4. Contracts Act 1950 - Section 74 (1)
Compensation for loss or damage caused by breach of contract
Hadley v. Baxendale
Direct loss + Indirect loss
4
❏ Arises from the natural
course of events
❏ Consequential damages
❏ Contemplated by the
parties
5. Contracts Act 1950 - Section 74, 75 & 76
A remedy providing money compensation for a civil wrong with the aim
to restore the injured party to the position he would have enjoyed had the
contract been performed as agreed.
▣ Injured party is entitled to damages arising naturally
▣ If the injured party claims for special damages, he must made known
to the other party, at the time of making the contract, that the special
loss is likely to result from the breach (Must not be too remote)5
6. Agnes contracts to repair Becky’s toilet in a certain manner and receives payment in
advance. Agnes repairs the toilet but not according to contract. Becky is entitled to
recover from Agnes the cost of making the repairs conform to the contract.
6
Expectation:
contract Reality: work done
7. 7
Breach of contract in construction
▣ When one party fails to perform the complete performance of the
contract conditions and he has no legal excuse for the non-performance.
▣ Innocent party may decide to continue with the contract or treat the
contract as discharged
▣ If the contract is not discharged (innocent party choose to continue or
breach is one that cannot discharge the contract), innocent party may
recover damages (subject to some rules on recoverable monetary loss)
8. 8
A contract provides maintenance works to a building for 2 years at
RM10,000 a month. After 10 months, the sum owing to contractor is
RM50,000.
Option A Option B
example
Keep the
contract alive
End the
contract
9. 9
example
Option a option b
Sues for RM 50,000
Sues for RM 50,000
+
Loss of profits from
remaining months
10. 10
a. Bringing contract to an end (repudiation of
contract)
1. Where one party refuses to continue with his contractual
obligations
▣ Contractor removes all his plants, materials and labour from the site
before completion and show no intention to return to complete the work.
11. 11
2. Where the breach committed by one party goes 'of the root' of
the contract.
▣ Employer repeatedly fails to pay on the interim certificates properly
issued by the Architect.
Brani Readymixed Pte Ltd v. Yee Hong Pte Ltd (1995)
C Norman Peterson Co v. Container Corporation of America (1985)
12. 12
B. Breach which does not discharge a contract
▣ Employer delays in giving the contractor site possession or reasonable
access to the Works
Carr v. JA Berriman Pty Ltd (1953)
▣ Employer fail to issue timely instructions for the execution of Works
Roberts v. Bury Commissioners (1870)
13. 13
B. Breach which does not discharge a contract
▣ Employer fails to nominate specialist sub-contractors in a timely manner.
▣ Ar and QS fails to evaluate claims submitted by the contractor within the
specified time or the employer fails to pay in accordance with the terms
of contract
▣ Disruptions caused by other contractors employed directly by the
Employer.
14. 14
Computation of damages
▣ Actual monetary loss.
▣ Innocent party should be restored to the position he would have been in
had the other party performed his obligation.
▣ Additional damages such as loss of profits and rents will depend on the
rules of remoteness.
15. 15
Remoteness and causation
▣ Party claiming for damages for breach of contract must prove that
damage was caused by breach.
Popular Industries Ltd v Eastern Garment Manufacturing Sdn Bhd (1990)
16. 16
Remoteness and causation
Contracts Act 1950 - Section 74:
Compensation for loss or damage caused by breach of contract
1. When a contract has been broken, the party who suffers by the breach is entitled to
receive, from the party who has broken the contract, compensation for any loss or
damage caused to him thereby, which naturally arose in the usual course of things
from the breach, or which the parties knew, when they made the contract, to be likely
to results from the breach of it
17. 17
Remoteness and causation
Contracts Act 1950 - Section 74:
Compensation for loss or damage caused by breach of contract
1. Such compensation is not to be given for any remote and indirect loss or damage
sustained by reason of the breach
18. 18
Mitigation for damages
▣ Innocent party must take all reasonable steps to mitigate his loss -
DUTY OF MITIGATION
Kabatasan Timber Extraction Co v. Chong Fah Shing [1969]
20. SPECIFIC PERFORMANCE
▣ A court order directing a party to perform the terms of contract. (to do exactly what the
party has promised in contract)
▣ Under Section 11 of the Specific Relief Act,1950
▣ Specific performance is a discretionary remedy. Court will refuse specific performance
where the granting will cause undue hardship to the defendant.
Section 11(1): Specific performance may be granted by the court in the following situations
❏ When the act agreed to be done is in the performance, wholly or partly of a trust
❏ When there is no standard for determining the actual damage caused by the
non-performance of the act agreed to be done
20
21. Example:
An art collector promised to sell one piece of art collection as shown to
MR.BLUE and them two make a legal sales contract. However, the collector
then decides that he’d rather keep the piece for now. The collector breaches
his contract with MR.BLUE. The Court decides that the piece of art is truly
priceless and MR.BLUE can’t acquire another comparable piece no matter
how much money the court awards her. Instead the court decides that the
collector should comply with the terms of contract and sell the piece to
MR.BLUE for the price he already agreed in the contract.
21
SPECIFIC PERFORMANCE
BuyerSeller
23. INJUNCTION
❏ court order instructing a defendant not to commit some act.
❏ Interlocutory injunction is granted at the discretion of the court to preserve the status quo
pending the resolution of a legal action..
Type of Injunction
23
For Specific Purpose03
● To enter into defendant's premises to search
and seize article with relevenance case
Mandatory Injunction(Must Do)02
● To prevent someone to do something which
he ordinary has no obligation to do
Prohibitory Injunction(Not to do)01
● Prevent someone from doing something
which he ordinary has the right to do
25. QUANTUM MERUIT
❏ Quantum meruit is a claim for payment for work executed where no
price has been agreed or quantified, and usually a being assessed in a
❏ ‘reasonable sum’,
❏ ‘reasonable remuneration’,
❏ ‘fair market rates’,
❏ ‘fair commercial rates’ or on similar terms.
❏ Quantum meruit means ‘the amount of deserves’ or ‘what the job is
worth’
❏ Found under Section 71 of the Contract Act 1950
25
26. QUANTUM MERUIT
Arise under 6 circumstances: -
1. Where the contract is silent on how completed work is to be paid. For example contractor
incurred additional expenses due to a major change in the quantity of the work which
suppose to be carried out and paid but not existing in the contract.
Case law: Parkinson v Commissioners of Works (1949)
The contractor had agreed to carried out certain work on a cost plus profits basis subject
to the total profit recoverable limit. And the commissioners of the work was entitled to
instruct works up to 5 million under the contract but the instruced actual work up to
6.6million, thus exceeding the contract value. The court of appeal found that the
additional work was outside the contract and thus the contractor was entitled to be
paid on a quantum meruit basis, which is beyond the total fixed profit under the
contract. 26
27. QUANTUM MERUIT
2. Where parties to a contract proceed on the mistake basis that there is an
enforceable contract, but later found out that there is no valid contract.
Case Law: Ayer Itam Tin Dredging Malaysia Bhd v YC Chin Enterprise Sdn
Bhd (1994)
The parties are still negotiating and didnt intend to bound until a formal
contract was made. The letter of intent did not form a bound contract at law
but was only to record terms agreed by the parties as a basis for contract
negotiation. As on the question of compensation for the work done prior to the
dispute, the judge held that a claim on a quantum meruit basis for the
preliminary work carried out on the site was successful but was subject to max
limit RM300,000
27
28. QUANTUM MERUIT
3.Where one party requested the other for services which are not provided or
governed by any contract.
Case Law: Constain Civil Engineering Ltd v Zanen Dredging & Contracting Co
(1997)
The instruction given did not constitute authorized variations of the subcontract
works because they required the works to be work which are outside the scope
of the subcontract which entitling the subcontractor to payment on a
quantum meruit basis.
28
29. QUANTUM MERUIT
29
4. Where the contract has been discharged by the operation of the doctrine of
frustration.
Case law: BP EXploration Co ( Libya) v Hunt (No 2) (1982)
BP entered an agreement with Hunt, under which BP would explore and
develop his oil concession in Libya at their own expense. This expenditure
would be recoverable from Hunt’s share of the profits when the field
produced oil. After oil production began, the parties would share both
production and development costs. Oil came on stream in 1967 but in 1971
the Libyan government capture BP’s interest. BP had not received all its initial
expenditure from Hunt’s share, and claimed a just sum under s1 Law Reform
(Frustrated Contracts) Act 1943.
(Change of Government ‘Politic’)
30. QUANTUM MERUIT
30
5. Where the contract has been repudiated by the Employer and the Contractor
choose to claim for damages for breach of contract or quantum meruit in restitution
for the work performed.
Case Law: Renard Construction Ltd v Minister of Public Works (1992)
The court held that a claim in quantum meruit following a wrongful
termination should be quantified on reasonable remuneration basis, not
value of work done basis.
31. QUANTUM MERUIT
31
6. Where the contract contains an expressed agreement to pay reasonable sum or
on similar term.. For example, Clause 11 - Variation, Clause 11.7 - Additional
expenses or loss and/or expense cause by variation, Clause 24.0 - Loss and Expense.
Case Law: Laserbore Ltd v Morrison Biggs Wall Ltd (1993)
The learned Judge in deciding the meaning of the term ‘fair and reasonable
payments for all works executed’, considered that the cost-plus-profits basis
was wrong principle however sometimes it may produce right result. The
Judge held that in assessing quantum meruit claim the appropriate approach
was to adopt general market rates or fair commercial rate.
33. What are the 2 limbs mentioned by the case of
hadley V. BAXENDALE?
33
34. WHAT ARE THE REMEDIES AVAILABLE TO THE CONTRACTOR IF
ISSUE OF NON-PAYMENT BY EMPLOYER ARISE ?
34
▣ The contractor can suspend execution of works until such time payment is made
(Clause 30.7)
▣ The contractor can claim interest on unpaid amount (Clause 30.17)
▣ If non-payment persists, the contractor can terminate his own employment (Clause
26.1(a))
▣ Construction Industry Payment and Adjudication Act (CIPAA)
35. WHAT IS A DIFFERENCES BETWEEN NORMAL
CONTRACT AND QUASI CONTRACT?
35
CONTRACT QUASI CONTRACT
A legally enforceable agreement made
between two parties
An unintended contractual relationship
between two parties created and enforced
by the court
BREACH OF CONTRACT UNJUST ENRICHMENT
DAMAGES QUANTUM MERUIT
36. Any legal rule need to be follow when assessing reasonable sum?
Based on guidance is given in the fifth edition of Keating on Construction Contracts, at page
80:
▣ The courts have laid down no rules limiting the way in which a reasonable sum is to
be assessed.
▣ The contractor should be paid at a fair commercial rate for the work done.
▣ Useful evidence in any particular case may include abortive negotiations as to
price, a calculation based on the net cost of labour and materials used
plus a sum for overheads and profit, measurements of work done and
materials supplied, and the opinion of quantity surveyors, experienced
builders or other experts as to a reasonable sum.36
37. Any legal rule need to be follow when assessing reasonable sum?
▣ Case Law: Laserbore Ltd v Morrison Biggs Wall Ltd (1993)
▣ The Judge say that cost-plus-profits basis wrong approach, and the
appropriate approach was to adopt general market rates or fair commercial
rates.
37
In the event of breach of contract, there are 4 remedies available to the innocent party
- which is the statutory enunciation of Hadley v. Baxendale.
- This case confer 2 possible grounds of claiming damages and known as the first and second limb of Hadley v. Baxendale.
- The first limb is direct damages arises naturally from the breach of the contract where each party being deemed aware of such natural matters.
- The second limb is indirect loss or consequential damages which are damages within the reasonable contemplation of the parties at the time of entering the contract means the damages have been made known to both parties at the making of the contract.
Provided the damages is not too remote
An example of breach of contract by the contractor
- A breach of contract is when one party fails to perform his contract obligations and has no legal excuse for non performance
- which treat the contract as subsisting
which is the total sum of anticipated monthly receipts for remaining months deducting the cost of providing such services provided this loss of profit is contemplated by both parties when they enter the contract
The decision to end the contract / keep it alive depends on the consideration of the project profitability of the remaining works
Amounts to repudiation
BRANI - The court of appeal Singapore held that a mere failure or delay in making payment itself would not amount to repudiation BUT if this failure goes beyond just stalling for time and indicates an intention to not pay at all, then this amounts to an intention not to perform the contract
C NORMAN - The owner made hundreds of substantial changes to the works and the californian appeal court held that the effect of these changes fundamentally changes the scope of works under the contract which entitle the contractor to bring the original contract to an end.
In the above 2 cases, the effect of bringing the contract to an end is to relieve both parties from their contractual duties and rights to demand performance.
The defaulting party still have the obligation to pay damages to the innocent party who has the right to be compensated
Where the breach is not of a serious nature that goes to the root of the contract which entitles the innocent party to end the contract, the legal redress is an action in damages.
For commercial reasons, the contractor prefer to bring an action for damages rather than bring the contract to an end. For instance, in PAM contract 2006, the contractor can claim for extension of time under relevant event in clause 23.8f and loss and expense in clause 24.3(b) of delay by the employer in giving site possession.
However, in the case of Carr, the court held that if the delay is so serious and there is indication by the owner not to bound by the contract, the contractor is entitled to end the contract
The court stated that there the employer and architect have the obligation to issue plans and necessary details for the execution of works within a reasonable time. A breach of this obligation entitle the contractor to a course of action in damages
Where this nomination affects the progress of the works.
The contractor then can claim for remedies under the contract
For example, direct contractor/ specialist contractor directly appointed by the Employer
In which the party need to prove and justify the remoteness and have an appropriate assessment of the amount
The federal court held that the innocent party claims damages from the defaulting party due to breach of contract has to show that the loss in respect to his claim for damages in caused by the breach and that the damages are not too remote to recover
The court held that the respondent has the duty to take reasonable steps to mitigate the damage by just incurring additional expense for hauling the timber logs up to the sawmill instead of purchasing the logs from elsewhere and
The appropriate damages awarded is the approximate cost of hauling the logs to the sawmill instead of the new purchase amount of the timber logs.
To conclude, the duty to mitigate is on the part of the claimant to take all reasonable steps to reduce the extent of damage or loss suffered as a result of a breach of contract
Equitable remedies don't relate so much to monetary(Money) damages. More on action
Examples of equitable remedies include remedies obtained in situations involving a breach of contract. These remedies don't relate so much to monetary(Money) damages as they do to fairness.
Undue hardship- an action required significant difficulty to the defendant.Eg. ask defendant to Breaks another law
Drawn by Leonardo da Vinci's , Name: Salvator Mundi
Prohibitory- employer suspend the work through to his financial difficulty, and in order to prevent employer remove the material on site the contractor can apply for prohibitory injunction to prevent the employer enter the site.
Mandatory- After terminate the contractor, so dont let the contractor to enter the site by apply mandatory injunction
For Specific Purpose- Court order defendants to commit an act related to the case/contract
Eg. If X contracts with Y to sing for 12 month at Y theatre and not to sing elsewhere, Y cannot obtain specific performance of the contract to sing but he can secure an injunction to restrain X from singing other place.
Additional work was outside the contract
Letter of Intent, didnt constitute to bound a contract(nego)
Additional work was outside the contract
Frustration - Block, eg Fire happenIn the event of a frustrated contract:
Money paid before frustrating event is to be repaid
Sums due for payment cease to be payable
Expenses incurred may be retained/recovered if incurred in the performance of the contract and before frustrating event
The Law Reform (Frustrated Contracts) Act 1943, is an Act of Parliament which governs the liabilities and the rights of those parties who are involved in a frustrated contract in the United Kingdom. The Act provides a different approach to that of the common law at the time which did not permit a party in a frustrated contract to recover the money that had been paid ahead of a contract becoming impossible to perform.
Repudiated- Reject or abondanWrongful termination,Eg: Contractor submitted payment and consultant certified but not yet paid. However, contractor found out that employer wrongly terminated so contractor may take quantum meruit to claim for those certified based on reasonable remuneration instead of value of work done basis.
Remuneration includes salary, commission, compensation, and wages.
Salary consists of yearly gross wages. Eg basic salary.
Adopt general market rates not based on cost plus profits basis.Explanation of reasonable sum
Note: Unjustly Enriched means profited at the expense of another without making an effort restitution(replacement/surrender/compensation)Quasi contract eg: Letter of Intent, employer give contractor LOI and stated that need to carry out some work. After contractor carry out those work however the contractor and employer unable to form a contract during nationalisation so this may cause their relationship come to an end.In order for contractor to calm for their work done, them may use Quantum meruit.
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Link For Further reading :Fair and Reasonable Payment
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Link For Further reading :Fair and Reasonable Payment