Contractor, beware of the conditions precedent under the construction contract!

By Karen Ng Yueh Ying, Partner, Messrs. Yatiswara, Ng & Chan

Delay is a common issue in construction projects. Hence almost every contractor will have the experience of making application for extension of time under a construction project in order not to be imposed delay damages by the employer of the project.

It is usually the case that notification of delaying events is a requirement under the contractual provisions for extension of time. It is also common that contractors fail to submit notifications required under the contract in time.

The High Court in the case of KL Eco City Sdn Bhd v Tuck Sin Engineering & Construction Sdn Bhd & Anor [2020] MLJU 2457 had the opportunity to discuss this issue in depth.

One of the principal issues in this case concerned the delay in the works including issues such as extension of time, liquidated and ascertained damages and loss and expense claims. The contract at issue was based on the PAM Conditions of Contract where clause 23.1 of the PAM conditions required the contractor to submit its written notice of intention to claim for extension of time within a limited timeframe.

In this case, the contractor failed to comply with the mechanism in clause 23.1 of the PAM Conditions in respect of its EOT applications. The contractor however contended that the employer by itself or through its Architect as agent waived the non-compliance with the mechanism in clause 23.1 of the PAM Conditions. The employer argued that there was never any waiver either by the employer or the Architect. Furthermore, the Architect did not have the capacity to waive the rights of the employer.

The High Court Judge referred to the case of Sunissa Sdn Bhd v Kerajaan Malaysia & Anor [2020] MLJU 283 where Justice Lee Swee Seng (now Court of Appeal Judge) examined the words used in clauses 44.1, 44.2 and 44.3 in the PWD form of contract and held that, given their ordinary and natural meaning, they amount to a condition precedent where the notices’ requirement is concerned. Although the case of Sunissa concerned a direct loss and expense contractual provision, the High Court Judge in this case shared Justice Lee’s views and held that the principles set out therein equally apply to an extension of time contractual provision too. His Lordship further held that notwithstanding that the upholding of the stringent notice requirement may seem harsh on the contractor, his Lordship was constrained to hold that parties to the construction contract must be held to their contractual bargain which is well within their contemplation and capability to be implemented during the performance of the contract.

It was further held that unless actual authority is conferred, the architect as agent of the employer in a construction contract generally does not have the ostensible authority to waive the contractual rights of the employer in respect of conditions precedent such as on notice requirement. Actual authority can be specifically conferred where expressed in the construction contract. There is however no waiver provision found in clause 23 of the PAM conditions.

There is now a plethora of legal cases, some of which were referred to by the courts in the KL Eco City case and Sunissa case that where clear languages are used to make notice requirements mandatory, the courts will uphold those requirements even if they may seem harsh on the contractor. Hence, contractor is reminded to strictly comply with the notification requirements set out under the construction contract whenever required, including applications for extension of time and/or loss and expense. Contractor must take note that failure to comply with such requirement may be fatal to its claims for extension of time and/or loss and expense.