In the recent Court of Appeal decision of PSI Incontrol Sdn Bhd v Ircon International Limited  MLJU 239, the Court of Appeal of Malaysia examined the contractual procedures and notice requirements for extension of time (“EOT”) and loss & expenses (“L&E”) under the Conditions of Contract for Design and Build Contract PWD Form DB (Rev. 2007) (“PWD Form DB”).
Brief Background Facts
Disputes arose out of a construction contract between Ircon International Limited (“Ircon”), who was the main contractor and PSI Incontrol Sdn Bhd (“PSI”), who was Ircon’s subcontractor for the construction and completion of the works relating to “the Electrified Double Track project between Seremban (KM 461.234) to Gemas (KM 564.000) Stations” (“Project”). The subcontract documents consist of, inter alia, the letter of award executed between the parties and the Conditions of Contract for Design and Build Contract PWD Form DB (Rev. 2007).
Some of the material terms of the subcontract are as follows:
- a) The procedures governing a claim for EOT are set out in Clause 49.1 of the COC;
- b) PSI is only entitled to claim for direct L&E incurred arising out of delay events under Clauses 49.1(b), (d), (e), (h) or (i) of the PWD Form DB;
- c) The procedures governing such a claim for the L&E are set out in Clause 50.1 and 50.2 of the PWD Form DB. Non-compliance with the mandatory requirements thereunder shall discharge Ircon from any liability arising therefrom.
Subsequent to certain claimed delay events, PSI submitted application for an EOT and claimed for L&E. The Project Director (“PD”) had granted an EOT of 606 days to PSI, but did not allow PSI’s claim for L&E on the basis that Ircon had imposed a comprehensive denial of any claims for compensation by PSI, and that PSI had failed to comply with the notice requirements as set out in Clause 50.1 and 50.2 of the PWD Form DB. PSI commenced court proceedings against Ircon to pursue its claims for L&E, amongst others.
Findings of the High Court
In the High Court, the learned Judicial Commissioner (“JC”) dismissed PSI’s claim for L&E. The learned JC found inter alia that PSI had failed to comply with the conditions precedent set out in the contract for the claim for EOT and L&E, and that notwithstanding the PD had granted an EOT, PSI was not entitled to claim for the L&E as the relevant notice requirements to claim for L&E were not complied with by PSI. Dissatisfied with the High Court’s decision, PSI appealed to the Court of Appeal.
Findings of the Court of Appeal
The Court of Appeal allowed PSI’s appeal and granted PSI’s claim for L&E in full. In coming to its decision, the Court of Appeal had made some findings on the provisions in PWD Form DB.
On the issue of EOT, the Court of Appeal’s findings can be summarised as follows:
- a) Pursuant to Clause 49 of PWD Form DB, a contractor seeking to claim for an EOT shall give written notice to the PD of the cause of delay, and to submit any relevant information with supporting documents forthwith once the delay event becomes reasonably apparent. It was held that PSI had complied with this requirement as a written notice was issued one month after the occurrence of the delay event.
- b) When making an EOT application, a contractor is not required under the PWD Form DB to specify the contractual limb/category of delay event(s) on which the contractor relies. The PD must assess whether the delay event falls within the limbs. In the event that the PD grants an EOT application without specifying the relevant limbs in the EOT certificate, the PD is deemed to accept that at least one of the limbs is fulfilled.
- c) The fact that an EOT of 606 days was granted to PSI, shows that the PD must have been satisfied that all the pre-conditions of the said Clause 49 have been fulfilled.
On the issue of L&E, the Court of Appeal’s findings can be summarised as follows:
- a) Pursuant to Clause 49.2 of PWD Form DB, Ircon’s refusal to entertain claims for L&E when granting an EOT can only be justified if Ircon had expressly stated that the cause of delay did not fall under the limbs under Clause 49.1(b), (d), (e), (h) or (i) (which give rise to L&E entitlement).
- b) PSI had given Ircon proper notice of its’ intention to claim for L&E by virtue of the fact that PSI had expressly indicated in its notice of delay that “we will be submitting our claim for EOT covering all direct and indirect cost in line with our contract subsequent to this letter.”
The L&E clause in PWD Form DB encompasses L&E which the contractor “has incurred or is likely to incur”. It was held that a contractor claiming L&E which it is “likely to incur” must necessarily involve a projection of such costs
The Court of Appeal’s decision in this case of PSI Incontrol had certainly provided some clarification on the EOT and L&E provisions in PWD Form DB, the main takeaways in this case are as follows:
- a) The burden of assessing and deciding the contractual limbs of delay events falls on the contactor administrator of the project. It is not necessary for a contractor seeking an EOT to expressly specify which contractual limb/category it relies on.
- b) In rejecting a contractor’s claim for L&E, once a contract administrator grants an EOT, the contract administrator must specify that the EOT is granted under limbs which do not give rise to entitlement to L&E entitlement. Clause 49 does not allow the party to unilaterally impose a blanket refusal to entertain any claims arising from the EOT.
- c) A notice of intention to claim for L&E as required under the PWD Form DB can be as simple as a generic sentence indicating that the contractor will be submitting its claim for L&E.
- d) Where an L&E clause encompasses L&E incurred or “likely” to be incurred, the contractor could submit a claim based on a mere projection of L&E without actual proof that such cost had already been incurred as a result of the delay event(s).
This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice.
About the Author
Ooi Hui Ying
Harold & Lam Partnership