Time factor
16/07/2002 The Star Articles of Law with Bhag Singh
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.
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