Legal Update Construction Law 2

CLIENT UPDATE
3 April 2020
IMPACT OF THE CORONAVIRUS (COVID-19) OUTBREAK ON

CONSTRUCTION LAW
a) Potential disruptions and impact on existing and future For enquiries please contact:
construction projects arising from the MCO and Covid-19
Rajendra Navaratnam
outbreak Partner
+603 2164 0200 (ext no. 138)
For construction projects, all works are to be stopped. Only critical works which if raj.navaratnam@azmandavidson.
com.my
discontinued would lead to danger and/or harm to the workers, the public or the
environment are allowed. As such, Contractors or Sub-Contractors would Chu Ai Li
inevitably be concerned that they will be held responsible for delay. Employers Partner
may also be facing consequences of delay from the purchasers or users of the +603 2164 0200 (ext no. 123)
[email protected]
facilities to be built, if applicable.
Mak Hon Pan
Partner
b) Suggested solutions / remedies +603 2164 0200 (ext no. 120)
mak.honpan@azmandavidson.
com.my
Force Majeure or Frustrating Event?
Force Majeure
See above for general discussion on Force Majeure clauses.
In the de facto standard form building contract in Malaysia, which is the PAM 2006
Contract, there is a Force Majeure provision in Clause 23.8(a) which definition
would appear to cover the present situation.
For public projects, the standard form of contract used would be the JKR 203
Standard Form of Contract. The definition of “force majeure” in Clause 57.2
(Clause 58.2 - Rev 2010) of the JKR Contract is not clear as whether it would
cover the Covid-19 or the MCO.
Frustrating Event
It is arguable that MCO and Covid-19 could be treated as a frustrating event
entitling the parties to treat the contract as void as becoming impossible to perform
after the contract was made pursuant to s. 57(2) of the Contracts Act 1950.
Extension of Time
Simple Non-Standard Contracts

This will depend on whether there are extension of time provisions, and if the delay
events include epidemics, government order and etc. This is unlikely to be the
Azman Davidson & Co., Suite 13.03, 13th Floor, Menara Tan & Tan, 207 Jalan Tun Razak 50400 Kuala Lumpur, Malaysia
www.azmandavidson.com.my
Advocates & Solicitors • Chartered Arbitrators • Adjudicators • Mediators • Notary Public
Patent Agent • Trademark Agent • Industrial Designs Agent
A member of Legalink (www.legalink.ch), an international association of independent law firms with 69 offices in 60 countries.
case in simple contracts. In such a situation, the delay is likely to be at the
contractor’s risk, unless it is such as to frustrate the contract.
PAM 2006
The MCO would constitute a “Relevant Event” entitling the contractor to make an
application for extension of time to the Architect under the Clause 23.8(a), (d),
(p), and (w) of PAM 2006, provided that the conditions precedent as to notice and
particulars of delay are complied.
JKR Contract
A contractor is allowed to apply for extension of time for force majeure. However,
the definition of “force majeure” does not include epidemic as was done in PAM
2006. Resort must be had to Clause 43.1 (i) of the JKR Contract to claim for
extension of time on the grounds of inability to secure goods, materials and/or
services during the MCO.
Loss and Expense Arising from the Delay
Simple Non-Standard Contracts

As MCO and Covid-19 are not caused by the Employer, it is what is called a
“neutral event” and there will not be any basis for compensation for delay.
PAM 2006
In short, the events provided for in Clause 24.3 of the PAM 2006 all require the
delay events to be somewhat attributable to the Employer, architect or
consultants. As mentioned above, the MCO and the Covid-19 outbreak are neutral
events and do not fall within any of the event provided for in Clause 24.3 of the
PAM 2006.
JKR Contract
Similarly, for public projects, the events that would entitle the Contractor to claim
for loss and expense under Clause 44 of the JKR Contract is limited to those
stipulated in Clause 43,1 (c), (d), (e), (f) and (h). Given that the MCO and the
Covid-19 pandemic do not fall within any of the said provisions, the Contractor will
not be able to claim for loss and expense.
For the Employer
Simple Contract
Under a simple contract in theory the risk for the MCO would likely be the
Contractor’s, so there is a theoretical risk the Employer can claim damages for
delay, although it is unlikely to be pursued in practice.
PAM 2006 and JKR Contracts

Subject to compliance with the contractual requirements for notification etc, under
these contracts’ Contractors would be entitled to an extension of time, so it is very
unlikely that the Employer would be able to impose liquidated damages on the
Contractor.
Azman Davidson & Co., Suite 13.03, 13th Floor, Menara Tan & Tan, 207 Jalan Tun Razak 50400 Kuala Lumpur, Malaysia
www.azmandavidson.com.my
Advocates & Solicitors • Chartered Arbitrators • Adjudicators • Mediators • Notary Public
Patent Agent • Trademark Agent • Industrial Designs Agent
A member of Legalink (www.legalink.ch), an international association of independent law firms with 69 offices in 60 countries.

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CLIENT UPDATE

IMPACT OF THE CORONAVIRUS (COVID-19) OUTBREAK ON

Simple Non-Standard Contracts

Loss and Expense Arising from the Delay

Simple Non-Standard Contracts

For the Employer

PAM 2006 and JKR Contracts

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