the defects liability period as the costs

of remedying the defects will be cheaper than the employer having to pay the cost of

another contractor performing such works. If the contractor has an exclusive right to

repair defects, an employer who proceeds to remedy the works without offering the

contractor the opportunity to do so will be in breach of the contract. Under most

construction contract, the employer is obliged to give first priority to the original

contractor to make good the defects discovered during defect liability period instead

of engaging another contractor to remedy the defects. Failing to do so, the employer

114

is in breach of his contractual obligation. In addition, the contractor is not liable to

the defective work caused by the quality of materials supplied by the employer,

suppliers choosen by the employer and designer‟s faulty design. However, it is the

contractor‟s liability to warn the employer of the faulty design that they knew about.

Unless express words are used, a defects liability clause will generally not

affect the parties‟ remedies under common law. The analysis of cases show that, the

contractor is in breach of contract if he refuses or fails to remedy the defect under the

provision of the standard form of contract, and the employer will be able to bring an

action to claim for damages against the contractor in respect of the defects which

appear during the defects liability period. However its damages may be limited to the

cost of the original contractor performing the remedial works, if the employer has

acted unreasonably whether refusing to allow the original contractor to return the site

for remedy the defect or failing to notify the contractor of the defects. The contractor

is also liable for the damages for the loss of amenity and consequential loss under the

common law.

As a conclusion for this research, by understanding the legal rights and

liability in respect to the defective works which appear during defect liability period,

both the employer and contractor can avoid unnecessary disputes and create a better

relationship between both contracting parties.

REFERENCES

Alan Crocker (1990), “Building failures – recovering the cost.” BSP Professional

Books, Oxford.

Anon (2007), “What Are The Obligation Of The Contractor During Defect Liability

Period?” The Entrusty Group, Master Builders, 1st quarter 2007

Atkinson, D. (1999), “Measures of Damages for Defects.”, from

http://www.atkinsonlaw.com/cases /CasesArticles /Articles/ Defects.htm

Ayodeji S. Ojo (2010), “Defect Liability Period: Employer’s Right and Contractor’s

Liabilities Examined”.

Borja, M. E and Stevens, S.T. (2002). No Accident, No Coverage: A Look at Breach

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