Managing Construction Contracts

• Time

Edwin Lee
Partner
Rajah & Tann LLP

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Outline

• Meaning of Completion

• Time for Completion

• Liability for Liquidated Damages

• Extension of Time

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Meaning of
Completion

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 Meaning of Completion
• Generally,

–Expressions used in construction contracts

include “practical completion” or
“substantial completion”.

–To be distinguished from the state of the

works at final completion.

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Meaning of Completion
• Obligation of Contractor

–To complete the works such that it has

achieved a state of readiness for use or
occupation by the owner.

–Usually stipulated to be the time/date when

Temporary Occupation Permit or Certificate
of Statutory Completion is issued.

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Meaning of Completion

• Contractor can still rectify minor defective

works or outstanding works, usually external
works like landscaping or fencing.

• Owner can benefit from completion the

enjoyment and use of the subject premises.

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 Time For
Completion

Time for Completion

• Occasionally stipulated in building contracts that

time is of the essence of the contract.

• Whether if the stipulation is to be literally construed

as essential or just a reminder to the contractor to
apply himself diligently

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Time for Completion

• Common Law

– In United Scientific Holdings Ltd v. Burnley Council

[1978] AC 904, the House of Lords held that time
should not be of the essence unless the following
conditions are present:

• The parties must have expressly stipulated in the

contract that conditions as to time should be strictly
complied with.

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 Time for Completion
• United Scientific Holdings Ltd v. Burnley Council

• The nature of the subject matter of the contract and

the surrounding circumstances demonstrate that time
should be considered to be of the essence.

• The party who has been subjected to unreasonable

delay gives notice to the party in default making time
of the essence.

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Time for Completion

• Consequences of Breach

– Delay in performance constitutes a breach which goes

to the root of the contract.

– Innocent party is entitled to terminate the contract and

bring an action in damages against the defaulting party.

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Liability for
Liquidated Damages

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 Liability for Liquidated Damages
• Contractually agreed sum in the event of default by
the contractor

• Liquidated Damages (LDs) are applicable for delays

where the contractor fails to meet the date for
completion.

• Benefit to Employer/Owner: agreed sum by the

contractor to pay owner for default, no need to prove
actual damage.

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Liquidated Damages
– In order to avoid the expense and effort to prove
damages from first principles, most construction
contracts have opted for a pre-agreed rate of damages
for each day or week by which the completion has been
delayed.

– Rate stipulated = Estimate of the loss that building

owner is likely to suffer if works are delayed
• May be derived either from some estimate of the project
income forfeited or the additional cost of finance which
may be incurred in the project.

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Liability for Liquidated Damages

• In order to enforce the LD Clause,

– There has to be a definite date fixed for completion.

– Employer must not have caused the delay to the

works.

– Amount of liquidated damages must not be a penalty.

– All specified contractual procedures has been

complied with.

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 Liability for Liquidated Damages
• Employer must not have caused the delay

– Peak Construction v. Mc Kinney Foundations [1970]

69 LGR 1

• “The stipulated time for completion having ceased to be

applicable by reason of the employer’s own default and
the extension clause having no application to that, it
seems to follow that there is in such a case no date from
which liquidated damages could run and the right to
recover them had gone.”

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Liability for Liquidated Damages

• Employer must not have caused the delay

– Kwang In Tong Chinese Temple v. Fong Choon Hung

Construction [1997] 3 SLR 876

– “Settled law that where acts of prevention by

employer resulted in delays, stipulated date of
completion is set at large, and the employer’s right to
claim or deduct liquidated damages is gone.”

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Liability for Liquidated Damages

• Employer must not have caused the delay

– Amalgamated Building Contractors [1952] 2 ALL ER

452
• Employer cannot rely on his own wrong to his benefit.
• “the contract time may well cease to bind the contractors,
because the building owner cannot insist on a condition if
it is his own fault that the condition has not been fulfilled”

– Perini Pacific Ltd [1962] 2 NSWR 536

• If there are overlapping causes of delay on the parts of
both the contractor and employer, the employer is not
allowed to impose LDs.
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 Liability for Liquidated Damages
• Perini Corporation v Commonwealth (1962) 2 NSWR
536
– Facts:
• Architect repeatedly refused to give his decision on
applications for time extension duly submitted by the
contractor.
• After tendering several requests for time extension with
apparently no success, the contractor decided to
accelerate his works and complete on time.
– Held:
• Contractor was entitled to succeed in his claim for
additional costs occasioned by the acceleration.

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Liability for Liquidated Damages

• LD Clause must not be a penalty

– Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor

Co Ltd [1915] AC 79
• The use of words “penalty” or “liquidated damages” is not
conclusive.

• Essence of a penalty is a payment of money stipulated as

in terrorem of the offending party. Essence of liquidated
damages is a genuine covenanted pre-estimate of damage.

• Whether penalty or liquidated damages a question of

construction judged at the time of making of contract, not
at the time of breach.

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Liability for Liquidated Damages

• Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd
[1915] AC 79
– (4) Tests for construction:
• (a) Sum stipulated for is extravagant and unconscionable in
comparison with the greatest loss that could conceivably be
proved following the breach – Penalty
• (b) Sum stipulated is a sum greater than the sum which ought to
have been paid – Penalty
• (c) “ a single lump sum is made payable by way of compensation,
on the occurrence of one or more or all of several events, some of
which may occasion serious and other but trifling damage.” –
Presumption of penalty
• (d) Doesn’t matter that the consequences of the breach are such
as to make precise pre-estimation almost an impossibility. This is
just the situation when it is probable that pre-estimated damage
was the true bargain between the parties

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 Liability for Liquidated Damages
• Temloc v Errill Properties [1987] 39 BLR 30

– Parties provided in Appendix of a Standard Form of

Building Contract that LD for delay should be “£ nil”.
– On a proper construction of the contract, the parties
had agreed that there should be no damages for
delayed completion.
– Completing relevant part of the Appendix constituted
an exhaustive agreement of the damages that were, or
were not, to be payable.
– It was not open to the Owner to claim General Damages
instead.

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Extension of time

Extension of Time

• Standard Form Contracts usually provide for the

owner/architect to extend the date for completion.

• “The contract period and the date for completion may

be extended and re-calculated, subject to compliance
by the Contractor with the requirements of the next
following sub-clause, on the following grounds …”

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 Extension of Time

• To allow extension of time, standard forms usually

stipulate procedural requirements to be satisfied by
the contractor before he is entitled to an extension of
time.

• SIA Conditions of Contract, clause 23

– Condition precedent
– In-principal intimation

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Extension of Time
• Requirements of Clause 23(2):
– It shall be a condition precedent to an extension of time by
the Architect under any provision of this Contract, including
the present clause (unless the Architect has already informed
the Contractor of his willingness to grant an extension of
time) that the Contractor shall within 28 days notify the
Architect in writing of any event or direction or instruction
which he consider entitles him to an extension of time,
together with a sufficient explanation of the reasons why
delay to completion will result.
– Upon receipt of such notification the Architect, within 1
month of a request to do so by the Contractor specifically
mentioning this sub-Clause, shall inform the Contractor
whether or not he considers the event or instruction or
direction in principle entitles the Contractor to an extension
of time.
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Extension of Time
• Condition Precedent - Notice in Writing

– Under s23(2), the contractor must give notice to the architect

in writing.

– Assoland Construction Pte Ltd v Malayan Credit Properties

Pte Ltd [1993] 3 SLR 470 confirms that:
• “[t]he grant of an extension of time is conditional upon the
plaintiffs notifying the architect within 28 days of the occurrence
of the particular event which the plaintiffs rely upon as the basis
for an extension of time unless the architect has already informed
the plaintiffs of his willingness to grant extension of time.”

– This was affirmed in Aoki Corp v Lippoland (Singapore) Pte

Ltd [1995] 2 SLR 609.

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 Extension of Time
• Aoki Corporation v Lippoland (S) Pte Ltd:
– Reason for making notification by contractor a
condition precedent
• “This is to enable the employer or the architect to
verify the claim for extension and to monitor the
event and its impact on the progress of the
works.”

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Extension of Time
• Architect’s duty under clause 23(2)

– to inform the Contractor whether he considers the event in

principle entitles the Contractor to an extension of time.

– Assoland Construction Pte Ltd v Malayan Credit Properties

Pte Ltd
• Facts:
– Plaintiffs notified the architect in writing of request for
extension
– Architect failed write to the plaintiffs to inform them of his
decision
– Architect later issued a ‘delay certificate’ under s24(1) stating,
inter alia, that the time for the completion of the works was
extended for a total of 218 days to 24 April 1992

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Extension of Time
• Assoland Construction Pte Ltd v Malayan Credit
Properties Pte Ltd

– Architect’s failure to comply with procedural

requirements renders purported extension invalid.

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 Extension of Time
• However, this decision has been qualified by Aoki
Corporation v Lippoland (S) Pte Ltd:
– “…on a plain reading of cl 23.2, the contract
does not make the in-principle intimation
within the one month period a condition for the
validity of the determination.”
• Notification by the contractor of the delay event
–Condition precedent to an extension of time
• Architect’s in-principle intimation
–NOT condition precedent to an extension of
time

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Extension of Time
• Aoki Corporation v Lippoland (S) Pte Ltd:
– No compelling reason for making architect’s in-
principle intimation a condition precedent

• “…it is often not possible for the architect to come to or

commit himself to a view that ‘in principle’ the contractor is
entitled to an extension without evaluating the effect of the
delay event.”
• “Its purpose appears to be to force the architect to take a
stand so as to enable the contractor to decide what he
should do, in particular, whether he should bring in more
men and equipment to speed up the work and sue for
damages for the extra costs incurred.”

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Extension of Time

• Aoki Corporation v Lippoland (S) Pte Ltd:

• “…the result of not elevating the giving of the in-principle

intimation (within one month) to the status of a condition
precedent may possibly be to confine the consequences of
the failure to observe this requirement to a claim for
damages, if any, resulting from any initial
uncertainty…rather than to destroy the validity of the
architect’s eventual decision on the extension of time.”

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 THANK YOU

For more information, please contact:

Nanda Kumar
Tel: +65 9667 6924
Email: edwin.lee@rajahtann.com
Website: http://www.rajahtann.com

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