assignment 1_model answer

MBG 1244-PERDANA MODEL ANSWER ASSIGNMENT 1

QUESTION

Nirvana Development sends a letter of award to Krishnan Contractor to carry out and complete the construction of two blocks of 20 storey building. Krishnan Contractor is very excited with the news and shows you, as his project manager, the letter and instructs you to make preparation for the commencement of the work. As you read the letter you realise that it does not specify the exact date for the taking possession of the site. It further stipulates that only the section for one of the (Block A) two blocks will be given first; the section for the other block (Block B) will be given later and no specific date is mentioned for that event. When you visit the site, you notice that there is a family of squatter occupying the Block A section. You further notice that there is a little stream flowing through the site which is not shown in the contract documents. Your estimation for the earthwork does not include the little stream element. Its two weeks now and Krishnan Contractor has yet to receive instruction from Nirvana Development on the date for taking possession. Advise Krishnan Contractor relating to all of the above issues.

ANSWER

INTRODUCTION

The site on which the construction of a project is to be carried out normally belongs to the employer. For the purpose of the contractor to perform the construction works, the employer must give the contractor the possession of the site. Without such giving of possession of the site, the contractor cannot simply enter and carry out the work. If the contractor does so without the employer’s permission, the contractor is in fact committing an act of trespass and may be liable under the law of tort.

It is not advisable for the contractor to enter the site without the employer’s consent. There are many legal issues that may arise out of such illegal entrance and occupation of the site. Particularly, the employer may be liable as the land owner for the contractor’s negligent acts. For example, the contractor may, in the performance of the work, encroach into the neighbour’s land. Although the employer may finally recover from the contractor any damages he incurs in paying the neighbour, the legal complications involved is something the employer may wish to avoid.

Once the employer has appointed the contractor, the former must thereafter hand over the site to the latter for him to begin with the construction of the works. All standard forms of construction contract contain express provisions for giving possession of site by the employer to the contractor.1 Generally the clauses set out the conditions and procedures for the giving possession of site. Despite the clear express provisions in the contracts, there are many issues that may arise out of the giving possession of site clauses.

From the facts of the case, it appears that Krishnan Contractor is facing many problems relating to his contract with Nirvana Development for the construction of the office building project. Ideally, Krishnan Contractor should visit the site before he submits his bidding for the contract. In addition the date for giving possession of the site should be clearly specified somewhere in the contract documents. Furthermore, it is equally important that Krishnan Contractor should satisfy himself that the site is free from any encumbrance when he takes possession from the employer.

1 PWD 2010, Clause 38.0; PAM 2006, clause 21.0; CIDB 2000, clause 17; JCT 05, clause 2.0;

1SEMESTER 2 SESSION 2012-2013


THE ISSUES

The issues that may be extracted from the facts of the case are as follows:

1) The date for possession of site is not specified in any of the contract documents; therefore, when exactly should Nirvana Development give Krishnan Contractor the possession of the site?

2) A portion of the site is being occupied by squatters; should Krishnan Contractor take possession of the site in that condition, or should the employer remove the squatters first before giving the site to Krishnan Contractor?

3) Nirvana Development intends to give first, the section for Block A only and the site for Block B later, can Krishnan Contractor insist on the employer to give him the whole of the site?

4) The little stream that crosses the site is not shown anywhere in the drawings; can Krishnan Contractor claim for extra expenses for making the site suitable for the construction in accordance with the drawings? and

5) Nirvana Development delays in giving possession of the site to Krishnan Contractor for two weeks; can the contractor terminates the contract?

THE DISCUSSION

The contract for the construction of the office building between Nirvana Development and Krishnan Contractor is a private project. Therefore, for the purpose of discussing the issues, the clauses in PAM 2006 standard form of contract are used as reference.

Issue One:

The date for possession of site is not specified in any of the contract documents; therefore, when exactly should Nirvana Development give Krishnan Contractor the possession of the site?

It is the normal practice for the contractors to specify the duration of the contract period in the tender document when bidding for the work. It means that, the employer knows when he selects a contractor, the duration that the selected contractor takes to complete the whole of the construction work. Therefore when he sends the letter of acceptance, he will be able specify the date for the completion of the work and the date for giving possession of site by looking at the duration of the work.

In practice, the date for giving possession of the site is the date the contractor commences with the construction work and the duration of the contract begins from that date.2 However, in this case, the letter of acceptance does not specify the date of giving possession of the site. The issue here is, what are the legal principles for setting the date when there the letter of acceptance specifies not date for the giving possession of site. The answer to this issued may be found in the common law and also the practice in the construction industry.

2 PAM 2006, clause 21.1



Under the common, the employer is under an implied duty of co-operation to give the contractor the possession of the date within a reasonable time as to enable the contractor to complete the work. In the case of Hounslow London Borough Council v. Twickenham Garden Development3, Megarry J. ruled that: “The contract necessarily requires the building owner to give to the contractor such possession, occupation and use as necessary to enable him to perform his work.” 4 Furthermore, in the case of Freeman v. Hensler 5 the Court of Appeal held that it is an employer’s implied duty (of co-operation) to give the contractor possession of the site within reasonable time to enable him to carry out and complete the work on the completion date. Similar principle was also stated in the case of Penvidic Contracting Co. Ltd. v International Nickel of Canada Ltd.6 In this case, the Canadian court held that in a new project a term would normally be implied into a construction contract (in the absence of an express term) that the site would be handed over within a reasonable time.

In practice, there are at least two clauses in PAM 2006 that may be referred to resolve this issue. Firstly, there is clause 2.0 that gives power to the architect to issue instructions to the contractor. Secondly, clause 21.4 of PAM 2006 confers upon the Architect power to postpone the whole of the work or any parts of the work. It is suggested that the architect may issue a written instruction7 under clause 2.0 to the contractor postponing the whole of the construction work. 8 However, there is a liability that the employer may incur when using these clauses. Firstly, the contractor is entitled to be awarded with extension of time.9 Secondly, the contractor is also entitled to claim direct loss and expense.10

Issue Two

A portion of the site is being occupied by squatters; should Krishnan Contractor take possession of the site in that condition, or should the employer remove the squatters first before giving the site to Krishnan Contractor?

It is a general principle that the site should be free from encumbrances.11 It is the employer’s duty to remove and encumbrances found on the site. The contractor should not accept the site if there are encumbrances therein. The employer’s delay in removing the encumbrances will entitle the contractor to extension of time and claim for direct loss and expense.

In the case of Rapid Building Group Ltd - v - Ealing Family Housing Association Ltd.12 the contract between the parties related to the construction of 101 dwellings in five blocks in London under the JCT 63 Form. The defendants, Ealing Family Housing Association, were unable to give the contractor, Rapid Building Group, possession of the site on the date stated in the contract, because at the north east corner of the site there were squatting a man and his wife and his dog.

3 [1971] Ch. 2334 at p. 2575 (1900) HBC (4th ed.) Vol. 2, p. 292 (CA)6 [1975]53 DLR 7487 clause 2.08 clause 21.49 clause 23.8(f)10 clauses 24.3(b) or 24.3(c)11 Rapid Building Group Ltd. v Ealing Family Housing Association Ltd. (1984) 29 BLR 512 supra



They were squatting in an old Austin Cambridge car with various packing cases behind a stockade. Following eviction proceedings Rapid Building were given possession but late.

This case illustrates the point that the site should be free from encumbrances before the contractor can accept it. It is the employer’s duty to remove them for the purpose of giving possession of site to the contractor.

Issue Three

Nirvana Development intends to give first, the section for Block A only and the site for Block B later, can Krishnan Contractor insist on the employer to give him the whole of the site?

The general principle under common law is that, unless a contrary intention is express in the contract, the contractor should be entitled to be given the whole of the site. In the case of Whittal Builders v. Chester Le Street D.C.13 by giving piecemeal possession, the employer was in breach of contract that entitled the contractor to claim damages.

Certain construction projects are specifically planned to be completed in stages and the occupied or take possession of, for purpose of usage or operation, in stages as well. If such is the employer’s intention, this should be made known to the contractor at the tendering stage. Standard forms of contract contain express provision for this procedure.14 The contract documents should also make indications to this effect.15 Other clauses should also be amended so as not facilitate the procedure.16 Sectional completion refers to a provision in the contract that allows different completion dates for different sections of the works. This is common on large projects that are completed in sections, allowing the employer to take possession of the completed parts whilst construction continues on others.

Issue Four

The little stream that crosses the site is not shown anywhere in the drawings; can Krishnan Contractor claim for extra expenses for making the site suitable for the construction in accordance with the drawings?

The general principle relating to risk of the site condition is that, it is the contractor’s risk. According to the Halbury’s Laws of England,17

“It is no excuse for non-performance of a contract to build a house or to construct works on a particular site that the soil thereof has either a latent or patent defect, rendering the building or construction impossible. It is the duty of the contractor before tendering to ascertain that it is practicable to execute the work on the site...” 18

In the case of Appleby v Myers,19 is was held that under the general law, there is no warranty by the employer that the site is fit for the work or that the contractor will be able to construct the 13 (1987) 40 BLR 8214 clause 21 and the Appendix15 Tender form16 Appendix: dates of completion of the sections, the amount of the LAD for each section, etc. 17 Second Edition Volume 318 Ibid, paragraph 38619 (1867) LR 2 CP 651



building according to the employer’s design on the site. This position was further confirmed in the case of Thorn v. London Corporation. 20 In this latter case, the court restated the common law position that, without an express provision to the contrary, ground condition risk rests with the contractor like any other physical condition or buildability issue.

In order to manage this risk, PWD 2010 standard form requires the contractor to do the site investigation before tendering for the work. This requirement is in fact a condition precedent for all bidding contractors.21 PAM 2006 does not make this as a condition precedent for tendering. However, as a principle of good practice, Krishnan Contractor should have made a site visit before submitted his tender.

Issue Five

Nirvana Development delays in giving possession of the site to Krishnan Contractor for two weeks; can the contractor terminates the contract?

Whether or not an employer’s delay in giving possession of site to a contractor amounts to a breach of condition that entitles the latter to terminate the contract is question of facts. The question is whether or not there is a clear intention on the part of the employer not to proceed with the contract. If there is such clear intention, then an employer’s failure or refusal to give the site is a breach of condition that entitles the contractor to terminate the contractor.

Under the common law, an employer’s outright refusal to the contractor possession of the site is a repudiatory breach.22 Similarly, in the case of Carr v J.A. Berriman,23 the delay in giving possession of the site coupled with unlawful omission of some work amounted to adequate intention of repudiatory breach. In the case of Tan Hock Chan v Kho teck Seng,24 the Federal Court held that the employer’s failure to give effective possession of the lot for the sixth house, the employer had broken his covenant and the contractor could rescind the contract. While delay in giving possession of site without sufficient prove of intention not to proceed with the contract is only a breach of warranty that entitles the contractor claim damages.25

In addition, it is also equally important to consider the relevant term in PAM 2006 relating to the employer’s duty in giving possession of site to the contractor. The standard form contains adequate provision for the employer to utilise in the event of disability to give the contractor the possession of the site.

20 (1876) 1 App. Cas. 12021 Instruction to tenderers.22 Roberts v. Bury Commissioners (1870) LR 4 CP 75523 (1953) 89 CLR 32724 [1980] 1 MLJ 30825 Rapid Building Group v Ealing Family House Association (1984) 29 BLR 5 (CA) (supra)



CONCLUSION

Relating to Issue One, if Krishnan Contractor intents to carry out the work, he is advised to notify the employer to fix a date for giving possession of the site. He may inform Nirvana Development that they may instruct their architect to issue an instruction (under clause 2.0) to Krishnan Contractor postponing the whole of the work26 and at same time fix the date of possession of the site.27 If Krishnan Contractor is no more interested to continue with the contract, he may notify the employer about the breach and his intention to no longer be bound by the contract.

Relating to Issue Two, if Krishnan Contractor intents to continue with the contract, he should inform the employer to remove the squatters as condition precdent for him to accpet the site.

Relating to Issue Three, as to Nirvana Development’s intention to give possession of the site in phases, since this is not specified in the tender documents, such an approach can only be done with the contractor’s consent. Krishnan Contractor is not contractually bound by the employer’s request. He may like the negotiate and ask for comepensation.

Relating to Issue Four, risk as to site condition rests with the contractor. Krishnan should not solely rely on the contract documents for the purpose of fixing the contract price during the tendering stage. He should have done the site investigation. He is liable for the risk of site condition.

Relating to Issue Five, there is inadequate evidence to show that Nirvana Development has committed a repudiatory breach. Krishnan Contractor may have difficulty in convincing the judge that Norvana Development has committed repudiatory breach. However, Krishnan Contractor shoud notify the employers this breach and allow time for them make good the breach. If the breach persists, then only may the contractor give notice of termination.

26 clause 21.427 clause 2.0


assignment 1_model answer

Documents