CAN AN EXTENSION OF TIME BE GRANTED WHERE THERE IS NO CONTRACTUAL PROVISION FOR EXTENSION OF TIME?

Introduction

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To claim liquidated ascertained damages, the contract must have a clause for extension of time for completion.

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In the absence of an extension of time clause, time is set at large upon occurrence of the employer's acts of prevention that delayed the timeous completion of the works by the contractual stipulated date of completion and the main contractor is only obliged to complete the works within a reasonable time[1]. In such a situation, the employer forfeits its right to impose and recover liquidated damages stipulated in the contract for late completion.

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In such a case, the employer is left to prove general damages as he may have suffered[2].

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A different dimension to this principle

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However, can an extension of time be granted where there is no contractual provision for extension of time? What happens if parties have entered into a bespoke contract where is a liquidated ascertained damages clause but no extension of time clause? Accordingly, during the course of the works, the contractor had applied for extension of time and the superintending officer had granted it. Is the extension of time which was granted valid? Is time to complete the works still set at large?

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This novel point of law is addressed in Era Kemuncak Jaya (M) Sdn Bhd v Tenaga Switchgear Sdn Bhd [2021] MLJU 1855. In this case, the Plaintiff was appointed by the Defendant (main contractor) as its subcontractor to perform civil works for Tenaga Nasional Berhad (TNB). The subcontractor filed a suit against the main contractor, for among others, the value of unpaid works done, prolongation costs and losses incurred due to the wrongful termination by the main contractor.

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In this case, among the issues that arose before the High Court were as follows:

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(a)???????? As the agreement was silent on EOT, did the Defendant have an implied contractual right to grant an EOT? This is a novel issue.

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(b)??????? Did the agreement require an EOT application to be made by the Plaintiff before the Defendant could give the EOT?; and

(c)???????? If the Defendant had granted an EOT to the Plaintiff, is the Defendant estopped from denying the EOT?

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The learned Judge held that the main contractor has an implied contractual right to give an extension of time to the sub-contractor despite the absence of an extension of time provision in the contract.

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Further, there is no requirement for the subcontractor to apply for an extension of time before the main contractor’s implied right can be exercised. This is because even if the subcontractor has not applied for an extension of time, the main contractor’s implied right can still be exercised as the main contractor sees fit.

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The learned Judge also held that the main contractor was estopped from denying any extension of time granted to the subcontractor[3]. On the facts, the main contractor had granted 4 EOT’s to the subcontractor.

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The reasoning of the learned Judge is explained below.

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The High Court held that the Defendant has an implied right to grant an EOT based on the Federal Court case of Sababumi (Sandakan) Sdn Bhd v Datuk Yap Pak Leong?[1998] 3 MLJ 151, at 169-170, where the court can imply a contractual term if the following two tests (2 Tests) are fulfilled cumulatively -

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(a) if an “officious bystander” is asked regarding the Defendant’s Implied Right, what would be the answer of the officious bystander (Officious Bystander Test)?;?and

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(b) is it necessary to give business efficacy to the Agreement for the court to imply the Defendant’s Implied Right in the agreement (Business Efficacy Test)?

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The cumulative application of the 2 Tests is as follows –

(a) ??? the Officious Bystander Test is fulfilled because if an officious bystander is asked whether the Defendant has an implied contractual right grant an EOT for the Plaintiff to complete the works in the Project, the officious bystander would have unhesitatingly answered “of course”; and

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(b) ??? the Business Efficacy Test is satisfied as it is necessary to give business efficacy to the agreement for the Defendant’s Implied Right to be implied by the court in the agreement.

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Key takeaways

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Era Kemuncak is an interesting decision and adds another dimension to the law regarding extension of time which was thought to be settled. Future development of the law in this area would be helpful.

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For now, it is arguable that an extension of time can still be granted when there is no contractual provision for extension of time. Potentially, this means that if an employer has granted an EOT to the contractor but the contractor still cannot complete the works by the extended completion date, the employer may exercise its rights to impose LAD because time will not be set at large.

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This material is for general information only and is not intended to provide legal advice. If you have any queries on matters related to the above, please contact the author at [email protected]

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[1] RC Asia Engineering Sdn Bhd v Lion Pacific Sdn Bhd?[2021] 1 LNS 1667, [2021] MLJU 1796 at para [35]

[2] Peak Construction (Liverpool) Ltd v McKinney Foundation Ltd (1970) 1 BLR 1, Cubics Electronics Sdn Bhd (in liquidation) v Mars Telecommunications Sdn Bhd [2019] 6 MLJ 15

[3] The High Court followed the Federal Court cases of Boustead Trading (1985) Sdn Bhd v Arab-Malaysian Merchant Bank Bhd [1995] 4 CLJ 283 at 294 and 295 and Usima Sdn Bhd v Lee Hor Fong (trading under the name and style of Pembinaan LH Fong [2017] 5 MLJ 273 at [50])

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