Our Commentary

Articles

Articles

What Is The Implication of A Notice Being A Condition In PAM 2006?

  

PAM 2006 - CLAUSE 23

PAM 2006 standard form of building contract contains provisions that empower the Architect to extend the Date of Completion for delays to the completion of the Works.  Without such provisions, the Architect would have no power to extend time for completion thus exposing the time for completion to become at large. PAM 2006 provides for wide grounds on which extension of time could be given so as to extend time for delay caused by the Employer so as to preserve the Employer’s right to levy liquidated damages. Similar to PAM 1998, Clause 23.8(m) of PAM 2006 sets out a ground which covers all delays caused by the Employer and it states, “any act of prevention or breach of contract by the Employer”. However, unlike PAM 1998, the Contractor’s serving of a notice of delay is now expressly stated in PAM 2006 as a condition precedent to an entitlement to an extension of time. Clause 23.1(a) of PAM 2006 states as follows:-

“23.1    If the Contractor is of the opinion that the completion of the Works is or will be delayed beyond the Completion Date by any of the Relevant Events stated in Clause 23.8, he may apply for an extension of time provided always that:

23.1(a)            the Contractor shall give written notice to the Architect his intention to claim for such extension of time together with an initial estimate of the extension of time he may require supported with all particulars of the cause of delay. Such notice must be given within twenty eight (28) Days from the date of the AI, CAI or the commencement of the Relevant Event, whichever is earlier. The giving of such written notice shall be a condition precedent to an entitlement of extension of time;”  

According to Clause 23.1(a) of PAM 2006, the Contractor must give the Architect a written notice of the former’s intention to claim for an extension of time with an initial estimate of extension of time and documentary records to support the cause of delay, such as, Contractor’s Site Daily Record or Contractor’s correspondence that records the cause of delay. Should the Contractor fail to give the notice within 28 days from the date of the Architect’s Instruction, Confirmation of Architect’s Instruction or the commencement of the Relevant Event, whichever is the earlier, he will lose his entitlement to an extension of time. The question then arises as to whether the contractor’s entitlement to an extension of time should be forfeited by reason of the contractor’s failure to comply with the procedure for the giving of a written notice of delay under Clause 23.1(a) of PAM 2006. 

In the Australian case of Gaymark Investments v Walter Construction (1999) Northern Territory Supreme Court 143, the construction contract contained a special condition that required the Contractor to submit a notice of delay within a prescribed time as a condition precedent to claim for an extension of time.  The contract stated that if the Contractor failed to comply with the condition precedent, he would lose his right to claim an extension of time.  Furthermore, the Architect had no discretion to award an extension of time in the absence of the Contractor’s application in accordance with the condition precedent introduced by the special condition.

In Gaymark Investments, the Contractor failed to comply with the requirements of the condition precedent and did not submit the required notice within the stipulated time. The Employer submitted that the Contractor had thus forfeited his right to an extension of time, and as a result of his then failure to complete by the “specified date for completion”, the Contractor was liable for liquidated damages. The Contractor disputed the Employer’s argument stating that, as the Employer had caused the delay in the first instance, he was entitled to his additional costs incurred because of the delay and also that the Employer should not be entitled to profit from his own delay by deducting liquidated damages. The dispute went to the court and the judge, Mr Justice Bailey, stated: -

“Acceptance of Gaymark’s submissions would result in an entirely unmeritorious award of liquidated damages for delays of its own making [and this in addition to the avoidance of Concrete Constructions (the previous name of Walter Construction) delay costs] because of the company’s failure to comply with the notice provisions of SC19.” 

In relation to the time for completion, the court stated:

 

“Where the concept of prevention is applicable, the practical consequence is that the ‘preventing party’ is prevented from further insisting upon strict contractual times which are replaced by whatever is a reasonable time in all the facts and circumstances (Building and Construction Contracts in Australia, Dorter & Sharkey, 2nd Edit at p.-4551)”

 

The judgment in Gaymark Investments can be summarised as follows: if the clause concerning the Contractor’s application for an extension of time had not been a condition precedent, then of course an extension of time would have to have been awarded for the delay caused by the Employer. However, the Employer would still have maintained his right to deduct liquidated damages for other delays or for the case where the extension of time awarded was not sufficient for the Contractor to complete by the specified date for completion.  The Employer would still have maintained his right to liquidated damages for delays which the Contractor himself had caused.  However, by making the award of an extension of time subject to a condition precedent, and in the event of the Contractor’s failure to comply with notice provisions, time was set at large and thus the Employer’s right to deduct any liquidated damages was lost and the Contractor was obliged to complete within a reasonable time. In light of Gaymark Investments, does the Contractor’s failure to give a written notice of delay in accordance with Clause 23.1(a) of PAM 2006 effectively forfeits the Contractor’s right to an extension of time?

It should be pointed out that PAM 2006 does not absolutely forfeits the Contractor’s right to an extension of time in the event he fails to give a written notice within the stipulated time period. In fact, PAM 2006 gives the Architect a discretion to grant an extension in a fair manner even if the Contractor has failed to give a notice of delay. Such discretion is found in Clause 23.10 which states:-

 

“The Architect may (but not obliged to) within twelve (12) Weeks after the date of Practical Completion review and fix a Completion Date later than that previously fixed, if in his opinion the fixing of such later Completion Date is fair and reasonable having regard to any of the Relevant Events, whether upon reviewing a previous decision or otherwise and whether or not a Relevant Event has been specifically notified by the Contractor under Clause 23.1. No such final review of extension of time shall result in a decrease in any extension of time already granted by the Architect...”

 

What is the implication of Clause 23.10? The Scottish case of City Inn Ltd v Shepherd Construction Ltd  [2003] ScotCS 146 sheds some light on the issue of time being set at large but it affirms the enforceability of a notice as a condition precedent to any extension of time. The court in City Inn held that if the Contractor wished to exercise his option under Clause 13.8 to seek an extension of time, he was bound to comply with the provisions in Clause 13.8.1 requiring immediate notice and details of the delay likely to be occasioned by an instruction. That was a ‘condition precedent’ to the Contractor’s right to be granted an extension of time. If the Contractor failed to comply with such provisions, then unless the Employer waived the requirements of such provisions, the Contractor would not be entitled to an extension of time. It is apparent that Gaymark Investments and City Inn have conflicting judgments. The question that arises is which case-law should apply to PAM 2006?

It’s clear from Gaymark’s case that where the ‘prevention principle’ is applicable on the facts of a case, the making of an award of an extension of time being subject to notice provisions as a condition precedent thereto would, in the event of the Contractor’s failure to comply with notice provisions, cause the Employer to lose his right to deduct any liquidated damages and that the Contractor would only obliged be to complete within a reasonable time.

On the contrary, though City Inn’s case concerns the distinction between penalty and liquidated damages, the Contractor’s failure to comply with the notice provisions which was  a condition precedent to any extension of time would still preserve the Employer’s right to levy liquidated damages.

It should be pointed out that the facts of City Inn can be distinguished from those of Gaymark’s case. In City Inn’s case, clause 13.8.5, by virtue of its provision under clause 13.8.4 which gave the Architect a discretion to dispense with the Contractor’s obligation under clause 13.8.1, excluded the operation of the ‘prevention principle’. In contrast, the ‘prevention principle’ was applicable in Gaymark Investments as the contract had not provided a ‘discretionary’ clause, that is, conferring power the Superintendent Officer to exercise his discretion whether to grant an extension of time despite the contractor having failed to comply with the notice provisions.

It is noted that Clause 23.10 of PAM 2006 is similar to the ‘discretionary’ clause in the contract found in City Inn’s case. Therefore, it is likely that City Inn’s case is applicable to PAM 2006 City Inn’s case in that a failure by the Contractor to give a written notice of delay would forfeit his right to an extension of time despite the delay to the completion of the Works is caused by the Employer. This likely outcome may not be altered although the Employer may be benefiting from his own delay by imposing liquidated damages on the Contractor for delay to the Works completion which is caused by the Employer. 

  

CONCLUSION

Under PAM 2006, where the Contractor fails to give a written notice of delay, he would forfeit his right to an extension of time despite the delay to the completion of the Works is caused by the Employer. The exception being that the Architect exercises his discretion under Clause 23.10 of PAM 2006 to grant the Contractor an extension despite the non-compliance with the notice requirement under Clause 23.1(a) of PAM 2006. However, if the Architect elects not to grant the Contractor a fair extension, the Contractor may be left with no remedies but to pay liquidated damages to the Employer for delays caused by the Employer himself. In light of this new development in PAM 2006, contractors should be on their toes in diligently giving notices of delay. Otherwise, contractors’ exposure to liquidated damages may be left in a limbo at the ‘discretion’ of the Architect.

 

About the author
John Wong
Author: John Wong

BSc(Hons), LLB (Hons), Dip. Int. Arb., FCIArb, FMSAdj, MRISM, Reg.QS

John is a Director of Charlton Martin Consultants Sdn Bhd. John holds dual qualifications in quantity surveying and law, is a Fellow of the Chartered Institute of Arbitrators, a Fellow of the Malaysian Society of Adjudicator, a Certified Adjudicator under Asian International Arbitration Centre (AIAC), a Registered Quantity Surveyor with the Board of Quantity Surveyors Malaysia and a Member of The Royal Institution of Surveyors Malaysia. John is a committee member of the Society of Construction Law Malaysia. John is a Panel Arbitrator and Adjudicator with AIAC. In year 1996, John begun his career in quantity surveying and since year 1999 has specialised in construction contractual claims and dispute resolution. John's all-round experience as a Quantity Surveyor, Claims Specialist, and Arbitration Counsel give him an added perspective in excelling in his present roles as an adjudicator, arbitrator and expert witness in arbitration/court proceedings. Since year 2007, John has been an articulate speaker at seminars on construction claims in Malaysia. Apart from Malaysia, John has experience in preparing claims for projects in Brunei, Singapore, Indonesia, Thailand, Philippines, Shanghai, Mexico, Algeria and the Middle East.


“Logo IconThe Charlton Martin Group provides construction contract consultancy services to the construction, engineering, power, process, petrochemical, oil and gas industries worldwide, dealing specifically with the many disputes and varied problems, which frequently arise.

Social Links

Share This
Follow Us
Copyright © 2020 Charlton Martin Consultants.

Developed By CrunchyFrogPro

Share Us