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AN ARTICLE I wrote about completing projects on time has prompted a reader to come up with comments and questions on the absence of terms in a contract which can give rise to disputes. 

The reader poses the question whereby a contract agreement stipulates for a completion period of a project as within three months but it does not indicate clearly the commencement and completion dates. It also does not incorporate provisions for extension of time. 

The contractor takes his time and eventually completes the project after one year from the date of possession of site. As a result the employer suffers losses and would like to be compensated.  

The reader wants to know whether the employer can claim Liquidated Ascertained Damages from the contractor for the delay even though a clause to this effect is not provided in the contract agreement. If this is not possible, what other legal options are available to the employer?  

It would appear that apart from the fact that the parties knew what work was to be done and the period for completion, nothing else was clearly spelt out. 

In such a situation it does not mean that there is no contractual arrangement because much of what was to be done may have been agreed on verbally. All such verbal agreements though acceptable in law will have to be proved as evidence. 

In the course of doing so various difficulties will be encountered because there is likely to be conflict over what is verbally agreed or alleged to be agreed; this snag is referred to as “evidential difficulties”. 

Otherwise the parties will have to enforce their rights on the basis of what they have really agreed to among themselves. The fact that such an agreement is orally made or recorded in writing are separate issues that will have to be differently resolved. 

While liquidated damages are a convenient way of working out the loss that has been suffered, they have to be expressly stated and agreed to. If there is no agreement between the parties as to what the liquidated damages are to be, there can be no basis for making a claim for liquidated damages. 

So if liquidated damages have not been agreed to in the contract as a specific provision, the reality is that a claim for liquidated damages cannot be pursued.  

However, this does not mean that if there is no stipulation as to liquidated damages then a party cannot claim damages at all. The subject of liquidated damages will in such a case require further discussion. What such an aggrieved party will be entitled to is general damages. The right to general damages is clearly provided in section 74 of the Contracts Act 1950: “S74(1) When a contract has been broken, the party who suffers by the breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from the breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. 

“S74 (2) Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.” 

The reader says the contractor has taken his own sweet time. If the reader is an independent third party who has made an objective assessment, then the contractor is obviously in breach and liable to compensate the employer. But what would be the basis of computing the compensation? 

This will be the actual damages that has been suffered by the employer. If the damages suffered are very proximate then the contractor becomes immediately liable. However, if the damage is not extremely proximate but nevertheless foreseeable, then the contractor is liable too. 

This way of looking at the law is desirable for a close examination of the words “which naturally arose from the usual course of things from the breach or which the parties knew when they need the contract to be likely to result from the breach of it” indicates how liability for damages arises. Such damage falls into the category of general damages and will have to be strictly proved. This is consistent with the concept of ordinary damages which is intended to compensate an aggrieved party and not intended to be a windfall for a grievance suffered. 

Another aspect is that apart from the existence of damages on legal principles for the breach, the loss must be strictly proved. In the case of Tan Sri Khoo Teck Puat vs Plenitude Holdings Sdn Bhd it was said: 

“Plaintiffs must understand that if they bring actions for damages it is for them to prove their damage; it is not enough to write down the particulars, so to speak, throw them at the head of the court, saying, ‘This is what I have lost, I ask you to give me these damages.’ They have to prove it.” 

Of course, the above discussion is on the basis that the reader is an objective third party and the contractor is entirely to be blamed. However, in other cases it may be that the delay which may be attributable to factors beyond the contractor’s control, and in some cases due to interference or change of instructions by the employer. The situation with regards to liability would be in such cases be different.