Project Management Demystified

Human Resource Management Tale1

2006-06-22T06:26:00.000+08:00

One day while walking down the street a highly successful Human Resources Manager was tragically hit by a bus and she died. Her soul arrived up in heaven where she was met at the Pearly Gates by St. Peter himself.

"Welcome to Heaven," said St. Peter. "Before you get settled in though, it seems we have a problem. You see, strangely enough, we've never once had a Human Resources Manager make it this far and we're not really sure what to do with you."

"No problem, just let me in," said the woman.

"Well, I'd like to, but I have higher orders. What we're going to do is let you have a day in Hell and a day in Heaven and then you can choose whichever one you want to spend an eternity in."

"Actually, I think I've made up my mind, I prefer to stay in Heaven", said the woman

"Sorry, we have rules..."

And with that St. Peter put the executive in an elevator and it went down-down-down to hell. The doors opened and she found herself stepping out onto the putting green of a beautiful golf course. In the distance was a country club and standing in front of her were all her friends - fellow executives that she had worked with and they were well dressed in evening gowns and cheering for her. They ran up and kissed her on both cheeks and they talked about old times. They played an excellent round of golf and at night went to the country club where she enjoyed an excellent steak and lobster dinner.

She met the Devil who was actually a really nice guy (kind of cute) and she had a great time telling jokes and dancing. She was having such a good time that before she knew it, it was time to leave. Everybody shook her hand and waved goodbye as she got on the elevator.

The elevator went up-up-up and opened back up at the Pearly Gates and found St. Peter waiting for her.

"Now it's time to spend a day in heaven," he said. So she spent the next 24 hours lounging around on clouds and playing the harp and singing. She had great time and before she knew it her 24 hours were up and St. Peter came and got her.

"So, you've spent a day in hell and you've spent a day in heaven. Now you must choose your eternity,"

The woman paused for a second and then replied,

"Well, I never thought I'd say this, I mean, Heaven has been really great and all, but I think I had a better time in Hell."

So St. Peter escorted her to the elevator and again she went down-down-down back to Hell. When the doors of the elevator opened she found herself standing in a desolate wasteland covered in garbage and filth. She saw her friends were dressed in rags and were picking up the garbage and putting it in sacks.

The Devil came up to her and put his arm around her.

"I don't understand," stammered the woman, "yesterday I was here and there was a golf course and a country club and we ate lobster and we danced and had a great time. Now all there is a wasteland of garbage and all my friends look miserable."

The Devil looked at her smiled and told...

"Yesterday we were recruiting you, today you're an Employee.."

Contributed by : Yongsn

Fraudster gadget at Bank ATM

2005-09-29T20:04:00.000+08:00

A team of organized criminals are installing equipment on legitimate bank ATM's in at least 2 regions to steal both the ATM card number and the PIN. The team sits nearby in a car receiving the information transmitted wirelessly over weekends and evenings from equipment they install on the front of the ATM (see photos). If you see an attachment like this, do not use the ATM and report it immediately to the bank using the phone on the front of the ATM.

The equipment used to capture your ATM card number and PIN are cleverly disguised to look like normal ATM equipment. A "skimmer" is mounted to the front of the normal ATM card slot that reads the ATM card number and transmits it to the criminals sitting in a nearby car.

At the same time, a wireless camera is disguised to look like a leaflet holder and is mounted in a position to view ATM PIN entries.

The thieves copy the cards and use the PIN numbers to withdraw thousands from many accounts in a very short time directly from the bank ATM.

Equipment being installed on front of existing bank card slot.

The equipment as it appears installed over the normal ATM bank slot.

The PIN reading camera being installed on the ATM is housed in an innocent looking leaflet enclosure.

The camera shown installed and ready to capture PIN's by looking down on the keypad as you enter your PIN

Bitching about White Ants

2005-09-22T10:50:00.000+08:00

You don’t know they are there until it’s too late.

They are the unseen enemy.

Each year, the damages caused by this insects are more than the total damages from floods and fires combined.

On September 11, 2005, teacher Chan Boon Heng of SRJK (C) Keat Hwa (K) in Jalan Seberang Perak dies of internal injuries when he plunged 15 feet down due to the collapse of the plywood floorboard in the school which had been infested by white ants.

Chan was at the school’s office located on the first floor at 7.30am when the rotting wooden plywood floorboard suddenly gave way, and he plunged 15 feet down onto the hard cement floor below. He was rushed to a nearby private hospital where he died of internal injuries.

As our governmental system are basically reactive, on September 20, Education Minister Datuk Seri Hishamuddin announced that the government has now approved RM10 million for repairs and upgrading of schools following the death of teacher Chan Boon Heng.

Hishamuddin said the number of schools that needed repair were huge which is why schools deemed “really dangerous” would be given priority. He said he did not blame anyone for the insufficient allocation.

“We have already spent a lot on equipments and computer laboratories."

So, we now hear the mourning over the fact that billions are spent building computer labs, installing Astro and paying multi-millions for the TV programmes and building hostels worth hundreds of millions; but no money to repair and upkeep schools, in particular, national-type schools and religious schools, and no money to repair delapidated bridges in kampungs too.

What caused the plywood floorboards to rot and yet is not visible to the naked eyes?

Termites! White-ants!

Read more here

Balanced Scorecard for the Unbalanced

2005-09-22T10:44:00.000+08:00

As requested by my readers, here is a synopsis of Balanced Scorecard.

Harvard Business Review published the article “The Balanced Scorecard – Measures That Drive Performance” which was jointly written by Dr. David Norton (the then CEO of Nolan-Norton and now President of Balanced Scorecard Collaborative-BSCol) and Professor Dr. Robert Kaplan of the Harvard Business School.

The article summarized the findings from an in-depth study of 12 manufacturing and service companies that was carried out in 1990.

The research program set out to design a new approach to performance measurement that dealt with a growing managerial problem – that accounting, or financial, measures were increasingly being found wanting in assessing and managing organizational performance.

Norton and Kaplan premised that what business leaders required was a new mechanism with which it can take a holistic view of organizational performance, thus, providing more than the lagging financial metrics on which most organizations had based their decisions.

Consequently, Norton and Kaplan introduced a new performance measurement framework, which they anmed it: The Balanced Scorecard

Click here to read more on Scorecard

Contempt of Court

2005-08-06T02:51:00.000+08:00

Current Trends in Malaysian Public Law Contempt of Court :
Freedom of Expression and Rights of the Accused

© Chew Swee Yoke
Advocate & Solicitor
S.Y. Chew & Co.

11th Malaysian Law Conference
8-10 November 2001
Kuala Lumpur, Malaysia

Introduction

1. Between 1991 and 1998, the Bar Council noticed a marked increase in the exercise of the Court's discretion against lawyers, in which there were several cases of custodial sentences being imposed in addition to fines while several other lawyers were placed under threat of contempt proceedings . At one point, the Chief Justice issued a statement that contempt powers could be invoked against lawyers who failed to attend court on the scheduled date of hearing.

2. Against this background, the Bar Council Special Committee on Contempt Against Lawyers was set up in January 1999 which conducted a survey of cases of contempt involving lawyers in the Commonwealth from 1996 onwards. The end result was a Memorandum on "The Need to Define the Law of Contempt and To Provide for Certainty in Its Application and Enforcement". The Memorandum also included a Draft Contempt of Courts Act 1999. The Draft Act sought to define the law of contempt, the scope of punishment and comprehensive procedure for dealing with contempt. The Memorandum was submitted to the Prime Minister on 30th July 1999, to the Attorney-General on 9th August 1999 and to the Deputy Prime Minister on 10th August 1999. To-date, however, there is still no Act enacted.

The Bar Under Siege

3. The year 2000 was a low point in the bizarre development of contempt cases in Malaysia and saw a sinister assault on our fundamental right of freedom of speech.

In the case of Raja Segaran a/l Krishnan v. Bar Council & 2 Ors (hereinafter called "Raja Segaran No.1") reported in [2000] 1 AMR 540, a member of the Bar was granted a interlocutory injunction to restrain the holding of the EGM of the Malaysian Bar and with this, what restrained the Bar was the consequential penalty for contempt of court if the Bar were to proceed with the EGM.

The plaintiff even threatened to apply for another injunction if the Bar Council went ahead with a proposed discussion on 20th January 2000 with some 25 members of the Bar on this decision. The Bar Council replied to the plaintiff "that the proposed discussion is a private discussion confined to 25 members of the Bar who are also litigants and as such the discussion is, therefore, not contempt of court". Of course the plaintiff had to back down, The Bar Council had called his bluff. But it is a sign of the times that he even contemplated it in the first place! That, however, was not the end of this sad period of the history of the Bar .

The first injunction obtained by the said plaintiff was granted in November 1999 to stop the Bar EGM from discussing allegations against Judges and the Judiciary (Raja Segaran No.1). He obtained a second injunction in a second suit against Bar Malaysia & 11 Ors reported in [2000] 4 AMR 4971, to stop the EGM scheduled for 23rd June 2000 from discussing the integrity and independence of the Judiciary (hereinafter called "Raja Segaran No. 2"). The EGM was to discuss the motion that the Government set up a tribunal or a Royal Commission of Inquiry to investigate the alleged improper conduct of the then Chief Justice Tun Mohd Eusoff Chin's holiday in New Zealand, purportedly with lawyer Datuk V.K. Lingam. A preliminary objection was raised in Raja Segaran No. 2 on the ground that the judge should not hear the case as his son was a member of the Bar and he therefore had a vested interest. In support of this, counsel for the Bar Council cited the English case of Lockabail (UK) Ltd v. Bayfield Properties [2000] 2 WLR 870 at page 882 which reads:

"In any case where the Judge's interest is said to derive from the interest of the spouse, partner or other family member, the link must be so close and direct as to render the interest of that other person, for all practical purposes, indistinguishable from an interest of the Judge himself".

Now follows the extraordinary part of the hearing. The judge asked if all the defendants had instructed the counsel to cite the case. The Bar President Haji Sulaiman admitted that he as the Chief Executive Officer of the Bar had instructed counsel to submit on this point. For this, he was cited for contempt of court! Subsequently, the judge did not make any finding of contempt against the Bar President. It is difficult to understand how he could have cited the Bar President for contempt of court in the said circumstances, and how he could have justified it, if he did indeed find the President guilty of contempt .

In March 2000, a lawyer who appeared in court without a practising certificate was asked to show cause why he should not be committed for contempt in the face of the court. He was found guilty of contempt and sentenced to 6 months imprisonment . This case shook a lot of lawyers who had taken things for granted. Too many busy lawyers had too often overlooked the important requirement of applying and obtaining a practising certificate in good time. This was another low point for the Bar but in a different sense from the earlier episodes cited.

4. In my view, the above episodes (not including the case regarding the lawyer without a practising certificate) illustrate an insidious assault on the freedom of speech of the Bar as a whole and of the citizens of this country. These episodes made a mockery of Article 10 of the Constitution on freedom of speech.

In Appendix 6 of the IBA Special Issue on "Justice in Jeopardy: Malaysia 2000" Andrew Nicol QC's comment on the use of the contempt power in Malaysia in the context of international human rights law, said this enthusiastic use of the power to punish for contempt conflicts with two vital principles which are universally recognized in international human rights instruments - the right to a fair trial and the right to freedom of expression. He cited Article 14(1) of the International Covenant on Civil and Political Rights which guarantees a fair and public hearing by a competent, independent and impartial tribunal and reminded that a criminal defendant has an express right to defend himself through a legal representative of his own choosing and the same is implicitly contained in the right of civil litigants to a fair hearing. He says:

"There can be no fair hearing and legal representation cannot be effective unless a party's advocate is free to advance all arguments and lead admissible evidence which can reasonably be said to support the client's case. It is the recognition that lawyers must have this freedom which lies behind the absolute privilege which they enjoy (in the common law system at least) against actions for defamation for anything said or done in court.

… As Lord Atkin said in Ambard v Attorney-General for Trinidad & Tobago [1936] AC 322, 335: 'Justice is not a cloistered virtue: she must be allowed to suffer the scrutiny and respectful, even outspoken, comments of ordinary men.' An advocate who is properly conducting himself may sometimes need to argue that the judge has been guilty of unjudicious conduct, but this is not to be automatically equated with contempt of court. Likewise, it must be open to a litigant or advocate to make reasoned submissions as to why a particular judge will either be actually biased or why there may be the appearance of bias. Without this, there would be no effective remedy for a potential infringement of the right to an "impartial tribunal."

Andrew Nicol also cited the Judicial Committee of the Privy Council in Abnee v. DPP [1999] 2 IU/C 1305 on the offence of "scandalising the court" where Lord Steyn reminded that the offence was solely to protect the administration of justice rather than the feelings of judges, and goes on to say :

"There must be a real risk of undermining public confidence in the administration of justice. The field of application of the offence is also narrowed by the need in a democratic society for public scrutiny of the conduct of judges, and for the right of citizens to comment on matters of public concern. There is available to a defendant a defence based on the right of criticising, in good faith in private or public, the public act done in the seat of justice…The classic imputation of such an offence is the imputation of improper motives to a judge. But so far as Ambard's case may suggest that such conduct invariably be an offence their Lordships consider that such an absolute statement is not nowadays acceptable. For example, if a judge descends into the arena and embarks on extensive and plainly biased questioning of a defendant in a criminal trial, a criticism of bias may not be an offence. The exposure and criticism of such conduct would be in the public interest. On this point their Lordships prefer the view of the Australian courts that such conduct is not necessarily an offence: R v. Nicholls [1911] 12 CLR 280."

Andrew Nicol has pointed out that scandalizing the court is controversial because it is often invoked by summary procedure whereby the judge acts as prosecutor and judge in a more or less immediate trial of the accused contemnor, and that it is very difficult to reconcile this with Article 14 of the International Covenant on Civil and Political Rights and the comparable Article 6 of the European Convention of Human Rights.

5. The citation of contempt in some of the Malaysian cases highlighted in Appendix A have arisen in circumstances in which the conduct of the judge has been highly questionable. This immediately brings to mind Chapter XI of the Malaysian Penal Code under the heading 'Offences Against Public Justice' under which there are the following interesting sections:

Section 219 "Whoever being a public servant, corruptly or maliciously makes or pronounces in any stage of a judicial proceeding, any report, order, verdict, or decision which he knows to be contrary to law, shall be punished with a term of imprisonment for a term which may extend to seven years, or with fine, or with both."
Section 218 deals with a public servant framing an incorrect record or writing with intent to save a person from punishment or property from forfeiture.

Section 204 deals with destruction of document to prevent its production as evidence.
Section 21 defines "public servant" to include "every judge".

Section 19 states that the word "judge" denotes not only every person who is officially designated as a judge but also every person who is empowered by law to give, in any legal proceeding, civil or criminal, a judgement.

Section 16 in India's Contempt of Court Act 1971 enables a judge, Magistrate or any person acting judicially to be charged with the offence of contempt of court, and in Malaysia, under the above sections from the Penal Code, a judge may be charged with the offence against public justice .

Balancing Act

6. While it is obvious that the administration of justice must be preserved free from improper interference and obstruction and the courts have a significant role in that, there is also the need to preserve the fundamental liberties of the citizen who is caught in the wheels of justice. This is the fine balancing act. Probably the courts will use the same balancing act which they have done so in other situations involving conflicting interests such as the balancing referred to by Sedley LJ in Douglas, Zeta-Jones v. Hello! [2001] 1 FLR 982 where at Paragraphs 136 and 137 he said that the balance is to be struck "…articulated by the principles of legality and proportionality which, as always, constitute the mechanism by which the court reaches its conclusion on counter-railing or qualified rights…tested by, among other things, the standard of what is necessary in a democratic society…the outcome…is determined principally by consideration of proportionality.

Those principles were also applied in Clibbery v. Allan [2001] 2 FLR 819 and by Dame Elizabeth Butler-Sloss P in Thompson and Venables v. News Group Newspaper [2001] 1 FLR 791 at Paragraphs (40), (42) and (51). In these cases, the court tried to strike a "fair balance" or a "proper balance".

In the Raja Segaran cases cited above, one would have thought the balancing act would have been much simpler if the judge had consciously tried to do so by balancing the need to preserve the dignity of the Chief Justice with the need for the public to judge the conduct of the Chief Justice complained of, and then to test it by the standard of what is necessary in a democratic society. Unfortunately, he seems to have done no balancing act at all in his decision-making.

7. In America, the contempt power has been much more narrowly defined by comparison with the British position. The Supreme Court has applied the Constitution's First Amendment guarantees of freedom of speech and of the press strictly against exercises of the contempt power. In Bridges v. California 314 US 252 [1941] the Court held (by 5-4) that utterances can only be punished as contempt where there is a clear and present danger to the orderly and fair administration of justice in relation to pending litigation, saying:

"The substantive evil must be extremely serious and the degree of imminence extremely high before utterances can be punished (per Black at page 263). A reasonable tendency is not sufficient."

Subsequent cases have shown that the law of contempt is virtually a dead letter in protecting the trial process from prejudicial comment ("sub judice" principles).

8. In P.P v. Ooi Kee Saik [1971] 2 MLJ 108 the competing interests were between the right to freedom of speech and sedition. Justice Raja Azlan Shah said a line had to be drawn and in this country the court draws the line. But in attempting to draw the line, the problem is that the drawing board (the Constitution) has various built-in paradoxes. On the one hand, we have Article 10 on freedom of speech. On the other hand, we have Article 149 which allows Parliament to pass laws against subversion, actions prejudicial to public order, etc. Because of this, it is not surprising that we find Justice Raja Azlan Shah justifying a drawing of the line by saying in the Ooi Kee Saik case:

"We must resist the tendency to regard right to freedom of speech as self-subsistent or absolute…A line must therefore be drawn between the right to freedom of speech and sedition….when does free political criticism end and sedition begin? In my view, the right to free speech ceases at the point where it comes within the mischief of Section 3 of the Sedition Act." (At Pages 111-112 of the Law Report)

9. That has been the common thread in all the cases where our courts have had to do the balancing act. For years, our courts have failed us because they have forgotten what should have been the paramount consideration: that this country prides itself on being a democracy. In his paper "Fundamental Rights and The Rule of Law: Their Protection by Judges" for the 12th Commonwealth Law Conference, Raja Aziz Addruse lamented that in considering the scope and extent of fundamental rights, our courts appear to have been content to focus on the restrictions on those rights, as imposed by Parliament, rather than examine the purport and intent of the rights themselves. Through the years, we have become desensitivised to an assault by Parliament on the traditional meaning of democracy. Over the years, various laws have been passed which have taken away the fundamental liberties supposedly granted by our Constitution.

A New Balancing Act Required

10. We should remember the pre-Khawaja days in preventive detention cases in Britain when Liversidge v. Anderson was used to justify the interpretation of the Secretary of State's "reasonable cause to believe" as meaning "if the Secretary of State is satisfied" and that it was not for the court to question the "satisfaction' of the Secretary of State. Everywhere in the Commonwealth including Karam Singh v. Menteri Hal Ehwal [1969] 2 MLJ 129 in Malaysia, Liversidge v. Anderson became the rock that sank the ship for many a detainee. Then along came Khawaja v. Home Secretary [1984] AC 74 and suddenly the dissenting judgement of Lord Atkin in Liversidge v. Anderson became the law of the land in the Commonwealth. With due respect, it is time our courts did a Khawaja: adopt a new balancing act so as to be true to democracy. The center of gravity is the Constitution. When considering a conflict between the freedom of speech and contempt of court considerations, our Courts must focus on the Constitution as a starting point and in drawing the line, must look at any given set of circumstances within the larger picture of democracy.

11. In Zainur Zakaria's case, the decision by the Federal Court [2001] 3 AMR 3149 will be hailed as a watershed for many years to come. But I submit that the Federal Court judges should have also seized the opportunity to spell out the importance of the freedom of speech (Article 10) read with Article 5 under which no person shall be deprived of his life or personal liberty save in accordance with law. Zainur's client, Dato' Seri Anwar Ibrahim, had filed a notice of motion with a supporting affidavit to pray for an order that two DPP's in the prosecution team, be discharged from further prosecuting the case and that the matter of their conduct be referred to the Attorney-General with a view to such action as may be appropriate being taken against them. In a dialogue highlighted by Justice Abdul Malek Ahmad, FCJ (Page 3187 of report) the trial judge Justice Augustine Paul told Zainur: "This notice of motion has been filed by you and you have to assume full responsibility for it." That was the basis of the contempt case against Zainur. In an extraordinary statement of "justice" the trial judge said (Page 3190):

"This application with its Affidavit-In-Support is an interference with the course of justice as it has no basis. It therefore amounts to a pre-emptive step to undermine the integrity of a trial in progress. The object is to project an impression that the prosecution is anchored on fabricated evidence. This is a serious contempt and I have to act on it with all urgency to preserve the integrity of this trial. As I said in the early stage of this trial I will not hesitate to flex every inch of my judicial muscle to ensure that this trial proceeds smoothly. It is my duty to guarantee that persons who are following this trial are not hoodwinked in any way. With the application of this nature to muddy the smooth flow of justice, I would not be surprised if a similar application is made to have me disqualified from hearing this case. In the light of the baseless application filed by you which is totally unsupported by the documents exhibited by you, I propose to cite you for contempt for having attempted to undermine the integrity of this trial. Before I do so this court will show mercy towards you by dropping all further proceedings if you tender an unconditional apology to this court, to the Attorney-General, to Dato Gani Patail and to Encik Azhar for filing an application which is absolutely baseless and which is an abuse of the process of court."

When invited to address the court, the Attorney-General said (Page 3192 of report):
"My brief answer is that this contempt is contempt in the face of the court….it must be dealt with immediately. This contempt derails justice and requires immediate action."

Zainur was asked to go into the witness box and he said (Page 3193 of report):

"The application was filed upon instructions of my client….I did so in the discharge of my professional duty….Section 42 (Legal Profession Act) requires an advocate and solicitor to uphold justice without fear or favour…."

When found guilty of contempt almost immediately after that, Zainur was asked to address the Court on sentence. He said:

"It was not the intention to commit contempt. When the defence team studied the application before filing it was based on the documents exhibited. Our instructions were based on the documents. In the interest of justice it was felt this matter must be brought to attention of court."

When Zainur refused to apologise, he was sentenced to 3 months' imprisonment

12. The above reads like a passage from Franz Kafka's "The Trial". Fortunately, the Federal Court corrected the scandalous position and set aside the conviction and sentence and in a chilling rebuke, Justice Abdul Malek, FCJ said (Page 3203):

"In the light of all observations made, the conduct of the learned trial Judge himself had vitiated the contempt proceedings. It is obvious that the Court of Appeal, in merely agreeing with the trial judge, fell into the same error."

13. Justice Haidar Mohd Noor, FCJ said (Page 3206 of report) that it was not enough for a lawyer to say he had taken steps on client's instructions. He must also say if his client had the right to take that step. If a client insisted on taking a wrong step, the lawyer must advise him and if the client persists, the lawyer must stop acting for the client. In Justice Haidar's view, the client in this case (Dato Seri Anwar) was prima facie justified in filing his application and hence there could be no question of Zainur being liable for contempt of court for acting on his client's instructions.

14. Various passages from U.K. cases quoted by Justice Abdul Malek are interesting because they refer to the meaning of contempt of court and in some, to the necessary balancing act . Lord Morris of Borth-Y-Gest in Attorney-General v. Times [1973] 3 AER 54 said that the decision will depend on whether one aspect of the public interest definitely outweighs another aspect of the public interest. Lord Diplock in the same case enumerated the three requirements of due administration of justice as: (a) unhindered access to courts, (b) reliance on decisions free from bias and based only on facts proved, and (c) no usurpation by any other person of the function of the court to decide according to law. On these three requirements alone, Justine Augustine Paul's decision against Zainur sadly failed, even without touching on the rules of natural justice.

15. It is implicit in Zainur's duty as an advocate and in Dato Seri Anwar's right to file his application that both of them must be able to exercise their freedom of speech. Which is the larger picture that concerned the court in Zainur's case? The administration of justice or the right to freedom of speech under the Constitution? In my humble view, both elements constituted the larger picture. So the balancing act that should be have been clear to Mr. Justice Augustine Paul was between the prosecutors' dignity and the delay to the court caused by the application (as mentioned by him) on one side as opposed to the aforesaid larger picture on the other side. How could he have decided the way he did? Like Mr Justice Kamalanathan Ratnam in Raja Segaran No. 2, Justice Augustine Paul had done no balancing act at all.

16. I would venture to suggest that every judge who threatens any litigant or advocate with contempt of court citation should pause for a while and ask himself or herself whether there is a necessary balancing act to be done and if so, in which way the balance would tilt, and then decide in favour of that side of the balance. In cases of contempt which threaten the citizen's fundamental right to freedom of speech, the effect is as chilling on the freedom of speech as heavy defamation damages.

Rights of the Accused

17. The contempt power gives rise to concern on various points: uncertainty of scope, undue inhibitions on freedom of speech and a summary process lacking in qualities of procedural fairness thought essential for orthodox criminal proceedings. Because of these concerns, many of the proposals of the Phillimore Committee on Contempt of Court (Cmnd.5794, 1974) eventually took form in the Contempt of Court Act 1981 in the U.K.

18. The following summarises matters which could be said to pertain to the rights of the accused in contempt proceedings:

(a) Standard of Proof: Where the contempt alleged may result in the accused/defendant being committed to prison, it must be proved to the same standard as a criminal charge: Re Bramblevale Ltd [1970] Ch.128, Arlidge, Eady & Smith on Contempt (2nd Ed., 1999, Page 130).

(b) No one is bound to incriminate himself: Redfern v. Redfern [1891] P. 139 at 149.

(c) An alleged contemnor is not a compellable witness even in proceedings for civil contempt but if an affidavit is filed the deponent, when threatened with cross-examination, cannot withdraw it: Re Quartz Hill [1882] 21 Ch.D. 642. As the proceedings are in the nature of a criminal charge it is within the discretion of the court to refuse to allow the cross examination: Comet Products v. Hawkex Plastics [1971] 2 QB 67.

(d) Where it is sought to enforce obedience to a judgement or order, the court will only commit if satisfied that the breach of the judgement or order was wilful. An applicant who seeks to commit a person for breach of an injunction must establish deliberate or wilful breach beyond reasonable doubt. It is therefore a defence to show that the respondent had no knowledge of the order or that the breach was accidental: Fairclough v. Manchester Ship Canal Co. [1897] WN7. Accordingly, personal service of the judgement or order or a copy thereof (Order 45, Rule 7(2) of the Rules of High Court, 1980) and of any supplementary orders (Phonographic Performance v. Tsang [1985] LS Gaz R2331) is always necessary except in the following cases:

i. when an order for substituted service has been obtained;

ii. where the order alleged to have been disobeyed requires a person to abstain from doing an act (i.e. a prohibitory not a mandatory order), it may, pending proper service, be enforced if the person sought to be committed was present when the order was made or has been notified of the order by telephone, telegram or otherwise;

iii. where it is sought to commit a person for breach of an undertaking given to the court by that person;

iv. service on the solicitor of any party against whom an order for discovery or interrogatories is made is sufficient to base an application for the committal of the person disobeying the order;

v. where the court thinks it just to dispense with service.

Mens Rea: It must be shown that the accused intended to do the act in question. At Common Law it was uncertain whether it was necessary to prove in addition an intention to interfere with the course of justice (Attorney-General v. Butterworth [1963] 1 QB 696, Borrie & Lowe at Pages 53-54, 274, 275). Such intention must be shown where it is sought to hold an advocate or witness in contempt for failure to attend court: Weston v. Central Criminal Court Courts' Administrator [1977] QB 32, 43 per Denning; In Re Dr. A.S. Rayan [1983] 148 JP 569, DC. The contempt of Court Act 1981, U.K. in limiting the scope of strict liability in relation to conduct alleged to interfere with the course of justice in particular proceedings now imports a full Mens Rea requirement for contempt in the face of the Court: See Borrie & Lowe, ibid.

(e) If at the hearing the respondent expresses a wish to give oral evidence on his own behalf, he is entitled to do so.

(f) In contempt proceedings under the Rules of Court (Order 52 of Rules of High Court, 1980 and Order 34 of Subordinate Courts Rules, 1980), there must be strict compliance with the Rules: See Sykt. M. Mohd v. Mahindapal Singh [1991] 2 MLJ 112 at Page 113, Paragraph E-F (right-hand column). For example, the alleged contemnor can be discharged if the order for committal proceedings was made in Chambers and not in Open Court: Order 52, Rule 2(2) of High Court Rules and see the case of Chan Sang v. Golden Century [1995] 1 MLJ 92; followed in Tan Gin Seng v. Chua Kiam Hong [1999] 1 MLJ 29 at 31, Paragraph F-G. Under Order 52 new Rules 1A and 1B (w.e.f. 22nd September 2000) for contempt in the face of the Court, it is not necessary to serve formal notice to show cause but for other cases of contempt, formal notice must be served requiring the alleged contemnor to show cause.

(g) The order committing the contemnor must specify the contempt (Chiltern D.C. v. Keane [1985] 2 AER 118) and make clear to whom the order is directed and what must be done to comply with it: Re C (A Minor) (Contempt) [1986] 1 FLR 578. The particulars of the contempt in the order must not refer to matters not included in the affidavits in support of the application for committal: Tabone v. Seguna [1986] 1 FLR 591. If the order does not provide for imprisonment for a fixed term it will be unlawful: Linnett v. Coles [1987] QB 555. If service of the order is dispensed with, this should be recorded in the order: Nguyen v. Phung [1984] FLR 773.

(h) Rules of natural justice must be observed in summary contempt proceedings. The defendant must be given the chance to defend himself and in appropriate cases, should be given the opportunity of being legally represented. In R v. K [1983] 78 Cr App Rep 82, K refused to testify against a fellow inmate of Camp Hill Prison at the latter's trial on a charge of wounding K: the judge did not offer him legal representation, brusquely prevented him from giving any explanation for his refusal and sentenced him to a further three months' imprisonment. The Court of Appeal quashed the conviction. In fact, K could have presented evidence of duress which might have constituted a valid defence. See also In Re Dr. A.S. Rayan [1983] 148 JP 569 and R. v. Chowdhury [1984] Times 29 March.

Habeas Corpus In Aid of Contemnor Committed to Prison: A Suggestion

19. In those cases where an alleged contemnor has been committed to prison in circumstances which show his fundamental liberties have been breached, it is possible to resort to habeas corpus to secure his freedom. The source of this interesting argument can be found firstly in Paragraph 1, Schedule of the Courts of Judicature Act 1964 on "Additional Powers of High Court" which gives the Court:

"Power to issue to any person or authority directions, orders or writs, including writs of the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari, or any others, for the enforcement of the rights conferred by Part II of the Constitution, or any of them, or for any purpose."

20. The writ of Habeas Corpus occupies a special place in English constitutional law as the most efficient protection for the liberty of the subject. The use of this great remedy rooted in early English medieval legal history has great potential for the protection of citizens against erosion of their right to be free from unlawful restraints on their personal liberty . If for example, a court sentenced an alleged contemnor for contempt in the face of the court and against the rules of natural justice in, say, the circumstances described in R. v. K in Paragraph 11(h) above, it is arguable that the prisoner could resort to habeas corpus because his detention is unlawful.

21. Traditionally the writ of habeas corpus has been used to secure the release of a person from illegal detention. In Canada, a series of cases have shown that the current view is that the restraints on individual liberty which are remedied by habeas corpus are no longer confined solely to cases of illegal detention. It is now available to challenge even threatened deprivation of liberty: Idziak v. Canada (Minister of Justice) [1992] 77 C.C.C. (3d) 65 (S.C.C.): where the applicant was subject to an outstanding warrant of detention. In Ooi Ah Phua v. Officer-in-Charge Criminal Investigation [1975] 2 MLJ 198, the Federal Court rejected habeas corpus as an appropriate remedy for one denied access to his lawyer. In the light of the reasoning in the Canadian cases, it is submitted that the Federal Court was wrong. Being denied access to his lawyer is a denial of a fundamental right under Article 5.

22. The authors of "The Criminal Lawyers' Guide to Extraordinary Remedies" state that a significant issue which arises from R. v. Gamble is the extent to which inmates convicted under Criminal Code provisions which are subsequently declared unconstitutional may challenge the legality of their continued detention by way of habeas corpus . According to the said authors, by expanding the scope of the writ, R. v. Gamble appears to create an exception to this rule where the application is based on an infringement of the applicant's rights under the Canadian Charter of Rights & Freedom .

23. If a person was wrongly detained for contempt of court which was alleged to arise in circumstances showing there was an Order of Court and his freedom of speech was somehow denied (Raja Segaran situation), could he not challenge his detention by a writ of habeas corpus? I humbly submit that he could, even without exhausting his right to appeal. As the authors of "The Criminal Lawyers' Guide to Extraordinary Remedies" point out, in contrast with certiorari, mandamus and prohibition, the writ of habeas corpus is not a discretionary remedy and as a general rule, the availability of an alternative remedy is not sufficient reason for a court to refuse to issue the writ, although it makes the remedy less appropriate. If however institutional delays are so serious as to render the alternative remedy inadequate, the habeas corpus remedy would be more readily granted: Fraser v. Kent Institution [1997] 130 C.C.C. (3d) 393 (B.C.C.A.).

24. The purposive approach in R. v. Gamble was a clear departure from the restrictive common law rules governing the availability of the writ of habeas corpus. Justice Wilson said that where habeas corpus is sought as a Charter remedy, the courts should not be bound to limited categories or definitions of jurisdictional review when the liberty of the subject is at stake. She reminded that the remedy has traditionally been used for the protection of the citizen's fundamental right to liberty and that the Superior Courts in Canada have in accordance with the sentiments expressed in the habeas corpus trilogy of Miller, Cardinal and Morin displayed both creativity and flexibility in adapting the traditional remedy of habeas corpus as a Charter remedy. As stated in R. v. Domm [1996] 31 O.R. (3d) 540 at Page 553 (C.A.), the attempt to "modify traditional common law remedies such as habeas corpus to ensure relief against constitutional violations" is part of a larger theme in Charter jurisprudence to provide "an effective remedy to right a constitutional wrong" .

25. One cannot speculate or foresee all the situations in which the detention of an alleged contemnor has involved a denial of his fundamental or civil liberties. We can speculate for example in the Raja Segaran cases what could happen if for example the Bar Council and members of the Bar went ahead to hold the EGMs despite the Injunctions issued by Mr Justice Kamalanathan Ratnam. They would probably be committed to prison for contempt of court. They could plead that their fundamental right to freedom of speech under Article 10 of the Constitution has been denied unjustly. Their lawyers could file for Writs of Habeas Corpus. "Clear and Present Danger: The Bar Behind Bars". Any takers for the movie rights to such a splendid scenario? Does anyone dare to say it is a hopeless case to argue?

APPENDIX A

(Extract from Special Issue on "Justice in Jeopardy: Malaysia 2000")
by the International Bar Association

Contempt Cases

The use and threatened use of the contempt power in certain cases in Malaysia has given concern as to the true independence of the judiciary. It also gives concern as to the ability of lawyers to render their services freely.

Attorney General, Malaysia v Manjeet Singh Dhillon [1991] 1 M.L.J 167

It may reasonably be said that this was the first case of the chain which has led to the present situation. The Supreme Court, by a 2-1 majority, found the defendant, a lawyer, guilty of contempt of court. The case arose out of the crisis of 1988, at the time when the then Lord President had been suspended. There was an Acting Lord President in place who, by the time of the case, had been appointed Lord President. The defendant affirmed an affidavit on behalf of the Bar Council in his capacity as secretary. The affidavit was filed in support of an application for leave for an order of committal to prison of the Acting Lord President. It was alleged that he was guilty of contempt of the Supreme Court by attempting to prevent, frustrate and interfere with a sitting of the Court, thus abusing his official position. The defendant, who admitted that he had affirmed the affidavit in his representative capacity, was found guilty of contempt of court. Although it was noted that similar criticisms of the Acting Lord President were made by the Malaysian Bar, no proceedings were initiated against the Bar. The fact that the defendant's responsibility was vicarious was no defence to the charge, but was regarded as a mitigating factor. For these reasons a fine of $5,000 (in default of three months' imprisonment) was thought appropriate as a sentence. Irrespective of the merits of this decision, the judgement conveyed the hint that the real culprit was not the defendant himself but the Malaysian Bar Council. The warning having been given, judicial sentiment and apprehensions were satisfied in the circumstances by a fine. But, as messages go, the message was clear. The term "contempt of court" acquired a new significance for lawyers in relation to their work.

Further cases followed. Three of the more recent ones were brought to the attention of the mission.

Mbf Capital Bhd & Anor v. Tommy Thomas & Anor [1999] 1 M.L.J. 139

In November 1995, David Samuels wrote an article entitled "Malaysian Justice on Trial" in a legal journal called "The International Commercial Litigation". The article examined recent cases and legal incidents in Malaysia and quoted from various lawyers, including Mr Tommy Thomas, then Secretary of the Bar Council, and a partner of Skrine & Co, a firm of advocates and solicitors. Profiled for special discussion in this article were (i) Ayer Molek case (Insas Bhd & Anor v. Ayer Molek Rubber Co Bhd & Ors) which concerned an ultimately successful court action to bring to force a rectification of Ayer Molek's share register; and (ii) the case of Malaysia Borneo Finance Holdings (MBfH) v. East Asiatic Company (EAC) which concerned multiple actions simultaneously brought before the Civil and Commercial Divisions of the High Court and two different judges of the Commercial Division. The comments quoted in the article by Mr Tommy Thomas, among others, had been critical of certain aspects of each of these cases. The publication of these remarks in the article gave rise to a number of separate actions for defamation including against Mr Thomas and Skrine & Co. The total sum claimed was over RM 200 million, which by Malaysian standards, was a huge sum. The action, however, gave rise to further controversies of more direct concern at this point.

Before the action could proceed to trial, the insurers of the defendants brokered a settlement whereby the latter agreed to retract their statements, offer unconditional apologies and settle payment of a substantial undisclosed sum to the plaintiffs. On 21 October 1998, judgement was handed down in terms of a settlement with the judge further chastising the defendants for making false statements. Mr Thomas, however, felt strongly that he had been pressured into the settlement by his insurers and he made a statement to the press in which he said that the settlement "was initiated, brokered and insisted upon entirely by the insurers. The actions were settled despite my express objections". This statement was published on 22 October 1998 in the same newspaper report that reported on the settlement. No sooner had it been published than Mr Thomas realized his mistake and retracted his statement. The retraction was published on 24 October 1998. The court, however, issued Mr Thomas with a notice to show cause why he should not be cited for contempt. At the hearing which followed, Mr Thomas did not oppose the notice but sought only to mitigate sentence. He filed an affidavit tendering an unconditional apology to the court and an explanation that his remarks were not intended in any way to embarrass or offend the court, but were directed towards the insurers and the way in which the settlement of the various defamation actions had been reached. Despite a plea by his counsel that, given the immediate apology, a custodial sentence should not be imposed Mr Thomas was sentenced to six months' imprisonment.

In his judgement Mr Justice Kamalanathan Ratnam rejected in unequivocal terms the apology and explanation which Mr Thomas had given. Despite the fact that remorse and contrition had been expressed, the judge found that Mr Thomas

"has not been honest with the court. He has, in my view, not come clean. His explanation that the press statement which said that 'the actions were settled despite my express objections' was meant for the insurers, rang so hollow that it was almost an insult to the intelligence of the court to expect this court to be so gullible as to accept that explanation."

He continued that it was

"patently clear that by making an immediate statement in the pressthat the settlement was effected despite his express objections, Mr Tommy Thomas intended to portray to the world at large that he was never a willing party to the settlement.… (He) was a besotted adversary who would not sheath his sword until he had had the last say….Even to the very end, he is not prepared to come clean, bare his soul and then seek the court's compassion."

This decision was appealed. The IBA observed the proceedings. The final verdict is awaited.

This report has explored this case because it raises a number of different issues. In addition to the issue of contempt, during the hearing there had been a long and protracted discussion about whether the Bar Council could have a watching brief in light of its general duties under the section 42 of the Legal Profession Act 1976. The judge took the view that the Bar Council did not have sufficient interest, and a watching brief might cause a conflict of interests if the Bar Council was called upon to take disciplinary proceedings against Mr Thomas. It is unfortunate that the judge denied the Bar Council intervention in this case. Although the watching brief procedure is not comment to all legal systems, it is a useful tool in controversial and difficult cases.

The arguments regarding the mitigation of sentence were also significant in this case. Although Mr Thomas offered what could be considered a full apology, the judge did not accept it. He expressed his view forthrightly in the words quoted above. Furthermore, Mr Thomas had not sought mercy from the Attorney-General. This was considered to be a factor in light of the case of Anthony Ratos s/o Domingos Ratos v. City Specialist Centre Sdn Bhd (a City Medical Centre) (Attorney-General, Intervene) [1996] 3 M.L.J. 349. This highlights the active role played by the Attorney-General's office in such cases.

Skrine & Co's plea for recusal

This was another matter which developed from the defamation case referred to above. In December 1997, at an earlier hearing in the case the judge, Mr Justice Kamalanathan Ratnam, had declined to frame a preliminary issue upon the liability of the partners of the firm of Skrine & Co because it was his "finding that the alleged defamatory words spoken and published by the first defendant Mr Tommy Thomas, one of the partners of Skrine & Co, are both intrinsically and inextricably linked and knotted with the second defendants' (Skrine & Co) ordinary course of business, so much so that the first and second defendant are to my mind joint and several defendants to this action". Mr Chin Yoong Chong, a partner in Skrine, filed an application for an order that the judge "be disqualified from presiding over all further proceedings in this action including the trial of this action" because he had

"made what is in effect a pre-judgement of the most pivotal issue affecting the second defendant at a stage when he was not called upon to decide the issue….(and) there would be a reasonable suspicion of, or alternatively a real likelihood that a fair trial of this action before the Honourable Mr Justice Kamalanathan Ratnam will no longer be possible and that therefore there is an appearance of, though not actual, bias, however much the Honourable Judge may judiciously strive to avoid it."

It was averred that the judge's "finding" undermined the substantive defence of the partners of Skrine & Co. under sections 7 and 12 of the Partnership Act 1961. Broadly, the affidavit of the answering defendants in reply to the application disputed the interpretation given to the "finding" made by the judge and alleged that "there has been inexorable and inordinate delay in making this application and it was not made in good faith".

On 30 March 1998, the judge accepted that the delay in making the application for his recusal was inordinately long, especially as he had conducted two case managements since the order of 15 December 1997 had been passed. He dismissed the application with costs, adding that he had left the defences available to the applicants under section 7 and 12 of Partnership Act intact, obviating any suggestion of bias. He took the view that the delay, the fact that senior counsel's advice was taken and that the applicant had toyed with whether the application should be filed showed that it lacked bona fides. The judge said that he felt baffled that "senior and leading counsel who were….adroit in the art of pleading" had simultaneously alleged bias and expressed confidence in the court. Lawyers who spoke to the mission felt that the issue was not a personal one, but simply whether a judge who had, perhaps pre-judged a critical issue should continue with the case. The contrary argument was that refusal to frame a preliminary issue was not a pre-judgement but a deferment until the trial of the issues. In any event, those acting for Skrine & Co decided to appeal.

The judges of the Court of Appeal took the view that if application was not immediately withdrawn, notices for contempt would follow because the application was misconceived and intemperate. The lawyers appearing before the Court of Appeal said that they felt a sense of panic at this. They met over lunch and the decision was made to withdraw the appeal. In the course of discussions, the mission was invited to examine the memorandum of appeal in this case. It did so and its view was that, with respect to the Court of Appeal, whatever may be said as to whether the application was misconceived, it was at a loss to see how it could be said to have been couched in intemperate language. On the contrary, it seemed to the mission that it was couched in entirely appropriate language.

Whether the application was misconceived is not the issue in the present context. However, the threatened use of the contempt power has to be taken seriously. So seriously, in fact, that instructions had to be sought and taken over lunch from Mr Chin with the result that a decision was taken not to proceed with the action because of the threat which had been made. The appeal was therefore withdrawn. We are in no doubt that as a result of this case lawyers may have just cause to be apprehensive that the contempt power may be used if they make an application, even in appropriate language, for a judge to recuse himself. That amounts, in our view, to real causes for concern that in such cases lawyers may not be able to render their services freely.

The Zainur Zakaria case

Mr Zakaria was one of the lawyers defending the former Deputy Prime Minister Datuk Seri Anwar Ibrahim, whose case will be considered later. Mr Anwar's trial had started on 2 November 1998. On 29 November, an application was made to the court on behalf of Mr Anwar by Mr Zakaria to have two of the prosecutors excluded from the case on the ground that they had attempted to fabricate evidence against him. In support of the allegation, Mr Anwar had lodged an affidavit alleging that they had tried to persuade a colleague of his to fabricate evidence against him. The affidavit itself was based on a letter written by the colleague's lawyer in which he protested that his client was being prevailed upon by the prosecutors to give information about Mr Anwar in exchange for dropping a capital charge against him (the colleague) in favour of a charge carrying a lesser sentence. Declining to consider this application on its merits, the trial judge not only ruled that the application was misconceived but that it was also an abuse of process of the kind that interfered with the due administration of justice. It amounted to a preemptive step to undermine the integrity of a trial in progress and amounted to a serious contempt of court. The judge decided that he had to act with all urgency. After announcing that he proposed to cite Mr Zakaria for contempt, he added that Mr Zakaria could put an end to the proceedings by giving an unconditional apology to the court, the Attorney-General and the two prosecutors. He refused to adjourn the matter for preparation of any defence for more than half an hour. Moreover, the judge refused to allow the lawyer who had written the letter to be called as a witness and he refused to allow the President of the Bar Council a watching brief.

During the half-hour recess, Mr Zakaria consulted other members of Mr Anwar's defence team. He came to the conclusion that to apologise to the court and admit that the application was without foundation would be contrary to the interests of his client.

On the following day, the judge sentenced Mr Zakaria to three months' imprisonment for contempt. He ordered that the sentence run from 4.00 pm on that day. An application made by Raja Aziz Addruse, who was the leader of Mr Anwar's defence team, for a stay of execution of sentence pending appeal was refused. So was an application for a stay of execution until the next day to enable Mr Zakaria to sort out his personal affairs. Raja Aziz Addruse and his colleagues immediately went to see the President of the Court of Appeal and there obtained a temporary stay of execution until a formal application for a stay pending appeal could be made. On 4 December, Mr Zakaria appeared in the dock before three judges of the Court of Appeal to appeal against the refusal by the trial judge to grant a stay of execution of sentence pending appeal. After hearing submissions, this appeal was allowed subject to bail being posted by Mr Zakaria at RM10,000 in one surety.

Current Trends in Malaysian Public Law

2005-08-06T02:43:00.000+08:00

By Dato' Gopal Sri Ram
Judge, Court of Appeal, Malaysia

This paper was first delivered on August 20th 2003, at the inauguration of the Tun Abdul Hamid Omar lectures

If there is one aspect of Malaysian jurisprudence that has to be identified as having undergone fundamental change over the past three decades it must be public law. The change has occurred in such matters as classification and nomenclature, grounds of intervention, remedies and procedure, and last, but not least, standing. Thus, the division between constitutional and administrative law has all but virtually ceased. Both now come under the broad title of public law. The old restrictive concept of error on the face of the record has gone. It has been replaced by the dual grounds of intervention, namely, substantive and procedural error. The separate prerogative orders of certiorari, mandamus, prohibition and quo warranto as well as the separate remedy of declaration have now been subsumed under the single broader remedy of judicial review. Procedural advancements include the right to discovery in judicial review proceedings1 and the power to award compensation in addition to or in lieu of the other remedies. So far as locus standi is concerned, the decision of the Court of Appeal in the Bar Council case2 clearly marks a departure from the traditional approach to standing. This will be dealt with later in this paper.

There has been encouraging forward, as well as unfortunate retrogressive, movement in the sphere of public law. This paper deals with some of the more important changes and highlights some of the current trends.

The first area of public law that calls for attention is legislative attempts to insulate decisions of public decision-takers from scrutiny by the courts. This is done by the rather simple process of introducing into an Act of Parliament a privative or ouster clause, often drafted in the widest possible of terms. An example is a clause in a statute that reads:

“Any decision by the Minister under this section shall be final and conclusive, and no such decision shall be challenged, appealed against, reviewed, quashed, or called in question in any court and shall not be subject to certiorari, prohibition, mandamus or injunction in any court on any account.”

Now, from the outset our courts took the view that such a clause did not prevent a decision being quashed by certiorari once there was jurisdictional error or an error of law on the face of the record3 So, in Lian Yit Engineering Works Sdn Bhd v Loh Ah Fon4 Abdul Hamid J. (as he then was) said:

“It is, I think, well established law that this court has power to issue an order of certiorari to quash an Industrial Court’s decision which, on the face of it, is wrong in law.”

That was a case under the Industrial Relations Act 1967 which housed and still houses an ouster clause of wide amplitude.

The high level watermark was the decision in Kannan & Anor v Menteri Buruh dan Tenaga Rakyat & Ors5 where Syed Othman J held that a decision by a public decision-maker not in accordance with law was not immunised from certiorari by a widely drafted ouster clause. After reviewing several authorities on the subject, his lordship said:

“From all these authorities, I am inclined to think that the better view of the law is that a plea that the court cannot interfere with a decision by reason of an ouster clause will only be accepted if the decision was reached according to the law. If the decision is not according to law, the court would invariably interfere with it. To my mind, a decision not according to law is no decision at all. (Emphasis added.)

This proactive approach of our courts was reversed by the Privy Council in a judgment that may best be described as ill-considered. In South East Asia Firebricks Sdn Bhd v Non-Metallic Mineral Products Manufacturing Employees’ Union6 the Board held that an ouster clause had the effect of immunising decisions made within jurisdiction however wrong that decision may be. In short, it drew a distinction between errors that go to jurisdiction and errors that do not. So, an error made within jurisdiction was protected from judicial intervention however wrong it was. The citizen was remediless in those circumstances and the court had to fold its arms in abject submission. This unrealistic distinction between errors within and without jurisdiction created by the Firebricks case held the field for about 15 years. During the intervening period the decision was subjected to much criticism. Courts were hard put to decide which errors fell within the jurisdiction of a public decision-maker and which were not. There was an air of unreality and artificiality as the profession went about trying to place a given case in the one basket or the other. In Enesty Sdn Bhd v Transport Workers Union & Anor7 Mohamed Azmi SCJ envisaged some future case in which Firebricks might be put to rest once and for all.

The opportunity came in 1995. It came in a case called Syarikat Kenderaan Melayu Kelantan Bhd v Transport Workers Union8. (The SKMK case). In that case we in the Court of Appeal refused to follow the Privy Council in Firebricks and instead held that the Malaysian cases that had been overruled by the Board were rightly decided. This is what I said:

“With great respect to Lord Fraser, neither the passage in the judgment of Syed Othman J in Kannann or that in the judgment of Abdul Hamid J in Lian Yit Engineering deserved the treatment it received in the hands of the Privy Council. Indeed, I would go so far as to say that the Malaysian cases may not have met the fate that they did, and the administrative law of this country would not have taken a step backwards, if the Board in Fire Bricks had truly understood and appreciated the effect of the decision in Anisminic.
…………………..
In my judgment, the true principle may be stated as follows. An inferior tribunal or other decision-making authority, whether exercising a quasi-judicial function or purely an administrative function, has no jurisdiction to commit an error of law. Henceforth, it is no longer of concern whether the error of law is jurisdictional or not. If an inferior tribunal or other public decision-taker does make such an error, then he exceeds his jurisdiction. So too is jurisdiction exceeded, where resort is had to an unfair procedure (see Raja Abdul Malek Muzaffar Shah bin Raja Shahruzzaman v Setiausaha Suruhanjaya Pasukan Polis9), or where the decision reached is unreasonable, in the sense that no reasonable tribunal similarly circumstanced would have arrived at the impugned decision.

It is neither feasible nor desirable to attempt an exhaustive definition of what amounts to an error of law, for the categories of such an error are not closed. But it may be safely said that an error of law would be disclosed if the decision-maker asks himself the wrong question or takes into account irrelevant considerations or omits to take into account relevant considerations (what may be conveniently termed an Anisminic error) or if he misconstrues the terms of any relevant statute, or misapplies or misstates a principle of the general law.

Since an inferior tribunal has no jurisdiction to make an error of law, its decisions will not be immunized from judicial review by an ouster clause however widely drafted.

It follows, from what I have said, that the decision of the Board in Fire Bricks and all those cases approved by it are no longer good law. By the same token, Kannan and Lian Yit Engineering Works, though disapproved of or overruled by the Board, must now be taken to have always correctly stated the law.”

And so in this way we restored the position correctly established by our courts. The Federal Court in two cases10 upheld what we did in the SKMK case.

Having thus returned our common law on ouster clauses to its proper place, we moved a step further by placing emphasis on the right of an aggrieved party to have access to justice. In this context it is important to bear in mind what Cappellatti11 said about access to justice:

“The need for access to justice may be said to be two fold; first, we must ensure that the rights of citizens should be recognised and made effective for otherwise they would not be real but merely illusory; and secondly we must enable legal disputes, conflicts and complaints which inevitably arise in society, to be resolved in an orderly way according to the justice of the case, so as to promote harmony and peace in society, lest they foster and breed discontent and disturbance. In truth, the phrase itself, ‘access to justice’, is a profound and powerful expression of a social need which is imperative, urgent and more widespread than is generally acknowledged.”

In Sugumar Balakrishnan v Director of Immigration, Sabah12 we recognised the importance of this principle and held access to justice to be a constitutional right. . The route by which we arrived at this conclusion is as follows. The right of a litigant to seek redress from a court is part of his or her personal liberty within Article 5(1) and hence a fundamental liberty. Parliament cannot therefore legislate to limit or restrict such right. An ouster of jurisdiction by an Act of Parliament would therefore be prima facie void. However, by resort to the rule of harmonious construction, such an ouster would only prevent judicial review of a public law decision that is made in accordance with law in the Anisminic13 sense.
And this is how we put it:

“The fundamental liberty of free access to an independent judiciary to obtain redress is apparently inconsistent with a provision in a statute that seeks to preclude that right by ousting the power of judicial review. This apparent inconsistency is resolved by permitting an ouster clause in a statute to immunize from judicial review only those administrative acts and decisions that are not infected by an error of law. Such an approach is in accordance with the well-established principle of legislative interpretation known as the rule of harmonious construction whereby the court, instead of striking down a statutory provision altogether as being unconstitutional, prefers to permit the impugned provision to operate in harmony with the Constitution. (see Tasmania v The Commonwealth (1904) 1 CLR 329, 357; Sri Venkataramana Devaru v State of Mysore [1958] SCR 895 at p 918).”

The Federal Court reversed us in the Sugumar case. They held the ouster in that case to be complete. The judgment of the Federal Court in that case has attracted and continues to attract severe criticism. The case is hardly cited in argument. The profession did not hide its dislike for it. A symposium was convened by the Bar to discuss the negative consequences of the judgment. It was the unanimous view of those who participated in the symposium that the decision is wrong. I will say something more about the Federal Court judgment in that case a little later. But what requires emphasis is that nowhere in its judgment did the Federal Court say that access to justice is not a fundamental right. So, very recently, in Kekatong Sdn Bhd v Danaharta Urus Sdn Bhd14 we re-affirmed our earlier stand that access to justice is a fundamental right but this time under Article 8(1) of the Constitution. That decision is now the subject of an application for leave to appeal before the Federal Court.

The second area which requires mention concerns constitutional interpretation. The decided cases on the point may be very roughly likened to the graph of a fluctuating curve. In the early years of our constitutional jurisprudence, our courts adopted a strict or literal approach to the interpretation of the fundamental liberties provisions enshrined in Part II of the Federal Constitution. As a result these liberties became a dead letter. However, a while later, a more liberal approach prevailed.

The lowest point in the curve is represented by the decision of the Full Bench15 of the former Federal Court in Government of Malaysia v Loh Wai Kong16.. That was an extraordinary case. It was a case in which the appellant, the Government of Malaysia, (who was the defendant in the suit) had succeeded in the High Court. The plaintiff had failed in the action. But the trial judge17 had made certain observations on the expression “personal liberty” appearing in Article 5(1) of the Constitution. He had adopted the wider interpretation given by the Supreme Court of India in Maneka Gandhi v Union of India18 to the identical phrase appearing in Article 21 of the Indian Constitution. Those advising the Government were unhappy with the observations of the learned trial judge. There was an appeal to the Federal Court. But it was an incompetent appeal. It was incompetent because the Federal Court only had jurisdiction to hear appeals by a litigant against whom an order or decision had been made. It had no jurisdiction to hear an appeal by a successful party to litigation. That is elementary law19. Yet the point appears to have been missed all round. That is why I called it an exceptional case.

As it happened, the Federal Court, in the absence of any statutory authority to do so, went on to hear the appeal and to deliver judgment. Suffian LP who delivered the judgment of the Court said:

“Article 5(1) speaks of personal liberty, not of liberty simpliciter. Does personal liberty include the three liberties? It is well-settled that the meaning of words used in any portion of a statute — and the same principle applies to a constitution — depends on the context in which they are placed, that words used in an Act take their colour from the context in which they appear and that they may be given a wider or more restricted meaning than they ordinarily bear if the context requires it. In the light of this principle, in construing “personal liberty” in article 5(1) one must look at the other clauses of the article, and doing so we are convinced that the article only guarantees a person, citizen or otherwise, except an enemy alien, freedom from being “unlawfully detained”; the right, if he is arrested, to be informed as soon as may be of the grounds of his arrest and to consult and be defended by his own lawyer; the right to be released without undue delay and in any case within 24 hours to be produced before a magistrate; and the right not to be further detained in custody without the magistrate’s authority.” (The emphasis is mine).

It may be seen at once that the entire reasoning of the learned Lord President in arriving at his conclusion on the issue of interpretation was based on the premise that the same principles of construction apply with equal force both to a statute and a Constitution. Indeed he treats the proposition as “well-settled”. But the weight of authority, current at the time of the pronouncement was against the principle contended for. For, just three years earlier, Lord Diplock had said in Hinds v The Queen20 :

“To seek to apply to constitutional instruments the canons of construction applicable to ordinary legislation in the fields of substantive criminal or civil law would, in their Lordships’ view, be misleading.”

It is significant that the narrow approach to constitutional interpretation adopted in Loh Wai Kong was repudiated in two later cases of primary importance which are often overlooked. These two cases mark the high point in the graph.

In Dato Menteri Othman bin Baginda & Anor v Dato’ Ombi Syed Alwi bin Syed Idrus 21. Raja Azlan Shah Ag LP said:

“In interpreting a constitution two points must be borne in mind. First, judicial precedent plays a lesser part than is normal in matters of ordinary statutory interpretation. Secondly, a constitution, being a living piece of legislation, its provisions must be construed broadly and not in a pedantic way — “with less rigidity and more generosity than other Acts” (see Minister of Home Affairs v Fisher 22. A constitution is sui generis, calling for its own principles of interpretation, suitable to its character, but without necessarily accepting the ordinary rules and presumptions of statutory interpretation. As stated in the judgment of Lord Wilberforce in that case: “A constitution is a legal instrument given rise, amongst other things, to individual rights capable of enforcement in a court of law. Respect must be paid to the language which has been used and to the traditions and usages which have given meaning to that language. It is quite consistent with this, and with the recognition that rules of interpretation may apply, to take as a point of departure for the process of interpretation a recognition of the character and origin of the instrument, and to be guided by the principle of giving full recognition and effect to those fundamental rights and freedoms.” The principle of interpreting constitutions “with less rigidity and more generosity” was again applied by the Privy Council in Attorney-General of St Christopher, Nevis and Anguilla v Reynolds [1980] AC 637, [1979] 3 All ER 129, [1980] 2 WLR 271.”
It is in the light of this kind of ambulatory approach that we must construe our Constitution.”

The second case is a landmark in the sphere of constitutional law. It is the decision of the Full Bench of the Supreme Court in Dewan Undangan Negeri Kelantan & Anor v Nordin bin Salleh & Anor23. In that case, Abdul Hamid Omar LP who delivered the leading judgment, adopted the approach of Lord Wilberforce in Minister of Home Affairs v Fisher 24 and held, following the judgment of Dr, Anand J (later Chief Justice of India) in Mian Bashir Ahmad & Ors v The State25 and Maneka Gandhi’s case that:

“in testing the validity of state action with regard to fundamental rights, what the court must consider is whether it directly affects the fundamental rights or its inevitable effect or consequence on the fundamental rights is such that it makes their exercise ‘ineffective or illusory.’”

This is a marked departure from the former inflexible doctrinaire approach of classification as the test of the validity of State action in relation to the fundamental liberties Articles contained in Part II of the Constitution and expressed in cases such as Datuk Haji Harun bin Haji Idris v Public Prosecutor 26. The broad, and liberal approach to constitutional interpretation adopted by Abdul Hamid Omar LP in Nordin bin Salleh is in keeping with trend in other jurisdictions.

In my view, the prismatic method is the correct approach to the interpretation of a written constitution such as ours, particularly to those provisions that guarantee fundamental rights. Just as a ray of light when passed through a prism reveals its constituent colours, so too when the provisions of our Constitution are subjected to prismatic treatment, they will reveal the several concepts that are housed within their language.

My own views on the subject are so well expressed in the dissenting opinion of Lord Nicholls of Birkenhead and Lord Hope of Craighead in Prince Pinder v The Queen27 that I find it sufficient to quote from them:

It should never be forgotten that courts are the guardians of constitutional rights. A vitally important function of courts is to interpret constitutional provisions conferring rights with the fullness needed to ensure that citizens have the benefit these constitutional guarantees are intended to afford. Provisos derogating from the scope of guaranteed rights are to be read restrictively. In the ordinary course they are to be given ‘strict and narrow, rather than broad, constructions’: see State v Petrus 28, per Aguda JA in the Court of Appeal of Botswana, applied by their Lordships’ Board in R v Hughes 29.

It is also important to bear in mind the words of Lord Woolf LCJ in R v Lambert30:

“[I]t is necessary to have in mind the nature of the convention as an instrument for the protection of fundamental rights. This justifies the adoption of the approach vividly described by Lord Wilberforce in relation to the provisions of a written constitution in Minister of Home Affairs v Fisher 31. It involves giving a broad and purposive approach, not a rigid approach, to the language of the convention, an approach which will make the convention a valuable protection of the fundamental rights of individual members of the public as well as society as a whole.” (Emphasis added.)

So, when Article 5(1) says “life”, it does not mean mere animal existence. It has a much wider meaning and includes all elements that constitute the quality of life. This is the approach we adopted in Tan Tek Seng v Suruhanjaya Perkhidmatan Pendidikan & Anor 32. But the approach that commended itself to us found no favour with the Federal Court in Sugumar’s case. Dzaiddin CJ in a judgment in which Abdul Malek Ahmad FCJ concurred (Wan Adnan (CJ, Malaya) having died after judgment had been reserved), held that neither “life” nor “personal liberty” in Article 5(1) of the Constitution have any wider meaning. And in support of this conclusion, the learned Chief Justice relied on Loh Wai Kong’s case. There was no reference to the powerful views expressed in the judgments in Dato Menteri Othman bin Baginda or Nordin bin Salleh or to the several Privy Council cases decided before and after Loh Wai Kong. Neither did the Chief Justice alert his mind to the basic defect in Loh Wai Kong, namely that it was the view of a court that had no authority whatsoever to deal with the case. With respect, the conclusion on the point of interpretation expressed in his judgment by the Chief Justice is entitled to no weight whatsoever.

In my view, the time has come to treat the Federal Court’s pronouncement in Sugumar as bad authority. It is a wholly erroneous decision. It is inconsistent with other decisions of high authority, which it does not even attempt to address. These decisions include the Federal Court case of Dato Menteri Othman Baginda and the Supreme Court case of Nordin Salleh. The court in Sugumar was a two Bench division and is therefore entitled to very little weight. Last, but not least, the decision is contrary to well-established principles.

It is appropriate now to turn to the next topic. This concerns the grounds on which a court will grant judicial review.

The traditional English approach to judicial review is that a court is primarily concerned with the decision-making process and not with the merits of the decision itself33. But that is only the general rule. As Edgar Joseph Jr. FCJ pointed out in R Rama Chandran v Industrial Court34:

“It is often said that judicial review is concerned not with the decision but the decision making process. (See eg Chief Constable of North Wales Police v Evans 35 ). This proposition, at full face value, may well convey the impression that the jurisdiction of the courts in judicial review proceedings is confined to cases where the aggrieved party has not received fair treatment by the authority to which he has been subjected. Put differently, in the words of Lord Diplock in Council of Civil Service Unions & Ors v Minister36 for the Civil Service , where the impugned decision is flawed on the ground of procedural impropriety.

But Lord Diplock’s other grounds for impugning a decision susceptible to judicial review make it abundantly clear that such a decision is also open to challenge on grounds of ‘illegality’ and ‘irrationality’ and, in practice, this permits the courts to scrutinize such decisions not only for process, but also for substance.”

In Chief Constable of the North Wales Police v Evans 37, Lord Hailsham criticised the judgments of the Court of Appeal in that case, in particular that of Lord Denning MR. He said:

“There are passages in the judgment of Lord Denning MR (and perhaps in the other judgments of the Court of Appeal) in the instant case and quoted by my noble and learned friend which might be read as giving the courts carte blanche to review the decision of the authority on the basis of what the courts themselves consider fair and reasonable on the merits. I am not sure whether Lord Denning MR really intended his remarks to be construed in such a way as to permit the court to examine, as for instance in the present case, the reasoning of the subordinate authority with a view to substituting its own opinion. If so, I do not think this is a correct statement of principle. The purpose of judicial review is to ensure that the individual receives fair treatment, and not to ensure that the authority, after according fair treatment, reaches on a matter which it is authorized or enjoined by law to decide for itself a conclusion which is correct in the eyes of the court.”

However, in Kumpulan Perangsang Selangor Bhd v Zaid bin Hj Mohd Noh38 the Federal Court expressly preferred the views of Lord Denning in the Court of Appeal in to those of Lord Hailsham in the House of Lords. This is what the Court said:

“In our judgment, the correct approach to the ‘Wednesbury unreasonableness’ and the proportionality tests is that adopted by Lord Denning MR in the Court of Appeal in Evans. We therefore find the criticism of his approach by the House to be unwarranted. The continued reluctance of English courts to come to grips with the practical realities of applying the ‘Wednesbury unreasonableness’ test (see, for example, R v Secretary of State for the Home Department, ex p Brind39) in no way deters us from accepting as correct the view expressed by Edgar Joseph Jr FCJ in Rama Chandran. An examination of the merits of a decision followed by a result that no reasonable person or body similarly circumstanced could have come to the conclusion in question and a making of the decision that ought to have been made in the first place, does not, in our view, occasion an abuse of judicial power by an unjustified or unauthorized assumption of appellate power in certiorari proceedings.”

There is nothing strange or novel about these pronouncements. They merely meet with the realities of those principles that have been part of the common law jurisprudence for a great many years. Anyone with a passing familiarity with English administrative law will remember what Lord Greene said in the Wednesbury case40. Put shortly, one ground on which a court may quash a public law decision is that it is unreasonable in the sense that no reasonable decision-maker armed with the relevant facts would have done what the particular decision-maker did in the given case. Now, to determine whether a decision is objectively reasonable, it is mandatory for the court to go into the merits of the particular case. In the event, the examination of the decision is on grounds of substance and not mere procedure. In Sugumar, the Court of Appeal held that a public law decision could be impugned on grounds of substance and not merely procedure. We simply applied what Edgar Joseph Jr FCJ had said in Rama Chandran. Yet, the Chief Justice in his judgment in Sugumar’s case reversed us. After quoting the same passage we had quoted from the judgment of Edgar Joseph Jr FCJ he found it possible to say:

“[W]e cannot agree with the Court of Appeal that the doctrine of substantive fairness can be invoked as a separate or additional ground of judicial review of an administrative decision.”

It is now settled beyond argument that there are a number of grounds on which a public law decision may be invalidated. These grounds are better known better by the shorthand title, “Anisminic errors” 41. Hence, it is now beyond argument that there are a number of grounds on which a public law decision may be attacked, some of which may go to impugn the fairness of the procedure employed whilst others may go to impugn the substantive fairness of the decision itself. Which of the grounds, if any of them, would apply to invalidate a particular decision would depend on the facts and circumstances of the given case. If a decision is reasonable, then it passes the substantive fairness test. Yet it may be flawed in that the particular supplicant was denied procedural fairness. These two propositions though inverted would equally produce the same result.

The last topic is the issue of standing or locus standi. There are two stages at which standing falls to be tested. The first is at the point of initiation of proceedings. The question here is whether the applicant has the necessary locus standi to commence the proceedings. This is known as threshold locus standi. The second stage is at the close of the proceedings. Here the question is whether the applicant has a sufficient interest to receive the remedy claimed or whether there is some person who is more directly affected to whom the remedy may more appropriately be granted. This is known as substantive locus standi.

At common law, threshold locus standi simply means that it is only a person who has a real interest in a suit may bring it. The concept has been described as follows:

“A litigant is said to have locus standi, in effect standing to sue in a court of law, if that court recognizes his or her ability to institute and maintain proceedings before it.” 42

The rule governing locus standi is a judge-made rule of practice designed to keep busybodies away from the doors of the court. Because it is a judge-made rule, it is fairly flexible. So, whether the law confers standing to sue upon a litigant depends on how widely or narrowly the courts are prepared to read the requirement of “real interest”.

The policy of the courts to grant locus standi depends on whether a claim is made in private law or in public law. The test for locus standi in private actions is very strict. Only a party who has suffered the harm in question may sue. In private law it is illustrated by the rule in Attwool v Merryweather43, although it is more familiar to students and the profession as the rule in Foss v Harbottle 44. In Prudential Assurance v Newman Industries 45, the Court of Appeal said that it is an

“elementary principle that A cannot, as a general rule, bring an action against B to recover damages or secure other relief on behalf of C for an injury done by B to C. C is the proper plaintiff because C is the party injured, and therefore the person in whom the cause of action is vested. This is sometimes referred to as the rule in Foss v Harbottle (1843) 2 Hare 461, 67 ER 189 when applied to corporations, but it has a wider scope and is fundamental to any rational system of jurisprudence.”

By contrast, in public law the courts apply a far more liberal rule of standing. This is illustrated by Tan Sri Haji Othman Saat v Mohamed bin Ismail 46. It is a case of paramount importance. The facts of that case are quite notorious.

Nevertheless, it is necessary to recall them in brief to appreciate the points that will fall to be made later. The applicant in that case was a fisherman. The respondent was the Menteri Besar (or Chief Minister) of the State of Johore. The applicant and 183 others had applied for a piece of land. They heard nothing of their application for many years. The applicant then discovered that the land in question had been alienated to several persons, including the respondent and other personages in the upper echelon of the State Government. There appeared prima facie to have been an abuse of power. The applicant then instituted proceedings challenging the alienation. His standing to maintain the action was challenged at the very outset. The High Court ruled in the applicant’s favour. The respondent appealed to the Federal Court which, when dismissing the appeal, said:

“The sensible approach in the matter of locus standi in injunctions and declarations would be that as a matter of jurisdiction, an assertion of an infringement of a contractual or a proprietary right, the commission of a tort, a statutory right or the breach of a statute which affects the plaintiff's interests substantially or where the plaintiff has some genuine interest in having his legal position declared, even though he could get no other relief, should suffice. When it comes however to the question of discretion on a consideration of the substantive application, it may well be proper in particular cases to refuse a remedy to persons who, though they may have standing as a matter of jurisdiction on the lines we have indicated, do not merit it, perhaps because, inter alia, others are more directly affected, or the plaintiff himself is fundamentally not.”

What has given rise in the past to considerable difficulty in cases concerning locus standi is the question of classification of the particular action as a private or public law proceeding. This was in the main caused by plaintiffs having resort to the private law remedies of declaration and injunction in what in essence were public law challenges. These remedies brought with them their own special difficulties about the scope of their application in the public law environment. As a result, plaintiff’s’ ran the risk of their suit being classified as a private interest action and having the strict locus standi rule applied to them.

This is what happened in Government of Malaysia v Lim Kit Siang 47. In that case, the Supreme Court, by a bare majority of 3:2, denied standing to a plaintiff who asserted title to sue in several capacities, including as a road user and a taxpayer, in an action challenging the privatisation of the North-South Highway. The majority applied the common law rule of standing laid down by Buckley J in Boyce v Paddington Borough Council 48 and approved by the House of Lords in Gouriet v Union of Post Office Workers 49. Abdul Hamid CJ (Malaya) when delivering one of the majority judgments summarised the court’s approach to the issue of standing to sue as follows:

“Put in a nutshell, the law of standing to sue has two fundamental rules. First, apart from certain cases in which standing to sue is in the discretion of the court, the plaintiff must possess an interest in the issues raised in the proceedings. Second, where the private plaintiff relies on an interest in the enforcement of a public right and not of a private right, standing will be denied unless the Attorney-General consents to a relator action, or the plaintiff can demonstrate some special interest beyond that possessed by the public generally.”

In private interest litigation the motive for instituting an action is private interest. And if that interest is found lacking in a suit classified by a court as a private law action, then the plaintiff is bound to fail for want of threshold standing. This is brought out clearly in the following passage in the judgment of Abdul Hamid CJ (Malaya) in the Lim Kit Siang case:

“A justification for standing rules relates to standing as a function of the adversary system. Self-interest is seen as the motivating force that will ensure that the parties present their respective positions in the best possible light. If the motivation of self-interest is non-existent so that the ensuing dispute is not with respect to contested rights and obligations of the parties themselves, then the assurance of diligent preparation and argument cannot exist.”

By contrast the position is quite the opposite in respect of public interest litigation. Indeed, a piece of litigation will fail as public interest litigation if the court finds a private interest motive. As was pointed out by the Supreme Court of India 50:

“[P]ublic interest litigation is usually entertained by a court for the purpose of redressing public injury, enforcing public duty, protecting social rights and vindicating public interest. The real purpose of entertaining such application is the vindication of the rule of law, effective access to justice to the economically weaker class and meaningful realisation of the fundamental rights. The directions and commands issued by the courts of law in public interest litigation are for the betterment of the society at large and not for benefiting any individual. But if the Court finds that in the garb of a public interest litigation actually an individual's interest is sought to be carried out or protected, it would be bounden duty of the court not to entertain such petition as otherwise the very purpose of innovation of public interest litigation will be frustrated.”

The difficulties in classification of an action as private or public interest litigation was caused by the former adjectival law governing the remedies. Once again it is necessary to quote from the judgment of Abdul Hamid CJ (Malaya) in the Lim Kit Siang case:

“Finally, I would like to refer to a query that was raised in the course of the appeal in relation to section 29 of the Government Proceedings Ordinance 1956 considered in the light of Reg v Secretary of State for the Home Department & Anor, ex parte Herbage 51. The respondents’ answer to the point raised was that Ex parte Herbage did not apply in view of our Order 53. And that the definition of “civil proceedings” in section 2(2) of the Ordinance should refer to the position as it stood in 1956 when the Ordinance was enacted and should not therefore be affected by changes brought about to the English Order 53 in 1977.

Tan Sri Eusoffe Abdoolcader S.C.J. said that there was a lack of substance in this proposition. The question is was there really? It is to be observed that the changes brought about by the English Order 53 in 1977 resulted in an omnibus provision to include not only the prerogative orders of mandamus, prohibition and certiorari, but also the remedies of declarations, injunctions, etc. It may well be argued that the correct answers is to be found in the so-called principle that a statute is to be treated as always speaking and that the exception in section 2(2) of the Ordinance is an on-going statutory provision. The elementary point to note, however, as regards section 29 of the Ordinance is that it affords a defence to the Government or a servant of the Government to a claim for an injunction subject to compliance with the requirements therein stated. The section therefore deals with rights and not procedure.

That being so, the question which arises is whether such a defence, which cannot be said to be available if the point had arisen for decision prior to 1977, can be said to have been taken away by the simple expedient of an amendment to a rule of court made subsequently in a foreign jurisdiction. I regret I find myself unable to subscribe to this proposition since not only are we an independent sovereign country whose Parliament has seen fit to repeal the right of appeal to the Judicial Committee of the Privy Council in all matters but also because we have our own Order 53 which is limited to prerogative orders only and does not extend to claims for declaration, injunction or damages. Clearly, any lengthy discussion on section 29 should not have overlooked this crucial factor.

I would accordingly hold that the exception to the definition of “civil proceedings” in section 2(2) of the Ordinance which reads “or such proceedings as would in England be brought on the Crown side of the Queen’s Bench Division” must refer to the prerogative jurisdiction of the Queen’s Bench Division in England as at the date of the coming into force of the Ordinance and which was then limited to the granting of orders of mandamus, prohibition and certiorari only.

Consequently, as the claim in the present case was for a declaration and injunction it fell fairly and squarely within the four walls of the definition of “civil proceedings” appearing in section 2(2) of the Ordinance. It follows that the defence under section 29 applies and the case of Ex parte Herbage is, therefore, wholly inapplicable.”

The current position is that the problems cause by the adjectival law governing public law remedies have ceased to exist after the amendment to Order 53 of the Rules of the High Court 1980. Today, a litigant who wishes to pursue a cause of action in public law may claim any or all of the prerogative orders available under the former Order 53 in an Application for Judicial Review.. He or she may also add a claim for a declaration or injunction in the same proceeding. More importantly, the court is not confined to the relief claimed by the applicant and may instead mould a remedy that is appropriate to justice of the case. In appropriate cases, compensation in addition to or in lieu of a specific remedy may be granted. Further, the only requirement to confer standing is that the applicant should be adversely affected by a decision of a public authority. This is far more flexible than the Buckley test.

Comfort may be derived from the fact that the current trend is to interpret Order 53 liberally as it is a curative provision. That is what we did in Sivarasa Rasiah v Badan Peguam Malaysia & Anor 52. And this is what we said in that case:

“It must not be forgotten that O 53 of the RHC in its present form was introduced to cure the mischief of its precursor, which was much narrower and more restrictive. Two points may be noted when considering our present Ord 53 of the RHC. First, that it begins by referring to the powerful and enabling provision introduced for the first time in our law by Parliament in paragraph 1 of Courts of Judicature Act 1964 (‘the CJA’). Pausing for a moment, let me remind myself of the historical background against which paragraph 1 was enacted.

Until 1964, the statute that governed the judicial arm of Government was the Courts Ordinance 1948 (‘the Ordinance’). That Ordinance was passed by our colonial masters under whose yoke we lived until 31 August 1957. On 31 August 1957, we inherited a dynamic Federal Constitution (‘the Constitution’) which conferred upon our citizens some of the most cherished and valuable rights that any human being can aspire for. Among these are the fundamental liberties enshrined in Part II. It was obvious to the meanest of intelligence that in the face of such a dynamic document the outdated, archaic and arcane provisions of a medieval society that fashion remedies to meet its needs were wholly inappropriate. Of what use to us are such ancient self-fettering remedies like certiorari, quo warranto and the like? Something had to be done to bring federal law in line with dynamism of the Constitution. And so Parliament acted. It repealed the Ordinance and replaced it with the CJA into which it incorporated paragraph 1 conferring upon our High Courts powers much wider than those vested in Queens Bench Division in England. But our courts were limping behind Parliament in the procedural sector. We still clung on to the shackles and fetters imposed upon us by English adjectival law. We forgot all about paragraph 1. And then finally, the Rules Committee acted to keep in tandem with the CJA. Accordingly, O 53 of the RHC, in its present form was introduced.

To return to the construction to be given to O 53 of the RHC, I turn to the second point I wish to make. It is the principle which governs the construction of rules of courts. A rule of court should not be interpreted in such a way as to result in unfairness or produce a manifest injustice: Bank of America National Trust and Savings Associations v Chai Yen 53; Sim Seoh Beng & Anor v Koperasi Tunas Muda Sungai Ara Bhd 54. So here, a manifest injustice would occur if O 53 of the RHC is read restrictively so as to permit an applicant to claim a declaration only where he applies for it jointly with some other remedy.

I might add that under paragraph 1 of the Schedule to the CJA, which is drawn from art 226 of the Indian Constitution and to which in material parts it is identical, our courts have power to issue such orders and grant such relief as is appropriate to the particular circumstances of a given case.”

The procedural liberalisation of threshold locus standi in the sphere of public law remedies has been accompanied by forward movement in the sphere of substantive locus standi as well. The decision in Raja Segaran v Bar Council Malaysia 55 has had a positive effect in this area. To recall, the court in that case was moved in a suit, inter alia, for declaratory relief on the ground that the proceedings of a general meeting that the Bar proposed to hold to discuss the judicial conduct of the then Chief Justice would constitute contempt of court and violate certain provisions of the Constitution. The defendant moved to strike.

If the High Court had adhered to precedent, then, following Lim Kit Siang and Imperial Tobacco Ltd v A-G 56 it would have struck out the action on the ground that it was not appropriate in the circumstances for the plaintiff to bring proceedings claiming for a declaration that the defendant’s proposed conduct was unlawful57. But, as it happened, the High Court declined to strike out the action. And the Court of Appeal affirmed.

This constitutes a departure from the principle in Lim Kit Siang. It must not be forgotten that part of the plaintiff’s pleaded case in Lim Kit Siang was that the defendants’ proposed venture was bad because certain members of Government had committed corrupt practice within section 2(1) of the Emergency (Essential Powers) Ordinance No. 22 of 1970 in relation to the venture. One of the grounds on which the plaintiff’s claim was struck out was that the plaintiff’s pleaded case disclosed no reasonable cause of action as it sought a declaration that was based on alleged criminal conduct. If there was criminal conduct then that was a matter for the Public Prosecutor to deal with and it could not constitute the subject matter of a declaration.

One final point. Whether a citizen is to be accorded locus standi to move under RHC Order 53 as a person adversely affected depends very much on the approach one takes to the interpretation of those fundamental rights guaranteed by Part II of the Constitution, in particular Article 5(2) which protects both life and liberty. Once a broad, liberal and generous interpretation is given 58 to the expressions “life” and “personal liberty” in Article 5(2), it will be possible to accommodate within Order 53 as a person adversely affected, an applicant who complains that a public authority has failed to enforce the law, for example on the ground that no action has been taken against those who engage in unlawful activities that harm the environment.

The Malaysian Judiciary

2005-08-06T02:30:00.000+08:00

The Federal Court of Malaysia is the highest judicial authority and the final court of appeal in Malaysia. The country, although federally constituted, has a single-structured judicial system consisting of two parts - the superior courts and the subordinate courts. The subordinate courts are the Magistrate Courts and the Sessions Courts whilst the superior courts are the two High Courts of co-ordinate jurisdiction and status, one for Peninsular Malaysia and the other for the States of Sabah and Sarawak, the Court of Appeal and the Federal Court. The Federal Court, earlier known as the Supreme Court and renamed the Federal Court vide Act A885 effective from June 24, 1994, stands at the apex of this pyramid.

Before January 1, 1985, the Federal Court was the highest court in the country but its decisions were further appealable to the Privy Council in London. However on January 1, 1978, Privy Council appeals in criminal and constitutional matters were abolished and on January 1, 1985, all other appeals i.e. civil appeals except those filed before that date were abolished.

The setting up of the Court of Appeal on June 24, 1994 after the Federal Constitution was amended vide Act A885 provides litigants one more opportunity to appeal. Alternatively it can be said that the right of appeal to the Privy Council is restored, albeit in the form of the Federal Court.

The Special Court was established on March 30, 1993 vide Act A848, now provided for in Article 182 of the Federal Constitution. All offences committed by the Rulers (the Rulers being the monarchical heads of the component states of the Federation of Malaysia) including His Majesty The Yang di-Pertuan Agong shall be heard by the Special Court. The Special Court shall also hear all civil cases by or against them. This Court shall be chaired by the Chief Justice of the Federal Court and he shall be assisted by four other members, namely the two Chief Judges of the respective High Courts and two other persons appointed by the Conference of Rulers who hold or have held office as a judge.

Constitution of and Appointment to the Court

The Federal Court consists of a president styled as the Chief Justice (formerly called the Lord President), the President of the Court of Appeal, the two Chief Judges of the High Courts in Malaya and Sabah and Sarawak (formerly called Chief Justices) and presently five Federal Court judges.

There are presently ten Court of Appeal Judges excluding the President of the Court of Appeal. There are 46 Judges (including Judicial Commissioners) for the High Court in Malaya and a further 7 Judges (including Judicial Commissioners) for the High Court in Sabah and Sarawak. At the Subordinate Court level, there are 60 Sessions Court Judges of which 52 are in Peninsular Malaysia and 4 each in Sabah and Sarawak. At the Magistrate Court level, 151 posts have been approved (122 posts in Peninsular Malaysia, 10 posts in Sabah, 1 post in Labuan and 18 posts in Sarawak) of which 138 posts have been filled and presently there are 118 magistrates in Peninsular Malaysia, 7 magistrates in Sabah, 1 magistrate in Labuan and 12 magistrates in Sarawak.

The Chief Justice is the head of the Malaysian Judiciary. His appointment, like those of the President of Court of Appeal, the two Chief Judges, judges of the Federal Court, the Court of Appeal and the High Court, are made by His Majesty The Yang di-Pertuan Agong on the advice of the Prime Minister after consulting the Conference of Rulers.

As to the appointment of a judge to the Federal Court, the Court of Appeal and the High Courts, the Federal Constitution provides that the Prime Minister before tendering his advice shall consult the Chief Justice, the President of the Court of Appeal and the two Chief Judges. On the advice of the Chief Justice, His Majesty The Yang di-Pertuan Agong may also appoint a person who has held high judicial office in Malaysia to be an additional judge of the Federal Court. The Chief Justice may also, if the interests of justice so require, nominate a Court of Appeal Judge to sit as a Judge of the Federal Court. All judges of the Superior Courts retire at the age of 65.

Administration of the Court

For the smooth administration of the Judiciary, the Chief Registrar's Office was established which is headed by the Chief Registrar to handle both judicial and administrative matters. The Chief Registrar is assisted by the Registrar of the Court of Appeal, the Registrar of the High Court in Malaya and the Registrar of the High Court in Sabah and Sarawak. Below them are a number of Deputy Registrars, Senior Assistant Registrars, Administrators, Librarian, Information Systems Officer and support staff.

Inauguration of the Court

The birth of the Supreme Court (as it was known then, now called Federal Court) on January 1, 1985 was commemorated with a ceremony held in its Courtroom No. 1 on January 7, 1985. The ceremony was also to bid farewell to the ending of an old era - that of Privy Council jurisdiction. Present at the ceremonial sitting to inaugurate the Supreme Court were the ten Supreme Court judges, Attorney General of Malaysia, Solicitor General, Chairman of the Bar Council and members of the legal profession. Speeches welcoming the setting up of the Court were made by the Lord President (as he was known then, now called the Chief Justice) the Right Honourable Tun Dato' Haji Mohamed Salleh bin Abas, Attorney General Tan Sri Abu Talib bin Othman and Mr. Ronald Khoo, Chairman of the Bar Council. The first sitting of the Supreme Court which was presided by the Lord President was also held on the same day at the same venue after the closing of the ceremony.

History of the Court

Before 1957 the name "Supreme Court" was used to refer to the highest court for Malaysia next below the Privy Council. With the abolition of appeal to the Privy Council from January 1, 1985, the Supreme Court was finally designated the highest court in Malaysia.

However, material distinction between the constitution of the former "Supreme Court" and that of the present should be noted. The Supreme Court was renamed the Federal Court of Malaysia effective from June 24, 1994, and is now the final court of appeal for Malaysia.

Operation of the Court

Normally cases before the Federal Court of Malaysia are heard and disposed of by a full Court comprising of three judges. However, in certain special cases, for example one which involves interpretation of the Constitution or a principle of law of major public importance, the Chief Justice may convene a bigger panel of five or even seven judges to deal with the matter. In fact the Federal Court sat as a seven-men Bench for the first time on February 5, 1996 to decide on the law governing the standard of proof required of the prosecution in criminal cases.

In the absence of the Chief Justice, the powers shall be had and may be exercised and the duties shall be performed :

by the President of the Court of Appeal; or
where the President is absent, by the Chief Judge of the High Court in Malaya; or
where the President and the Chief Judge of the High Court in Malaya are absent, by the Chief Judge of th High Court in Sabah and Sarawak; or
where the President, the Chief Judge of the High Court in Malaya and the High Court in Sabah and Sarawak are absent, by the Judge of the Federal Court nominated for that purpose by the Yang di-Pertuan Agong.

A single judge of the Court can also hear and determine certain matters. In a proceeding pending before the Court, the judge may make incidental directions or grant interim orders pending the hearing of the proceeding. The order of a single judge may, however, be discharged or varied by the full Court.

If the Court is not unanimous in its opinion, the view of the majority of the judges composing the Court prevails.

Hearing of Cases

Cases come to the Federal Court for final determination from the Court of Appeal.

Rules of the Federal Court, which are made by the Rules Committee, regulate and prescribe the procedure which legal practitioners must comply with in preparing a case for hearing, including the preparation of an Appeal Record. The Appeal Record, prepared by the appellant's solicitors, contains all material which is necessary for the Court to determine the issues raised by the appeal.

Seven days before the hearing, the appellant's solicitor has to submit an outline submission to the Federal Court Registry. During the hearing, counsel representing the parties present their arguments orally to the Court. In addition, written submissions in skeletal forms may sometimes be submitted.

Written reasons are always given in most cases. Copies of the written reasons commonly referred to as grounds of judgments are distributed by the Federal Court Registry to all judges, the Federal Court Library for indexing and recording purposes, law schools and law publishers. The decisions of the Federal Court are binding on all other courts (excluding Syariah Courts) throughout Malaysia.

The principal seat of the Federal Court is in Kuala Lumpur. Its principal registry is also located here. Although it sits regularly in Kuala Lumpur, the Federal Court also travels on circuit to the major state capitals of Penang, Ipoh, Kota Bharu, Johor Bahru, Alor Setar, Kuantan, Malacca, Kuching and Kota Kinabalu.

Role of the Court

Malaysia is a federation of thirteen states. The Constitution which is the supreme law of the Federation spells out, among others, the duties and powers of the Federal and State Governments and their relationship inter se. One of the main functions of the Federal Court in its original jurisdiction "to the exclusion of any other court" is to determine whether a law made by Parliament or a State Legislature is invalid on the ground that it makes provision to a matter with respect to which Parliament or, as the case may be, the State Legislature has no power to make the law. It also has exclusive jurisdiction to determine disputes between States or between the Federation and any State.

His Majesty the Yang di-Pertuan Agong may invoke the advisory jurisdiction of the Federal Court by referring for its opinion any question as to the effect of any provision of the Constitution which has arisen or appears to him likely to arise. In addition, the High Court may also refer to the Federal Court any constitutional question which arises in any proceedings before it and may stay the proceedings to await the decision of the Federal Court. The framers of the Constitution evidently saw in the Federal Court the absolute interpreter of the Constitution and the final aribiter of disputes arising from it.

The Federal Court also makes final judgments on legal matters which come before it on appeal from the Court of Appeal. It is the ultimate court in civil, criminal and constitutional matters.

Federal Court

Article 121(1) of the Federal Constitution provides that the Federal Court shall have appellate, original, consultative or advisory, and referral jurisdiction but it does not cover those matters under the jurisdiction of the Syariah Court.

Court of Appeal

Article 121(1B) of the Federal Constitution provides the Court of Appeal with appellate jurisdiction to hear both civil and criminal cases originating from the High Court or the Sessions Court (criminal cases only).

Criminal Appeals

Besides having the jurisdiction to hear and determine any appeal against any decision made by the High Court and in respect of any criminal matter decided by the Sessions Court, section 50 of the Courts of Judicature Act, 1964 also provides that an appeal shall lie to the Court of Appeal, with the leave of that Court, against any decision of the High Court in the exercise of its appellate or revisionary jurisdiction in respect of any criminal matter decided by a Magistrates' Court but such appeal shall be confined to only questions of law.

Civil Appeals

The Court of Appeal shall have jurisdiction to hear and determine appeals from any judgment or order of any High Court in any civil cause or matter, whether made in the exercise of its original or of its appellate jurisdiction.

High Court

a) Criminal Cases

Generally, the High Court has the jurisdiction to hear cases which carry the death penalty. Specifically, the jurisdiction of the High Court in criminal cases is provided in sections 22, 26, 31 and 35 of the Courts of Judicature Act, 1964.

b) Civil Cases

The High Court has the jurisdiction to hear civil cases in respect of :

divorce and matrimonial causes;
admiralty;
bankruptcy and company cases;
appointment and control of guardians of infants and their property;
appointment and control of guardians of disabled persons and their estate; and
grant of probates of wills and letters of administration.

Specifically, the jurisdiction of the High Court in civil cases is provided in sections 23, 24, 24A, 25 (including Schedule), 25A, 28, 30, 32, 33 and 35 of the Courts of Judicature Act, 1964 .

Sessions Court

a) Criminal Cases

The Sessions Court has the jurisdiction to try all offences other than offences punishable with death.

b) Civil Cases

The Sessions Court has unlimited jurisdiction to hear :

running down cases, landlord and tenant, and distress;
to try other suits where the amount in dispute does not exceed RM250,000.00; and
with the consent of the parties involved, to try cases exceeding RM250,000.00 but the award is limited to the statutory limit of RM250,000.00 only.

Magistrates' Court

a) Criminal Cases

A First Class Magistrate Court has the jurisdiction to try all offences where the maximum term of imprisonment provided by law does not exceed 10 years or which are punishable with fine only or cases involving robbery and housebreaking by night.

Generally, a First Class Magistrate may pass any sentence allowed by law not exceeding :

5 years imprisonment;
a fine of RM10,000.00;
whipping up to 12 strokes; or
any sentence combining any of the sentence aforesaid.

However, in some cases e.g under the Dangerous Drugs Act 1952, Customs Act 1967 and Betting Act 1953 the Magistrate may impose a fine higher than RM10,000.00.

b) Civil Cases

A First Class Magistrate Court has the jurisdiction to try all actions and suits of a civil nature where the amount in dispute does not exceed RM25,000.00.

Location

The Federal Court is situated in the Sultan Abdul Samad building which is one of Malaysia's heritage buildings and a famous and historic landmark in the Federal Capital. It is situated right at the heart of Kuala Lumpur.

Directly opposite the building is the famous Royal Selangor Club and the Merdeka Square or Independence Square which acquired its name because it was at that very spot that the Union Jack flag was lowered down on August 31, 1957 and the new flag of the Federation of Malaya was hoisted. This marked the passing of an era and the birth of a newly independent nation, the Federation of Malaya.

The Sultan Abdul Samad building plays an important role during Malaysia's National Day celebrations where a parade of uniformed troops, government and semi-government bodies, private sector and school children march pass His Majesty the Yang di-Pertuan Agong, ministers and both foreign and local dignitaries. The building, as well as the Merdeka Square, is also the site for other major national events.

On one side of the Sultan Abdul Samad building, across the Gombak River, are the Subordinate Courts, the former High Court building and the Jamek Mosque. The Jamek Mosque is the oldest mosque in the city and is gazetted a historical site under the Antiquities Act 1976.

On the other side is the former General Post Office building which now houses the Court of Appeal Registry; next to it is the Malaysian Handicraft Centre and further down is the Dayabumi Building which is the first Malaysian "Turnkey System" building.

History Of the Building

The Sultan Abdul Samad building was constructed at the end of the last century and the site was chosen because of its central position. A.C. Norman, a British architect who worked for the Public Works Department in Kuala Lumpur, in designing the existing building took into consideration some of the features of buildings in several Islamic countries. The predominantly Moorish appearance of the building suitably reflects the cultural background of Malaysia.

The foundation-stone of the building was laid by the then Governor of the Straits Settlements, Sir Charles Mitchell, on October 6, 1894, and the building itself which was opened in 1896 was named Bangunan Sultan Abdul Samad after the name of the then Sultan of Selangor. The building now houses the Federal Court of Malaysia, the Court of Appeal and the Criminal Division of the High Court of Kuala lumpur. Prior to this it housed several Ministries and Departments of the Federal Government including the Central Bank and also the State Secretariat of Selangor and its Legislative Assembly.

The conversion work of the building began in 1978 and the renovation was completed in 1984 with an approximate cost of RM17.2 million. Besides this the Government of Australia had generously contributed RM200,000.00 towards making copper cladding to the three domes of the building which now gleam with majestic radiance, adding even greater lustre to an already unique and superb structure. Prior to this, the domes which were made of timber and bricks were covered with copper sheeting painted in black.

External Features

The Sultan Abdul Samad building is a two-storey building standing at 57 feet and covering an area of 10,200 sq.metres. It is of a horseshoe shape at the centre of which is a quadrangle plateau surrounded by flower-beds at its fringes. Beneath it is a basement car park meant for judges and officers of the court.

The prominent features of the building are its three domes, the clock tower and its extensive arcades and arches. The three domes originally made of timber and bricks and painted black have now been replaced with copper cladded domes. The central dome is placed on top of the clock tower flanked by two smaller domes with descending spiral staircases.

The arches found in the building are of the pointed horseshoe type with varying spans. They were made of bricks and white-painted plastered blocks. The clock tower on the axis appears to be well balanced by the two turrets. The spiral staircases in the turrets tend to point up to the tower accentuating therefore its importance.

The focal point of the building is its main porch which faces the Royal Selangor Club and the Merdeka Square. On entering this main entrance, one could see a semicircle staircase which leads to the Chambers of the Chief Justice, the President of the Court of Appeal and other Judges' Chambers, as well as to the Federal and Court of Appeal Courtrooms.

Federal and Court of Appeal Courtrooms

The Federal Court and the Court of Appeal have a Courtroom each. The long curved bench in the Federal Court which is equipped with microphones and sound system facilities is made from Langkawi marble, the finest local marble. The several rows of Bar tables similarly equipped with microphones are made from the finest quality local wood, the Meranti wood. Malaysia's national crest made of copper is seen appropriately hung on the wall behind the Bench in the Federal Courtroom. The Court of Appeal Courtroom is similarly equipped.

The windows of each Courtroom are double glazed to ensure minimum sound entry and the ceilings are adorned with decorative lights and unique chandeliers. Sittings of the full court are held in the courtrooms which are equipped with a sound reproduction system and facilities to provide closed circuit television coverage of court proceedings. A public gallery is also located at the back portion of each courtroom.

In the Federal Courtroom on each side of its walls are displayed portraits of former Lord Presidents/Chief Justice of the Supreme/Federal Court of Malaysia.

Parol Evidence Rule

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The purpose of the parol evidence rule is to “give legal effect to whatever intention the parties may have had to make their [written contract] a final and perhaps also a complete expression of their agreement.”

If there is evidence in writing (such as a signed contract) the terms of the contract cannot be altered by evidence of oral (parol) agreements purporting to change, explain or contradict the written document.

Contracts and the parol evidence rule

by Timothy A. Vanderver III

As a roofing contractor, you face the possibility of being involved in a contract dispute. Numerous legal issues are involved in such disputes, and the following example should help you become aware of how to avoid certain problems.

The scenario

Imagine that you submit a proposal to install a roof system on a building. In your proposal, you include a clause stating, "This bid is expressly conditioned on the building owner providing storage for roofing materials and equipment at the building owner's cost."

During contract negotiations, you and the building owner discuss the storage issue. The owner says it will not be a problem for you to store materials and equipment on his property.

The next day, you record the conversation in writing and send a letter to the building owner. You write: "As we discussed yesterday, materials for the project will be stored on the owner's property adjacent to the job site at no cost to the roofing company."

As a result of the agreement, you are able to reduce your proposed price and are awarded the contract. However, when materials are delivered to the site, the building owner changes his mind. He tells you he has decided to keep the area reserved for material storage clear to provide access to the site. He suggests you lease off-site storage. You ask the building owner to pay for storage, but he refuses. When you remind the owner about your agreement, he says the contract states you have to pay your storage costs.

You decide to make a claim for the storage costs, and you and the building owner enter into arbitration. During arbitration, you try to explain the contract negotiations you had with the owner, but the arbitrator refuses to listen; he says your testimony is inadmissible. You also attempt to show the arbitrator the letter to the owner memorializing your conversation. Again, you are told this evidence is inadmissible. Finally, you show the proposal that states your offer was contingent on storage being at the owner's cost. Once again, you are told this is evidence the arbitrator cannot consider when rendering his decision.

When the owner presents his case, he points out a clause in the contract that states: "The building owner is not responsible for storage costs. All costs for storage of the contractor's equipment and materials shall be borne by the contractor. This contract and the plans, specifications and any other documents referenced in this contract shall constitute the entire integrated agreement between the parties."

When the arbitrator makes his decision, you are found to be liable for all storage costs for materials, as well the transportation costs from storage areas to the job site.

Why wouldn't you be allowed to explain that despite what the contract indicated, you and the building owner had agreed that materials and equipment could be stored on the owner's property at no cost? Why would an arbitrator refuse to consider the letter or proposal as evidence?

Parol evidence rule

There is a fundamental premise of contract law called the parol evidence rule. Parol evidence is any evidence other than contract documents. Anything outside of a written contract is parol evidence, whether it is testimony about what was said during contract negotiations, proposals or letters memorializing conversations.

The parol evidence rule states that parol evidence is not admissible to alter or explain a written contract's terms (i.e., a contract's terms speak for themselves without regard to any evidence beyond the contract documents). If parties want to form an agreement, a contract is considered to state all the agreement's terms. Parol evidence is not part of a contract. As a result, it is not admissible to explain the meaning of any contract terms or explain what the parties meant or intended to do under a contract.

This especially is true if a contract contains an integration clause. Usually, such a clause lists what is included in the contract documents (e.g., general terms and conditions, plans, specifications) and states that these are the only contract documents.

All the things you would have wanted to explain in the scenario—the proposal, letter and testimony about what the building owner said—would have been considered parol evidence. In addition, you would not have been able to explain that the written contract did not accurately express your agreement with the owner because this testimony also would have been considered parol evidence.

Getting it included

During contract negotiations, what is said is not as important as what ultimately is written in a contract. If you want a proposal's terms to be incorporated into a contract, you must be sure the contract reflects those terms or that the proposal is listed as a contract document.

Including such agreements in a contract can be accomplished in a number of ways. The most direct way is to write an agreement into the contract itself. During a negotiation, you can cross out a phrase (e.g., "material storage costs to be paid by roofing contractor") and write in another (e.g., "building owner will pay material storage costs"). Another way is to write a letter of understanding, being sure the letter is listed as one of the contract documents. In addition, you also may insert a sentence in the contract stating that in the event of conflicting terms, the proposal will govern.

Wrapping it up

In practice, the parol evidence rule can cause harsh consequences for the unwary. It allows building owners to say things to roofing contractors and not be bound by their statements. However, it is a fair rule that allows parties to know their rights and obligations with regard to a contract. You must be careful when negotiating contracts and be sure that favorable terms you negotiate are included in contracts.

Timothy A. Vanderver III is an attorney with the law firm Hendrick, Phillips, Schemm & Salzman, Atlanta.

Copyright © 2002 National Roofing Contractors Association

Pitfalls of Design & Build Contracts

2005-08-06T02:20:00.000+08:00

SOURCE:
Rodney Martin
BSc, LLB(Hons), MSc, MRICs, MCIArb
Executive Director James R Knowles (Malaysia) Sdn Bhd
July 2000

Design and build or turnkey contracting has become a popular method of procuring building works in Malaysia. Contractors should familiarise themselves with the various problems which can arise when taking on the more onerous obligations usually associated with design and build contracting. It therefore follows that design and build contracts should not be undertaken by contractors unless they are fully prepared for the obligations which will be imposed upon them with this method of procurement.

Under design and build arrangements the employer or owner, for whom the works are to be carried out, deals directly with the contractor who provides a complete service of both design and construction of the works. There are different types of arrangements under the design and build ‘banner’ each of which have separate and accepted terminology to describe them within the industry and it is important to be clear and accurate with the use of such terminology. Where the project to be procured is confined to building or civil engineering works this is usually known as, ‘design and build’ or ‘package deal’ procurement. However, where the contractor is required to provide not only the building or road etc., but also any machinery or equipment and associated works then the project is usually known as ‘turnkey’ procurement. The inference being that the employer or owner merely has to unlock the door to his new building, or facility and he will immediately be able to put it to it’s intended use.

One good reason for the employer/owner to choose design and build or turnkey contracting is that by approaching a contractor who is a specialist, that contractor will have the necessary skill and knowledge to design and execute the works where their nature requires such specialist input. Another reason for choosing this method of procurement is that there may be savings in cost and/or time by adopting this method of procurement as opposed to a more traditional route.

However although there may be clear advantages for the employer, the contractor’s obligations tend to be extended somewhat under a design and build or turnkey contract.

In the traditional method of procuring building work designers are engaged by the employer to carry out the design and a contractor is engaged to carry out the construction of the work. There is therefore a clear divide between responsibility for design and responsibility for workmanship and materials. The design is clearly the responsibility of the designers and the construction work is clearly the responsibility of the contractor.

In a design and build or turnkey project the position is different since the contractor not only takes on the task of constructor but also of designer. This has the effect of radically changing the contractor’s obligations in respect of design.

It is important to examine the nature of this shift of responsibility for design. If one considers the architect or engineer’s obligations to the employer under a traditional procurement arrangement one will find that the architect or engineer owes the employer a duty to use the reasonable skill and care of a designer. This raises the question of what is considered to be ‘reasonable’ in the context of a professional architect or engineer. The English courts have defined the professional man’s obligations to his client as the ordinary skill of an ordinary competent man exercising that particular art. Therefore the designer must act in accordance with the usual practice of his profession. This means that in carrying out his duties the architect or engineer must use the reasonable skill that can expected of an architect or engineer. By contrast, a design and build contractor will usually be required to take on the express obligation of providing a building which is fit for it’s intended purpose. This is an absolute obligation and is a greater obligation than the use of reasonable skill and care in the design.

In view of the responsibility taken on by contractors who design and build the works for a particular project caution must be exercised from the outset.

Upon receiving design and build tender documentation the contractor should examine the content carefully. In view of the fact that the contractor is to be responsible for design in this situation only minimum design input ought to have been provided by the employer in compiling the tender documents. There is much skill required in drafting the project brief (often referred to as “Employer’s Requirements”).

Too often the employer carries out much design work prior to tender which often restricts the options available to the contractor to develop the design post award. Excessive design work carried out by the employer at pre-contract stage can also cause difficulties in determining design responsibility once the contract has been awarded. The project brief should define the site and the works which may require drawings to be included. All relevant criteria which are to govern the works including quality and performance requirements should be provided. Skill is required by the draftsman who prepares the project brief on behalf of the employer when specifying quality. The terminology used should not be too detailed in case it reduces the contractor’s design responsibility, which is not after all the intention.

Neither should the terminology be so vague to cause difficulty in enforcing the requirements during the execution of the works. Most importantly the terminology should not require reliance on subjective language which will cause problems both at tender stage when the contractor is pricing and also later when the contract is being administered. An example of subjective language in this context would be to use the phrase “best quality” to define a standard of quality. Disputes would no doubt arise because of the different interpretations given to such a phrase by the employer and the contractor.

Ideally the project brief should set down just enough information so as to convey the employer’s requirements with respect to the scope of work intended to be included within the contract. The contractor will take note of these requirements and during the tender period will develop a scheme in principle which will meet the employer’s needs. The extent to which the tenderer is required to develop the design within his proposals to form the basis of his tender submission should be defined in the instructions to tenderers. Although the employer may want to receive a fairly detailed design proposal from each tenderer and indeed may request for such details to be included in the contractor’s proposals, in reality a contractor will be reluctant to carry out an expensive design exercise as part of his tender if he only has one chance in four or five of being successful. If the contractor’s tender is accepted he will then develop the design and it is the intention that the employer will interfere with this process as little as possible.

However, more often than not the employer will want to retain an involvement in the design process and also order variations to the scope of work. This may lead to disputes and differences as to the valuation of the additional works ordered and time entitlement to carry out such variations. The intention of design and build is to leave the contractor alone to carry out design and construct the facility without hindrance. Continual interference during the design development stage by the employer will severely compromise the design and build philosophy and jeopardise the employer’s ability to receive the benefits that this type of procurement should render.

Since the contractor usually takes on an absolute obligation to provide a building, installation, or facility as the case may be, which is fit for it’s intended purpose, care must be taken to appoint designers with appropriate skills to execute the design required. Larger contracting organisations may have in-house design teams to provide this service. The adequacy and competence of such resources will therefore no doubt be reviewed and assessed periodically by the organisations’ management in the same way as would be the case for any other department. However, it is common practice for contractors undertaking design and build work to appoint independent designers to carry out design work for them. When doing so it is important that the contractor engages consultants who understand the subtle differences of working for a contractor as opposed to an employer/owner.

Traditionally a design will evolve from a designer’s drawing board and then a price will be put to that design. Under design and build practice the opposite is usually true whereby the design has to fit the price (assuming the price was reasonably calculated as part of the contractor’s tender in the first place). This requires perhaps an even greater commercial awareness on the part of the designer than might be exercised under traditional procurement arrangements. Another potential problem area to overcome is the fact that the designer’s ‘master’ is the contractor and not the employer which is the reverse of the traditional position. This becomes a potential problem in situations where the consultants have been novated from the employment of the employer to the employment of the contractor. A novation is a tripartite agreement by which an existing contract between A and B (for example designer and employer) is discharged and a fresh contract is made between A and C (for example designer and contractor) usually on the same terms as the first contract. Novation differs from assignment in that the consent of all parties is necessary although this may be inferred by conduct and need not be expressed. Novation of designers on the face of it seems a perfectly sensible proposition where a design concept has been initiated under the responsibility of the employer to describe his requirements and then later completed by the same designers once novated to the contractor. However, in practice consultants may find difficulty in turning their original design concept into a fully designed scheme while at the same time being constrained by the contractor’s commercial considerations defined by the tender price for the project.

A design and build project is usually awarded on a lump sum basis and is not subject to remeasurement. It is uncommon for detailed bills of quantites to be used due to the absence at tender stage of detailed drawings from which to measure such quantities. It is therefore essential from the contractor’s point of view to ensure that the contract sum is broken down into sufficient detail to permit the reasonably accurate valuation of the works for the purposes of interim payments.

The contractor should carefully scrutinise the payment provisions of the proposed conditions of contract at tender stage to identify in what manner and in what proportion he will be entitled to be paid during the execution of the works.

Occasionally contractors are faced with onerous terms which permit payment on an interim basis only upon overall completion of a part or section of the works. Under such circumstances a contractor might find himself being denied payment of considerable sums but for minor outstanding items which are of insignificant value. Contractors should therefore ensure that an adequate mechanism is in place under design and build contracts to permit interim payment as the work proceeds.
It is also important, in the absence of bills of quantities, to agree schedules of rates as far as possible for the evaluation of variations. These rates should also include for design work which would usually be recoverable in relation to any additional design resulting from such variations.

In summary, it is therefore important for the contractor to ensure, notwithstanding time and cost considerations, that his design and build tender proposal represents a fully considered scheme which meets the requirements of the employer with a price to match. It is quite usual for contract documents to be drafted in such a way as to place an obligation on the contractor to meet the employer’s requirements irrespective of any attempted qualifications set out in the contractor’s tender proposals. The employer’s requirements will have to be met for a lump sum without adjustment save for variations. The risks upon the contractor are therefore high and it is for this reason that any tender which is submitted on a design and build basis should have made provision as far as possible for the problems which may occur under this type of procurement.

Estoppel

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Estoppel is an equitable doctrine. Usually as a defense, a party is prevented (or estopped) from successfully asserting what would or might otherwise be his legal rights.(e.g. of expression such as “you can’t now just turn round and say that”). For building contract purposes, it is appropriate to consider :

Estoppel by representation
Estoppel by convention, and
Promissory estoppel.

Estoppel by representation

If a party makes a representation with the intention and effect of inducing another party to alter his position to his detriment in reliance on the representation, the party making the representation may be estopped from relying on facts which are at variance with the representation. The representation must be factual or an existing state of mind or belief and not a future promise. It must be unambiguous and unequivocal.

Estoppel by convention

Where parties have acted upon a common assumption of fact or law on the basis of which they have regulated their subsequent dealings, they will be estopped from subsequent denying that the assumption is true if it would be unjust or unconscionable to permit them to resile from it.

Promissory estoppel

Where a party has made an unequivocal promise or representation to another party that he will not enforce his strict legal rights and the promise or representation is intended to be relied on and is in fact relied on, the first party may be estopped from successfully asserting his strict legal rights if it would be unconscionable or unjust to allow him to do so.

Breach of Contract & Damage Claims

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Damages are awarded to put the plaintiff as nearly as possible “ in the same position as he would have been in if he had not sustained the wrong for which he is now getting compensation or reparation”. (Lord Blackburn in Livingstone vs Rawyards Coal company (1880) 5 App. Cas. 25 at 39 (H.L.).

Damages for breach of contract

“The governing purpose of damages is to put the party whose rights have been violated in the same position, so far as money can do, as if his rights have been observed.” (Asquith L.J. in Victoria Laundry Ltd. Vs Newman Ltd. (1949) 2 K.B. 528 at 539 (C.A.)

“The general principle for the assessment of damages is compensatory…” (Lord Wilberforce in Johnson vs Agnew (1980) A.C. 367 at 400 (H.L.);

But if this purpose were relentlessly pursued it would lead to the party in default having to pay “for all loss de facto resulting from a particular breach however improbable, however unpredictable”. ( ibid.) The courts therefore set a limit to the loss for which damages are recoverable, and loss beyond such limit is said to be too remote. The famous rule as stated in the case of Hadley vs baxendale is :

“ Where two parties have made a contract which one of them has broken the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either (1) arising naturally,i.e. according to the usual course of things from such breach of contract itself, or (2) such as reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach of it.” (Alderson B. at p. 354.)

Mitigation of loss

The award of damages as compensation is qualified by a principle, “ which impose on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps”. (Lord Haldane in British westinghouse vs Underground Railway Co. (1912) A.C. 673 at 689 (H.L.).

But “this does not impose on the plaintiff an obligation to take any step which is reasonable and prudent man would not ordinarily take in the course of his business”. (British Westinghouse vs Underground Railway Co. (1912) A.C. 673 at 689 H.L.).

Any gain resulting from the plaintiff’s reasonable steps in mitigation must be balanced against the loss caused by the breach. Any loss resulting from such reasonable steps is recoverable.The onus of proof is on the defendant to prove any failure to mitigate.

Causation and Concurrent Causes

“Causation is a mental concept, generally based on inference or induction from uniformity of sequence as between two events that there is a casual connection between them,” (Lord Wright in Monarch Steamship Co. vs Karlshamns Oljefabriker (1949) A.C. 196 at 228 H.L.)

For a plaintiff to succeed in a claim for damages, he has to establish on the balance of probabilities an effective causal connection between the defendant’s breach of contract or negligence and the plaintiff loss. An intervening act by a third party, or by the plaintiff may break the chain of causation. But an act by the plaintiff will not normally break the chain of causation if it was reasonable. (Emeh vs Kensington & Chelsea Health Authority (1985) Q.B. 1012 (C.A.)

Variations ordered by the employer after the contractor is already in culpable delay will not normally deprive the employer of his right to damages,subject, it is thought, to an appropriate adjustment for any additional time resulting from the variations. ( McAlpine Hemberoak vs McDermott International (1992) 58 B.L.R. 1 at 35 (C.A.)

CONTRACTOR’S BREACH OF CONTRACT

Cost of Completion

Where the contractor fails to complete, the measure of damages in the first instance is the difference between the contract price and the amount it would actually cost the employer to complete the contract work substantially as it was originally intended, and in a reasonable manner, and at the earliest reasonable opportunity. (Mertens vs Home Freehold Co. (1921) 2 K.B. 526 (C.A.); Radford vs De froberville (1977) 1 W.L.R.1262

Offer to Complete

Where a contractor who has repudiated his contract offers to complete under a new contract it is a question of fact in each case whether an employer who does not accept such offer is acting reasonably in mitigation of his loss. (Strutt vs Whitnell (1975) 1 W.L.R.870 C.A.) .

If it is unreasonable to refuse such an offer, damages are calculated as if the offer had been accepted. (Sotiros vs Sameiet Solholt (1983) 1 Lloyd’s Rep. 605 C.A.)

Each case will depend on its facts, but it is thought that conduct which amounts to repudiation by a contractor is likely to render reasonable an employer’s refusal to reengage him.

Defective Work

Where there has been substantial completion the measure of damages is the amount which the work is worth less by reason of the defects and omissions, and is normally calculated by the cost of making them good,i.e. the cost of reinstatement. (Denning L.J. in Hoenig vs Isaacs (1952) 2 All E.R. 176 at 181 C.A.); East ham Borough Council vs Bernard Sunley & Sons Ltd. (1966) A.C. 406 .)

“If there is no alternative course which will provide what he requires, or none which will cost less, he is entitled to the cost of repair or reinstatement even if it is very expensive.” ( Staughton L.J. in Ruxley Electronics Ltd. Vs Forsyth (1994) 1 W.L.R. 650 at 661 C.A.)

Sometimes, perhaps more often in tort than for breach of contract, the proper measure of damages is not the cost of reinstatement but the difference in value between the work as it is and as it ought to have been. (Dodd Properties vs Canterbury City Council (1980)1 W.L.R.433 at 465 C.A.).

This will be so if the plaintiff has no prospect or intention of rebuilding, or where it would otherwise to unreasonable as between the plaintiff and the defendant to award the cost of reinstatement. ( C.R. Taylor vs Hepworths (1977) 1 W.L.R. 659 at 667).

A claim for diminution in value will not normally exceed the relevant costs of reinstatement. If all the necessary remedial works have been successfully carried out, residual diminution in value is not additionally recoverable.(Murphy vs Brentwood D.C.(1991) 1 A.C. 398 at 430 and 436 C.A.)

Betterment

Where works of repair or reinstatement result in the plaintiff having a better building than would have had for the wrong for which damages are claimed, a deduction from the damages awarded will usually not be made for betterment if the plaintiff has no reasonable choice, unless perhaps this would be absurd.(Bacon vs Cooper (Metals) Ltd. (1982) 1 All E.R. 397 at 400).

If a plaintiff chooses to rebuild to a higher standard than is strictly necessary, he can recover the cost of the works less a credit for betterment, unless the new works are so different as to break the chain of causation. If the damages are executed as part of a larger programme of work, it may be appropriate to award damages based on the cheapest estimate of the cost of the remedial works by themselves. (Jones vs Stroud D.C. (1986) 1 W.L.R. 1141 at 1150 (C.A.)

Destruction of Premises

Where a breach results in the destruction of the premises or part of them and the innocent party has no option but to rebuild, the measure of damages is the cost of replacement. (Harbutt’s “Plasticine” Ltd. Vs Wayne Tank and Pump Co. Ltd. (1970) 1 Q.B. 447 (C.A.)

Delay

Damages for a contractor’s failure in breach of contract to complete on time are often the subject of a provision for liquidated damages. If to the contractor’s knowledge the contract works consist of an expansion of a factory or other profit-earning structure, he is liable for loss of business resulting from his breach. ( Victoria Laundry Ltd. Vs Newman Ltd. 91949) 2 K.B. 528 (C.A.).

Loss of profit should be expressly pleaded and is inconsistent with a claim for capital expenditure incurred to make that profit. (Perestrello Ltd. Vs United Paint Co.Ltd. (1969) 1 W.L.R. 570 (C.A.).

The period of time to be taken in calculating general damages for delay by a contractor will be the additional time, which his breach of contract is calculated or assessed to have caused.

Going Slow

Interim slowness not resulting in a failure to complete on time may not be a breach of contract at all (G.L.C. vs Cleveland Bridge and Engineering (1984) 34 B.L.R. 50 C.A.)

EMPLOYER’S BREACH OF CONTRACT

No work carried out

If there is a repudiation of the contract by the employer before any work is carried out the damages recoverable are, it seems, prima facie the amount of profit which the parties knew, or must be taken to have assumed, the contractor would have made if he had been permitted to complete in the ordinary way. (Ranger vs G.W. Railway (1854) %H.L.C. 72 H.L.)

Election to claim waste expenditure

The contractor may, it seems, elect to claim wasted expenditure instead of loss of profit, and can include pre-contract expenditure made in preparation for performance provided it was such as would have been reasonably in the contemplation of the employer at the time of entering into the contract. (Anglia Television Ltd. Vs Reed (1972) 1 Q.B. 60 (C.A.)

Work completed

Where the employer breach does not prevent completion the damages recoverable, if any, will vary according to the circumstances. Where the contract does not provide for an extension of time on account of the delay, delay cause by the employer may give rise to a claim for damages. Delay may for example turn a summer contract into a winter contract thus causing increase of working, or it may keep plant , machineries or men idle; there may be disruption which reduces productivity or cause other losses. All these head of loss require consideration .

Claim for delay or disruption

Contractor ‘s claim for delay and disruption are commonly brought under these heads :

increased preliminaries
overheads
loss of profit
loss of productivity or uneconomic working
increase cost from inflation
interest for non-payment of money

It is not the function of the courts where there is a breach of contract knowingly…to put the plaintiff in a better financial position than if the contract had been properly performed. (Ackner L.J. in C. & P Haulage vs middleton (1983) 1 W.L.R. 1461 at 1467 (C.A.)

Physical Damages & Economic Loss

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Whereas , the existence of a duty of care not to cause economic loss requires special analysis, it may be that the criteria applicable to cases of physical damage and to cases of economic loss are the same,viz., that the damage should be reasonably foreseeable, that the relationship between the parties should be sufficiently proximate and that it should be fair, just and reasonable to impose a duty of care.( Marc Rich vs Bishop Rock Marine (1994) 1 W.L.R. 1071 (C.A.).

Liability for Physical Damages

In the absence of a contractual duty or a special relationship of proximity, a builder owes no duty of care in tort in respect of the quality of his work. (D. & F. Estates vs Church Commissioners (1989) A.C. 177 (H.L.); Murphy vs Brentwood District Council (1991) 1 A.C. 398 at 480 (H.L.). The principle does not extend to bring home liability towards an occupier who knows the full extend of the defect yet continues to occupy the building. A landlord who is responsible for the design and construction of a house let by him is under a duty to take reasonable care that the house is free from defects likely to cause injury to any person whom he ought reasonably to have in contemplation as likely to be affected by the defects. (Rimmer vs Liverpool City Council (1985) Q.B. 1 (C.A.).

“ Knowledge of the existence of a danger does not always enable a person to avoid the danger. In simple case it does. In other cases, especially where building are concerned, it would be absurdly unrealistic to suggest that a person can always take steps to avoid a danger once he knows of its existence, and that if he does not do so he is the author of his own misfortune…Knowledge, or opportunity for inspection, does not by itself always negative a duty of care or break the chain of causation. Whether it does depends on all the circumstances. It will only do so when it is reasonable to expect the plaintiff to remove or avoid the danger and unreasonable foe him to run the risk of being injured by the danger. (Sir Donald Nicolls V.-C. in Target vs Torfaen Borough Council (1992) 3 All E.R. 27 at 37 (C.A.).

Personal Injury

A contractor will be liable if a plaintiff suffers personal injury because of the contractor’s negligence. Where contractors carrying out reconstruction works obstructed the normal approach to a house so that it was impassable, they were held liable when a visitor was injured while using a dangerous alternative route suggested by the contractors’ workmen.(A.C. Billings Ltd. Vs Riden (1958) A.C. 240 (H.L.); George Hawkins vs Chrysler (U.K.) (1986) 38 B.L.R. 36 (C.A.).

Physical Damage to Property

“In most claims in respect pf physical damage to property the question of the existence of a duty of care does not give rise to any problem because it is self-evident that such a duty exist and the contrary view is unarguable. (Lord Brandon in Mobil Oil Hong Kong United Dockyards (1991) 1 Lloyd’s Rep. 309 at 328 (P.C.).

Negligent instructions

An architect or engineer who issues instructions which he knows or ought to know are likely to cause injury to person or property may be liable in negligence if injury results.(Clay vs A.J. Crump & Sons (1964) 1 Q.B. 533 (C.A.)

Economic Loss

Economic loss is monetary loss and pure economic loss is monetary loss unrelated to physical injury to person or “other” property.

‘ the affliction of physical injury to person or property of another universally requires to be justified. The causing of economic loss does not. If it is to be categorized as wrongful it is necessary to find some factor beyond the mere occurrence of the loss and the fact that its occurrence could be foreseen. (Lord Oliver in Murphy vs Brentwood District Council (1991) 1 A.C. 398 at 487 (H.L.).

Pure economic loss may be recoverable against a party who owes the loser a relevant contractual duty. “ But it is not recoverable in tort in the absence of a special relationship of proximity imposing on the tortfeasor a duty of care to safeguard the plaintiff from economic loss.”(Lord Bridge in Murphy vsBrentwood District Council (1991) 1 A.C. 398 at 475 (H.L.)

The loss sustained by a building owner from an ordinary building defect is the cost of rectifying the defect.

Consequential Economic Loss

Economic loss which is consequential upon actionable physical damage to person or property is sometimes recoverable. Consequential economic loss is habitually awarded in personal injury case ,e.g. for future loss of earnings. It has also been awarded in commercial cases , but there is no clear principle to determine when such losses are recoverable and when it is not.

Liability for negligence of sub-contractors

A main contractor is not generally liable, other than in contract, for the negligence of his sub-contractors. But, “ if in the course of supervision the main contractor in fact comes to know that the sub-contractor’s work is being done in a defective and foreseeably dangerous way and if he condones that negligence on the part of the sub-contractor, he will no doubt make himself potentially liable for the consequences as a joint tortfeasor.(Lambert vs Lewis (1982) A.C. 225 at 278 (H.L.).

Professional negligence

Breach of a professional person’s obligations to his client is habitually referred to as professional negligence. It has now been held that persons who perform services of a professional or quasi-professional nature possessing a special expertise may assume responsibility giving rise to a tortious liability irrespective of whether there is a contractual relationship between the parties, so that the plaintiff may choose between concurrent remedies in contract or tort. (Henderson vs Merrett Syndicates Ltd. (1994) 3 W.L.R. 761 (H.L.).

This understanding of the law has been applied by Official Referees to architects and engineers. (Wessex Regional Health Authority vs H.L.M. Design (1994) 10 Const.L.J. 165 at 186).

Everyone who enters into a contract assumes responsibilities and the essence of the law under discussion is that concurrent duties in tort are also co-existence with those in contract.

Repudiation of Contract

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Repudiation generally

The word “Repudiation” is most conveniently term to describe circumstances where “ one party so acts or so express himself as to show that he does not mean to accept the obligation of a contract any further.

Every breach of contract entitles the other party to damages to compensate for the loss sustained in consequences of the breach. But with the exceptions and subject to express contractual rights of determination, breach of contract by one party does not discharge the other party from performance of his unperformed obligations. (Photo Production vs Securicor (1980) A.C. 827 at 849 (H.L.).

There are 2 circumstances in which breach of contract by one party entitles the other to elect to put an end to all remaining primary obligations of both parties. These are:

Where the contracting parties have agreed, whether by express words or implication of law that any breach of the contractual term in question shall entitle the other party to elect to put an end to all remaining primary obligations of both parties, i.e. where there is a breach of condition;
Where the event resulting from the breach of contract has the effect of depriving the other party of substantially the whole benefit, which it was the intention of the parties that should obtain from the contract, i.e. where there is a “fundamental breach”.

Operation of the election to put an end to all remaining primary obligations of both parties is variously referred to as the “determination” or “rescission” of the contract or as “treating the contract as repudiated” or “accepting the repudiation” of the contract breaker.

Acceptance of repudiation

Repudiation by one party standing alone does not terminate the contract. It takes two to end it, by repudiation on the one side, and acceptance of the repudiation on the other. The innocent party must make it plain that “ in view of the wrongful act of the party who has repudiated he claims to treat the contract as an end (i.e. rescind a contract). Acceptance of repudiation by the employer does not affect the contractor’s accrued rights to the payment of installments of the contract price unless the contract otherwise provides. (Hyundai Industries vs Papadopoulos (1980) 1 W.L.R. 1129 (H.L.)

“The contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired… the contract is discharged so far as it is executory only."”(Dixon J. in McDonald vs Dennys lascelles Ltd> (1933) 48 C.L.R. 457 at 476.

But advance payment may be recoverable if the contractor has provided no consideration in the nature of part performance. (Rover International vs Cannon Film (1989) W.L.R. 912 at 932 (C.A.)

A full arbitration clause will normally continue to apply to disputes arising upon the acceptance of repudiation.(Heyman vs Darwin (1942)A.C. 356 (H.L.)

Repudiation and contractual determination clause

A party who purports to operate a contractual determination clause when he is not entitled to do so either factually or legally is likely to repudiate the contract.(AchitecturaInstallation Services vs James Gibbons (1989) 16 L.R. 68 at 73. This is because a party who acts upon a contractual determination clause usually refuses or ceases to perform his own obligations. If this is not in accordance with the contract, he will usually himself be in fundamental breach.

Contractual determination clause do not exclude common law remedies available upon repudiation unless the agreement expressly provides that the contractual rights are to be exclusive remedy for the breach in question.(Modern Engineering(Bristol) vs Gilbert-Ash(1974 A.C. 689 (H.L.)

Repudiation by contractor

Refusal or abandonment. An absolute refusal to carry out the work or an abandonment of the work before it is substantially completed, without any lawful excuse, is a repudiation. (Mersey Steel & Iron Co. vs naylor (1884) 9 App. Cas. 434(H.L.); Marshall vs mackintosh (1898) 78 L.T. 750 ; Hoeing vs Isaacs (1952) 2 All E.R. 176 (C.A.).

Defects

A breach consisting of mere negligent omissions or bad workmanship where the work is substantially completed does not go to the root of the contract in the ordinary lump sum contract, and is therefore not a repudiation.(Hoeing vs Isaacs (1952) 2 All E.R. 176 (C.A.)

Omissions and bad work that occur during the course of the work cannot be considered as repudiation if they are not such as to prevent substantial completion. There is a repudiation where, having regard to the construction of the contract and all the facts and circumstances, the gravity of the breaches is such as to show that the contractor does not intend to or cannot substantially perform his obligation under the contract. (Swisse Atlantique vs N.V. Rotterdamsche Kolen Centrale (1967) 1 A.C. 361 at 422(H.L.)

Delay

Delay on the part of the contractor where time is not of the essence of the contract does not amount to a repudiation unless it is such as to show that he will not, or cannot, carry out the contract. In Hill vs London Borough of Camden, it was held on the facts that a contractor, who has reduce his workforce to such an extent that it might have been said that they were not proceeding “ regularly and dilligently” within the meaning of clause 25 of the JCT Form, had not by such conduct repudiated the contract.

In most cases it is desirable to give notice that continuance of the delay will be treated as repudiation before purporting to accept the repudiation by dismissing the contractor.

When time is the essence either by the terms of the contract, or as a result of a notice making it of the essence, and the contractor fails to complete to time the employer is entitled to treat the contract as at an end and to dismiss the contractor from the site.(Rickards vs Oppenheim (1950) 1 K.B. 616 at 628 (C.A.)

Repudiation by employer

Refusal. An absolute refusal by the employer to carry out his part of the contract, whether made before the works commenced or while they are being carried out is a repudiation of the contract.(Hochster vs de la tour(1853) 2 E & B 678; Steel & Iron Co. Ltd. Vs Naylor (1884) 9 App.Cas.434(H.L.)

Rendering completion impossible

It is, in general, a repudiation if the employer wrongfully by his own acts, and without lawful excuses, renders completion impossible. ( Stirling vs Maitland (1864) 5 B.& S. 840 and 852

Possession of site

The employer repudiates the contract if he fails to give possession of the site at all, or without lawful excuse ejects the contractor from the site before completion. (Felton vs Wharnie (1906) H.B.C. (4th edition), Vol 2, p.398(C.A.)

Order not to complete

A clear unjustified order not to complete the works is a repudiation.(Cort vs Ambergate Railway (1851) 17 Q.B. 127.

Under-certification

It has been settled that the architect is the employer’s agent when giving his certificate. (Sutcliffe vs Thackrah (1974) A.C. 727(H.L.). It has been held that an employer cannot stand by and take advantage of his architect applying a wrong principle in certifying.(Panamera,etc vs Frederick Leyland & Co. Ltd. (1947) A.C. 428 (H.L.)

No general right to suspend work

Although particular contracts may give the contractor express rights if certificates are not paid, there is no general right to suspend work if payment is wrongly withheld. (Lubenham vs South Pembrokeshire D.C. (1986) 33 B.L.R. 39 at 70 (C.A.). This is consistent with the principle that, except where there is a breach of condition or fundamental breach of contract, breach of contract by one party does not discharge the other party from performance of his unperformed obligation. (Wells vs Army & Navy Co-op Soceity (1902) 86 L.T. 764.)

Party cannot rely on own wrong

It applies to a party seeking to obtain a benefit under a continuing contract on account of his own breach as much as to a party who relies on his own breach to avoid a contract and thereby escape his obligation.

A similar principle is applied to the construction of contracts which provide that, upon the happening of certain events, either party may declare the contract void provided that he has himself in breach of a duty owed to the other party been the means of bringing about the event; for example, an insolvent contractor cannot rely on his own insolvency to escape from the contract. ( New Zealand Shipping Co. vs Ateliers,etc.,de France (1919) A.C. 1 at 13 (H.L.)

Negligence & Economic Duress

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To establish a claim in negligence, a plaintiff must show that the defendant owes him a duty of care and that there has been a breach of that duty causing actionable damages.(Grant vs Australian Knitting Mills 91936) A.C. 85 at 103 (P.C.).

Definition of the circumstances in which a defendant owes a duty of care and that there has been a breach of that duty causing actionable damages. Whatever the nature of the harm sustained, the court asks whether the damage was reasonably foreseeable and considers the nature of the relationship between the parties and whether in all the circumstances it is fair, just and reasonable to impose a duty of care.(Marc rich vs Bishop Rock Marine (1994) 1 W.L.R. 1071 C.A.)

Generally, the damages necessary to sustain a claim in negligence must be actual physical injury to person or property other than property which is the product of the negligence itself. Normally, a plaintiff claiming in negligence cannot recover economic loss. Economic loss is only recoverable where there is a special relationship amounting to reliance by the plaintiff on the defendant or where the economic loss is truly consequential upon actual physical injury to person or property. Since damages is an essential ingredient of the cause of action of negligence, the limitation period will not start to run until the damages has occurred. (Pirelli vs Faber & partners (1983) 2 A.C. 1 (H.L.).

An agreement made under duress in the form of illegitimate economic pressure which amounts to a coercion of will and which vitiates consent may be voidable.

(See: Occidental Worldwide Investment vs Skibs A/S Avanti (1976) 1 Lloyd’s Rep. 293; North Ocean Shipping vs Hyundai Construction (1979) Q.B. 705).

“It must be shown that the payment made or the contract entered into was not a voluntary act”

(See: Lord Scarman in Pao On vs Lau Yiu Long (1980) A.C. 614 at 636 (P.C.).

It must also be shown that the pressure exerted was ill legitimate.

(see:Universe Tankships vs International Transport Worker Federation (1983) 1 A.C. 366 at 384,400 H.L.).

Sufficiently coercive threat to break a contract may amount to economic duress. This occur typically where a party to an existing contract compels by coercion uncovenanted additional payment by threatening not to perform the contract if his demand is not met.

In a building contract, if for example a sub-contractor has undertaken work at fixed price and, before he has completed the work, he declines to continue with it unless the contractor agrees to pay an increased price. Such an agreement could be voidable for economic duress if the sub-contractor was held guilty of securing the contractor’s promise by taking unfair advantage of the difficulties he would cause if he did not complete the work.

(see: William vs Roffey bros. 91991) 1 Q.B. 1 at 13 (C.A.)

Frustrated Contract & Impossibility

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Impossibility at time of contract

Actual physical impossibility of performing the contract, whatever means are employed which exist at the time of entering into the contract is, subject to express terms or warranties an excuse for non-performance. But the contractor is liable in damages if he has warranted the possibility of the work or if he has positively and absolutely contracted to do the work.

(Taylor vs Caldwell (1863) 3 B & S 826;Clifford vs Watts (1870) L.R. 5 C.P. 577 at 588; Jones vs St.John’s College, Oxford (1870) L.R. 6 Q.B. 115).

Frustration Generally

Very rarely after the contract has been lawfully entered into and is in course of operation there may arise some intervening event or change of circumstances of so catastrophic or fundamental a nature as to determine the contract prematurely by the operation of the doctrine of frustration.

(Cricklewood Property & Investment trust Ltd. vs. Leighton’s Investment Trust Ltd. (1945) A.C. 221 at 228 H.L.)

The formulation in “Davis Contractors vs Fareham (1956) A.C. 696(H.L.) is now usually regarded as the “classic statement of the doctrine”.

It was there said that frustration: “ occurs wherever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non heac in foedera veni. It was not this that I promised to do”

(Lord Radcliffe in Davis Contractors Ltd. Vs Fareham U.D.C. (1956) A.C. 696nat 729 (H.L.); Amalgamated Investment Ltd. Vs John Walker Ltd. 91977) 1 W.L.R. 164 (C.A.).

Contractual Representation

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Many disputes arise as to the effect of inaccurate statements. In the tender documents, statements of fact such as quantities of work involved, nature of the site or the methods by which the work can be carried out, intended to be acted upon by the contractor are term Representation.

If a statement has been expressly made a term of a contract, e.g. a report about soil conditions is incorporated into the contract and expressly warranted to be true, the plaintiff remedy, if its inaccuracy causes him losses, is to claim damages for the breach of the contract. If such a statement does not form part of the contract, and did not act as an inducement to the contractor to enter into the contract, it is of no legal effect.

Misrepresentation

An untrue representation is a misrepresentation. A misrepresentation, which induces the making of a contract and causes loss, may result in legal liability:

i. If it is made fraudulently, or
ii. If it is an actionable negligent misstatement, or
iii. Under the misrepresentation Act 1967, or
iv. If it is or become a collateral warranty.

Additionally innocent misrepresentation may in certain circumstances entitle the other party to an order rescinding the contract to elect to rescind it.

Mere Puff

A puff is a statement, which by its nature, and in the context in which it is made, is not intended to have legal effect – a statement that any ordinary reasonable man would take “with a large pinch of salt”. An announcement by a builder that he is the best builder in town is likely to be a mere “puff”.

Honest opinion

A mere statement of honest opinion not impliedly involving a statement of fact is not actionable. Circumstances which can impliedly give rise to a statement of opinion involving a statement of fact include those where facts are not equally known to both sides, where a statement of opinion by one who knows the facts best very often involves a statement by him of material effect. A misstatement of material fact is one of the elements in a claim for, or based on misrepresentation.

Fraudulent misrepresentation

In the leading case of Derry vs Peek (1889) 14App.Cas.337(H.L.); Lord Herschell said: “ fraud is proved when it is shown that a false representation has been made (1) knowingly, (2) without belief in its truth, or (3) recklessly, careless whether it is true or false. To prevent a false statement being fraudulent there must always be an honest belief in its truth…if fraud be proved, the motive of the person guilty of it is immaterial; not that there was no intention to cheat or injure the person to whom the statement is made. Fraud in this sense always involves dishonesty even if the motive is not personal gain. (Ibid; Armstrong vs Strain (1952) 1 K.B. 232 (C.A.).

Lord Lore burn said: “ no one can escape liability for his own fraudulent statements by inserting in a contract a clause that the other party shall not rely upon them. I will not say that a man himself innocent may not under any circumstances, however peculiar, guard himself by apt and express clause from liability for the fraud of his own agents. It suffices to say that in an opinion the clause before us do not admit of such a construction. (1907) A.C. 351 at 353 (H.L.).

The plaintiff must always prove that the fraudulent misrepresentation was an inducement, but the defendant cannot succeed in his defense by showing that there were other more weighty causes which contributed to the plaintiff’s decision, “ for in this field the court does not allow an examination into the relative importance of contributory causes. (Barton vs Armstrong (1976) A.C. 104 at 118(P.C.). A person liable for deceit whether personally or vicariously is not entitled to deny by a plea of contributory negligence that his deceit was the sole effective cause of the damage suffered by his victim. (Alliance & Leicester Building Society vs Edgestop Ltd. (1993) 1 W.L.R.1462.

Remedies for Fraud

Where the contractor has been induced to enter into the contract by a fraudulent misrepresentation he can on discovering the fraud avoid the contract and treat it as at an end, or he can affirm the contract and complete. In either event he can recover damages in an action for the tort of deceit. (Archer vs Brown (1985) Q.B. 401; Chitty on Contract (27th ed.), vol.1, 6-026et seq. Where losses are made in the course of running a business, the assessment of damages for deceit can include both the actual losses incurred and loss of profit that could have reasonably been anticipated.

Legal Aspects for Construction of Contracts

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CONSTRUING A CONTRACT

The process by which the courts arrive at the meaning of words in a contract is term as construing a contract, and the process by which the meaning, as determined by the court, the construction of the contract.

“The object sought to be achieved in construing any commercial contract is to ascertain…what each party would have led the other reasonably to assume were the acts that he was promising to do or to refrain from doing by the words in which the promises on his part were expressed.” (Lord Diplock in Pioneer Shipping vs B.T.P. Tioxide (1982)A.C724 at 736(H.L.)

EXPRESSED INTENTION

In construing a contract the court applies the rule of law that, “while it seeks to give effect to the intention of the parties,(it) must give effect to that intention as expressed, that is, it must ascertain the meaning of the words actually used.

(Inland Revenue Commissioners vs Raphael (1935) A.C. 96 at 142 (H.L.);

For the purpose of construction “intention” does not mean motive, purpose, desire or a state of mind but intention as expressed, and the common law adopts an objective standard of construction excluding general evidence of actual intention of the parties. It permits evidence of the circumstances in which the contractual document was made, of the special meaning of words, of custom and certain other matters to assist the court in arriving at the expressed intention of the parties, nevertheless the fundamental rule is that the words must speak for themselves. The parties cannot come to the court to give evidence of what they intended to say.

EXTRINSIC EVIDENCE

It follows that the principle just stated that, for a written contract, no evidence outside the document itself, i.e. extrinsic evidence, may normally be adduced to contradict, vary, add to or subtract from the written terms.

BLANKS

Where a complete blank is left in a material part of the contract evidence is not admissible to fill it. Thus where the date of completion was omitted, and to insert it would result in the imposition of an onerous obligation under a liquidated damages clause, the court refused to admit evidence that each party has been told of the date.

DELETIONS FROM PRINTED DOCUMENTS

The court is entitled to look at the deleted words to see if any assistance can be derived from them in solving an ambiguity in words retained, and that a word or phrase in the deleted part of a clause may throw light on the meaning of the same word or phrase in what remains of the clause. But by deleting a provision parties are not to be deemed to have agreed the converse. It is further been held that there is no difference here between a deletion and an omission.

(Diplock J.in Louis Dreyfus vs Parnaso Cia. Naviera (1959) 1 Q.B.498 at 513.;Lloyd J. Mineralimportexport vs Eastern Mediterranean Maritime (1980) 2 Lloyd’s Rep.572 at 575.

AGREED FACTUAL ASSUMPTION

When parties have acted in a transaction upon an agreed assumption that a particular state of facts between them is to be accepted as true, each is to be regarded as estopped as against the other from questioning as regards that transaction the truth of the facts so assume. Evidence to establish the agreed assumption is admissible which, it is suggested, might conceivably include evidence of facts occurring after the making of the contract in so far as they go to establish the existence at the time the contract was made of the agreed assumption.

ATTACKING THE CONTRACT

A contract is void or voidable because of misrepresentation, fraud, mistake, illegality, duress, minority or made by a mentally disordered person or that the contract has been varied, rescinded, or is subject to an estoppel.

( Norton on Deeds (2nd ed.),p.151;Chitty(27h ed.),vol.1,8-64.

CONTRACT ONLY PARTLY IN WRITING

Different considerations apply when the contract is in truth, not exclusively in writing, but partly in writing and partly oral and/or by conduct.

(Evans & Sons vs Andrea Merzario (1976) 1 W.L.R. 1078 at 1081 C.A.)

(NOTE: The majority of the court of appeal did not agree wholly with the approach of Lord Denning and dealt with the case as a contract partly in writing, partly oral and partly by conduct).

In such a case the court admits evidence of the oral part of the contract and/or the conduct and construes the contract according to all its terms gathered from the documents, words and conduct comprising the contract.

TERMS OF ART

This is used to describe words or phrases which have acquired a precise legal meaning ordinarily applied by the courts, but:

“ where a word or phrase which is a ‘term of art ‘ is used by an author who is not a lawyer, particularly in a document which he does not anticipate may have to be construed by a lawyer, he may have meant by it something different from its meaning when used by a lawyer as a Term of Art."
(DiplockL.J.in Sydall vs Casting Ltd. (1976)1Q.B.302 at 314 C.A.)

REASONABLE MEANING

“ When the terms of a contract are ambiguous and one construction would lead to an unreasonable result, the court will be unwilling to adopt that construction.
(Lord Esher M.R. in Dodd vs Churton (1897)1 Q.B.562 at 566 (C.A.)

If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to the business common sense.(Antaios Compania vs Salen A.B. (1985)A.C.191 at 201(H.L.);

CONTRACT READ AS A WHOLE

The contract must be construed as a whole, effect being given, so far as practical, to each of its provisions.
Lord Atkinson in Brodie vs Cardiff Corp.(1919)A.C.337 at 355(H.L.)

Construing a contract may involve two stages; first, the court may have to determine which documents are contractual, secondly, having decided which document forms part of the contract, it must give effect to all the terms and endeavour to reconcile inconsistencies by the rules of construction.

EJUSDEM GENERIES RULE

This rule is that there are words of a particular class followed by general words, the general words are treated as referring to matters of the same class. In a clause permitting an Extension of Time to be granted to the contractor, if the words were “delayed by reason of any alteration or addition…or in case of combination of workmen, or strikes, or by default of the sub-contractors… or other causes beyond the contractor’s control, the “other causes” were limited to those ejusdem generies with the causes particularized, and did not therefore include the employer’s own default in failing to give possession of site. (Wells vsArmy & Navy Co-op, Soceity (1902) H.B.C. (4th ed., 1914) vol.2, p.353 at 357(C.A.) Where the words “et cetera” were inserted between words describing a particular class and general words it was held that their meaning was too vague to prevent the operation of the rule.
(Herman vs Morris (1919) 35 T.L.R.574 C.A.)

CONTRA PROFERENTEM RULE

This expression means “ against the profferer “ i.e. against the person who drafted or tendered the document. Where there is a clause enabling the architect to extend the Time for Completion and the employer sought to rely on the clause to enable him to claim liquidated damages, it was held for various reasons that the employer could not rely on it. It was said that in case those reasons were wrong, then in any event the employer could not rely on the clause for it was ambiguous and would therefore be given the construction favorable to the contractor.
Miller vs L.C.C. (1934) 50 T.L.R. 479 at 482.)

Of a form of contract devised by the employer, it was said “the liquidated damages and the extension of Time clause in printed forms of contract must be construed strictly Contra Proferentem.”

(Salmon L.J. in Peak Construction (Liverpool) Ltd vs McKinney Foundations Ltd (1970) 1B.L.R.111 at 121;)

RECITALS

A recital is an introductory part of a document, usually beginning with the word “Whereas…” which indicates what the parties want to effect by their contract. Recitals often intentionally or in effect contain definitions or description of the subject matter of the succeeding contract.

IMPLIED TERMS

There is a distinction between construction, which is determining the meaning of words, which are in the contract, and implication, which is (in effect) supplying words, which are not in the contract. There are three different senses in which the expression “implied terms” is used. The first is a term, which does not depend on the actual intention of the parties but on a rule of law such as the implied terms in a contract for the sales of goods. This is discussed under “ Statutory Implication”. The second is where the law in some circumstances holds that a contract is dissolved if there is a vital change on conditions. The third is where a term is sought to be implied based on an intention imputed to the parties from their actual circumstances. This sense is under “ Necessary Implication”.

NECESSARY IMPLICATION

Within the spectrum, two broad areas or categories may be discerned. The first appears where the parties have drawn up a detailed contract but it is necessary to insert a term to make it work. This is sometimes term “ The Moorcock approach”. The second is where in all contracts of certain type, such as building contracts, the law implies certain usual terms unless the parties have shown an intention to exclude or modify them.

i) Implication to make contract work

The court does not make or improve contracts. Its:
“Function is to interpret and apply the contract which the parties have made for themselves. The clear terms must be applied even if the court thinks some other terms would have been more suitable.

“It must have been a term necessary to give business efficacy to the contract, a term which, though tacit, formed part of the contract which the parties made for themselves.”
(Lord Pearson in Trollope & Colls Ltd vs North West metropolitan Regional Hospital Board (1973) 1 W.L.R. 601 at 609 (H.L.)

The test of implication, therefore is necessary- “ such obligation should be read into the contract as the nature of the contract itself implicitly require, no more, no less.” The term sought to implied must be one without which the whole transaction would become “ inefficacious, futile and absurd”.

ii) Implication of “usual “ terms – employer

Where there is a comprehensive written contract such as the standard form of Building contract there may be very little room for the implication of any terms, for if the parties have dealt expressly with a matter in the contract, no term dealing with the same can be implied. (Lynch vs Thorne (1956) 1 W.L.R. 303 (C.A.); Jones vs St.John’s College, Oxford (1870) L.R.6Q.B. 115 at 126;

CO-OPERATION

Where an architect is to supervise the work the employer must appoint an architect.
Where a certifier fails to apply the terms of a contract properly to the detriment of the contractor and where the contract does not contain a relevant arbitration clause, it is ordinarily an implied term on the part of the employer that he will require the certifier to perform his duties properly.

If to the employer’s knowledge the architect persists in applying the contract wrongly in regard to those matters where the architect must act fairly between the parties, he must dismiss him and appoint another.

If it is established that an employer knew perfectly well that his architect was failing to certify in accordance with the contract, it is thought that he would not be allowed to shelter behind the arbitration clause.

The implied term of co-operation extends to those which the architect must do enable the contractor to carry out the works and the employer is liable for any breach of this duty by the architect.
(London borough of Merton vs Leach (1985) 32B.L.R. 51 at 81; Neodox vs Swinton and Pendlebury B.C. (1958) 5 B.L.R. 38 at 41).

In Neodox vs. Swinton and Pendlebury B.C., it was said that what was reasonable did not depend solely upon the convenience and financial interest of the contractor. It depended also on the point of view of the engineer and his staff and the employer. It is thought that it may not be appropriate to consider reasonableness from the point of view of the architect or engineer or the employer where the order of the works is a matter solely for the contractor. The prime consideration is, it is suggested, and that instruction should be given at such time and in such manner as not to hinder or prevent the contractor from performing his duties under the contract.
(Glenlion Construction vs The Guinness Trust (1987) 39 B.L.R. 89 at 103.Jardine Engineering vs Shimizu (1992) 63 B.L.R. 96 (Hong Kong High court).

Since the principal relevant contractor’s duty is to complete within the stipulated time, the obligation of the architect or engineer to furnish drawings and instructions could validly be performed within a reasonable time of the conclusion of the contract.

The contractor cannot unilaterally determine what is a reasonable time, and a contractor does not prove a claim based on late instructions merely by establishing non-compliance with requests for instructions or a schedule of dates for instructions, which he has sent to the architect. Agreement by the architect with such a schedule, or even acquiescence, may, it is submitted, be relevant evidence on the question what is reasonable. The critical question will be to determine on all facts when the contractor really needs the instructions.

NOT TO PREVENT COMPLETION

In general… a term is necessarily implied in any contract, the other terms of which do not repel the implication, that neither party shall prevent the other from performing it. The particular implied term relied on should be expressly pleaded, and “ except possible in the rare cases where the wrongful act alleged is independent of the contract, it is circumlocution to add a general allegation of prevention.
(Devlin J. in Mona, etc, Ltd. Vs Rhodesia Rys.Ltd (1949) 2 All E.R. 1014 at 1016;Thompson vs ASDA-MFI Plc. (1988) Ch. 241 considering Cheal vs A.P.E.X. (1983) 1 A.C. 180 at 189).

Unjustified interference by the employer in the supply of goods necessary for the contract is a breach of the implied term, notwithstanding that the suppliers has no contract direct with the contractor.
(Arrow (Automation) Ltd. Vs Red Chainbelt Inc. (1971) 1 W.L.R. 1676 at 1680 C.A.)

CONSTRUCTION OF DEEDS

Deeds are construed in the same way as other documents save that where one party wishes to deny the truth of a statement in the deed he may be estopped (i.e. prevented) from doing so by the application of a further rule known as estoppel by deed. This is a rule of evidence founded on the principle that a solemn and unambiguous statement or engagement in a deed must be taken as binding between parties and privies and therefore as not admitting any contradictory proof.
(LordMaugham in greer vs Kettle (1938) A.C. 156 at 171 H.L.)

Statement of facts in the recital is subject to the rule. Statement in the deed may bind all or only one or some of the parties according to the construction of the deed. The estoppel does not operate where the deed was fraudulent or, in general, where it is illegal, nor where there the party seeking to set up the estoppel caused the misstatement of fact to appear in the deed.

NEGLIGENCE LIABILITY

Negligence means the breach of a contractual obligation to take responsible care or to exercise reasonable skill or breach of an equivalent common law duty. The requirement of reasonableness in relation to a contract term is:

“ …That the term shall have been fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.”

In relation to a non-contractual notice, the requirement of reasonableness is:

“…That it should be fair and reasonable to allow reliance on it, having regard to all the circumstances obtaining when the liability arose or (but for the notice) would have arisen.” It is for this that a contract term or notice satisfies the requirement of reasonableness to show that it does.

The Highland Tower case

2005-08-06T01:30:00.000+08:00

Professional Negligence & Liability:

EXTRACT FROM HIGHLAND TOWER’S CASE
[Abdul Aziz Hussin AMN]
abdaziz@usm.my

IN THE HIGH COURT OF MALAYA AT KUALA LUMPUR
(CIVIL DIVISION)
CIVIL SUIT NO: S5 – 21 – 174 – 1996.

BETWEEN
Steven Phoa Cheng Loon & 72 Ors……………..Plaintiffs
AND
Highland Properties Sdn. Bhd & 9 Ors………….Defendants

Unqualified person….

“If a man is unqualified but holds himself out to be possessing a skill, he will be judged by the standards of a reasonably competent qualified person” – [see Jackson & Power on Professional Negligence, 4th edition @ 86 where the case of Cardy v Taylor (1994) 38 Con. L.R. 79, is cited in support].

Liability of an architects

As an architect, his duty is primarily to his client because he has a contractual relationship with him. But in law, an architect is also liable to anyone who is sufficiently proximate and who suffers loss or damage by reason of his negligence – [see Halsbury’s Laws of England, 4th edition, volume 4(2) @ paragraph 525].

As expressed by Justice Windeyer in Voli v Inglewood Shire Council (1963) ALR 657 to be:

“An architect undertaking any work in the way of his profession accepts the ordinary liabilities of any man who follows a skilled calling. He is bound to exercise due care, skill and diligence. He is not required to have an extraordinary degree of skill or the highest professional attainments. But he must bring to the task he undertakes the competence and skill that is usual among architects practicing their profession. And he must use due care. If he fails in these matters and the person who employed him thereby suffers damage, he is liable to that person. This liability can be said to arise either from the breach of his contract or in tort”.

Negligence

And as declared by Lord Finlay L.C. in the well-known case of Greenock Corpn. V. Caledonian Rly. Co., and Greenock Corpn. V Glasgow & South Western Rly. Co., (1917) A.C. 556,[ which is quoted by Abdul Hamid F.J. (as he then was) in the Federal Court case of Seong Fatt Sawmills Sdn. Bhd. V Dunlop Malaysia Industries Sdn. Bhd. (1984) 1 MLJ 286 @ 291]:

“It is the duty of anyone who interferes with the course of the stream to see that the work which he substitutes for the channel provided by nature are adequate to carry off the water brought even by extraordinary rainfall, and if damage results from the deficiency of the substitute which he has provided for the natural channel he will be liable.”

“The river” & “watercourse” belongs to whom?

Section 49 of the National Land Code (NLC), section 3 of the Water Act 1920 and section 53 and 54 of the Street, D & B Act are cited together with the case of Azizah Zainal Abidin & Ors. V Dato Bandar Kuala Lumpur (1995) 5CLJ 565. He explains that “river” under the definition section (section 5) of the NLC includes streams and watercourses and any deviation thereof. The ownership of these belongs to the Ruler of the State in which the streams or watercourses are located – see section 49 NLC and section 3 of the Water Act.

And “watercourses” under section 53 and 54 of the Street, D & B Act as defined in the case of Azizah Zainal Abidi & Ors v Dato Bandar Kuala Lumpur (supra) include streams and rivers.

Nuisance

Lee Hun Hoe CJ Borneo in the Supreme Court case of Government of Malaysia & Anor. V Akasah bin Ahad (1986) 1 MLJ 396 where he says:

“It is the contention of the defendants that they are not liable for nuisance under section 7 of the Government Proceedings Ordinance, 1956. We are not concern with public nuisance which is covered by section 8. Clearly, section 7 permits a person to sue the Government for negligence or trespass. However, the liability of the Government in tort is set out in section 5, which reads:

“5 Subject to the provisions of this Ordinance, the Government shall be liable for any wrongful act done or any neglect or default committed by any public officer in the same manner and to the same extent as that in which a principal, being a private person, is liable for any wrongful act done, or any neglect or default committed by this agent, and for the purposes of this section and without prejudice to the generality thereof, any public officer acting or purporting in good faith to be acting in pursuance of a duty imposed by law shall be deemed to be the agent of and to be acting under the instructions of the Government’.

This section is wide enough to cover private nuisance. It make the Government liable in tort in respect of any breach attaching at common law to the ownership, occupation or control of property as though it were a private person. The effect of this section is to render the Government liable to nuisance in respect of property it occupies or owns. This refers only to duties existing at common law. From liabilities imposed upon owners or occupiers by the status the Government remains immune unless the statute imposing the liabilities itself applies to the Government.”

Negligence—who liable for, … and nuisance too!

As a general rule, it is true that an employer of an independent contractor is not liable for the fault or negligence of such a contractor. But there are exceptions. One such exception relates non-delegable duty. This covers “all cases involving extra hazardous acts or omissions, or situations created by them, which all involve special danger to others” – Supreme Court decision in Datuk Bandar Dewan Bandaraya v Ong Kok Peng & Ano. (1993) 2 MLJ 234 @ 239. It is my view that to carry out development work on any land for that matter is normal and not hazardous, but when the land to be developed is perched high on a hill with a populated community below, then the situation is different – an extra hazardous situation will be created if such development work is carried out. This is even more serious if the hill is to be stripped bare of vegetation and its natural water courses unattended. Worse, if there is to be a diversion of watercourses downhill. The extra hazard here is the surcharge of water and silt deposits to cause drains to clog resulting in overflow that may consequent in slope failure downhill to affect lives and properties. The factual situation in our present case is the very case in point. Thus, under such circumstances, these defendants are not exempted from the liabilities for the acts of their independent contractors.

This proposition is not limited to a claim of negligence. It similarly applies to nuisance as is noted in the case of Matania v The National provisional Bank Ltd. & Anor. (1963) 2 All ER 633. In this case the complaint by the plaintiff was dust and noise caused by the building operations of the defendants. The Court decided that although one of the defendants had employed an independent contract, this defendant is still liable in damages for nuisance caused because the very nature of the work carried out involved a risk of damage to the plaintiff.

Mr. Piers Ashworth QC, sitting as a deputy judge of the High Court, in Home Brewery plc v William Davis & CO (Loughborough) LTD (1987) All ER 637:

“There can be no doubt that an occupier of land has no right to discharge onto his neighbor’s land water that he has artificially brought onto his land (Baird v Williamson (1863) 143 er 83) or water that has come naturally onto his land but which he has artificially, or even unintentionally, accumulated there (Whalley v Lanchashire & Yorkshire Rly CO (1884) 13 QBD 131) or which by artificial erection on his land he has caused to flow onto his neighbor’s land in a manner in which it would not, but for such erection, have done (Hurdman v North Eastern Rly. (1874-80) All ER Rep 735). If an occupier does any of these things he is liable to an action at the suit of his neighbor. Furthermore if he brings water onto his land and accumulates it on his land he may well be liable to his neighbor if that water escapes, even though he has no wish to discharge it and has taken every precaution against discharging it (Rylands v Fletcher (1868) LR 3 HL 330).”

Pride of Derby & Derbyshire Angling Association LTD v British Celanese Ltd. (1952) 1 All ER 1326 which decided that a:

“riparian right is a claim by a riparian proprietor of land to the enjoyment of a natural stream flowing through his land. If water is polluted and his enjoyment in the natural flow of the stream is affected thereby, he may have a course of action against the polluters”.

Negligence

The liability of negligence as defined by Lord Atkin in case of Donoughue v Stevenson (1932) A.C. 562 is: that every man must take reasonable care to avoid acts or omissions which he can reasonably foresee would be likely to injure his neighbor, i.e. those persons who are so closely and directly affected by his act that he ought reasonably to have them in contemplation as being so affected when he is directing his mind to the acts or omissions which are called to question, and this results in damage to the neighbor. By this, suffice to say, at this stage, that the important elements for the plaintiffs to prove in this cause of action are: causation and foreseeability.

Nuisance

In general, nuisance is a condition or activity which unduly interferes with the use or enjoyment of one’s land. There is public nuisance and private nuisance. In this case we are only concern with private nuisance which is often described as “unlawful interference with a person’s use or enjoyment of land, or some right over, or in connection with it”, and this takes three forms. The first: is encroachment on a neighbor’s land. The second: is direct physical injury to the neighbor’s land. And the third: is interference with the enjoyment of the neighbor’s land – see Winfield and Jolowicz, on Tort, 15th edition @ 494.

But not all types of nuisance are actionable. Whether a nuisance is actionable depends on a variety of considerations: the character of the defendant’s conduct, the act complained of, the effect of the complained act and such likes. And all these are to be balanced off against the conflicting interests of the parties; that of an occupier in using his land as he thinks fit with that of his neighbor for the quiet enjoyment of his land.

In deciding the defendant’s conduct, the test is reasonableness i.e. “according to the ordinary usage of mankind living in ….a particular society” – see Sedleigh-Denfield v O’Callaghan (1940) A.C. 880 @ 903. This factor of “reasonableness” of the defendant’s conduct is different from that in negligence. Here it signifies what is legally right between the parties taking account “all the circumstances of the particular case; the time and place of its commission, the seriousness of the harm, the manner of committing it, whether it was done maliciously or in the reasonable exercise of rights; and the effect of the commission, that is transitory or permanent, occasional or continuous; so that it is a question of fact whether or not a nuisance has been committed” – Winfield & Jelowicz on Tort, 15th edition @ 497-8.

Thus “if the defendant is a reasonable user, he would not be liable for consequent harm to his neighbor’s enjoyment of his land; but if the user is not reasonable, the defendant will be liable, even though he may have exercised reasonable care and skill to avoid it.” – Lord Goff in Cambridge Water Co. Ltd. v Eastern Counties Leather pls (1994) 1 All ER 53 @ 70.

Of late another factor is added to this test. It is expounded by the House of Lords in the same case of Cambridge Water CO Ltd. Lord Goff introduced it in this way:

“We are concern with the liability of a person where a nuisance has been created by one for whose action he is responsible. Here, as I have said, it is still the law that the fact that the defendant has taken all reasonable care will not of itself exonerate him from liability, the relevant control mechanism being founded within the principle of reasonable user. But it by no means follows that the defendant should be held liable for damage of a type which he could not reasonably foresee; and the development of the law of negligence in the last sixty years points strongly towards the requirement that such foreseeability should be a prerequisite of liability in damages for nuisance, as it is of liability in negligence. For if a plaintiff in ordinary circumstances only able to claim damages in respect of personal injuries where he can prove foreseeability on the part of the defendant, it is difficult to see why, in common justice, he should be in a strong position to claim damages for interference with the enjoyment of his land where the defendant was unable to foresee such damage.”

Negligence
The Liability under Rylands v Fletcher

The rule expounded by Blackburn J. in the case of Rylands v Fletcher is: “that the person who for his own purpose brings onto his land and collects and keeps there anything to do with mischief if it escapes must keep it at his peril, and, if he does not do so, is prima facie answerable for all the damage which is the natural consequence of its escape.” When such a situation is found to exist, then there is no necessity for the plaintiff to prove the negligent act of the defendant; this is a case of strict liability.

However this rule has undergone changes in recent years in the common law practicing countries. Starting with England, the house of Lords, in Cambridge Water CO LTD v Eastern Counties Leather pls (1994) All ER 53 has added to this principle the necessity to prove that the defendant could have reasonably foresee the thing might, if escape, cause damage to the plaintiff. Then in Australia, in the case of Burnie Port Authority v General Jones Pty LTD 120 ALR 42, the High Court after describing this rule as having “all its difficulties, uncertainty, qualifications and exception” completely discarded it as an independent cause of action, and incorporated it into the law of negligence. I tend to favor this Australian approach since after the case of Cambridge Water CO the requirement of foreseeability has deprived this independent cause of action of its attractiveness. Since foreseeability is required to be proved, it might as well be absorbed into the liability of negligence

Construction Claim & Dispute Resolution-5

2005-06-21T22:40:00.000+08:00

CHAPTER 5: DISPUTES & ARBITRATION

DISPUTES

Largely as consequences of the inefficiencies inherent in the engineering and construction project processes, it is not uncommon for disputes to arise in the course of the operations and administration of the contract.

Disputes and claims can be traced back to failure by one of the parties to the contract to do his work efficiently, to express clearly, or to understand the full implication of the instructions issued to, or received by him.

In the event of a dispute arising, every effort should be made to reach a fair settlement by negotiation. If however, this proves impossible, the dispute would be referred to arbitration in accordance with the contract provision.

Many standard contract forms are found to be defective, as they do not provide grounds for which an extension of time can be granted for certain delaying events such as acts of hindrance or prevention by the owner which causes delay to completion. Some Standard Form of Contracts also do not cover many common delaying events, such as failure of owner to supply materials to the contractor, failure to give agreed access and failure to give possession of the site on the due date.

In this event, the owner who occasioned the delay would not be able to enforce the liquidated damages clause if there is no power to extent time in relation to the breach. The occurrence of such events would have the effect of putting the time for completion ‘at large’ (i.e. the contractor’s obligation is then to complete “within” a reasonable time”), and at such will render the LAD clause as unenforceable.

The certificate of non-completion is a mandatory condition precedent to the owner’s right to deduct liquidated damages. The contractor is not liable for liquidated damages until the S.O. or Architect had issued the certificate of non-completion. Without the said certificate, any deduction by the owner will amount to a repudiation of the contract, which may risk a determination of the contract by the contractor.

Arbitration

Arbitration involves a civil dispute in which the parties have agreed -- sometimes long before there was any dispute, and sometimes after the dispute arose -- to submit the controversy to an impartial third party (one or more arbitrators) instead of a judge or jury in court.

Unless the rules of the arbitration proceeding provide otherwise, in most cases the decision (called an "award") of the arbitrator is binding on the parties and "final."

Traditionally, many construction contracts contained arbitration clauses. Arbitration is the referral of an issue or dispute or difference between the parties to an arbitrator. Arbitration has the advantage of privacy, and the rules are rather less formal than those of a court. It is sometimes necessary for the arbitrator’s award to be submitted to a court of law and "confirmed" for entry as a court judgment. That makes it enforceable as any other order of the court. Non-lawyers sometimes informally –but erroneously -- call the confirmation process an “appeal”.

The party to the contract wishing to refer the matter to arbitration must first ask the other party, in writing, to concur in the appointment of an arbitrator. Arbitration on all matters shall not be commenced until after the practical completion of the works or the determination of the contract, unless both party consent otherwise.

The arbitration shall be deemed to commence on the date that the claimant served written notice on the respondent that dispute or differences had arisen between the parties and the request to refer the matter to an arbitrator to be mutually agreed between them.

The arbitrator upon accepting appointment has a first duty to check that his appointment is valid and he has jurisdiction to act. The party requesting the appointment of an arbitrator will be required to provide security towards costs of the award and is a pre-requisite before an arbitrator is appointed. Upon appointment of an arbitrator, the respondent will be required to provide a security towards costs.

The duties of an arbitrator are basically to conduct the hearing of the reference and to deliver his award. Arbitrators have always been bound to act honestly and in good faith. In addition, misconduct by the arbitrator may be a ground for challenge of the award and any person entrusted with this decision-making task have to be personally liable for any action in bad faith.

END.

Construction Claim & Dispute Resolution-4

2005-06-21T22:31:00.000+08:00

Chapter 4: Breach of Contract & General Damages

If any party to a contract fails to stick to its part of the bargain, there is a breach. A breach of contract occurs when:

One party to a contract makes it impossible for the other parties to the contract to perform;
A party to the contract does something against the intent of the contract; or
A party absolutely refuses to perform the contract.

Breach by the contractor

Breaches of contract by the contractor are numerous, and it may broadly be divided into three categories, namely:

Abandonment of project or total failure to complete,
Delay in completion, and
Defective works or incomplete work.

Not all breaches of contract are necessarily "contract killers" which would end up in a lawsuit. Much would depend on whether the breach is "material" or "immaterial" and who the parties are. What makes sense for you will depend on the facts. Where the matter is substantial, the advice of an attorney can help you.

The contract may have its provisions as to the measure of damages in the event of a breach, such as determination of the contract, liquidated damages for delay in completion and the direct loss and/or expenses.

In the event of abandonment of project or a total failure to complete, the employer can elect to determine the contract. In the event of delay in completion due to inexcusable reasons, liquidated damages will be treated as an employer’s pre-estimate of all his damages arising from delay in completion.

In the case of defective works, the measure of damages recoverable by the employer is the difference between the contract price of the work and the cost of making good in conformance to the contract.

Breach by the employer

Section 74 of the Contracts Act 1950 states that, "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 and that such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach. When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default as if the person had contracted to discharge it and had broken his contract."

It is obvious that a contractor works for a profit, and apart from his entitlement to the contract price, the damages to the contractor caused by any breach of contract by the employer will need to be assessed in the light of its impact upon the contractor’s profit. A distinction may need to be made between the employer’s breach which have the effect of bringing the work to an end, or preventing it from starting, in both case which the contract may deprive the contractor of profits on work never actually carried out and on the other hand, which merely reduces his profits on completed work.

Clause 24.2(viii) of the PAM98 Form refers to any act of prevention or breach of contract by the employer and the same matter may also give rise to an extension of time under clause 23.7(xi)

General Damages

Any breach of contract will give the aggrieved party a right to damages at common law, unless expressly agreed (e.g. a liquidated damages clause).

The general rule on recoverability of damages will be what the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered as either arising naturally or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it [see: Hadley v. Baxendale 1854 & Victoria Laundry (Windsor) Ltd. V. Newman Industries Ltd. 1949].

In principle, most loss, which flows as a consequence from the breach, is recoverable unless it is not considered to have been within the reasonable contemplation of the parties.

It must be emphasized that the purpose of an award of damages is to put the plaintiff in the position he would have been had the breach of contract or duty not occurred.

So far as money is concerned, the party that sustains a loss by reason of a breach of contract is to be placed in the same situation as if the contract had been performed.

The key factor in an action for general damages is the need to be able to support the claim with evidence of the loss suffered as a result of the breach. Vague allegations of loss suffered are unlikely to be recognized in law [see: Skyt. Tan Kim Beng and Rakan-Rakan v. Pulai Jaya Sdn. Bhd. 1992, Digest 140].

As for the interest charges, in the absence of a contractual agreement to pay interest, it may not be payable [see: Wong Chong Chow v. Pan-Malaysian cement Works 1980 Digest 161].

Financial charges are recoverable under usual contractual provisions (e.g. under Direct Loss and/or Expense claim).

TO BE CONTINUED IN CHAPTER 5 .....

Construction Claim & Dispute Resolution-3

2005-06-21T22:20:00.000+08:00

Chapter 3: Liquidated And Ascertained Damages (LAD)

Construction contracts do usually provide for “Liquidated Damages” in an event of a delay by the contractor. The aim of liquidated damages is to provide for a negotiated and fair method of allowing for the possibility of a delay in completion of the project, which provides adequate compensation for the purchaser/owner, while ensuring that the contractor is not too heavily penalized for the delay. The term “liquidated” means that the measure or scale of such damages has been set down in the contract in agreed and mathematically quantifiable terms.

A great deal of confusion still exists as to what is the precise test to distinguish between genuine liquidated damages and the rule of law against penalty imposed in contract. This rule is that where a contract provides for damages to be paid by a party in breach of contract, the amount or scale of damages provided for must be such that it is intended reasonably to compensate the innocent party, and not to punish the party in breach. If the amount is excessive or punitive, then it is a “penalty”.

A penalty is null and void and of no effect to a contract. The true test of the legality of the liquidated damages is what the parties are presumed to have had in mind at the time of the making of the contract. At that time, we must ask whether or not the scale of liquidated damages was genuinely negotiated and agreed as an attempt to pre-estimate, in good faith, the likely loss to the owner. Courts generally do not enforce liquidated damages that are intended to serve as a penalty or are far in excess of the amount of damages the parties may reasonably forecast.

If the agreed sum, whatever is called in the contract, is a penalty it will not be enforced by the courts The onus of showing that the clause is a penalty clause lies upon the party who is sued upon it, and the court should not be astute to descry a “penalty clause”.

The classic form of penalty clause is one which provides that upon breach of a primary obligation under the contract a secondary obligation shall arise on the part of the party in breach which does not represent a genuine pre-estimate of say loss likely to be sustained by him as the result of the breach of primary obligation but is substantially in excess of the sum. "The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimates of damages.” [Selva Kumar v Thiagarajah].

Under Clause 23.0 of the PAM form of contract 1998 (Extension of Time Clause), the architect is duty bound to grant extensions of time not later than practical completion so that the contractor will know his position before the final certificate and the contractor may be entitled to know the amount of extension in respect of any particular matter at the earliest possible moment [Sundra Rajoo, pg. 198, The Malaysian Std. Form Of Building Contract, PAM 1998 Form, 2nd. Edition, MLJ, 1999].

Before the certificate of non-completion is issued, the architect must perform his duties as regards adjudicating upon any outstanding applications for extensions of time under Clauses 23.0 and Clause 32.1(iii). Should the certificate of non-completion been issued and a subsequent cause of delay arises which entitles the contractor to a further time extension, a further certificate of non-completion under Clause 22.1 is required to be issued.

Loss and/or Expense

Given the nature of the construction process which uses costly equipment and highly paid staff arising from the project based employment, it is common for a contractor to suffer, or allege that he suffers, disturbance in the regular progress of the works due to causes within the employer’s or architect’s control. Loss and /or expense claim can usually arise from these reasons: -

Direct loss & expense involved in variations
Direct loss & expense caused by excusable delays (i.e. disturbance of regular progress of work)

In either case, the contractor has to make a written application within a reasonable time having incurred the loss and/or any part of the works have been affected or delayed as a result of the instruction. The broad purpose of the loss and/or expense clause provided in any contract is to reimburse the contractor for any loss and/or expense, which he has suffered or incurred as a direct result of certain specified events in the contract. Contractors can also made a claim under this clause if regular progress of the works or any part thereof has been “materially affected” by one or more of the stated events specified in the clause.

TO BE CONTINUED IN CHAPTER 4 ......

Construction Claim & Dispute Resolution-2

2005-06-21T21:11:00.000+08:00

CHAPTER 2: CLAIMS AND DISPUTE ISSUES

Construction companies and projects in Malaysia have a track record for completing late and over-budget. Too many projects, particularly, in the public sector, had shown overrun in time and many claims and disputes are related to delay and/or disruption.

There seems to be a lack of know-how and knowledge of the method by which delays may be demonstrated to have occurred or by which the time element of such delays could be clearly related to their causes and the financial impact of such delays and/or disruptions. All too often the aggrieved contracting party who are preparing the time analysis do not understand the legal implications and requirements, and they leave it to their lawyers to handle their grievances, in the hope to receive a just compensation and award. Unfortunately, these lawyers may not really understand construction methodology and logical acceptable planning techniques, which are being used.

Typically, these contractors would make a number of complaints of many things, which were purported to have delayed or disrupted his works or programmes, such as the amount of variation works, the timing of instructions, changes to the scope of works, the delay or lack of information necessary for the implementation of the project.

Very little information about the facts of the delays could be produced and little explanation could be offered of how the relationship of the change which were alleged to have occurred were said to have affected the time or cost for performance of the works. The project architect or engineer would then analyze the claims submitted by the contractors and they would often perused them on a global basis without any systematic or logical analysis of time or the effects of the events on costs.

Delay and Acceleration Claim

Delays and acceleration issues in contract disputes are probably the most complex issues in contract claims. The complexity arises mainly due to the factual criteria of assessment of whether an issue is excusable or nonexcusable, whether the issue occurs in isolation or concurrently, or as a serial result of one or a combination of excusable or nonexcusable issues.

In the event of a delay, to establish an entitlement to time extension and delay damages, it must be substantiated that the delay impacted the contract completion date and that loss and expense had been incurred arising therof from the instructions which caused delay. The cause-and-effect relationship must be identified, quantified, and supported by contemporaneous documentation. Having established entitlement, alleged damages must be substantiated and supported by project records.

Entitlement

The rights for entitlement to extension of time and/or for loss and expenses incurred resulting directly or indirectly from the purported delay for reasons beyond the control of the contractor, is usually incorporated in the contract clauses pertaining to time extensions, variation, S.O. Instruction, and Loss and/or Expense. Contract must provide the power to the S.O. to extent time if the cause of the delay is attributable to actions or inactions beyond the control of the contractor. The variation clause also empower the S.O. to instruct changes which the contractor must comply and provides that any lawful instruction for change shall not vitiate the contract. The extension of time clause empower the S.O. to address the time extension by specifying that the contract time are to be adjusted as a result of changed instructions. A direct relationship must be established between the change instruction, the delay, and the contract completion date. If the relationship becomes difficult to establish or is nonexistent, a dispute may arise.

When analyzing delay, it is necessary to determine the cause of the delay, which would require it to be supported by contemporaneous documents. Delay issues are generally classified as follows:

Excusable compensable delay – delay that is within the control of the owner and provides for a contract time extension and compensation to the contractor.
Excusable non-compensable delay – delay that is beyond the control of the owner and the contractor. In this case, the contractor is entitled to time extension but not entitled to compensation (loss and/or expense).
Non-excusable delay – delay that are within the control of the contractor (culpable delay due to the contractor’s own fault). Should the contract completion be exceeded, the owner will then impose the liquidated damages clause as provided in the contract.

Classifying delays are complex and difficult as delay may be such that the owner and contractor are each responsible for delaying different activities during the same or overlapping time periods, and both of these activities may be critical to the completion of the project as a whole.

Complexities in resolving delay entitlement are further increased when the serial effect of a delay is considered. For example, if work has been delayed by an excusable compensable delay and was rescheduled to a time where a strike occurs, the delay resulting from the strike could be argued as compensable. But if the same work was delayed by a non-excusable delay, the argument that the contractor is not entitled to a time extension would exist.

Entitlement analysis is usually based on the identification and quantification of excusable delay issues. But it must also be determined, however, whether a non-excusable delay is concurrent with the excusable delay or by itself impacted the contract completion date. Documenting and proving impacts to the contract completion date are critical to supporting entitlement to time extension and damages claims.

Generally, one of the primary requirements for entitlement is written notice. The notification requirement provides the notified party with the opportunity to review the condition and take action to resolve or mitigate its impact. In the absence of notification, project documentation may be the source to prove knowledge of the issue (that both parties are aware of the issues), thus waiving the written notification requirement.

Loss and/or Expense Claims

Claims for loss and/or expenses for delay and disruptions are often subject of disputes and therefore, it is necessary to understand the theories of damage recovery.

Owner’s damages regarding delay are usually specified and defined as Liquidated Ascertained Damages (LAD) in the contract agreement. It is normal practice in construction contracts that the owner and contractor agree to provisions fixing in advance at the time of contract, what sum will be payable by way of LAD in the event that the contractor could not complete by the stipulated time, and without excusable reasons. When the breach is committed, then the contractor is prima facie liable for the sum stated in the contract (appendix to the contract). The contract must have a completion date inserted to define a definite date to act as a starting point and a definite end date. If the completion date has passed due to the culpabaility of the owner for which no extension of time can be granted, the owner’s right to LAD will be lost.

Generally, if the contract documents stipulate LAD, owners cannot purport to seek recovery of unliquidated or other consequential damages or loss. Liquidated damages are defined as an agreed sum of monies, usually represented as a daily amount. The amount must represents the estimated cost to the owner of not having the contract completed on time. Liquidated damages must be shown to represent a genuine pre-estimate of the owner’s anticipated damages arising as a direct result of the delay in the project completion caused by the contractor’s failure in performance. It is important that the liquidated damages represent a reasonable attempt at estimating the real damages, or these damages may be interpreted as a penalty, which is not enforceable by the court. To be valid and enforceable, the estimate must be prepared at or before the time of contract award and must represent a fair and reasonable compensation. Liquidated damages will not be enforceable if it is proved that the owner did not suffer actual damages because of the delay (see: Selva Kumar v Thiagarajah). The same principle applies to liquidated damages that have been set too high. Clauses providing for actual damages to be paid to the owner require the owner to itemize and substantiate its claim for such damages. The itemization and substantiation includes providing records of the costs that were incurred as a result of the delay.

Recovery

Contractors seeking recovery for delay damages may include impact costs such as loss of efficiency and extended general conditions. Efficiency losses are the result of work disruptions, rescheduling and stacking of trades, and performing work in unanticipated conditions. General condition costs claimed for the delay period include extended overheads and administrative expenses, site supervision, management, construction equipment, site office and site facilities, monthly operating costs and similar items.

To recover the costs of labor efficiency requires the contractor to establish the progress it expected to achieve with its use of anticipated resources, substantiate the cost required to achieve the actual progress, and prove that the increase in costs is related to a compensable delay issue. An effective approach to establishing the extent of efficiency losses is to show what productivity was realized on the project during periods of no disruptions or other impact. This is then compared with the productivity realized during the period of dispute.

To recover the damages due to extended general conditions, the contractor must substantiate the cost by itemizing the expenses expended during each delay period. If the period cannot be isolated, it may be necessary to determine the costs for general conditions for the project duration and use an average daily rate.

Similarly, the contractor is also entitled to seek recovery for its office overhead and administrative expenses. The theory is that the contractor was required to maintain its overhead expenses while not receiving expected contract revenue during the delay period.

Acceleration

Claims for acceleration costs is another complex issue and is generally classified into two type:

Actual acceleration
Constructive acceleration.

Actual acceleration is experience when the contractor is directed by the owner to complete the work earlier than the contract completion date. Constructive acceleration exists when:

A delay existed that was excusable and warrants a time extension;
The owner refused a time extension request;
The contractor performs in an accelerated method as a result of the owner’s instruction;
The contractor incurs additional costs as a result of accelerating its work.

The entitlement to acceleration costs is dependent upon which party was responsible for the project delay at the time acceleration was required or directed. If it is determined that the contract completion date will not be met, the owner may direct the contractor to accelerate its work and meet the contract completion date.

If the owner is responsible for the delay resulting in the completion date not being met, then the acceleration is viewed as compensable to the contractor. If, on the other hand, the contractor has caused culpable delay to the contract completion date, and the owner then directs the contractor to accelerate its work, the costs associated with the acceleration are against the contractor.

The owner may not order an acceleration of the progress of the works or require the contractor to put in extra or additional resources without the attendant risk of such additional costs, loss and/or expense to the contractor in so obeying the owner’s instruction to be borne by the owner [Sundra Rajoo p.213].

Costs of acceleration may include premium pay such as shift differential and overtime, additional resources applied (labour, material, machinery and equipments), loss of efficiency, additional overheads and administrative expenses. To assess the entitlement, a cause-and-effect analysis needs to be undertaken.

Claims for Delay or Disruption

Contractor ‘s claim for delay and disruption are commonly brought under these heads:

Increased preliminaries
Overheads
Loss of profit
Loss of productivity or uneconomic working
Increase cost from inflation
Interest for non-payment of money

Construction Claim & Dispute Resolution

2005-06-21T20:45:00.000+08:00

CHAPTER 1: INTRODUCTION

There are usually a large number of parties involved in a construction or engineering project with differing responsibilities. These differing responsibilities will inevitably lead to different priorities. It is in the nature of contracting that the parties to the contract will have conflicting interests. Contractors would normally want to be paid as much as possible and for as little risk as possible. Conversely, owners will want to pay as little and as late as possible and possibly and/or forcibly, transfer all risk, expenses and cost to the contractor.

In most construction and engineering contracts, some things may be overlooked, are wrongly perceived or wrongly interpreted by one party or another. For whatever reason they are overlooked or misinterpreted, the result is that time is taken up and costs are incurred. In the event that the party incurring those costs believes that he is not suppose to bear the cost, he will certainly look for reimbursement from the other parties and dispute then often ensues.

In projects such as building construction or civil engineering works, the contract document consist of a trade-off between the contractor’s price for undertaking the work and his willingness to accept a certain degree of risk. Who bears what risk and at what price is simply a matter of commercial negotiation with the outcome often depending upon the skill, influence and power of negotiation of the parties concerned. The methods by which the risks are distributed between the distributing parties will depend not only upon the procurement method but also the form of agreement under which the works are procured and the duration of the contract under which the risk is assumed.

Construction contract disputes and claims are a reality and every management must be prepared for this eventuality. Project directors must from project initiation develop his project team to include someone who has reasonable competency in the knowledge area of contract law and configuration management.

Therefore, project documentations and project reports must be prepared with an eye to building cases and documentary evidence to support contention. Delays, damages and acceleration are complex issues from an entitlement determination and cost quantification viewpoint.

Contract documents are the basic foundation of construction claims analysis that focuses on establishing entitlement and proving damages. Timely completion of the construction works by the contractor is of great importance because of income and profitability consideration. Given the complexity of proving such damages, it is highly probable that parties will incur expense and be in dispute in proving their loss or defending it.

Construction contracts contain clauses to facilitate the execution of changes to the intended scope of work. These clauses define the responsibilities of the parties, allow for changes to the work, provide evidence to support the reason for extension of time when project is delayed beyond completion date, define the methods for pricing the changes and claims for damages, provide for rescission of contract if necessary, and stipulate the means of for a resolution in the event of dispute.

The contract documents may be the source of major disputes centering on the responsibility of the specifications. Construction changes during the execution of the work often result in claims. These claims may result from contradictory or ambiguous language and specifications, errors or omissions, or work that is impossible to perform according to the documents.

Other issues resulting in claims include disputed change orders, varied site conditions as opposed to the time of tender, apparent authority, and overzealous or improper inspections and instructions.

Construction claims often result from misinterpretation and improper administration of the contract documents during project implementation. Construction claims also occur because of misunderstandings concerning the rights, obligations and responsibilities of parties to the contract. This often leads to the waiving of one’s rights as provided for by the contract.

TO BE CONTINUED IN CHAPTER 2 ....

DRB RAIL PROJECT GOES TO ARBITRATION

2005-06-14T09:47:00.000+08:00

DRB RAIL PROJECT IN DISPUTE COURT

DRB-HICOM Bhd chairman Tan Sri Dr Saleh Sulong said both the Government and the company have mutually agreed to appoint an independent claim consultant (ICC) to resolve the dispute on the variation order of the double-tracking project between Rawang and Ipoh.

The variation order refers to the work ordered by the Government that is not included in the original contract, which reportedly is worth RM700mil.

The ICC or arbitrator will be appointed “which will be acceptable by both parties to address the issue of the variation order,” Tan Sri Salleh told reporters.

“For DRB-HICOM, I hope that this issue could be settled as soon as possible because it involves a lot of money,” he said.

Second Finance Minister Tan Sri Nor Mohamed Yakcop last month said the Government had already paid all normal payments to DRB-HICOM with regard to the project. He, however, said the variation order was a separate issue.

The Government had on May 26, taken over the project and on June 1, given the remainder of the project to UEM Construction Sdn Bhd.

Construction claims and disputes are the result of failure of the owner and/or contractor to recognize contractual entitlement, the rights and obligations of each party to the contract and possibly, caused by a changed condition in the context of contract obligations.

Over the years, construction projects have experienced an increasing numbers of claims, liability exposure and disputes issues along with increasing difficulty in reaching reasonable settlements in an effective, economical, and timely manner.

This is largely due to the fact that many project managers and contract administrators are lacking in ability and skills in handling and managing those contractual issues.

Apart from it, there is also the failure to organize and manage adequate documentations to provide evidence in support of their claims.

Construction claims are a reality and management must be prepared for the eventuality of a claim and disputes. Disputes and claims can be traced back to failure by one or more of the parties to the contract to do the work efficiently, to express clearly, or to understand the full implication of the instructions issued to, or received. Claims for loss and/or expenses and damages are often subject of fierce disputes and bitter battles.

An in depth knowledge of contractual rights and obligations together with the knowledge of contract administration is now a prerequisite to managing a successful and profitable project. Project managers are required to have the relevant knowledge and competencies in the area of contract management and administration of construction projects. They must also have the skills of documentation, managing communication system, and have ability to write and serve notices on contractual matters and managing site instructions.

Heaven & Earth

2005-06-11T21:53:00.000+08:00

Heaven & Earth

Who is number one?

Objectivism will lead oneself to the position aspired.

Project Management Information System

2005-06-07T20:30:00.000+08:00

Information is a valuable resource. Every manager has to know that he is acquiring, producing and using information wisely and effectively in support of the organization’s goals and objectives.

Managing information requires the imposition of order, structure and discipline within a strategic direction. Information management is aided by the availability of technologies, methodologies, and development tools.

New forms of structure and technology dictate and make available new requirements for information systems. These new forms may need new types of staffs to develop and support them. This, in turn, will lead to new approaches to the training and development of information systems and information management staffs – staffs who will understand the technology, the information requirements of the business and its component parts and how information is best structured and stored to make it readily and effectively available as it is needed.

The availability of new and modern Technology has vastly increases our ability to access resources, both those we own and control and those outside of our own sphere of influence. As information management becomes more important every day, managers will need to ensure that people within the organization get the information they need to do their job effectively. Competitive advantage of organizations is very much governed by the effectiveness with which we manage these information resources.

Information systems now also extend over most areas of an organization. Once computers were restricted to the accounts department, but nowadays, we expect to see them on the shop-floor, controlling machines, warehouse – everywhere where work takes place. This means that more and more information is moving around the organization and needs to be managed. Once information was easily identified – it took the form of paper documents; today, it comes in a variety of forms. It is too valuable a resource to be allowed to move around unplanned and unchecked – and it is also a danger, in that too much of it clogs up our system.

The project management information system (PMIS) contains the intelligence essential to the effective planning, organizing, directing, and control of the project. All too often projects are characterized by too many data and not enough relevant information on where the project stands relative to its schedule, cost and technical performance objectives as well as the project’s strategic fit in the parent organization’s strategies.

Information is essential to the design and execution of decisions allocating resources in the management of a project. Decisions coming out of the planning and control of the project must be based on timely and relevant information. Project managers and his team members require information by which intelligent decisions can be made and executed effectively. Information flow is a critical consideration in the speed and eloquence with which the efficient and effective use of resources is carried out in meeting the purpose of the enterprise.

Information systems for organization include the formal information that is required to portray the organization’s posture, strategies, and performance, and the informal information which includes verbal communication which are informal and unofficial. This informal information can provide project managers with insight into how people really feel about the project.

The objectives of an information system are to provide the basis to plan, monitor, integrate project evaluation, and to show the interrelationships among cost, schedule, and technical performance for the entire project and for the strategic direction of the organization. In addition, information should provide a prospective view to identify project problems before they occur, so that they can be avoided or their impact minimized. Information is also required by the project team to continuously monitor, evaluate, and control the resources used on the project. There is also a need by senior management to be kept informed of the status of the project. The hardest part of any management job is not having all the necessary relevant information, yet having the responsibility of making the ‘right decision’.

In the construction industry, it is important that project information is shared between the project stakeholders so as to promote trust and to enhance a more mature relationships amongst them. Sharing of project information is one of the more important dimensions of keeping the team members working together cohesively and concurrently in the utilization of the project resources. Such sharing also facilitates the building of networks with the stakeholders through continuous interpersonal contact and dialogue.

It must be remembered that information has no real value and does not automatically lead to an effective management process. Information does not ensure success, but lack of information can contribute to project failures. Information and data is not equal. Data is merely raw material of information. Collected data are structured into meaningful elements and then transformed and refined to meet the needs of management.

Information provides the intelligence for managing the project. Information must be processed so that decisions can be made and executed. Information is essential to promote understanding, to establish project objectives and strategies, and to develop mechanisms for control, and forecast future performance, resources required, and to recognize changes. Information is needed to prepare the project plan, develop budgets, create and use schedules, and to lead the project team to a successful conclusion of the project. The project planning function establishes a structure and a methodology for managing the information resources which encompass defining, structuring, and organizing project information, anticipating its flow, reviewing information quality, controlling its use and source, and providing a focal point for the project’s information policies.

Project Management Softwares

2005-06-07T20:25:00.000+08:00

Computers are the backbone of today’s information systems which form an integral part of project management. Computers are in essence data and information processors. If properly applied and managed they can greatly enhance productivity and improve quality, providing company with a competitive advantage.

In many construction companies, most management resides in the hands of those who graduated decades ago with little exposure, if any, to computer technology. Such individuals are faced with the difficulties of understanding the value and use of computers in the daily project life.

At another level, decentralization of information technology boosted productivity of those armed with proper knowledge in their fields and in the field of computing. Proper applications of remote computing make it possible to solve problems hundreds or even thousands of miles away from the project site without any loss of details or input from the project management personnel. Advance data collection techniques provide better control on cost, time, and quality as well as future estimates. Scheduling exercises of CPM or precedence take very little time to process once the schedule is set. Estimating becomes more reliable with proper use of software that facilitates reuse of unit costs and package or work assemblies.

A large number of procedures and methods have been developed to enhance the application of project management to a vast range of industrial and administrative functions. This rapid spreading of project management is largely due to the availability of computer software packages that make it possible to quickly implement project management techniques.

Computer programs for project planning and control have been available for a long time. A software package must be able to meet the needs of a project. There are numerous commercial software packages available. Although most project management software programs can run on the basic PC computer system, users of programs with graphical user interfaces often require a more powerful system.

Some of the project management softwares include: Microsoft Project, Artemis Project, Primavera, Suretrak Project Scheduler, Open Plan, Spreadsheets, Word processing softwares, & Etc, Etc.

Computer- processing applications in construction industry are becoming more and more common as many companies have realized the benefits inherent in such products. In the highly competitive construction field, the need to reduce costs and increase speed of delivery is paramount.

Computer applications, which have been used in the industries, may be broadly classified into four major categories [David Cleland, 1999]:

Administrative softwares
Engineering & design softwares
Project management & control, and
Plant and equipment control.

With the speedy growth and development in technologies and the continuous availability of development tools, this may allow for the creation of modules or building blocks for systems which allow rapid development of individual, functional systems around a common data structure.

The cost of integrated project control system software currently available is relatively high, which preclude most small businesses from acquiring these programmes. Alternatively, small corporations will need to develop their system using spreadsheet and word processors, but the reliability and accuracy may be improper and unrealistic.

Unfortunately, these applications are mainly isolated tools that lack comprehensive computer-aided project management system capable of being integrated with the project management functions within the various functional departments of an organization.

According to the research of Ken Gregson (2001), many organizations face the problem of island-development of information system. Their information system may be individually very good but they have been developed in isolation of one another and thus there is no added value arising from the interaction of the various systems. “People use different information to take different decisions – and then is surprised when the decisions do not relate to one another… individual systems should be components of a wider system. The overall planning activity needs to establish where these sub-systems interact, where they need to overlap, where and how they need to communicate and so on especially where they need to share data”, says Gregson.

The Internet is changing how project team members work together on a project, which usually comprises a complex process of collaboration, co-ordination and communication. The Internet is playing a crucial role in ensuring greater efficiency and productivity. As professor Thomas W. Malone of MIT Sloan School of Management wrote: “The revolution under way today will be driven not by changes in production, but by changes in co-ordination”. The Internet enables project teams to connect to an integrated environment that bridges geographical locations, time zones and project domains. Virtual teams can collaborate productively at any time, from anywhere [IcFox, 2001].

Using the Internet platform for project collaboration will represent a new paradigm for the construction industry in the coming years. According to IcFox (2001), by the year 2004, it is expected that construction companies will spend up to US$1 billion (RM3.8 billion) on hosted and project collaboration softwares. In is imperative for construction companies to enhance efficiency and profitability by improving their tools and methodology to enable quantum leap improvement with lower cost.

Computer should not be used to replace traditional decision-making processes. The computer should be used only as a tool to facilitate the implementation of validated techniques. The primary value of the computer is the speed at which it will perform the quantitative analysis needed in developing schedules and generating a variety of outputs and reports.

Project managers therefore need to be aware of available and emerging technologies. Together, these lead to a development of an information strategy, which itself give rise to the development of integrated and compatible systems.

Construction Project Reporting System

2005-06-07T20:20:00.000+08:00

All companies are required to have an integrated information system which includes estimating, job costing, accounting, payroll, and scheduling. A management information system is integrated by means of a cost code of accounts.

The features of a progress reporting system are:

Work breakdown structure
Physical percentage complete
Planned and actual duration
Earned Value and project cost updates
Status report and forecast report
Estimate at completion and Estimate to completion
Manpower availability, utilization and productivity report
Material procurement and distribution
Plant and machinery availability, productivity and usage
Financial summary, Progress payment, and project cashflow
Project technical documents report
Request for further information matrix
Procurement status report
Report Summary

Project accounting system include:

Accounts payable & receivables
Balance sheet
Profit and Loss Statement
Financial Ratios
Purchase & expenditure register
Contract costs
General ledger
Purchase order
Project cost detail and summary
Project Cash flow Statement

Project reporting system must fully integrate the following: a Cost System, Material Tracking System, and the Scheduling System.

A project Cost System must interface with the organizational's Accounting Systems, which shall include, cost of material, labor, equipment and machineries (and project overhead cost). The objective of a Cost System is to track and forecast costs for comparison against budget. Apart from the Accounting System integration, it is necessary to also have a Material Management System which will track the materials from the requisition stage through to surplus disposal stage. The Scheduling System requires several levels of reporting to meet the need of the management hierarchy and therefore should be capable of the “roll-up” techniques. A scheduling system must be capable of scheduling all the activities, identify critical activities, estimate the resources required and include resource leveling, progress updating and tracking, and be produced graphically.

Reporting and feedback must be accurate and timely if it is to be effective for control purpose. Feedback must occur to the project team as well as management level. Management level reporting, that is for owners, contractors and project management teams, must provide statements of accomplishments versus planned cost and schedule objectives, forecast final costs and completion period. It should also review current and potential problems and indicates action taken to overcome the effects of the problems.

Weekly or monthly meetings are held to assess the progress of work. The review meetings are aimed at translating latest work status and critical problems into specific action plan. Weekly or bi-weekly (perhaps monthly) reports with information on the actual and ‘forecast at/to completion’, and the quantities of workdone serve as the agenda for the review meetings. By analyzing the actual manpower, material distribution, and equipment usage, the allocation and availability of resources can be adjusted.

BUSINESS MANAGEMENT - THE MALAYSIAN PERSPECTIVE

2005-06-06T17:10:00.000+08:00

During the 1990s, the Malaysian economy had charted an average growth of 12%, in tandem with the country’s strong economic growth, which at one time exceeded 8% per annum. The economic exuberance was however reversed in 1998 due to a widespread East-Asian economic meltdown. The economic crisis had waned investors’ confidence. Capability had outstripped capacity. Liquidity has become drier and how the industries are able to survive in this uncertain climate is unpredictable.

In those good times, many companies were expanding at such a fast pace. Excessive risks are hastily justified by excessive returns. Poor utilization of resources is camouflaged with higher financial turnover. When business is booming, companies focus on sales achievements and high volumes of trade. In the frenzy mood, people are no longer sensitive to increased operating costs and wastages. Productivity and efficiency drops drastically, but these weaknesses were obscured by higher sales achieved.

In times of boom, CEO’s and their senior managers often have a euphoria regarding their business success. They get carried away and are often obsessed with issues regarding corporate images and their images. They start by diversifying their business beyond their core competencies; splashing massive amount of money on elaborated renovations and many even build new buildings for their corporate headquarters so as to look successful and great. They make financial commitments in fixed assets without much considerations and proper analysis on those investments, which ultimately tied the company in massive financial obligations and thus put the company in high financial distress. Their overhead expenses were growing extensively much faster than their sales performance and capacity. Suddenly, the crisis came, or shall I say, it came at the wrong (right) time.

The East Asian Economic Crisis had served an unforgettable lesson to Corporate Malaysia, particularly on the inconsiderate loading on the market capacity, overstretching the market capacity beyond its means just for quick short-term gains, adding fuel to the already bad situation.

When the economy was thriving, there were increased buying powers, pushing demands above its usual line. Due to the intense competition and the obsession for rapid growth over a short span of time, companies often undercut competitors in pricing to win more business. Many of these companies choose to compete on price alone rather than on quality of product and service. The tragic part about this approach is that some of these companies do not even know their actual costs or have underestimated their costs. The main fault lies in the increased costs due to inefficiencies, lack of knowledge and competencies and the inflationary costs of materials or labor. Many companies do not carry out any proper financial analysis such as the internal rate of return and net present value. The risk of financial exposure is one key element that finally broke those companies. These companies get more businesses, but also make more losses.

The 1998 Economic Crisis had cause an abrupt loss of global demand which compounded the fundamental problem of overcapacity that already exists worldwide. The era of over investment and the economic expansionist policy currently adopted by China had produced far too much capacity than the global base of consumption can possibly absorb. This will be the harsh and inescapable reality the global enterprises will have to face.

There are tremendous pressures for management today to apply their resources efficiently and in an effective way in order to survive in the current competitive business environment. Traditional sources of profitability are drying up, as quality and high productivity are increasingly becoming prerequisites of doing business rather than providers of competitive advantage. Competitive advantage will be the product of innovation in addressing the needs and desires of a demanding customer base notable for its constantly changing preferences. Innovation is a requisite in every industry as the competition to capitalize on shifting profit zones heats up and the traditional cachet accruing to market share evaporates.

Global and even local competition are putting tremendous pressures on organizations to seek cost reduction, asset restructuring, business process reengineering, business refocusing, quality awareness and to use modern & faster technological processes to improve the productivity and efficiencies of workers. Organization thus have to groom or to procure a new breed of managers who are capable to manage employees and at the same time, create corporations that are both risk-taking and innovative.

As globalization intensifies and technology grows by leaps and bounds, competition in the marketplace has also escalates. As a result, there is a pressing need to streamline, restructure and “right size” organizations. One of the worst of all fads and formulas to be implemented by management is the great panacea called “downsizing” or “rightsizing”. Executives desperate to show some actions in the face of poor results have determined that quick and dramatic actions required to save the bottom line (and to save their job). What is obviously amiss is that the bottom line can be renewed through rapid expenses reduction but not real productivity gains. The people that were retrenched were those who were getting things done and those not affected by the downsizing process were management cronies and co-culprits who help suck dry the companies’ coffers. Unless the nature of the work itself is changed, simply removing people does nothing except to worsen productivity.

Management guru Peter Drucker says, “We are seeing way too many amputations before the diagnosis”. The problem is that the productivity of most organizations immediately plummets upon that action. When a downsizing (often massive firing of people) is announced and implementation begun, productivity plummets because no one knows who will be the next person to be chopped. These cutbacks seldom focus on solely poor performers (as they are usually cronies of top management). The best employees will strike quickly and will be seized by competitors but the mediocre will remain. The contract of loyalty has been broken. The company no longer deserves “loyalty, sacrifices and commitment”.

Downsizing has permitted weak management to escape the consequences of its own incompetence at the expense of the blames, hardworking and performing workers. It is important that management understands that any gains to the bottom line made through expenses reductions, which are not accompanied by revenue increases will contribute towards the organizational downfall.

As declared by Peter Drucker, “no century in human history has experienced so much social transformations and such radical changes as the 21st. Century.” ‘CHANGE’ is threatening. There is no right way and there is no learning without mistakes. There are stages to transformation. Although an organization may skip over one, inevitably it realizes it must retrace its steps to cover the missing ground.

Everyone must accept the premise that fundamental change is necessary. The old way of doing business is no longer an alternative. Everyone must be aware of the situation everyone is trying to do something – often anything – for survival.

No society in history has faced these challenges. But equally new are the opportunities of the knowledge society. Access to the acquisition of knowledge is by learning, which will become the tool available to acquire the skills, technologies and knowledge. The knowledge society will inevitably become far more competitive. Knowledge has become the key resources – for a nation’s economic strength as well as its military strength. Knowledge is not tied to any country and it is portable. It can be created everywhere, fast and cheap. But knowledge is constantly changing. Knowledge always makes itself obsolete within a short period of time. For this reason, the acquisition of knowledge through learning can no longer stop at any age. “Life-long learning” will increasingly be a requirement for any knowledge worker.

In a rapidly changing business world, nothing stays constant even a short while. The worlds around us have changed fundamentally and that attitudes to the cost as well as the benefits of industrial activities and economic growth had undergone a profound transformation. The underlying causes which reflect turbulence in the economic, technological, political and social environments, ‘Triggers for Change’. There are so many external factors that can suddenly present themselves and make a company less competitive or drive a firm out of business if they do not adapt and respond to the changes. Companies that are merely focusing on cost cutting without doing anything new or innovative to win new business will achieve their self-fulfilling prophecy of reduction and diminishing into extinction. Abraham Lincoln has this to say about change: “the dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty, and we must think anew and act anew. We must disenthrall ourselves”.

In practice, a very severe recession or a collapse in property value may give rise to radical cost-cutting programmes, involving plant closures and redundancies. Top management spends a great deal of time and energy ‘Fire-Fighting’, as they develop tactical response to these short-term shifts. Unfortunately, this distracts them from paying attention to the underlying trends which in the long run may prove a much more serious threat to the organizational existence. The longer-term changes will certainly result in the need to revise the organization’s strategic thinking and in consequence call for more fundamental changes in the organizational policies and practices. During a severe economic downturn, the sheer need to survive a crisis may mean that actions are taken which are inconsistent with the organizational strategy.

Technology and knowledge are now the key factors of production. With increased mobility of information and the global workforce, knowledge and expertise can be transported instantaneously around the world. Any advantage gained by one company can be eliminated by competitive improvements overnight. The only comparative advantage will be the process of innovation where firms combined market and technological know-how with the creative talents of knowledge workers to solve a constant stream of competitive problems, and its ability to derive value from information.

The challenge facing us is how to leverage on technology to gain a competitive advantage. Organizations will need to adopt a mental model to rethink their notions of where value can be created and how they can capture that value. Successful knowledge management applies a set of approaches to organizational knowledge, including its creation, collection, codification, personalization and dissemination, which will lead to achievement of corporate goals and objectives.

The most successful corporations of the 1990’s will be something called the Learning Organization. According to Arie De Geus of the Royal Dutch / Shell, he says that “The ability to learn faster than your competitors may be the only sustainable competitive advantage”.

Businesses that had survived the economic recession in 1998 must view the development of a business and its financial stability as vital issues. Businesses cannot afford to ignore the need to think ahead and make a careful and regular assessment of all aspects of its performance, its ability to be innovative and creative, and its ability to learn and acquire new knowledge, and particularly its competitive strategy and its competitive advantage of their products or services.

Long-term commitment to new learning and new philosophy is required of any organization that seeks transformation. Best efforts and hard work will not suffice, nor new machinery, computers, automation, gadgets. There is no substitute for competencies. It is evident that in this competitive world, organizations and countries as a whole must achieve recognition from customers about their top quality activities at all times in order to conduct business successfully.

Today, Malaysian organizations and industries have to go further up the value added chain, producing more technological advance products and services to meet the new challenges. The focus must always be value-added production chain. Low value-added products after a period of cyclical upturn result in low prices, and low margin of profit. To be able to achieve the desired results, the drive must be market led.

Every country, every individual and every business have to take into serious consideration its competitive standing in the world economy and the competitiveness of its knowledge competencies. In order to sustain the long-term growth, industries have to be innovative, far-sighted, competitive, focused and fast to win in the ever-challenging market.

Industry players should also possess strong business acumen, continually improving their competitive advantage and being able to adapt their business to the ever-changing market needs. They have to ensure that their products would have to meet and possibly exceed the desired quality, delivered on time, and within the cost budgeted and most of all, satisfying the needs of the customers and ultimately bring in the desired profit which is the fundamental of why the business organization exist.

PMBOK 3

2005-01-02T14:05:00.000+08:00

PMBOK3

PMBOK GUIDE EDITION 3

2004-12-31T15:48:00.000+08:00

PMI had release their third edition guide book. It took them 2 1/2 years to finally complete it and got it published and delivered to PMI members.

For those who are going for their PMP certification after October 2005, they will have to master the new guidebook elements.

There are many changes made as compared to the 2000 Edition. Changes to the standard affect the structure, content and language of the PMBOK Guide. While the Knowledge Areas remained as nine, seven new processes were added and two previous processes were deleted. The new processes are:

Develop Project Charter (Section 4.1)
Develop Preliminary Scope Statement (Section 4.2)
Monitor and Control Project Work (Section 4.5)
Close project (Section 4.7)
Create WBS (Section 5.3)
Activity Resource Estimating (Section 6.3), &
Manage project team (Section 9.4).

In addition, PMI renamed 13 Processes, presumably for greater clarity. I am not sure if members felt the same.

Going through all the Chapters in the new PMBOK, I gather, many of those who are going for their certifications after October may feel the text structure tougher than previous version.

Although, the chapters and processes may be new, but actually, they are not. What had been added was basically an expansion of the write up and segregating them into new processes to provide clarity.

Personally, I suggest that those who wants to get their certification may consider to do it before October 2005 which will still be based on the PMBOK 2000 Edition, which to me, is much simpler, easier to understand and apply and readable to non-Americans.

From my own analysis, I would prefer the 2000 Edition although the new Edition provides more detailed information. To me, those information are necessary, but unfortunately are expressed in a language to cater for generic project management industries. In fact, the language is so "American" and it will take those who are weak in the American English and its Jingo to have insights to its intended meaning and expression.

The Project Integration Management Knowledge Area are much better than the previous. It has more detailed discourse and provides an extensive description of integration from the Project Management Process groups perspective. This is an area I felt was worth all the efforts taken by PMI.

IN Project Scope Management, Project Initiation was rewritten and moved to Project Integration Management. I would have thought that it was more appropriate to add a new chapter for Project Initiation Management as the subject matter and its various processes are extensive in real life and is thus not appropriate to be only a small sub-section of Project Integration Management. In fact, Initiation could not be considered as a whole process within Integration as only after the project award and project charter would integration to the 9-knowledge areas and the processes group be effectively propounded. This, I hope PMI would reconsider. For example, in the construction industry, the contractors would be sourcing for projects, tendering for projects, getting information such as feasibility study, market study, financial analysis and potential buyers' background information - all these activities are presumably within the Project Initiation Management. Then, when they were awarded the project, a project charter will then be forwarded to the project manager appointed, to authorize him to use organizational resources to organize and implement the project.

With the mandate, the project manager would then need to, first get the full contract documents (which he may not get them all), visit the project site (assuming he was not involved during the tender stage; such as the cases in Malaysia), and begin the Scope Planning exercise. Unfortunately, project charter in construction projects are mostly informal, unwritten, largely word of mouth from the project sponsor. The project manager will have to assume his authority (based on his past working experience with his organization, of which PMI now call it "Organization Process Assets and based on the "Enterprise Environmental Factors" to begin the planning process. Due to a lack of structured framework in scope planning, project managers will have little knowledge of the organizational resources that will be made available to him and what are the constraints he would be facing, such as - What would be the financial outlay & amount of financial working capital allocated for the project, how would be the appointment of sub-contractors (many of whom will be existing sub-contractors who are well entrenched into the system of cronyism and nepotism), what are the tolerance and thresholds levels in areas such as risk management planning, scheduling (what resources will be available if the sub-contractors have yet to be appointed and the Nominated Sub-contractors are unknown) and cost management (is it top-down budgeting: "Do it and complete the project at $xxx,xxx no matter what)?

Project Time Management would surely ranked as one of the best chapters in the PMBOK as they are clear, concise and pragmatic. The only weak area here is the lack of information as to critical path methodology and Monte Carlo Simulations which are worded in the tools and technique but with little information to readers. The reader at such, will need to read up more books to explore the usage of such tools, the interactions and integrations of these tools into the schedule, cost and risk management system. Tho' textbooks may provide the knowledge exploration, somehow, it is written in an academic language and contextual form that makes non-academic practitioners difficult to understand.

Project Quality Management chapters are almost identical to previous version. This is the Knowledge Area which I felt is too simplified and lack depth. The chapter maintain the 3-major processes, that is, Quality Planning, Perform Quality Assurance and Perform Quality Control. Personally, I would have it expanded into 5-Major Processes: Quality Management Planning, Quality Assurance Planning, Perform Quality Monitoring and Assurance, Perform Quality Control and Quality Audit.

The main problem in quality management is that the project quality plan is written in a language and documented in such manner that only a few of the project team members can understand. The performers of project activities are largely skilled and unskilled workers who may not be able to read those documents (worse, if they are not given one). At such, it is necessary to translate those quality plan into systematic action plan consisting basically flow charts and graphics, of which the workers will be able to understand and apply. This step, I called it "Quality Assurance Planning", which has not being practiced in the construction industry (probably, this step may not be necessary for IT Industry as the team players are trained in their own project language).

Project Risk Management and Project Procurement Management are similar to the previous edition, which I believe should have provide more indepth knowledge of the tools and techniques to be used. There were some graphics and metrics shown in the guidebook which are not user friendly. This is largely due to the fact that PMBOK Guide is generic, and at such, not specific industry friendly. For example, in Project Risk Management, the useful tool is Monte Carlo Simulation and there isn't any information and details as to how that tool can be used and applied during the risk quantification process.

Overall, with due respect to PMI, I would prefer the PMBOK 2000.

2004-05-18T02:29:00.000+08:00

Globalization & Challenges of Project Management

“Globalization refers to all those processes by which people of the world are incorporated into a single world society, global society” [Albrow, Martin. 1990. Introduction: Globalization, Knowledge And Society. London: Sage].

Globalization, according to Robertson is “ the crystallization of the entire world as a single place. Globalization is the compression of the world as well as the intensification of consciousness of the world as a whole” [Robertson, Ronald. 1990. mapping The Global Condition: Globalization As The Central Concept. Theory, Culture And Society 7].

During the period between the 1980’s and the 1990’s, the pace of business in Malaysia and other East Asian countries were fast and furious. The rate of growth that companies could achieve was astonishing and seems “ miraculous”. During these boom times (1989 – 1997), many middle size Malaysian companies have grown into large conglomerates because the owners have seized every opportunities available simply because the opportunities were available and they were tempted to bullishly inflate their business size, even thought the business opportunities may not match their fields of expertise. Many entrepreneurs simply jump into business every each way as opportunities comes abegging and not much thought was placed on the overall synergies of the business. Many of these conglomerates have grown exceptionally big, grossly diversified and unfocused, and as a result, they were too poorly managed, lack structure, lack transparency, and are devoid of internal checks and accountability. The structures of these conglomerates are at best, chaotic.

In those good times, we often read of those companies expanding at an accelerated and uncontrolled pace. These companies took excessive risks but they were justified by excessive returns during those period. Poor utilization of resources is camouflaged with high rates of turnover. When business is booming, companies focus on sales volumes of trade. In those frenzy mood, management were no longer sensitive to increased operating costs, expenses and wastages. Productivity and efficiency drops drastically, but this weaknesses are obscured by higher sales volume. In such times of boom, CEO’s and senior management often develop a euphoria regarding their business success and they get carried away and were obsessed with issues regarding corporate images, and personal images. They start by opening more branches; elaborated renovations and many even purchase or build new buildings for their headquarters. They make commitments in fixed assets, which tie the company in great financial obligations for which they would have to service the huge debts in the next few decades. Their overhead expenses are growing faster than their sales performance and profits. Suddenly in 1997, there was the sound of crash landing, the East Asian economic crisis, which caught every enterpreneur by surprise. By then it was too late to back track as they had jump into the deep pit, an abyss.

What really contributed to the financial crisis in the East Asian economies was indeed due to the bubble economy, extremely high growth rate caused by the Governments push for greater privatisation through external borrowings which was unsustainable, and it was further aggravated by the liberalization and globalization of economies.

No century in human history has experienced so much social transformations and such radical changes as the 20th. Century. CHANGE is threatening. There is no right way and there is no learning without mistakes. There are stages to transformation. Although an organization may skip over one, inevitably it realizes it must retrace its steps to cover the missing ground. Everyone must accept the premise that fundamental change is necessary.

"In a rapidly changing business world, nothing stays constant even a short while. The worlds around us have changed fundamentally and that attitudes to the cost as well as the benefits of business activities and economic growth had undergone a profound transformation. The underlying causes which reflect turbulence in the economic, technological, political and social environments, ‘Triggers For Change’"(Peter Drucker). There are so many external factors that can suddenly present themselves and make a company less competitive or drive a firm out of business if they do not adapt and respond to the changes. Companies that are merely focusing on cost cutting without doing anything new or innovative to win new business will achieve their self-fulfilling prophecy of reduction and diminishing themselve into extinction. According to Abraham Lincoln, “the dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty, and we must think anew and act anew. We must disenthrall ourselves”.

From the crisis, we have learned that the old way of doing business is no longer an alternative. Everyone must be aware of the situation everyone is trying to do something – often anything – for survival. No society in history has faced these challenges. But equally new are the opportunities of the knowledge society. Access to the acquisition of knowledge is by learning, which will become the tool available to acquire the skills, technologies and knowledge. The knowledge society will inevitably become far more competitive. Knowledge has become the key resources – for a nation’s economic strength as well as its military strength. Knowledge is not tied to any country and it is portable. It can be created everywhere, fast and cheap. But knowledge is constantly changing. Knowledge always makes itself obsolete within a short period of time. For this reason, the acquisition of knowledge through learning can no longer stop at any age. “Life-long learning” will increasingly be a requirement for any knowledge worker.

Every country, every individual and every business have to take into serious consideration its competitive standing in the world economy and the competitiveness of its knowledge competencies.

Project management is ideally positioned to meet many of the challenges confronting global business enterprises. The compression of the product life cycle and the project life cycle is perhaps the most prodigious force driving changes in the process of managing projects. Due to the intensified global competitiveness, there is a need for sustained innovation and process improvement of which these activities are being represented in a projects environment. As projects become the focal point of business, organizations will naturally adapt and change to support more effective project management.

Project management philosophy and techniques are based on the ideas of performing to maximum potential within the constraints of limited resources. Thus, it is obvious that project management will offer the logical and attractive method for increasing profitability in the business. At such, the rise of project management as a profession is likely to be a key element to the continued development and industrial expansion in Malaysia and around the world.

According to Clifford Gray (Project Management – The Managerial Process, McGraw Hill, 2000), "the organizational culture of most successful firms of the future will be one that support flexibility, places a high importance on projects, and maintains a sustained effort to learn and improve processes." The challenge is to adopt and commit a culture that supports continuous improvement, renewal, and organizational learning.

Project Quality Management

2004-05-17T02:20:00.000+08:00

The advent of the globalization of the market economy has been described as “the customer’s victory.”(Dupuy, 1999) We have moved from an economy where products were scarce to one where products are plentiful and customers have just too many choices. This has led to the need to develop our capacity to listen and to learn, to become learning organizations. “Learning and listening (in our organizations) is a set of behaviors, of arrangements, of co-operative efforts…” (Dupuy, 1999) To ensure success, organizations need to embrace a single quality philosophy, its management needs to lead and embrace quality, exudes quality leadership, provides systems and structures needed to suit quality objectives, provide training to employees and empower them in quality initiatives, and ensures the existence of a quality values system that are developed into a living culture within the organization.

Quality is defined as “The totality of features & characteristics of a product or services that bears in its ability to satisfy explicit & implicit needs.” (BS 4778; ISO 8402 Standards). Dr. JM Juran defines quality as, “The fitness for purpose,” and Philip Crosby defines it as, “Conformance to requirement.”

According to quality guru Dr. Armand V Feigenbaun, the author of ‘Total Quality Control’, “Quality is the total composite product and service characteristics of marketing, engineering, manufacture and maintenance through which the product and service in use will meet the expectations of the customer.” To the industry, "quality" is an essential component of the organizational approach and philosophy to management. Quality system management underpins the product and the marketing programmes to provide goods or services that satisfies the customers, and at the same time provides shareholders return on investment.

James Houghton, the Chairman of Corning Glass described quality as "...knowing what needs to be done, having the tools to do it right, then doing it right - first time."

The guiding philosophy for quality is performance improvement and continuous improvement. The key to quality is its people and the processes. The primary barrier to success is the appalling stupidity of most managers about people and their lack of competency in handling processes that causes wastages, scraps, reworks and warranty claims. Central to the quality philosophy is the people that function within social, economic and organizational systems and that, with a well-design processes, the people within can achieve the results envisaged. Programs for improvement that fail to take those interactive systems into consideration, in planning and in execution, are doomed to failure or to trivial results. Quality is impossible without well trained people and a good understanding of the processes that bring about results.

A commitment to quality management cannot be expressed through charades, which encourages form over substance, and mean nothing. Quality management cannot be reduced to recursively trivial plan, which are relevant only to the performing organization, but irrelevant to the real customers; the ultimate reason why the company survives, and why the organization and its people exist.

All efforts at performance improvement, for purposes of quality, must be defined in terms of the customers. Efforts labeled quality improvement that cannot be linked to the ultimate customers and end-users, are 'much ado about nothing' and are, at best, trivial imitations of quality management. In the service industry, the processes of service delivery must be designed into the service delivery system so that the results are achieved the first time.

Quality improvement mythology holds that efforts at performance improvement, aimed at quality, are doomed to failure, unless upper management is behind all the efforts. According to Dr. Joseph M. Juran, in his assessment, 80% of quality problems are caused by upper management. Good intentions and sheer determination are not a guarantee of success in implementing total quality management system in the company. Total Quality Management System and its success cannot just come from raw enthusiasm of the participants, which is its management and workers.

To be successful, a Quality Management System must aim to improve product quality within design, manufacturing and customer service. It must also include the suppliers, vendors’ distributors and retailers. We should expect everyone with whom we do business to implement a company wide quality control programme which emphasizes continuous improvement of quality and productivity. Such a programme should demonstrate a management philosophy that reflects:

i. Top management commitment to quality as a business strategy

ii. Management’s involvement and providing a work system and an environments which will result in promoting employee involvement in both quality and productivity

iii. Teamwork approaches to problem solving and process control using statistical methods.

No longer can successful organizations focus inward on their own capabilities and processes; they must understand the complex relationship they have with their stakeholders and co-operate with them to develop new products and continuously improve their products and services according to changing demands and technological potential. Understanding Customers’ need include the gathering of service quality information to identify what is working well and what isn’t, and to increase our knowledge of customer requirements. Assessment of current processes and our ability to meet customers’ expectations will also be needed if these new measures are going to change the quality of our service capabilities.

Once we have gained an understanding of customer needs, we will then need to listen to the voices of our internal customers – our employees. If caring to succeed with customers is going to permeate our very culture, we need to provide organizational systems that engage our people in planning how to meet these expectations, focusing on performance and knowing how to measure it, and help employees develop the new knowledge and skills it will take to be successful. The design and implementation of customer-focused, strategic planning processes that involve staff in learning and caring about customer needs, current dissatisfactions with the system, and future priorities, will be the key to increasing employees’ commitment to engage in challenging efforts that can have the most important strategic impact on outcomes for customers.

To succeed in this new culture, management and its people must be guided by their organization’s infrastructure and support systems to focus on continuous quality improvement. If systems are not in place to support a culture, employees will not be able, willing, and committed to transform their work efforts as needed by changing customer demands. As we begin gaining the skills to assess needs, listen to, and co-operate with our customers in designing our services and products according to their constantly changing needs and expectations, we need to learn how to re-engineer and improve processes that we use to produce desired results. Let’s become a learning organization - experimenting, seeking new ways and new methodologies, and designing our organizational systems that involve, engage, develop, and increase the commitment of our people, our partners and our customers to design the future we want and need.

Financial Management & Project Cost Management

2004-05-16T16:37:00.000+08:00

Financial management is instrumental in identifying the need, determining the timing, and negotiating with potential sources of outside capital. Decisions to whether to engage in short-term or long-term borrowing are dependent on cash flow expectations, capital structure determination, and the cost of capital employed. To discharge this function effectively, managers must maintain close contact with financial markets and be sensitive to macroeconomic development that may influence the availability and cost of capital to be acquired.

Finance is also the focal point for information requested by creditors, lenders, and stockholders regarding the financial posture of the organization. Accuracy, timeliness, and tactfulness are the primary characteristics required for these activities.

The role of finance, particularly in the areas of scorekeeping and capital utilization are all-pervasive and impacts on the managerial discretion of non-finance activities. Therefore, all managers must develop an understanding of the objectives, tools, and functions of finance.

A matter of immediate concern for all managers is an appreciation of the purpose, underlying assumptions, and interpretation of the budgeting process. The ability to present a case for a budget and to discuss it, and to provide the data required for top management’s approval is a prerequisite for organizational survival. Any major allocation or request for funds will require forecast of benefits.

Effective financial management must take into account the needs and concerns of those who supply capital to the organization – lenders and stockholders. The observe is also true: effective lending and investment requires a thorough understanding of the tools and practices of financial management. In assessing the desirability of a loan to a potential borrower, or the injection of capital by stockholders, the funders must assure themselves of the viability and financial potential of the enterprise or a project. Analysis of past financial statements, prevailing financial plans, and control procedures will provide the much relevant information. By understanding the financial language, tools and procedures, investors can place themselves in the decision and information framework of corporate management, thereby gaining a better appreciation of the risks their capital is exposed to and the returns they may realize.

Financial Planning

Financial planning is a reasoned approach to allocating economic resources to maximize the satisfaction one gets from life. A financial plan or budget is a convenient decision-making tool, which is based on the fundamental economic principles of scarcity, choice and opportunity cost. In the absence of a financial plan, impulse buying may make it difficult to "make ends meet" no matter the level of income.

It is important to realize that every purchase involves cost (opportunity cost). Maximizing satisfaction depends on an analysis of the costs and benefits of purchases. Equipped with an understanding of the financial planning process, students are better able to adapt to ever-changing economic conditions.

One of the key functions of financial management is the allocation of existing resources with the expectation of reaping benefits in the future. The relationships between investment and returns are asymmetrical. While the costs of existing resources are expended with certainty, the benefits anticipated from the investment are not guaranteed. Thus returns may deviate from expectations and such deviation serves as the definition of uncertainty or risk.

The most carefully planned programs face great uncertainties as to the potential outcome of the course of events envisioned during the investment phase. Each of the events would have implications on the cash flow and profit. Planned benefits are uncertain and may deviate either direction from those assumed initially. Since risk cannot be avoided, it must be treated explicitly in the financial planning process. This can be accomplished by stipulating a range of likely outcomes, varying these stipulations, and observing the changes that occur in expected benefits as the assumptions are altered.

With the development of mathematical programming techniques and the availability of computers, econometric forecasting techniques have gained considerable acceptance. These forecast predict the stability of certain economic relationships and the ability to capture these relationships in mathematical terms. Before the forecast can be generated, certain assumptions regarding political events, tax legislature, demographic factors, technological developments, and consumer behaviors must be incorporated into the forecast, explicitly or implicitly. The cost of developing an econometric forecast is relatively high which preclude most small businesses from developing their own capability in this area. Alternatively, small corporations may procure these programmes from external source, but the reliability and accuracy, and the assumptions incorporated into the system may be improper and unrealistic. another less sophisticated technique, which can be used for forecasting, is the judgmental forecast, displaying in quantitative terms (such as GDP, interest rate, employment data).

Once a sales forecast is presented, company support plans can then be developed. The financial plan will then translates all these support plans into monetary terms, identify the source of fundings, and present an approach for the raising of capital from external source, if so required.

Project Cost Management

Project Cost Management includes the processes required to ensure that the project is completed within the approved budget (PMBOK, PMI, 2000). The major processes are: Resource Planning, Cost Estimating, Cost Budgeting and Cost Control. Project Cost Management is primarily concerned with the cost of the resources needed to complete project activities.

The principle objectives of which profit-oriented business organization tend to pursue are wealth enhancement, maximization of profit, maximization of return on investment of shareholders and satisfying stakeholders. Though wealth enhancement may not be a perfect description of what businesses seek to achieve, it is almost certain that wealth is something which business cannot ignore. A particular business only has a certain amount of wealth (capital) and it will take only a limited number of “wrong” decisions to see the business collapse. Therefore, business needs decisions such that it would be worth more as a result of the decision. When valuing businesses, managers need to take into account future profitability, both long-term and short-term, and the risk attached with the investment

The important issue for the success of an organization is not to whom specific responsibilities have been assigned, but rather that these functions are addressed in a timely fashion and are handled effectively. The functions of finance should be handled in accordance with the goal and objectives of the organization. In a profit-oriented enterprise, this goal should be maximization of the wealth of the shareholders.

Cost is often measured in monetary terms. The success of projects is judged by the efficiency with which we achieve the project objectives and that efficiency is assessed by measuring against two constraints – Cost & Time. In assessing the project duration, the duration of individual activities and resource usage have been optimized and further reduction of project duration must increase the direct cost of the project due to overtime and uneconomic use of the plants and machineries.

Cost Estimates

Estimating is never simple. Project managers must recognize that time, cost and resource estimates must be accurate if project planning, scheduling, and controlling are to be effective. At the work package level, the person most familiar with the task should make estimates. The line supervisors who are responsible for getting the job done and who are experienced and familiar with the work should be asked to develop the estimates at this level. The advantage is that the line supervisors will be responsible to ensure that the work activities as estimated by them would be achievable.

There are two practical problems in estimating. First, you are simply too optimistic. It is human nature at the beginning of a new project to ignore the difficulties and assume best-case scenario - in producing your estimates (and using those of others) you must inject a little realism. In practice, you should also build-in a little slack to allow yourself some tolerance against mistakes. This is known as defensive scheduling.

Second, you will be under pressure from senior management to deliver quickly, especially if the project is being sold competitively or the project is fast track as specified within the terms and conditions of contract.

Historical estimates has some inherent danger because they assume the past represents the future and may miss uncertainties that are associated with the new task. Any time estimates should reflect efficient methods for the resources normally available. Estimating of time must consider if normal time is calendar days, working days, weekends, mandays and hours. Many schedules developed by project managers are over optimistic (or faulty) because they do not take into considerations public holidays and other non-working days. Therefore, in developing the schedule, project managers are advise to formulate the project calendar to take into consideration the possible non-working days and other risks associated with schedule (workers can be sick, take leave, or raining days). Unfortunately, padding carries a price. While increasing the allowed time will reduce schedule risk, we will also increase the possibility of an increase in the budgeted cost – this is the time/cost trade-off. The objective of all planning should be to develop a “realistic plan” and if padding is required, it must be done on a “task-by task” basis. There will always be some variation in working times, caused by external factors outside the control of the project team.

Several types of estimates are required as a project evolves. They are:
 Conceptual Estimates,
 Detailed Estimates and
 Definitive estimates.

Conceptual Estimates (preliminary estimates) are generally made in the early phases of a project, during the pre-tender stage. The estimates tell an owner whether a project is economically feasible.

Detailed Estimates, commonly called “quantity take-off” where quantities are then multiplied by selected unit costs, and the resulting sum represents the estimated direct cost of the facility. The addition of indirect costs – plant & equipments, overheads, profit, escalation costs and contingencies will develop the total estimated project cost. The contractor’s bid estimate is his foundation for a successful project. He must bid competitively to win a tender and yet make a profit.

Definitive Estimates are prepared after the project has achieved substantial progress and the major works has been more or less confirmed, and is unlikely to have further changes. These estimates will forecast the final project cost with little margin for error.

Cost Budgeting

Project Cost Budgeting involves allocating the project cost estimate to individual work items. A properly constructed budget must be capable of being baselined and used as the basis for performance measurement and control. It must reflect the way that resources are applied to achieve planned objectives over time. It must be structured in relation to the build-up of estimates, and to the collection of actuals. In converting an estimate to a control budget, two important differences should be considered. First, the organization and the categorization of costs suitable for preparing an estimate are often not compatible with realistic field cost control. Second, estimates must deal in averages, whereas tighter standards are sometimes desirable for control purpose.

In building the project budget we should consider providing certain buffer of extra money. Padding is a standard procedure in managing any project. There is no way that every risk can be fully calculated or anticipated. By assuming that the project might run over budget, we could have a cushion against unexpected incidents or cost overruns. As a project manager, you must have as much direct control of your budget as possible if you are going to be held accountable for the project outcome.

A properly constructed budget must be capable of being baselined and used as the basis for performance measurement and control. It must reflect the way that resources are applied to achieve planned objectives over time. It must be structured in relation to the build-up of estimates, and to the collection of actuals. The budget assumes special importance in project environments as the only basis against which to measure achievement.

Project operating budget is developed initially from the original project budget approved at the conceptual stage. Once the key stages of the project have been identified and the logic developed, the budget can be divided and apportioned to each stage. Operating budget is derived from the work breakdown structure, initially focused on the key stages of the plan. Cost for each key stages are assessed based on the level of details developed and identified at the time. As we layer the plan progressively, the operating budget for each key stage is developed. As the detailed budget for each key stage is derived, we must compare the total with the project budget and analyze the variance. Any negative deviations must be subject to close scrutiny and action planning to determine what action, if any, be taken to contain the situation. Operating budget may include costs divided into the following types: -

1. Capital Costs

 Usually associated with purchased items that can be depreciated.
 Capital costs can be determined with reasonable accuracy from tender and quotations and allowances made for inflationary effects.

2. Revenue Costs

Written off as running costs of the project, i.e. all except the people cost and contract.
The revenue costs are often derived by a rule of thumb based on factors such as length of the project and the number of people involved.

3. People Costs

Measured as time and converted to a charge rate for costing, often with normal working hour and overtime working rates. The people costs are attributed to the project in a variety of ways from zero through to accurate analysis; based on an individual’s actual cost plus an overhead charge to cover fixed costs of the organization.

4. Contract Costs

Costs derived from valid tenders and quotations that form the basis of an official order or contract. The contract costs are derived from tenders and quotations called for all external supplies. We must check the validity of all prices quoted and preferably request such prices to be given with sufficient validity to avoid having to rebid.

5. Contingencies or Reserve

Additional funding held separate to the main budget for unforeseen events and to cover the uncertainties in the original estimates. Project contingencies is a reserve set aside by management with strict controls to ensure additional monies can be injected into the budget when problem occurs.

Cost Control

Effective control of cost gives the opportunity to forestall inevitable cost escalation, foresee potential problems and take advantage of possible savings. Cost is best controlled at source and designed into the project, not inspected in after the event. This allows us to resolve problems before they occur and to respond quickly to those that do occur.

Project Cost Control includes monitoring cost performance, ensuring that only appropriate project changes are included in a revised cost baseline, and informing project stakeholders of authorized changes to the project that will affect costs. It must be remembered that cost, time and specification are inextricably linked. Most massive overspends on projects are caused by over-runs in time or unclear and ever changing specifications. Effective control of specification and time can make the cost control task much simpler.

Several tools and techniques assist in project cost control. There must be some change control system to define procedures for changing the cost baseline. Another tool for cost control is performance measurement. The Earned Value analysis is especially useful for cost control as it helps to determine what is causing the variance and to decide if the variance requires corrective action. Computerized tools such as project management software and spreadsheets are often used to track planned cost vs. actual costs and to forecast the effects of cost changes.

Pitfalls in Costing

Trevor L. Young listed some of the common pitfalls in costing the work, which include: -

1. Misrepresentation of the scope of work statement;
2. Poorly defined scope;
3. Lack of standards and specifications;
4. Poorly defined work schedules;
5. Omissions in the WBS;
6. Poor assessment of individual skills and work rates;
7. Ignoring cost escalations and inflation effects;
8. Avoidance – especially bought-out services leading to guessing.

Variations and Claims

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The term Variation is used to describe any difference between the circumstances and/or content of the contract works as carried out, compared with the content and/or circumstances under which the works are described in the contract documents as intended to have carried out. Any change shall entitles the contractor to an adjustment of the contract price. A change is implied by the actions or omissions of the contracting parties.

Usually, contract does have a clause empowering the contract administrator to issue instructions for change, and employers does have a right to make any change covered by the clause for which he is willing to pay and, if necessary, grant more time.

A sound understanding of why change occurs is important in relation to the circumstances leading to and impacts on time and cost. The starting point is to decide what precisely is the extent of the work, which the contractor has undertaken to perform under the original contract. The significance of change must be considered in relation to whether the effect of change is:

 Discrete to the change itself
 Has consequences beyond itself
 Requiring action to minimize its effect, whether there are choices available and which one is appropriate, and
 Who needs to know about it?

A starting point in consideration of whether there is a change is: “what is the necessary and implicit work which the contractor is required to do under the contract and upon what basis can that work be varied?”

“Variation” in the PAM 1998 Form contract covers five main areas. Clause 11.1(i) to (v) intend a tangible change in the works. Clause 11.1(vi) excludes any default and/or breach of contract by the contractor from being a variation. This clause relates to changes in the obligations or restrictions imposed by the employer in the contract with regards to matters connected with the manner the work is constructed. It sets out situations where the employer may affect the contractor’s activity under the contract on the project. Clause 11.2 of the PAM 1998 Form goes on to provide that no variation shall “vitiate the contract”. The purpose of the statement is to ensure that the ordering of substantial variations will not entitle the contractor to treat the contract as at an end and claim to be paid on a “quantum meruit” basis rather than in accordance with the contractual terms. It is only “the works” as described in the contract documents that may be altered or modified. The architect’s power does not extend to ordering additions or substitutions that would require the contractor to execute work clearly not contemplated by the contract.

Project Performance Reporting

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Information is a valuable resource. Every manager needs to know that he is acquiring, producing and using information wisely and effectively in support of the organization’s goals and objectives. Managing information requires the imposition of order, structure and discipline within a strategic direction. Information management is aided by the availability of technologies, methodologies, and development tools.

The availability of new and modern Technology has vastly increases our ability to access resources, both those we own and control and those outside of our own sphere of influence. As information management becomes more important every day, managers will need to ensure that people within the organization get the information they need to do their job effectively. Competitive advantage of organizations is very much governed by the effectiveness with which we manage these information resources.

The project management information system (PMIS) contains the intelligence essential to the effective planning, organizing, directing, and control of the project. All too often projects are characterized by too many data and not enough relevant information on where the project stands relative to its schedule, cost and technical performance objectives as well as the project’s strategic fit in the parent organization’s strategies.

Information is essential to the design and execution of decisions allocating resources in the management of a project. Decisions coming out of the planning and control of the project must be based on timely and relevant information. Project managers and his team members require information by which intelligent decisions can be made and executed effectively. Information flow is a critical consideration in the speed and eloquence with which the efficient and effective use of resources is carried out in meeting the purpose of the enterprise.

The objectives of an information system is to provide the basis to plan, monitor, integrate project evaluation, and to show the interrelationships among cost, schedule, and technical performance for the entire project and for the strategic direction of the organization. In addition, information should provide a prospective view to identify project problems before they occur, so that they can be avoided or their impact minimized. Information is also required by the project team to continuously monitor, evaluate, and control the resources used on the project. There is also a need by senior management to be kept informed of the status of the project. The hardest part of any management job is not having all the necessary relevant information, yet having the responsibility of making the ‘right decision’.

In the construction industry, it is important that project information is shared between the project stakeholders so as to promote trust, empathy, and more mature relationships amongst them. Sharing of project information is one of the more important dimensions of keeping the team members working together cohesively and concurrently in the utilization of the project resources. Such sharing also facilitates the building of networks with the stakeholders through continuous interpersonal contact and dialogue.

Information provides the intelligence for managing the project. Information must be processed so that decisions can be made and executed. Information is essential to promote understanding, establish project objectives and strategies, develop mechanisms for control, communicate status, forecast future performance and resources, and changes recognized. Information is needed to prepare and use the project plan, develop and use budgets, create and use schedules, and lead the project team to a successful conclusion of the project. The project planning function establishes a structure and a methodology for managing the information resources which encompass defining, structuring, and organizing project information, anticipating its flow, reviewing information quality, controlling its use and source, and providing a focal point for the project’s information policies.

All companies have an integrated information system which includes estimating, job costing, accounting, payroll, and scheduling. A management information system is integrated by means of a cost code of accounts.

A project cost system must interface with accounting systems and report cost of material, labor, equipment and machineries (including overhead cost). The objective of a cost system is to track and forecast costs for comparison against budget. A material management system tracks materials from the requisition stage through to surplus disposal stage. Scheduling require several levels of reporting to meet the needs of the management hierarchy and therefore should be capable of the “roll-up” techniques. A scheduling system must be capable of scheduling all the activities, identify critical activities, level resources, progress tracking, and be produced graphically.

Reporting and feedback must be accurate and timely if it is to be effective for control purpose. Feedback must occur to the project team as well as management level. Management level reporting, that is for owners, contractors and project management teams, must provide statements of accomplishments versus planned cost and schedule objectives, forecast final costs and completion period. It should also review current and potential problems and indicates action taken to overcome the effects of the problems.

Weekly or monthly meetings are held to assess the progress on work. The review meetings are aimed at translating latest work status and critical problems into specific action plan. Weekly or bi-weekly (perhaps monthly) reports with information on the actual and ‘forecast to complete’ quantities of work serve as the agenda for the review meetings. By analyzing the actual manpower, material distribution, and equipment usage, the allocation and availability of resources can be adjusted.

Computer programs for project planning and control have been available for a long time. A software package must be able to meet the needs of a project. There are numerous commercial software packages available. Although most project management software programs can run on the basic PC computer system, users of programs with graphical user interfaces often require a more powerful system.

Sub-Contracting & Nominated Sub-Contracts

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Most standard forms of contract contain provisions, which grant the employer the right to nominate sub-contractors for certain works or supplies. This usual procedure is for the architect to negotiate terms with the sub-contractor and on settlement of the terms of the sub-contract, the main contractor is directed to enter into the sub-contract with the selected sub-contractors. This was basically devised to afford the employer a means of controlling the quality of work covered by the sub-contract while at the same time ensuring that a competitive price is secured for the said works.

Considerable difficulties have been encountered with the system of nominated sub-contractors. Firstly, it has proven difficult to make main contractor accountable for the actions of the sub-contractors since it is often presumed that the main contractor has very little control over the sub-contractors’ work. The common standard forms apparently accept this rationale and frequently provide that in the event of delay on the part of nominated sub-contractor, the main contractor shall be given an extension of time; a situation which leaves the employer without any remedy for a breach on the part of the sub-contractor (see: Westminster City Council v J. Jarvis & Sons Ltd and Anor (1970) 1 All E.R. 943). The employer if further exposed to claims for delay if there is late nomination or if the original nomination have fallen out for same reason fails to renominate (see: North West Metropolitan Regional Hospital Board v T.A. Bickerton & Sons Ltd. (1970) 1 All E.R. 1039).

However, under the PAM 1998 Form, a contract may require the main contractor to be responsible for a nominated sub-contractor in such a manner as to reimburse the employer for any loss and expense arising out of a default on the part of the nominated sub-contractor.

The payment of nominated sub-contractors is effected by including the value of their works in a payment certificate issued to the main contractor. Since there is no privity of contract between the sub-contractor and the employer, the employer, in the absence of any provision in the main contract cannot elect to pay the sub-contractor direct (see: Milestone & Sons Ltd v Yates Brewery (1938) 2 All E.R. 439).

A number of recent cases concern the situation where an architect may have nominated a sub-contractor on certain terms, but the main contractor, instead purport to enter into the sub-contract on terms different from those on which the nomination was placed in the first place. If the sub-contractor thereupon proceed on the terms offered, the latter set of terms would apply in lieu (see: Modern Buildings wales Ltd v Limmer & Trinadad Co. Ltd (1975) 2 All E.R. 549; A. Davies & Co. (shopfitters) Ltd. V William Old Ltd (1969) 67 L.G.R. 395).

Sub-contracting work give rise to many problems, whether or not the sub-contractor involved is nominated or appointed by the main contractor. The basic principle is that the main contractor is responsible for the acts and defaults of his sub-contractors so far as the employer is concerned.

If the main contractor is sued by the employer in respect of alleged defects in workmanship, materials or goods and claims that these are the responsibility of a sub-contractor, nominated or otherwise, he can bring the sub-contractor concerned into the legal proceedings as a third party, claiming indemnity from the sub-contractor in respect of the changes which he may be ordered to pay the employer and for his own costs. The fact remains however, that if the third party proceedings, the sub-contractor disputes liability; it is the main contractor to prove the case against him. Once liability has been established (or admitted) then the amount of any compromised settlement is relevant evidence of the damages recoverable against the defaulting sub-contractor.

Construction Contracts

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A contract is an agreement between two or more persons (individuals, businesses, organizations or government agencies) to do, or to refrain from doing, a particular thing in exchange for something of value. Contracts generally can be written, using formal or informal terms, or entirely verbal. If one side fails to live up to his/her/its part of the bargain, there's a "breach" and certain remedies for solving the differences are available. The terms of the contract - the who, what, where, when, and how of the agreement - define the binding promises of each party to the contract. A contract requires an offer (example: tender, quotation or purchase order) to be made by one party and to be accepted by the other party. The acceptance must take place before the offer lapse or before it is withdrawn. If a period of validity is stated in the offer, it will lapse at the end of the validity period. The parties of a contract must have a capacity to contract, and the objects of the contract must be legal.

The tender submitted for a project represents the contractor’s offer to carry out the works and, therefore, on general principles, the tender must set out in very definitive and unambiguous terms the particulars of the contractor’s offer.

A contract is only brought into existence when the offer has been accepted unconditionally. If the offeree suggests any new terms and purports to accept the offer on those new terms, then, there is no acceptance, unless fully agreed and accepted by the offerer.

The Articles of Agreement forming the beginning of the contract document paves the way to the formal opening parts and recitals of the contract form and must be fully and properly completed. It comprises the date of the agreement, the names of the respective parties, the places of business or registered address, and a short description of the works to be completed with reference to the contract bills, drawings and specifications. It further introduces the employer, the contractor and the key personnel in the contract, specifies the scope of works, and the consideration payable and contains the operational definitions of the important terms and expressions used in the contract. The dates of commencement of work and completion will need to be filled.

The contracting parties are identified in the recitals of the contract form, which normally are the principle employer and the main contractor. The recitals are introductory to the operative clauses. The recitals include a brief description of the works to be constructed. They indicate the documents which are to be included as the contract documents. The recitals also state that the employer has caused drawings and bill of quantities “showing and describing the work to be done to be prepared by or under the direction of his named architect. They also state that a fully priced copy of the bills (contract bills) has been supplied by the contractor to the employer. The recital recognizes the standard procedure of examining the successful tenderer’s priced bills. This means that when the articles of agreement are executed, an employer (or his appointed agents) will have the priced bills in his possession

The law relating to construction contract stems from the general law of contract. All the elements of a simple contract must be present and the general rules of performance and discharge of contract apply to a construction contract.

Contracts generally can be written, using formal or informal terms, or entirely verbal. If one side fails to live up to his/her/its part of the bargain, there's a "breach" and certain remedies for solving the differences are available. The terms of the contract - who, what, where, when, and how of the agreement - define the binding promises of each party to the contract.

A contract requires an offer (example: tender, quotation or purchase order) to be made by one party and to be accepted by the other party. The acceptance must take place before the offer lapse or before it is withdrawn. If a period of validity is stated in the offer, it will lapse at the end of the validity period. The parties of a contract must have a capacity to contract, and the objects of the contract must be legal. For a contract to be valid, each side must have the capacity to enter into it. If the other side is to be held to the contract, you must give up something in exchange. This is called consideration. No side can have a free way out or the ability to obtain something of value without providing something in exchange. Money is the most common form of compensation, but it can also be property, giving up a right or valid claim, making a promise to do or not to do something, or anything of value.

When you ask someone to do something, or offer to see someone for a price, you are making an offer. An offer is the first step in forming a contract. The middle step is the other party's acceptance of the deal. The last step is performance -- where you each live up to your side of the bargain. Words, gestures, or actions can signal an offer to enter into a contract and an acceptance.

Key Elements of a binding contract

Competent Parties - For a contract to be valid, each side must have the capacity to enter into it. Most people and companies have sufficient legal competency. A drugged or mentally impaired person has impaired capacity and chances are a court may not hold that person to the contract. Minors (e.g., usually those under eighteen) cannot, generally, enter into a binding contract without parental consent, unless it is for the necessities of life, such as food, clothing, or for student loan contracts.

Consideration - If the other side is to be held to the contract, you must give up something in exchange. This is called consideration. No side can have a free way out or the ability to obtain something of value without providing something in exchange. Money is the most common form of compensation, but it can also be property, giving up a right or valid claim, making a promise to do or not to do something, or anything of value. Agreeing to perform an illegal or illicit act is not consideration and the contract is void.

Mutual Assent or Meeting of the Minds - This means that each side must be clear as to the essential details, rights, and obligations of the contract. Putting the deal down on paper prior to signing it goes A long way to avoid future misunderstandings and disputes. Meeting of the minds sometimes can be expressed by words spoken or gestures made or can be inferred from the surrounding circumstances. There is no meeting of the minds if:

o One side is obviously joking or bragging,
o There is no actual agreement (i.e., the farmer who is selling a gelding and the buyer thinks the horse is a brood mare), or
o Both sides have made a material mistake as to the terms or details of the contract.

The performance of a contract

Performance is actually completing the deal according to the terms given in the contract. For example, you want to buy that Proton Wira at your local dealer's sale. Your dealer, Mr. X, offers to sell you that car if you pay him $50,000. After a bit of bargaining, you agree to the terms and get the car at a reduced price of $49,500, signing on the dotted line. A contract has been accepted. Mr. X, your car dealer, will deliver the car and then you pay him the balance due. The dealer’s delivery of the car and your payment of $49,500 are the performance of the contract. Both parties must live up to their end of the bargain in the contract to have closure. In other words, until both parties have properly performed under the contract, the contract remains open.

Under Clause 1.1 of the PAM 1998 Form of contract, the contractor is obligated to provide materials, goods and standards of workmanship of the quality and standard in every respect to the reasonable satisfaction of the architect. The contractor is not responsible for the suitability of the materials and goods specified, but he is required to comply completely with the contract documents in providing those materials, goods and standards of workmanship.

Tendering Process

Contracting process is normally divided into two phases: Contract Formation and Contract Administration. Contract formation consists of taking and analyzing the proposals and signing a contract. Contract administration consists of working with the contract until project completion and satisfying all the term and conditions.

At the tender stage, it is important to study the requirements to appreciate the basis of the tender and ascertain the manner in which the risks are to be priced or distributed. In essence, a tenderer is often required to quote an amount for carrying out the works upon the terms and conditions stated. When contracting, the parties are then obligated to abide by the terms and conditions thereof.

The contract itself sets out the scope of work and responsibility for the execution of the work. It also assigns and limits the risk sharing for the contracting parties. The project manager is responsible for the administration of the contract after it has been signed. Often, the project manager is the prime contact person between the contractor and the owner or his representative (consultants/ architect).

During the tendering process, the interested contractor will normally determine which portion of work it plans to build with it’s own workforce, and which portion they planned to sub-contract out. The contractor will then prepare a detailed estimate cost of the work with the assistance of the potential sub-contactors input. Quotations for materials and equipments are also solicited early in the bid period. Nearing the bid time, the contractor would have completed a detailed estimate of its own direct and indirect costs and anticipated profit. It would have also received preliminary prices from sub-contractors and major suppliers. The contractor would normally then add some markup on the cost quoted by the sub-contractors and suppliers, and the total prices would be summed up as the proposed contract sum.

Pricing Methods

Construction contract is part of a commercial plan, but it may also be defined as a legally binding document. All contracts should contain terms about prices and payment. Terms about price tell us the sum that the contractor is to receive. Terms about payment tell us about the timing of the payment or series of payments, the methods by which the money is to be transacted from the owner to the contractor.

The price in a contract usually includes everything that is required to achieve the performance of the works to be carried out. Estimators have to take into account all matters which may affect the price, and they should bear in mind that if an error in understanding what is required results in the under-pricing of a tender or offer, this will not invalidate the offer, unless any subsequent event had altered the terms of the original contract agreement which is only known to one party but unknown to the other.

The terms of payment in construction contracts are not standardized conditions and vary from one contract to another. Generally, the terms of payment are of the following:

 Single payment or a series of payments
 Stage payments with set milestones and proportion
 Currency of payment
 Method of payment (cheque, bank draft or letter of credit)
 How each payment is to be secured in favor of the employer, if at all (security may be by way of bond or guarantee or by the passing of property in goods)

Payment terms are important to the buyer and the seller as they define how the money flows. Contractors normally do not want to finance projects for the owners, so their interest in regular payments is very keen. Normally, payments are invoice monthly or biweekly. Faster payment will help contractors avoid the high cost of financing the project.

Contract Type Selection

Contract type is an important consideration. Different types of contracts can be used in different situations. There are three broad categories of contracts:

1.Fixed Price or Lump Sum Contracts

2.Cost Reimbursable Contracts

3.Unit Price Contracts

1.Fixed Price or Lump Sum Contracts

This type of contract involves a fixed total price for a well-defined product or services. The buyer incurs little risk in this situation. If the product is not well defined, both the buyer and seller are at risk – that is the buyer may not receive the desired product or the seller may need to incur additional costs in order to provide it. Fixed Priced Contracts may also include incentives for meeting or exceeding selected project objectives such as schedule targets. For example, the contract could include an incentive fee paid for early product delivery. A Firm-Fixed Price (FFP) contract has the least amount of risk for the buyer, followed by a Fixed Price Incentive (FPI) contract.

2.Cost Reimbursable Contracts

Cost Reimbursable Contracts involve payment to the seller for direct and indirect actual costs. Direct costs are costs incurred for the exclusive benefit of the project (e.g. salaries of the full-time project staffs). Indirect costs, also called overhead costs, are costs allocated to the project by the performing organization as a cost of doing business (e.g. salaries of corporate office staffs, head office overheads). Indirect costs are usually calculated as a percentage of direct costs. This category of contract often includes fees such as profit percentage or incentives for meeting or exceeding selected project objectives such as schedule targets or total cost. Three types of Cost Reimbursable Contracts are:

i.Cost Plus Incentive Fee (CPIF)
ii.Cost Plus Fixed Fee (CPFF)
iii.Cost Plus Percentage of Cost (CPPC)

i.Cost Plus Incentive Fee (CPIF)

The buyer pays the seller for allowable performance costs along with a predetermined fee and an incentive bonus. If the final cost is less than the expected cost, both the buyer and the seller benefit from the cost savings based on a pre-negotiated share formula.

ii.Cost Plus Fixed Fee (CPFF)

The buyer pays the seller for allowable performance costs plus a fixed fee payment usually based on a percentage of estimated costs. This fee does not vary, however, unless the scope of the contract changes.

iii.Cost Plus Percentage of Cost (CPPC)

The buyer pays the seller for allowable performance costs along with a pre-determined percentage based on total costs. From the buyer’s perspective, this is the least desirable type of contract because the seller has no incentive to decrease costs. In fact, the seller may be motivated to increase costs, since doing so will automatically increase profits based on the percentage of costs. All of the risk is borne by the buyer.

3.Unit Price Contracts

This category of contract require the buyer to pay the seller a pre-determined amount per unit of service, and the total value of the contract is a function of the quantities needed to complete the work (e.g. $50 per hour for professional services; $180 per cubic meter of concrete). Unit Price Contracts can be viewed as high-or low-risk, depending on the nature of the project and other contract clauses.

Selecting the type of contract and the fee structure should occur during the formulation of the original contracting plan. Changes to the plan may occur as a result of additional ideas developed during the proposal and negotiation stages. It is important that there must be a clear statement as to the fee basis and payment terms in the final agreement.

Contractors who are doing lump sum contract; make a clear statement that all costs, overheads and profits for performing the scope of work are in the contract prices. A cost-plus contract should define in detail the allowable reimbursable costs such as overheads, labor rates, out-of-pocket costs, equipment rates, and the fee statement. These documents must form part of the contract documents rather then part of the text. Any incentives or penalty terms to the fee structure should be stated clearly and the formula for calculating them should be spelled out clearly.

Competitive Bidding

Competitive bidding on construction projects involves decision making under uncertainty where one of the greatest sources of the uncertainty for each bidder is due to the unpredictable nature of his competitors. Each bid submitted for a particular job by a contractor will be determined by a large number of factors, including an estimate of the direct job cost, the general overhead, the confidence that the management has in this estimate, and the immediate and long-range objectives of management. So many factors are involved that it is impossible for a particular bidder to attempt to predict exactly what the bids submitted by its competitors will be.

All other things being equal, the probability of winning a contract diminishes as more bidders participate in the competition. Consequently, a contractor tries to find out as much information as possible about the number and identities of potential bidders on a specific project. For certain segments, potential competitors may be identified through private contacts, and bidders often confront the same competitor's project after project since they have similar capabilities and interests in undertaking the same type of work, including size, complexity and geographical location of the projects.

Negotiated Contract

Negotiation is another important mechanism for arranging construction contracts. Project managers often find themselves as participants in negotiations, either as principal negotiators or as expert advisors. These negotiations can be complex and often present important opportunities and risks for the various parties involved. For example, negotiation on work contracts can involve issues such as completion date, arbitration procedures, special work item compensation, contingency allowances as well as the overall price. As a general rule, exogenous factors such as the history of a contractor and the general economic climate in the construction industry will determine the results of negotiations. However, the skill of a negotiator can affect the possibility of reaching an agreement, the profitability of the project, the scope of any eventual disputes, and the possibility for additional work among the participants. Thus, negotiations are an important task for many project managers. Even after a contract is awarded on the basis of competitive bidding, there are many occasions in which subsequent negotiations are required as conditions change over time.

In conducting negotiations between two parties, each side will have a series of objectives and constraints. The overall objective of each party is to obtain the most favorable, acceptable agreement. A two party, one issue negotiation illustrates this fundamental point.

Poor negotiating strategies adopted by one or the other party may also preclude an agreement even with the existence of a feasible agreement range. For example, one party may be so demanding that the other party simply breaks off negotiations. In effect, negotiations are not a well behaved solution methodology for the resolution of disputes.

The possibility of negotiating failures highlights the importance of negotiating style and strategy with respect to revealing information. Style includes the extent to which negotiators are willing to seem reasonable, the type of arguments chosen, the forcefulness of language used, etc. Clearly, different negotiating styles can be more or less effective. Cultural factors are also extremely important. Revealing information is also a negotiating decision. Some negotiators would readily reveal their reserve or constraint prices, whereas others would conceal as much information as possible (i.e. "play their cards close to the vest") or provide misleading information.

In light of these tactical problems, it is often beneficial to all parties to adopt objective standards in determining appropriate contract provisions. These standards would prescribe a particular agreement or a method to arrive at appropriate values in a negotiation. Objective standards can be derived from numerous sources, including market values, precedent, professional standards, what a court would decide, etc. By using objective criteria of this sort, personalities and disruptive negotiating tactics do not become impediments to reaching mutually beneficial agreements.

Design/Build Contracts

Some owners wish to delegate all responsibilities of design and construction to outside consultants in a turnkey project arrangement. A contractor agrees to provide the completed facility on the basis of performance specifications set forth by the owner. The contractor may even assume the responsibility of operating the project if the owner so desires. In order for a turnkey operation to succeed, the owner must be able to provide a set of unambiguous performance specifications to the contractor and must have complete confidence in the capability of the contractor to carry out the mission.

The basic structure of the bidding process consists of the formulation of detailed plans and specifications of a facility based on the objectives and requirements of the owner, and the invitation of qualified contractors to bid for the right to execute the project. The definition of a qualified contractor usually calls for a minimal evidence of previous experience and financial stability. In the private sector, the owner has considerable latitude in selecting the bidders, ranging from open competition to the restriction of bidders to a few favored contractors. In the public sector, the rules are carefully delineated to place all qualified contractors on an equal footing for competition, and strictly enforced to prevent collusion among contractors and unethical or illegal actions by public officials.
Detailed plans and specifications are usually prepared by an architectural/engineering firm, which oversees the bidding process on behalf of the owner. The final bids are normally submitted on either a lump sum or unit price basis, as stipulated by the owner. A lump sum bid represents the total price for which a contractor offers to complete a facility according to the detailed plans and specifications. Unit price bidding is used in projects for which the quantity of materials or the amount of labor involved in some key tasks is particularly uncertain. In such cases, the contractor is permitted to submit a list of unit prices for those tasks, and the final price used to determine the lowest bidder is based on the lump sum price computed by multiplying the quoted unit price for each specified task by the corresponding quantity in the owner's estimates for quantities. However, the total payment to the winning contractor will be based on the actual quantities multiplied by the respective quoted unit prices.

The contract price includes the direct project cost including field supervision expenses plus the markup imposed by contractors for general overhead expenses and profit. The factors influencing a facility price will vary by type of facility and location as well. Within each of the major categories of construction such as residential housing, commercial buildings, industrial complexes and infrastructure, there are smaller segments, which have very different environments with regard to price setting. However, all pricing arrangements have some common features in the form of the legal documents binding the owner and the supplier(s) of the facility. Without addressing special issues in various industry segments, the most common types of pricing arrangements can be described broadly to illustrate the basic principles.

All owners want quality construction with reasonable costs, but not all are willing to share risks and/or provide incentives to enhance the quality of construction. In recent years, more owners recognize that they do not get the best quality of construction by squeezing the last dollar of profit from the contractor, and they accept the concept of risk sharing/risk assignment in principle in letting construction contracts. However, the implementation of such a concept in the past decade has received mixed results.

In some projects, the contract provisions may allow the contractor to provide alternative design and/or construction technology. The owner may impose different mechanisms for pricing these changes. For example, a contractor may suggest a design or construction method change that fulfills the performance requirements. Savings due to such changes may accrue to the contractor or the owner, or may be divided in some fashion between the two. The contract provisions must reflect the owners risk-reward objectives in calling for alternate design and/or construction technology. While innovations are often sought to save money and time, unsuccessful innovations may require additional money and time to correct earlier misjudgment. At worse, a failure could have serious consequences.

A final important consideration in forming bid prices on the part of contractors are the possible special advantages enjoyed by a particular firm. As a result of lower costs, a particular contractor may be able to impose a higher profit markup yet still have a lower total bid than competitors. These lower costs may result from superior technology, greater experience, better management, better personnel or lower unit costs. A comparative cost advantage is the most desirable of all circumstances in entering a bid competition.

Roles & Responsibilities of Project Managers

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It is the responsibility of the project manager to make sure that the internal and external customers are satisfied that the project is completed on time, within budget and in compliance with the quality standards specified. The primary responsibility of the project manager is to provide leadership in planning, organizing, and controlling the work efforts to accomplish the project objectives. He has to coordinate the activities of the various team members to ensure that they perform the right tasks at the proper time, as a cohesive group.

Effective project manager has strong leadership skills that will inspire the project team to succeed and also win confidence of the customers. He must have the ability to develop people, excellent communication skills, good interpersonal skills, and the ability to handle stress, excellent problem-solving skills and good time management skills.

Project manager must make the best use of the skills and abilities of their workforce by providing them with sufficient information so that they can develop a rational understanding of the tasks assigned to them. The skills that will make a good project manager together with the attributes and skills, which the project manager should develop to ensure the effectiveness of the project team, are as follows:

i. Leadership – project manager should be able to stimulate action, progress and change.

ii. Technological Understanding – project manager need to have an accurate perception of the technical requirements of the project.

iii. Evaluation and Decision Making – project manager should have the ability to evaluate alternatives and to make informed decisions.

iv. People Management – project manager should be able to motivate their team and have a constant personal drive towards achieving the project’s goals.

v. Design and Maintenance of System – project manager should be able to demonstrate their individual competence and have a complete working knowledge of the internal administration of the project.

vi. Planning and Control – project manager should be constantly monitoring progress against the plan and taking any necessary corrective action using modern planning and monitoring methods.

vii. Financial Awareness – project manager should be proficient in risk management and have a broad financial knowledge.

viii. Procurement – project manager should understand the basics of procurement and be able to develop the procurement strategy for the project.

ix. Communication – project manager should be able to express themselves clearly and unambiguously in speaking and writing and be able to do this in a wide range of situations and with a wide range of people.

x. Negotiation – project managers must be able to understand the contract that defines their project and should be able to manage subcontractors to ensure that the contractual terms are met.

xi. Legal Awareness – the project manager should have an awareness of any legal issues that could affect the project.

Strong leadership is an essential part of good project management. Project managers must provide leadership to their project team members, develop good relationships with key stakeholders, understand the business needs of the project, and prepare realistic project plans. Senior management must participate in the project by providing overall support and direction. Leadership is getting things done through others. It involves inspiring the project team members to work as a team, successfully implementing the plan and achieve the desired objectives of the project.

The project manager establishes the parameters and guidelines for what needs to be done, and the team members determine how to get it done. He creates the culture of task ownership and empowers individuals to own and control their own work task, accepting responsibilities and accountability for performing the work scope within budget and on schedule.

Project managers must have the ability to motivate team members and create a supportive environment by encouraging participation and involvement of all members, in which individuals work as part of a high-performing team and are energized to excel. He must set the tone for the project team by establishing an environment of trust, high expectations, and enjoyment.

Project managers need to communicate and share information with the project team and the customers. He needs to establish ongoing communication with the customers, and keeping them informed as well as providing timely feedback to the team and the customers. Communication needs to be timely, honest, and unambiguous. Effective communication established credibility and builds trust.

Throughout the project, the project manager will need to persuade and negotiate with the customer, the project team, and the upper management. A project manager needs good interpersonal skills to try to influence the thinking and actions of others. He needs to establish clear expectations of members so that everyone knows the importance of their role in achieving the project objectives.

A project manager also needs to be a good problem solver. Good problem solving starts with the early identification of a potential problem and then allowing time to develop a well thought-out solution. Visionary project manager possesses the ability to see the “big picture” and how potential solutions might affect other parts of the project, including relationships with the customer or upper management.

Another important aspect of the project manager is the ability to manage and control changes in order to minimize any negative impact on the successful accomplishment of the project objectives. Changes are going to occur in any project and project managers need to manage and control the changes. Changes may be trivial or may significantly affect the project scope, budget and schedule. At such, procedures and standards need to be established during the project commencement to provide directions and guidelines regarding how changes will be documented and authorized. This should include necessary communication requirements.

Project Stakeholders

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Project stakeholders are individuals and organizations who are actively involved in the project, or whose interests may be positively or negatively affected as a result of project execution or successful project completion.(PMBOK 2000)

The project management team must identify the stakeholders, determine what their needs and expectations are, and then manage and influence those expectations to ensure a successful project.

Successful projects have to meet all stakeholder expectation. All parties involved in a project have a vital interest in the project success – each has an essential contribution to make. The first step in this process is gaining agreement. The project manager, project team, functional managers, sponsor and the customer must all agree on the goals of the project. The project manager must then coordinate all these stakeholders in the process of guiding the project through its various stages.

It is important for project manager to perform a Stakeholder Analysis in order to help understand and meet stakeholder needs and expectations. The analysis will also help the project manager lead the execution of the project plan.

Stakeholder Analysis documents information such as:

 Key stakeholders’ names and organizations & their roles on the project;
 Unique facts about each stakeholders & their level of interest in the project;
 Key stakeholders’ influence on the project;
 Suggestions for managing relationships with each stakeholder.

Project Tasks & Action Plan

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The project master plan must address how we plan, organize, and control all the work activities to meet our goals of finishing the work on time, within budget and conforming to the quality standards as specified. One important point before planning is that we do not want to do more than necessary to satisfy customer needs, since that is wasting money. On the other hand, we should not do less than necessary, or we may lose the customer.

Once the project manager and his team is chosen, the project team will face the most challenging part of project management: the planning and control phase, to bring the project to completion – on schedule, within budget and in compliance with the quality standards. What is needed is a good basic planning before commencing a project and the approach taken must allow management the flexibility to respond to, and even turn to advantage, the unexpected changes and events that will inevitably occur.

The next stage is to allocate the tasks to different people in the team and, at the same time, order these tasks so that they are performed in a sensible sequence. Task allocation is not simply a case of handing out the various tasks on your final lists to the people you have available. The allocation of tasks should be seen as a means of increasing the skills and experience of your team - when the project is done, the team should have gained.

In simple terms, consider what each member of your team is capable of and allocate sufficient complexity of tasks to match that (and to slightly stretch). The tasks you allocate are not the ones on your finals lists, they are adapted to better suit the needs of your team's development; tasks are moulded to fit people, which is far more effective than the other way around.

Sometimes tasks can be grouped and allocated together. For instance, some tasks, which are seemingly independent, may benefit from being done together since they use common ideas, information, and talents. One person doing them both removes the start-up time for one of them; two people (one on each) will be able to help each other.

The ordering of the tasks is really quite simple; although you may find that sketching a sequence diagram helps you to think it through (and to communicate the result). Getting the details exactly right, however, can be a long and painful process, and often it can be futile. The degree to which you can predict the future is limited, so too should be the detail of your planning. You must have the broad outlines by which to monitor progress, and sufficient detail to assign each task when it needs to be started, but beyond that - stop and do something useful instead.

Once we have a clear understanding of the project, we can then describe it as a set of simpler separate activities. If any of these are still too complex for you to easily organize, you break them down also into another level of simpler descriptions, and so on until you can manage everything. Thus your one complex project is organized as a set of simple tasks, which together achieve the desired result.

The reasoning behind this is that human brain can only take in and processes so much information at one time. To get a real grasp of the project, you have to think about it in pieces rather than trying to process the complexity of its entire details all at once. Thus each level of the project can be understood as the amalgamation of a few simply described smaller units.

In planning any project, you follow the same simple steps: if an item is too complicated to manage, it becomes a list of simpler items. People call this producing a work breakdown structure (WBS) to make it sound more formal and impressive. Without following this formal approach you are unlikely to remember all the niggling little details; with this procedure, the details are simply displayed on the final lists.

One common fault is to produce too much detail at the initial planning stage. You should be stop when you have a sufficient description of the activity to provide a clear instruction for the person who will actually do the work, and to have a reasonable estimate for the total time/effort involved. You need the former to allocate (or delegate) the task; you need the latter to finish the planning.

WBS provides a tool for planning the work activities, including estimates the resources required, estimating the activity durations and costs. The basic aim of a WBS is to split the project into tangible deliverable items. The more work packages we split the project into, the more interfacing with other people, departments, functions or even companies there may be. However the less work packages there are, the harder it will be to budget and estimate resource requirements. It is advisable that a work package should not be more than 7 days of work (for a large project), otherwise, it will be difficult to assign resources, monitor progress and carry out performance measurement.

There are various ways in which people can be organized to work in projects, and the most common types of organizational structures are Functional, Projectized, and Matrix. The structure of the performing organization often constraints the availability of resources necessary for the project.

A good organizational structure conforms to the company’s business objectives. Once clear on the objectives, there are a number of identifiable factors that position a company on the continuum of organizations from functionally based to project based. Creating the ideal structure is likely to be difficult and will require extensive education and good human resource management.

a) Functional Organization

The functional organization is the traditional structure for a large organization bringing together people responsible for each function in the operation of the business. It is known as the Role Culture. The vast majority of people in industry work in such a structure. It relies heavily on systems and procedures, prevents cross-functional communication and is extremely slow to react to change. The organization breeds specialists rather than rounded general managers. The structure is usefully adopted for cost sensitive management of steady state production or technology led products where expertise is more important than timescales.

b) The Projectized Organization

In the Project-type organization, each project is operated like a mini-company. The Project Organization brings a clearer focus on definitive goals; these may be specific to the project rather than general company objectives. The project teams generally have a high commitment to the goals, the project has a flatter management structure than the parent organization and communication is generally excellent. The structure is responsive to all types of change and typically provides the customer with much better services. The organization is best utilized where change is continuous and timescales are fixed and probably tight.

c) The Matrix Organization

The Matrix Organization overlays the functional and the project structures in an attempt to obtain the advantages of both. It is also known as the Task Culture. The functional manager is responsible for the technological expertise and the allocation of his resource to a number of projects. The project manager is responsible for the specification, the time and the cost.

The Matrix structure can achieve the performance benefits of the project organization whilst achieving good resource utilization and giving the individual both an organizational home and a peer group with technological expertise. Its major disadvantage is that it is complicated and promotes conflict.

Many individuals have two bosses, their functional superior and the project manager. It is easy to lay out the theoretical responsibilities of the two however in practice they overlap and conflict. For the system to work effectively, senior management must define responsibilities and mechanisms for solving conflict at the outset of each project. The system brings with it an almost exponential increase in relationships, reporting and communication.

Common Project Pitfalls & Problems

Ned Robbins (Warwick University,2000) listed four fundamental areas as the reasons of projects failure: resource constraints, conflict in projects, unknown, and transience. According to Ned, the main problems are due to inadequate resources, unrealistic deadlines, unclear goals and direction, team members uncommitted, insufficient planning, communication breakdown, changes in goals/resources, and conflicts between functions or departments. Other factors are:

1. Underestimate of the technical difficulty.
2. Non-compliance with procedures.
3. Problems with software project.
4. Inability to control contractor’s work and failure to use specialist staff.
5. Weakness in contract arrangement.
6. Lack of effective planning and control.
7. Interruptions in funding.
8. Escalation in cost.
9. Changing in specification.

Jeffrey K. Pinto (1998) states that technology; configuration management and overlapping design and production are also factors that contribute to project failures. According to Pinto, inappropriate or unproven technology is one of the greatest source of problem in projects. Project managers should recognize that using unproved technology in their project will increase the likelihood of problems, delays, or overruns dramatically.

In the Malaysian construction projects, it is worrisome to find that many design engineers and architects, in their desire to explore new technologies and products (which they have not experience), were prepared to introduce the new technologies and product in their design drawings and specification. The result is that many of these projects ends up a failure, or were delayed dramatically. The experience was helpful as it provides knowledge of those technology usage, but loser was not the specifier and designer, but the owners who engage them, and probably, the contractors whose reputation were tarnished.

Poor control of changes is another major source of project difficulty. Changes often arise from design and poor change control system can cause serious damage to a project. Overlapping design and production, that is concurrent engineering describes implementation of technology before the design is stable and often lead to major cost overruns.

Kenneth G. Cooper described the four main sources of project failure:

 Failure 1: Failure to know what to expect, or Great Expectation.
 Failure 2: Failure to know what to watch, or half-Blank Tape Measures.
 Failure 3: Failure to know what to do (and to do it), or Counterintuitively counterproductive countermeasure).
 Failure 4: Failure to know what’s what, or Lessons Not Learned.

Failure 1 is due to changes, poor product definition, poor or inadequate budget, poor or over aggressive scheduling target (excessively overlapped work stages, schedule pressure, inefficient & costly resource use, and workers demoralized).

Failure 2 is the failure of project managers to take into account the quality of the work done, the release of incomplete or imperfect task products, or the amount of rework that will be required. Kenneth Cooper suggest that project manager can make improvement measure by:

 Acknowledging these weaknesses and set to reduce the disruption of these surprises.
 Actively sought out. Earlier discovery may feel unpleasant at the time is strongly encouraged.
 Prevented as much as possible, that is improving quality in the rework cycle.

Failure 3 is not knowing what to do as a manager of a challenging project or when faced with the prospect of an ongoing project’s missing its target. The prospect of poor management means that managers will seek preemptive or corrective countermeasures. In most cases, the countermeasures will be obvious, intuitive, accepted, almost second nature – and wrong.

Failure 4 is the failure to learn which is the most pervasive failure in all project management. The four different conditions that contributed to and perpetuated this failure is:

 Misguided belief that all projects are different and the lack of understanding of the common dynamics and phenomena shared by virtually all projects.
 Projects are time pressured - rushing to start, and rushing to finish.
 Limited span and career path of project managers.
 Lack of self-esteem in project managers.

According to Juran, a project is a problem scheduled for solution, and that we make the right solution to the wrong problem. To overcome this issue, project managers should write the project’s problem statement to reflect the project objectives.

James P. Lewis list the various causes of project failures:

a) Planning based on insufficient data.
b) A planning group performed planning (not the doer).
c) Project estimates are best guesses, made without consulting historical data.
d) Resource planning was inadequate.
e) People don’t see themselves as working on one team.
f) People are constantly pulled off the project or reassigned with no regard for impact.
g) The project plan lacks detail.
h) The project is not tracked against the plan.
i) People lose sight of the original goal.
j) Senior managers refuse to accept reality.
k) Ballpark estimates (estimates based on sketchy information) become official targets.

Project Planning

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The starting point for a good project plan is a proper understanding of the requirements – what exactly is the project supposes to achieve?

Planning is essential to the successful execution of a project. Planning involves thinking hard about the project, what it is to achieve and how the team will go about it. A project plan is a statement of what the project team intend to do in order to meet the project’s objectives and provide all project deliverables within the constraints of “Time, Cost and Quality”. The main purpose of project plans is to guide project execution. Plans must be realistic and useful. A fair amount of time and effort must go into the planning process, and the people knowledgeable in doing the work need to plan the work. Planning assumes two items:

(1)That there is sufficient information available for planning purposes and
(2)That the people planning have sufficient experience to use the information wisely.

Plans should be realistic with regard to timely performance and reasonable cost. Meeting these criteria ensures that the actual project will be performed successfully within the scheduled time and financial constraints. Planning must be done logically and thoroughly if we are to have any chance for the project to succeed. In planning philosophy, we must understand two key points:

1.A project plan without some float or contingency for unforeseen events is a trap.
2.A fat plan is wasteful of money and time. Parkinson’s law tells us “the work always expands to fill the time allowed.

The master project plan must address how we will plan, organize, and control the major work activities to meet our goals of finishing the work on time, within budget and as specified. One important point before planning is that we do not want to do more than necessary to satisfy customer needs, since that is wasting money. On the other hand, we should not do less than necessary, or we may lose the customer.

The planning processes in construction projects consist of the following activities: -

a) Activity planning – devising a workable scheme of operations, which is designed to accomplish construction activities. Activity planning begins with the generation of a Work Breakdown Structure (WBS). Traditionally, activity planning for the schedule is independent and separate from the cost. The accuracy and usefulness of the breakdown and relationship is dependant upon intimate knowledge of the construction elements, judgment and skills of the planner. WBS provides a tool for planning the activities, including estimates of resources, activity durations and costs. The basic aim of a WBS is to split the project into tangible deliverable items. The more work packages we split the project into, the more interfacing with other people, departments, functions or even companies there may be. However the less work packages there are, the harder it will be to budget and estimate resource requirements. It is advisable that a work package should not be more than 8 hours of work (or a day’s work). Otherwise, it will be difficult to assign resources, monitor progress and carry out performance measurement. In most construction programme, the activities define are mostly too large to be classified as a work package and at such it is difficult to assign specific quantifiable resources, difficult to estimates duration, and most of all difficult to provide a logic – predecessor/ or successor in a network diagram.

b) Scheduling and costing – after developing the activities, the next step is to estimate the duration and the activities sequence. From thereon, the network diagram is finally developed, which form the construction master programme. The contract’s department, which is home for the project quantity surveyors and estimators normally, carries out the cost estimate and budgets. Once the project estimate and budget is established by the QS, the project manager is given a copy for his review and comment. If agreeable, the budget will then be sent for the project sponsor’s approval.

c) Quality planning – Projects do require the contractor to submit a Quality Assurance Plan (QAP) for the client’s approval and agreement. The quality plan has to meet the minimum quality specified in the contract specification and drawings. Due to the government and CIDB’s intensive promotion of the ISO 9000 quality system, it has become mandatory for projects to have a competent quality officer to manage and be accountable for the quality control processes in a project. Planning and controlling standards for quality are fundamental in both the design and construction phases of a project. Quality assurance involves the economic studies to select the types of materials and methods to be included in design and controlling processes, making certain that the works are carried out in accordance with the contract specification and drawings. Methodology ranges from computerized documentation, technical design, to sampling and testing products and structural dimensioning in the field. A proper and well-documented quality assurance plan should be submitted to the client’s consultant for approval. A good quality assurance plan will assure the client of your ability and provide confidence to the level of control and inspection conducted by the client’s representative. Quality assurance is always considered as the in-plant representative of the customer. Quality assurance is also the agent for improvement of the processes and product.

d) Resource planning – in the staff acquisition phase, existing staffs are assigned to the projects after the project site organizational chart is submitted to project sponsor for approval. In the event of shortage, the management would outsource by advertisement or the project manager may recommend others known to him for employment particularly previous colleagues in the same industry or his friends. Materials and equipments acquisition are normally handled by the purchasing department and the machinery department. The project manager will have to make formal request for them. Sometimes, the available resource may be insufficient or untimely and the project manager has to bargain and negotiate with the key functional managers.

e) Communication planning – Project communication management plan is a document, which provides a detailed method of collecting and filing documents, a distribution structure and the method of accessing and updating information. Successful project execution is impossible unless there is an effective communication system. If communication breaks down, each of those contacts offers a potential barrier to information flow. Typically, project communications fall into the following categories: - Project correspondence, audiovisual presentations, project reporting, meetings, training, and listening. Performance reporting is part of the project communication system. A stakeholder analysis for project communications helps determine communications needs for different people involved in the project. Performance reporting – that include status reporting, progress reporting and forecasting are mandatory for every project which is stipulated in the conditions of contract. Project managers would be required to submit templates of the progress report format to the client for acceptance. Upon agreement of the sample format, the project manager would be required to submit biweekly or monthly reports, which would also include progress photographs of work-in-progress. Producing a concise and well-presented monthly progress report is the best way for project managers to set the standard for reports on the project. It is also a good instrument to check on how the project is going. The main purpose of the report is to inform the key stakeholders as to how the work is progressing and to keep a running history of vital project activities. Project forecasting predicts future project status and progress based on past information and trends. Earned Value analysis (EVA) can be used to estimate the budget at completion based on how the project is progressing. Project meetings are an integral progress review element of a project. Meetings help determine delays (that have occurred) and achievements according to the baseline plans. It is also important to get the entire project team members together at scheduled times to talk and listen about the project. Meetings can help team members know where the individual parts fit into the collective aim of the group, and where individual success can contribute to team success.

f) Risk management planning– is rarely done, or can be said “never done” in a formal manner. What most managers do is basically carry out “piecemeal” and informal management of project risk – based on his previous experience and knowledge – to manage the risks of the project. Construction works is often a hazardous undertaking. Owners and contractors have a number of options to protect themselves from the hazards of the business. Insurance forms a major option to shift designated risks to a financially strong party who, for an agreed premium amount, is willing to assume some or all of the financial responsibility of the loss. Payment and performance bonds give protection to owners against failure of the contractor’s contractual obligations. Licensing laws for contractors and design professionals are intended to help assure that participants on a construction project possess reasonable qualifications. Workmen’s compensation insurance is designed to provide the statutory benefits required by law to an employee who is hurt or killed as a result of employment. Occupational safety and health laws provides for ensuring safety, health and welfare of persons at work, protecting others against risks to safety or health in connection with the work activities. Occupational and health laws forms part of the contract conditions of which the contractor is to comply, but the quantitative extend of safety requirements are not stipulated. But not all risks can be eliminated. Project risk events typically have a negative effect on the project objectives of schedule, cost and quality. For risk to be managed it must first be identified and recognized and then the likelihood of its occurrence and its consequences can then be assessed and steps taken to minimize its impact by deflecting to another party (e.g. buy insurance, sub-contracting), mitigating its impact by reducing the probability of occurrence, or accepting the consequences should the risk occur.

Risk management plan identifies as many risk events as possible, minimizes their impact, manages responses, and provides contingency funds to cover risk events that actually materialized. Risk management is a preventive process designed to ensure that surprises are reduced and that negative consequences associated with undesirable events are minimized. The challenge of project risk management is in identifying the risk retained and recognizing the fact that a risk, which is transferred under some circumstances, may be retained under others. Basically, transferring risk does not reduce risk, but places the risk at the foot of another party. In some cases, transfer can significantly increase risk because the party to whom it is being transferred may not be financially capable of supporting the risk.

The Contract Form is the first reference by which risk will be assessed, thereby apportioning risk in a way, which is considered acceptable in the industry. In the event of dispute, it will be the first source of reference for an analysis of the respective rights, duties and liabilities of the parties.

A building contract is a trade-off between the contractor’s price for undertaking the work and his willingness to accept a degree of risk. If the contractor is to carry certain specific risk, he should expect to see them reflected in his contract by an increase in the contract price. It must be recognized that standard forms of contract do have provisions for excusing the contractor from many risks affecting the project. It is often the misconception among developers that irrespective of the form of contract chosen, once the lowest tender has been accepted, the contract signed between the contractor and developer, all the risk of failure will be transferred to the contractor. At such, many developers tends to indulge in pernicious editing of the standard forms of contract to “redress’ the balance of risk, ultimately, it will result in an interpretation by the courts by virtue of implied terms that neither party had intended. In principle, a standard form of contract is to serve the industry to which it relates and it must produce an apportionment of risk, which is broadly regarded as efficient within that industry, or at least, to the extent that it is not, the inequalities should be capable of being identified and financially evaluated. Exaggerated expectations of the standard forms of contract and the failure to appreciate the strength of a claim (due to difference of appreciations of the facts of law and the illusion of certainty) are all common sources of disputes.

Creating a WBS

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A Project Plan is a statement of what the project team intend to do in order to meet the project’s objectives and provide all project deliverables within the constraints of Time, Cost and Quality. Planning is the process of establishing objectives and choosing the most suitable means for achieving these objectives prior to taking action.

When a project manager is assigned to a project, he must first gather all the background information prepared by the sponsoring organization. These documents must be thoroughly reviewed to be certain that the scopes of works are well defined to ensure familiarity of the owner’s objectives.

To facilitate the planning process, each project must be subdivided into tasks that can be assigned and accomplished by the organizational units or individual. In planning a project, the project manager has to structure the work into small elements that are manageable, independent, integratable and measurable. The project planner must be careful to include everything that must be done in order to be successful. Failure to address all required activities could destroy both the schedule and budget of the project.

For any project size, it is necessary to develop a well-defined work breakdown structure (WBS) that divides the project into identifiable parts that can be managed. A WBS is a deliverable-orientated grouping of project elements that organizes and defines the total scope of the project. It is a convenient method for deriving a complete breakdown of each of the key stages into smaller elements. WBS provides the basic data for:

1. The final schedule of all activities and tasks;
2. The basis of building a project budget;
3. Project budget and cost control;
4. Project tracking;
5. Status reporting;
6. Network development;
7. Performance measurement; and
8. Resource assignment and control.

WBS is used to structure:
i. The activities to be undertaken;
ii. The timing of these activities (schedule);
iii. The resource requirements to complete them;
iv. The responsibility of individuals for them.

The basic aim is to split the project into tangible deliverable items. The more work packages we split the project into, the more interfacing with other people, departments, functions or even companies there may be. However the less work packages there are, the harder it will be to budget and estimate resource requirements.

A simple Work Breakdown Structure consists of the following:

1.Project
2.Task
3.Subtask
4.Work packages

The typical processes for preparing a WBS are as follows:

i. Break the project down finer details until all tasks are identified and each task can be individually planned, budgeted, scheduled, monitored and controlled.

ii. At each work task, identify the necessary inputs, specification, end result, contractual conditions, resource requirement, organizational responsibilities, preliminary estimated time and dependencies.

iii. Liaise with project team to review time and cost estimates. Check interdependencies of tasks resources and personnel.

iv. Aggregate resource requirements, time, costs and sub-task relationships to next level of the WBS. Repeat up to the top level of the WBS. This step would achieve a total budget. Other costs such as overheads, marketing, contingencies may also be included.

v. The Aggregate schedule information will provide us with a project master schedule including milestones. This would give us a comprehensive guide to the project showing contractual commitments, interfaces between departments and a complete list of activities with estimated time and precedence. Time contingencies for any unforeseeable delays may be added.

vi. Compare with basic project plan to identify potential misunderstandings, problems and schedule slippages. Take corrective actions if required.

The WBS is a communication tool, providing detailed information to different levels of management. The items at the lowest level of the WBS are often referred to as the work packages. A work package is a portion of the project that may be assigned to an organization, functional department or individual for completion. It may be further divided into tasks and subtasks. A work package represents units of work at the level where the work is performed. It contains clearly defined start and finish dates. Work Packages should include the following components:

1. Clearly defined ownership;
2. Clearly defined start and end dates that are representative of physical accomplishments;
3. Results that can be compared with expectations;
4. A specific budget;
5. A structure that minimizes the required documentation.

The WBS is often used to develop or confirm a common understanding of project scope. It is normally presented a chart form (see figure 1.1). As soon as the WBS begins to take shape, it begins to help the project manager and planning team to crystallize the work that has to be done. If we need to add and/or omit any work scope, we just insert or delete boxes in a WBS. If scheduling and resources have already been allocated, the schedule, resource, and cost impact and the effect of those work items will also be removed. Using the WBS, you can decide the most important key stages and assign their completion milestone status.

Fundamental of Project Management

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During the past decade, the Malaysian construction industry had charted an average growth of 12.7%, in tandem with the country’s strong economic growth, which at one time exceeded 8% per annum. The trend has however reversed in 1998 till the year 2000, due to a widespread economic meltdown, which swept across the Asian region. The economic crisis had waned investors’ confidence. Capability had outstripped capacity. Liquidity has become drier and how long the industry players are able to survive in this uncertain climate is questionable.

In order to sustain the long-term growth, construction companies have to be innovative, far-sighted, competitive, focused and fast to win in the ever-challenging market. Industry players should also possess strong business acumen, continually improving their competitive advantage and being able to adapt their business to the ever-changing market needs. They have to ensure that their products would have to not only meet but also exceed the desired quality, project have to be completed on time and within the cost budgeted and most of all, satisfying the customers.

The most profound recent developments in construction are the increasing size of many of its projects and the increasing technological complexities of such projects. At the project level, management had to integrate design, procurement, and construction into one total process. Economic difficulties, shortages of materials and other resources are the major problems facing the industry. It has become more critical that the skills of project managers and engineers must improve and that they have better tools and techniques with which to work, so that they can optimize the planning and control of available resources and better cope with challenging realities imposed by the economic constraints. There is on-going need for the construction companies to expand and improve its capabilities and its scope of operations to meet changing and growing demands for its service.

There is also a growing need for experience and knowledgeable professionals to act as interface between the contractors, purchasers, property developers, bankers & investors. Such professionals must have proper qualification, relevant industry experience and sound techniques to play the role of leading, planning, directing, co-coordinating, controlling and managing the entire project in order to achieve the project goals and objectives as set. Management must decide and implement the ways and means to effectively and efficiently utilize human and non-human resources to reach predetermined objectives.

The project approach has long been the style of doing business in the construction industry in Malaysia and worldwide. Project management concerns the role played by a project-based person with cross-functional authority and experience of managing various resources to achieve certain set and stipulated objectives. By definition, project management is the planning, organizing, directing, and controlling of resources for a finite period of time to complete specific goals and objectives. A project is a temporary endeavor undertaken to create a unique product or service. Temporary means that every project has a definite beginning and an end. Unique means that the product or service is different in some distinguishing way from all similar products or services.

The main problems encountered in Project Management are: inadequate resources, unrealistic deadlines, unclear goals, team members uncommitted, insufficient planning, and poor communication. Project managers are expected to marshal resources to complete a fixed-life project – on time, on budget and within specification. They must orchestrate the completion of the project by inducing the right people, at the right time, to address the right issues and make the right decisions. Cost, schedule and quality are the three primary variables of a project. Any changes to one of the variables will cause the remaining variables to change. If the amount of time and money available for a project is reduced, this will certainly limit the quality of the product. It is therefore important that project managers must know how to balance these variables to create the optimal cost-schedule-quality equilibrium.

Project Management Functions

Setting realistic expectations and delivering the products of the project is frequently challenging and always requires wide arrays of techniques and skills. These techniques can be grouped into three project management functions as follows:

i. Project Definition lays out the foundation for a project. There are two activities involved in this groundwork:
 The project manager must determine the purpose, goals, and constraints of the project.
 The project manager must establish basic project management controls. He must get agreement on which people and organizations are involved in the project and what their roles will be. The project manager also needs to clarify the chain of command, communication strategy, and change control process.

ii. Project planning puts together the details of how to meet the project’s goals, given the constraints. Estimating and scheduling techniques will lay out the amount of work the project entails, who will be doing the work, when will it be accomplished, and how much will it cost.

iii. Project control includes all the activities that keep the project moving toward the goal. These activities include: Performance measurement, communication, and taking corrective action.

The above functions sum up the responsibilities of the project manager. A project must begin with definition, then proceed to planning, and finally to control. The functions must be repeated time and again, because planning will inevitably lead to modifications in the definition, and controlling actions will require constant changes to the plan and, occasionally, changes to the definition.

In the day-to-day work environment, project management is one of the most efficient ways to do business: change is constant, competition between organizations is vital, and the need for more complex and customer-focused products is necessary. Today, organizations are faced with increased costs and complexities, a scarcity of resources and phenomenal improvements in technologies and methodologies. Project management has therefore evolved as the answer to some of the management problems that result from today’s complex systems.