CHAPTER 1 Principles of Law

What is Law?

Law has many definition

The written and unwritten

body of rules largely
derived from custom and
formal enactment which are
recognized as binding
among those persons who
constitute a community or
state, so that they will be
imposed upon and enforced
among those persons by
appropriate sanctions
Curzon
A command set by
superior being to an inferior
being and enforced by
sanctions (punishment)
John Austin
Law is not synonymous with
JusticE

What is Law?

Law is a system of rules

that people are supposed to
follow in a society or a
country.
To follow the laws of a
society is to do legal things.
An activity is illegal if it

breaks a law or does not

follow the laws.
In ancient societies, laws
were written by leaders, to
set out rules on how people
can live, work and do
business with each other.
Today in most countries,
laws are written and voted
on by groups of elected
politicians in a legislature,
such as a parliament or
congress.

What is Justice?

Justice refers to fairness or

rightfulness; it is a moral
value to which the law is a
means towards its
attainment
The famous latin legal
phrase: fiat justitia ruat
caelum
Let justice be done though
the heaven falls

organized it, and then had it

chiseled in stone for the public to
see in the marketplace. These
laws became known as the Codex
Hammurabi.
The Torah from the Old Testament
is probably the oldest body of law.
It was written in about 1280 BC. It
has moral rules such as the Ten
Commandments, that tell people
what acts are not permitted.
Classification of Law
Law regulates the citizen in their
relations with the State
(government) and with one
another. An easy way to see how
it operates in the legal system is
to classify it in the light of its
relationship. Law can be classified
into public and private law.
Public Law

History of law

Public law regulates the

relationship between the citizen
and the state

The history of law is closely

connected to the development of
human civilisations. Ancient
Egyptian law developed in 3000
BC. In 1760 BC King Hammurabi,
took ancient Babylonian law and

It is further divided into areas of

law dealing with different types of
matters affecting the citizen-State
relationship namely, constitutional
law, administrative law and
criminal law.

Public Law 3 types

Constitutional law
defines the structure of
government and the rights
of inviduals under that
government. (is used to
create laws on how
different levels of
governments can act and
on human rights.)
Administrative law
regulates the duties and
exercise of powers by
administrative authorities
(is used by ordinary citizens
who want to challenge
decisions made by
governments.)
Criminal law (familiar to
most people) concerns
those acts or omissions
which are offences against
the State and for which
offender is liable to be tried
and, if found guilty ,
punished. (is used by the
government to prosecute
and punish people who
break laws.)

Private Law

Private law (sometimes referred to

as civil law) regulates relationship
between citizens and may further
divided according to the way of
how it regulates the relationship.
It includes contract, tort, trust,
land, family, company,
partnership, agency and
commercial law.
Legal action is normally
undertaken at the initiative of the
individual

save up for their

retirement.
Tort law helps people to
make claims for
compensation (repayment)
when someone hurts them
or hurts their property.
Private Law
The party commencing an action
is referred to as the plaintiff and
the other party being sued is the
defendant.
The action is called civil
proceeding and the procedure
governing it is quite different from
criminal proceeding which is a
prosecution of an offender for an
alleged offence.

Types of Private Law

Contract law sets rules on
agreements to buy and sell
items and services.
Property law states the
rights and obligations that a
person has when they buy,
sell, or rent homes and
buildings.
Trust law sets out the
rules for money that is put
into an investment, such as
pension funds that people

The law of contract is the most

important because it
encompasses all sorts of
commercial and non-commercial
transactions.
The Common Law
o

Refers to law laid down by

judges judge -made laws
sitting in the Superior
Courts as distinct from
statute law enacted by the
legislation

It comes from England and

it became part of almost
every country that once
belonged to the British
Empire, except Scotland,
and the Canadian province
of Quebec. Common law
had its beginnings in the
Middle Ages, when King
John was forced by his
barons to sign a document
called the Magna Carta,
which limited his authority
to pass laws. Over time it
developed solid principles.

Religious Law

Religious law is law based

on religious beliefs or
books. Examples include
the Jewish Halakha, Islamic
Sharia, and Christian Canon
law. Until 1700s, Sharia law
was the main legal system
throughout the Muslim
world. In some Muslim
countries such as Saudi
Arabia and Iran, the whole
legal systems still base
their law in Sharia law.

Religious Law - Islamic Law

Applicable only to Muslims

and administered in the
Syariah Courts.
The power to administer
Islamic law is primarily that
of the States (except KLWP
and Labuan).
The Syariah Courts possess
civil jurisdiction in
proceedings between
parties who are muslims,
and limited criminal
jurisdiction over offences by
muslims against the
religion such as not fasting
in the month of Ramadan,
alcohol consumption and
others

Native Law
Personal law applicable to
the natives of Sabah and
Sarawak
Natives are the indigenous
people of these two states
and the legal definition of
Native is found in the
Federal Constitution and
State law

Sources of Law
The main sources of Malaysian
law are:
Federal Constitution
13 Constitution of the
States
Federal laws made by
Parliament
State laws made by State
Assemblies
Federal and state subsidiary
legislation
Judicial decisions of the
Superior Courts often
referred to as common law
or judge-made law
Principles of English law
suitable to local
circumstances
Islamic law which is
applicable to Muslims
The Rule of Law
is the law that says that
Government can only
legally use its power in the
way the government and
the people agree.
It limits the powers a
Government has, as agreed
in a country's constitution.

 The Rule of Law prevents

dictatorship and protects
the rights of the people.

When leaders enforce the

legal code honestly, even
on themselves and their
friends, this is an example
of the rule of law being
followed.
"The rule of law", wrote the
ancient Greek philosopher
Aristotle in 350 BC, "is
better than the rule of any
individual."
Professional Engineers and
The Law

Engineers like other

professional people, have a
duty to acquire a working
knowledge of the law as it
affects their professional
work
In the case of an engineer
the relevant fields of law
are notably those of
contract, especially the
standard forms of building
contract, and the various
statutory regulations, such

as the Building Regulations,

planning law, health and
safety law, procurement
law, and the like
Professional Engineers and
The Law

Although, an engineer is
not expected to know all
the law in depth, but he is
expected to ensure that his
client does not suffer from
the absence of his own
legal knowledge.
He is expected to know
enough law and shall be
aware of the circumstances
in which specialist legal
advice is needed.
He should then advise his
client to obtain legal
advice.
Alternatively, he should
himself instruct a barrister
directly.
An engineer will also want
to know about the areas of
law which affect him or her
personally.
When can he be sued?
How can he sue for his
fees?

When is copyright in his

design
protected?
How should he insure?
What is the legal
relationship between him
and his employer, or
between him and his
employees?

COURT OF APPEAL
SPECIAL COURT
HIGH COURT
SUBORDINATE COURT
- Sessions court
- Magistrate court
- Juvenile court

Federal Court

CHAPTER 2 The Malaysian

Legal System
The Federal Constitution provides
that power is exercised by the
legislative, the executive and the
judiciary.
The Malaysian Legal System
consists of the Judiciary, the
Attorney General Chambers and
the Law Firms.

FEDERAL COURT

The Federal Court is the

highest judicial authority in
the country. It was
established pursuant to
Article 121(2) of the Federal
Constitution. Its decision
binds all the courts below.
The Federal Court hears
appeals from the Court of
Appeal. Leave to appeal
must always be obtained
prior to proceeding with the
appeal.

Headed by the Chief

Justice. It consists of the
Chief Justice, the President
of the Court of Appeal, the
two Chief Judges of the two
High Courts and seven
other judges.
All its members are
appointed by the Yang di-

Pertuan Agong, acting on

the advice of the Prime
Minister, after consulting
the Conference of Rulers.
Every proceeding in the
Federal Court is heard and
disposed off by three
judges or a larger uneven
number as the Chief Justice
may determine. In the
absence of the Chief Justice
the most senior member of
the Court shall preside.
Federal Court sits at the
Palace of Justice in
Putrajaya. However, the
Federal Court also goes on
circuit to the major towns of
Penang, Ipoh, Kota Bharu,
Johor Bahru, Alor Setar,
Kuantan, Malacca, Kuching
and Kota Kinabalu.

It consists of the President

of the Court of Appeal and
fifteen Court of Appeal
judges.
The President of the Court
of Appeal and the Court of
Appeal judges are
appointed by the Yang diPertuan Agong, acting on
the advice of the Prime
Minister, after consulting
the Conference of Rulers.
Before tendering his advice
the Prime Minister must
consult the Chief Justice
and the President of the
Court of Appeal.
The Court of Appeal is the
final court of appeal on
matters decided by the
High Court in its appellate
or revisionary jurisdiction.
Special Court

Court of Appeal
Established in 1994
pursuant to Article 121(1B)
of the Federal Constitution.

The Special Court was established

pursuant to Article 182 of the
Federal Constitution to hear any
action civil or criminal instituted
by or against the Yang di-Pertuan
Agong or any of the nine Malay
Rulers.
However, by Article 183 of
Federal Constitution no

action, civil or criminal,

shall be instituted against
the Yang di-Pertuan Agong
or any of the Rulers of
States in respect of
anything done or omitted to
be done by him in his
personal capacity except
with the consent of the
Attorney General
personally.
The Special Court has an
exclusive jurisdiction to try
all offences committed in
the Federation by the Yang
di-Pertuan Agong or any of
the Rulers of the States and
all civil cases by or against
the Yang di-Pertuan Agong
or any of the Rulers of the
States notwithstanding
where the cause of action
arose.
High Court
In Malaysia there are two
High Courts having the
same jurisdiction and
status, that is the High
Court in Malaya and the
High Court in Sabah and
Sarawak.

 The High Court in Malaya

consists of a Chief Judge
and forty-seven judges.
High Court in Sabah and
Sarawak consists of a Chief
Judge and ten judges.
Criminal Division : hears
cases in the exercise of its
original, appellate or
revisionary jurisdiction on
any criminal matter from
the subordinate courts.
Civil Division : hears among
others, actions on
foreclosure, tort and
contracts for services.
Commercial Division : hears
among others, insurance,
companies winding-up,
agency, banking,
intellectual property and
Specific Relief Act cases.
There is further
specialization in the
Commercial Division, in
that, all Islamic Banking
(Muamalat) cases are heard
by a judge in this Division,
who in addition, also hears
other commercial cases.
The Appellate and Special
Powers Division

hears appeals from the

subordinate courts, cases
under the Legal Profession
Act 1976 and judicial review
of administrative actions
and under specific Acts.
Family Division : Formerly,
the Family Court was part of
the Civil Division. Now, it is
a Division by itself and
hearing matrimonial cases
under the Law Reform
(Marriage and Divorce) Act
1976.
Sessions Court
A Sessions Court has the
jurisdiction to hear both criminal
and civil cases and is presided by
a Sessions Court Judge.
1. Criminal Jurisdiction
A Sessions Court has the
jurisdiction to try all offences
other than offences punishable
with death. Except for the
sentence of death, a Sessions
Court may pass any sentence
including natural life sentence.
2. Civil Jurisdiction
The Sessions Court is empowered
to deal with all claims where the
amount in dispute is more than

RM25,000-00 up to the value of

RM250,000-00. It also has
unlimited jurisdiction to hear
matters involving motor vehicle
accidents, disputes between
landlord and tenant and distress
proceedings.

Magistrates Court
For the Federal Territory,
Magistrates are appointed by Yang
di-Pertuan Agong on the
recommendation of the Chief
Judge. In each of the States,
Magistrates are appointed by the
State Authority on the
recommendation of the respective
Chief Judges.
1. Criminal Jurisdiction
A First Class Magistrate has
jurisdiction to try all offences for
which the maximum sentence
does not exceed ten years
imprisonment or with fine only.
However, the Magistrate, may not

impose a term of imprisonment

exceeding five years.
2. Civil Jurisdiction
A First Class Magistrate has the
jurisdiction to hear all actions and
suits of a civil nature where the
amount in dispute or value of the
subject matter does not exceed
RM25,000-00.
Where the amount claimed does
not exceed RM5,000-00, you may
wish to file your claim in the small
claims division of the Magistrates
Court. For these small claims, the
procedure is less formal and you
must be prepared to conduct the
case yourself, as legal
representation (lawyer) is not
permitted.
Juvenile Court
Court for Children was
established under the Child
Act 2001. Section 2 of the
Act defines Child as a
person under the age of
eighteen years, and for the
purposes of criminal
proceedings, means a
person who has attained
the age of ten.

Only members and officers

of the court and the
children who are parties to
the case including their
parents or guardians are
allowed to attend the
hearing.
If a child is found guilty of
an offence, he shall not be
imprisoned, but among
others, may either be sent
to an approved school or
released on bail.
For capital offences, the
child shall be detained in
prison at the pleasure of
the Ruler.

The Malaysian Bar is a creature of

statute established under the
Advocates and Solicitors'
Ordinance 1947 which ordinance
was subsequently repealed by the
Legal Profession Act 1976. It is an
independent Bar whose aim is to
uphold the rule of law and the
cause of justice and protect the
interest of the legal profession as
well as that of the public.

Law Firms
These are law firms that provide
services to the public that wanted
to pursue any complaint or defend
themselves against a complainant
to the court against another party
either individual, organization or
government.

They usually put a large amount

of fees for the service that they
provided. They represent and
speaks for their client in the court.
Bar Council

CHAPTER 3 The Contract Law

The Contract Law
Definition of contract:

A legally binding agreement

between two or more parties by
which rights are acquired by one
or more to acts or forbearances
on the part of the other or others.
Sir William Anson
A binding agreement between two
or more persons which creates
mutual rights and duties and
which is enforceable at law.
Engineering Contract Dictionary
Sources of the Contract Law
Written Law
Legislation
+ Contract Act 1950 (Act
136)
+ Civil Law Act 1956 (Act
67)
+ Sale of Goods Act 1957
(Act 382)
+ Specific Relief Act 1950
(Act 137)
+ Insurance Act 1996 (Act
533)
Unwritten Law
Judicial Decisions
o + Case Law
+ Judicial Precedent

Elements of a Contract
The basic elements which are
necessary for the creation of a
legally binding and enforceable
contract;
A clear or firm offer or
proposal
+ section 2(a), Contract Act
1950when one person signifies
to another his willingness to do or
to abstain from doing anything,
with a view to obtaining the
assent of that other to the act or
abstinence, he is said to make a
promise
+ Tun Salleh Abbas Fj in Preston
Corp Sdn Bhd v Edward Leong15
An offer is an intimation of
willingness by the offerer to enter
into a legally binding contract. Its
terms either expressly or impliedly
must indicate that it is to become
binding on the offerer as soon as
it has been accepted by the
offeree.
An unqualified
acceptance of the
offer/proposal
+ Engineering Contract
Dictionary an offer is an

expression by one party of

willingness to be bound by some
obligation. If an offer is accepted,
a binding contract results

+ Section 2(b) of the Contracts

Act 1950 When the person to
whom the proposal is made
signifies his assent thereto, the
proposal is said to have been
accepted. A proposal, when
accepted, becomes a promise
Intention to create legal
relations
+ both parties must show an
intention to enter into a legally
binding agreement
+ in express form - the
acceptance is made in words, i.e.
oral or written
+ implied form the acceptance
is made other than in words e.g.
by conduct
Consideration
+ each party must contribute
something in reciprocation of the
others promise

+ engineering contract
dictionary... Something which is
given, done or foreborne by one
party in return for some action or
inaction on the part of the other
party. It must have some legal
value

majority according to the law to

which he is subject, and who is of
sound mind, and is not
disqualified from contracting by
any law to which he is subject.

+ Section 2(d)When, at the

desire of the promissor, the
promissee or the other person has
done, or abstained from doing, or
promises to do or to abstain from
doing something, such act or
abstinence or promise is called a
consideration for the promise

+ Section 14 the Contract Act

1950the parties must contract
with free consent, i.e. consent
must not be obtained by coercion,
fraud, duress, misrepresentation,
undue influence, etc.

Certainty
+ the terms of an agreement
must be certain or capable of
being made certain
+ Section 30 Agreements, the
meaning of which is not certain or
capable of being made certain,
are void
Capacity
+ the parties must have legal
capacities to contract
+ Section 11 of the Contracts Act
1950Every person is competent
to contract who is of the age of

Consent

+ a dictionary of lawcompliance
with or deliberate approval of a
course of action. It is not generally
binding if obtained by coercion,
fraud or undue influence.
Legality
+ the contract must be formed
within the boundaries of the law,
its object or consideration must
not be unlawful
+ Section 10(1) of the Contracts
Act 150 reads All agreement are
contract if they are made by free
consent of the parties competent
to contract, for a lawful
consideration and with a lawful

object, and are not hereby

expressly declared void
+ Section 24 follows on sec 10(1)
the consideration or object of
an agreement is lawful unless
* it is forbidden by law
* it is of such a nature that, if
permitted, it would defeat any law
* it is fraudulent
* it involves or implies injury to
the person or property of another
* the court regards it as immoral,
or opposed to public policy
Possibility
+ the contract must be possible of
performance both physically and
morally
+ Engineering Contract
Dictionarya contract which is
impossible to perform is void and
cannot be enforced. A contract
which is possible at the time it is
made but subsequently become
impossible because of some
intervening event is said to be

frustrated. It was originally valid

but may be declared void
Discharge of a Contract by
Breach
What is breach of contract?
+ Dictionary of Law definesThe
refusal or failure by a party to a
contract to fulfill an obligation
imposed on him under that
contract
+ Section 40 of The Contract Act
1950 When a party to a contract
has refused to perform, or
disabled himself from performing,
his promise in its entirety, the
promise may put an end to the
contract, unless he has signified,
by words or conduct, his
acquiescence in its continuance

Timing of breach
+ before performance is due
(anticipatory breach)
+ at the time performance is due
+ during performance of the
contract

Anticipatory Breach of
Contract
+ a breach of contract may occur
even before the time of
performance arrives, i.e. by the
promissor (through words or
conduct) refusing to perform or
disabling himself from performing
his promise before the actual time
of performance.

Breach at the Time

Performance is Due
+ a breach of this category occurs
when the performance under a
contract is due and the promissor
fails to carry out the performance.
Such a failure to perform may be
intimidated by words or conduct
and in law is held to be a
repudiation.
Breach During Currency
of the Contract
+ this is a situation where the
promissor has started his promise
but fails to complete the
performance, i.e. the party to a
contract has repudiated the
contract before the performance
has been fully undertaken

Breach of Contract - Remedies

Remedy The means provided by
the law for a recovery of a right or
a compensation for a wrong.
There are FOUR (4) remedies for
breach of contract:
Damages
+ the compensation awarded by
the court or claimed by the
plaintiff An Engineering Contract
Dictionary
+ the courts estimate
compensation in money, for
detriment or injury sustained by
the plaintiff in contract or tort.
Damages can be general or
special
+ section 74 compensation for
loss or damage caused by breach
of contract, sec 75 and 76
+ explanation: in estimating the
loss or damage arising from the
breach of contract, the means
which existed for remedying the
inconvenience caused by the nonperformance of the contract must
be taken into account

+ when a contract has been

broken, if a sum is named in the
contract as the amount to be paid
in case of such breach or if the
contract contains any other
stipulation by way of penalty, the
party complaining of the breach,
is entitled, whether or not actual
loss is provided to have been
caused thereby, to receive from
the party who has broken the
contract, reasonable
compensation not exceeding the
amount so named or as the case
may be , the penalty stipulated
for
Classification of Damages
+ General, Special, Nominal,
Substantial, Exemplary,
Liquidated and Unliquidated
damages
Settling of Construction
disputes
Disputes means
controversy, debate,
heated contention, quarrel
or difference of opinion
an argument or
disagreement between two
people, groups or countries
discussion about a subject

where there is
disagreement

financing to accomplish their

goals
+ ambiguous contract provision
+ poor communication between
and among parties involved in the
project

Construction disputes
Disputes between the
contractor/construction company
and the
client/owner/employer/customer
usually regarding:
+ delays in getting work done
+ unsatisfactory work
+ customers failure to make
payments

+ reluctance on the part of project

participants to deal promptly with
changes and unexpected changes
+ contract administration
who want to avoid making tough
decision by passing the problem
to higher authority within the
organization
Settling Construction disputes

Consume a lot of time and money

on the part of everyone involved

Disputes can be settled/resolved

through informal resolution
method or formal resolution
method

Common causes of disputes

Informal resolution

+ contract clauses, which are

unrealistically and unfairly shift
project risk to parties who are not
prepared or not able to assume
such risk

+ negotiation the most

appropriate way to resolve
dispute because it is inexpensive
and maintain good relationship
between the parties involved

+ unrealistic expectations on the

part of certain parties (generally
owner) who do not have sufficient

+ Conciliation a conciliator
must be absolutely independent
of the parties to the contract,

bring parties together for open

discussion, do not take sides, do
not make decisions or make
judgement
+ mediation the mediator
consult first with one party and
then with the other and if no
negotiated settlement results the
mediator will make
recommendations to settle based
on his own findings
+ dispute review board the
board have representatives from
each contracting parties and a
mutually agreed impartial third
party and may meet informally for
open and free discussion

right or wrong on selected issues.

The decision can either be binding
or non-binding on all of the parties
when deciding which parties are
to receive an award
+ Litigation is the use of
court system to resolve
disputes. The process is from the
issuance of writ by the plaintiff
appointed lawyer to the court
against the defendant for hearing
and proceedings and finally the
judgment made by the judge.
Both disputed parties appoint/hire
lawyers that will represent them
in court.

Formal resolution
If informal resolution fails and are
not in favour for the parties
involved then the formal
resolution is inevitable even
though it is more complex, takes
longer time, more expensive and
integrity of company exposed to
media and public.
+ Arbitration involve one or
more neutral third parties as an
arbitrator who conduct hearing
according to specified rules and
procedures to determine who is

Non-performance
Failure to perform an
absolute duty required
under the contract.
Remedy
Relief provided to the innocent
party
Breach of Contract
What is it?
How does it occur?
be sure to be able to distinguish
between a breach and situation
where party says other is
breaching when in actuality a
defense has been raised to
enforcement
e.g., Statute of Frauds,
Genuineness of Assent

Breach of Contract and

Remedies
Overview
Contract
Agreement, Consideration,
Capacity, Legality
Breach

Failure to perform agreement, or

failure of consideration
Performance and Breach
If a contractual duty has not been
discharged or excused, the
contracting party owes an
absolute duty (covenant) to
perform the duty.

Breach of contract If a
contracting party fails to perform
an absolute duty owed under a
contract.
Breach of Contract
o
o

Breach of contract may be

either actual or anticipatory.
Actual breach occurs
where one party refuses to
form his side of the bargain
on the due date or performs
incompletely.
Anticipatory breach
occurs where one party
announces in advance of
the due date for
performance that he
intends not to perform his
side of the bargain. The
innocent party may sue for
damages immediately the
breach is announced.

Remedies
At Law
o classic compensation for
injury limited to
o land
o items of value
o money
In Equity
based on principles of justice and
fairness
relief provided through
o specific performance
o injunctions
o rescission and
restitution
Remedies at Law
Damages is the basic remedy for
breach of contract.
It is a common law remedy that
can be claimed as of right by the
innocent party.
Compensation for loss of the
Benefit of the Bargain
Most common remedy

Types of Performance

... innocent party to be placed in

the position they would have

Type of
Performa
nce

Legal
Consequence

Complete
Performa
nce

The contract
is discharged.

Substant
ial
Performa
nce
(minor
breach)

The nonbreaching
party may
recover
damages
caused by the
breach.

Inferior
Performa
nce
(material
breach)

The nonbreaching
party may
either:
(1) Rescind
the
contrac
t and
recover
restituti
on, or
(2) Affirm
the
contrac
t and
recover
damage
s.

occupied had the contract been

fully performed...

Four Types of Damages

o
o
o
o

Compensatory
Consequential (Specials)
Punitive
Nominal

Compensatory Damages

Award of money intended

to compensate a nonbreaching party for the loss
of the bargain.
They place the nonbreaching party in the same
position as if the contract
had been fully performed
by restoring the benefit of
the bargain.
The amount of that will be
awarded for breach of
contract depends on:
The type of contract
involved, and
Which party breached the
contract.
Special types of contracts:
Sale of Goods
Construction Contracts

Employment contracts
Land contract
Compensation for the loss
of the benefit of the bargain
Injuries must be actually
sustained
Must arise directly from the
loss of the bargain
Sale of Goods contract
Seller Breach
Benefit of Bargain?

Sale of Land contract

Best remedy: Specific
Performance.... why?
Because each parcel of land is
unique...
But what if land has been sold
after breach?
Will RM damages be enough if the
new owner wont sell?

Consequential Damages

Construction Contract

Breach by owner can occur

at essentially three
different times
Before (profits)
During (profits and costs
incurred)
After (Contract price +
interest)

Event of Contractor Breach?

all costs by owner to
complete construction...
w/o waste

Foreseeable damages that

arise from circumstances
outside the contract.
To be liable for these
damages,
The breaching party must
know or have reason to
know that the breach will
cause special damages to
the other party.
Defendant must be able to
reasonably foresee injury as
a probable result.... injury
or damage?

Punitive Damages

Inconsistent with contract

theory
contract as a civil
relationship between two
parties

business has its own way to

punish...
... are awarded usually only
in connection with torts
Punitive Damages
(continued)
Damages that are awarded
to:
Punish the defendant
Deter the defendant from
similar conduct in the
future
Set an example for other
Generally, punitive
damages are not
recoverable for breach of
contract.

Nominal Damages

Damages awarded when

the non-breaching party
sues the breaching party
even though no financial
loss has resulted from the
breach.
Usually awarded in a small
amount such as $1.
Cases involving nominal
damages are usually
brought on principle.
Nominal Damages
(continued)
Technical injury only

No actual damages suffered

but has an injury been
suffered?
Typically RM1
what about lawyers fees?
A matter of principle

Mitigation of Damages
A non-breaching party is under a
legal duty to avoid or reduce
damages caused by a breach of
contract.
Injured party must use reasonable
means to mitigate loss
The extent of mitigation depends
on the type contract involved. i.e.
employment, rental apartments.

Liquidated Damages

Sum certain... calculable...

determined... specified
amount
Cannot be punitive... as
already noted penalties
have no place in contract
law
The Test:

When contract entered into,

was it apparent that
damages would be difficult
to estimate in event of
breach?
Was amount set reasonable
and not excessive?
Estimation of damages?
Reasonable?
Damages to which parties
to a contract agree in
advance if the contract is
breached.
To be lawful,
The actual damages must
be difficult or impracticable
to determine, and
The liquidated amount
must be reasonable in the
circumstances.
Many businesses include
liquidated damages in their
commercial contracts,
which help to:
Provide certainty,
Avoid lawsuits, and
Provide an incentive to
enter into contracts.
Construction Contract
example:
California earthquake
destruction of major public
roads

Contract to rebuild
Per day costs of road
closing
Contract awards extra RM
for early completion
Contract payment
decreases for late
completion

Equitable Remedies
Equitable remedies are
available if there has been
a breach of contract that
cannot be adequately
compensated by a legal
remedy.
They are also available to
prevent unjust enrichment.
Equitable Remedies
Usually only awarded if
legal remedies are
inadequate

Specific Performance
Injunctions
Rescission & Restitution
Reformation
Specific Performance

Contracts dont usually

provide a good case for the
granting of this remedy
major exception: Contract
for the sale of land because
of uniqueness of parcel
Appropriate where the legal
remedy (RM damages) is
inadequate
... an order to perform
what was promised...
Injured party gets what was
agreed to under the
contract
Why is SP not usually
appropriate where the
dispute centers around the
sale of goods?

Injunctions
... forbids defendant to do
some act... which he is
threatening or attempting
to commit, or restraining
him in the continuance
thereof, such act being
unjust and inequitable,
injurious to the plaintiff,
and not as such as can be
adequately redressed by an
action at law...

Not a typical remedy in

contract disputes
Difference between positive
and negative
Some use in a negative
fashion in personal services
contracts
Contract dispute between a
performing artist and
promoter... prohibition on
performing in same area for
a different promoter
Requirements for an
Injunction
Remedies at law
inadequate, thus causing
irreparable harm...
Plaintiff must demonstrate
at least a reasonable
likelihood of success at trial
Threatened injury to the
plaintiff outweighs the
threatened harm the
granting of the injunction
may inflict on the
defendant
Whether by granting the
preliminary injunction the
public interest would be
disserved
Rescission and Restitution

 Purpose of rescission is
restitutionary
a dissolution or undoing
of the contract...
restoration of the parties to
their positions before the
contract was entered into
status quo ante
If not mutually decided
upon, the rescission must
be grounded in something
that makes the contract
voidable
Example: genuineness of
assent problems
Remember Genuineness of
assent..
Even if all the elements of a
contract are present
according to the objective
theory of contracts, a
contract may be
unenforceable if there is not
Genuine Assent by the
Parties. If assent is not
genuine, the contract can
be avoided by the party
whose assent was not
genuine
Contracts That May Lack
Genuineness of Assent
Contracts Entered Into on
the Basis of
Mistakes

Misrepresentation
Undue Influence
Duress

A material breach of
contract
Fraud
Undue influence
Mistake
Restitution
Returning of goods or property
received from the other party to
rescind a contract.

Unilateral
rescission must be grounded in
something that make the contract
voidable

If the actual goods or property is

not available, a cash equivalent
must be made.
Reformation

What would these be?

Another Equitable Remedy...

Mutual no need to have a GOA

problem

Differs from R&R most

significantly in that it does not try
to undo the contract..

is there a need for it to be

completely executory?
Difference between
Mutual & Unilateral Rescission
One discharges the contract the
other is available as a remedy for
breach of contract
Rescission
An action to undo the contract.
Available if there has been:

... but rather attempts to reform,

correct or modify the contract so
that it accurately reflects the
agreement of the parties
Plaintiff must show by clear and
convincing evidence that the
parties had reached agreement on
a term and that because of a
mutual mistake (or unilateral
mistake + misconduct by the
other) the term wasnt included.

e.g., scriveners error- A clerical

error in a legal document

Settling of Construction
Dispute
Definition of Dispute
Disputes means controversy,
debate, heated contention,
quarrel or difference of opinion
an argument or disagreement
between two people, groups or
countries discussion about a
subject where there is
disagreement
Construction Disputes
Disputes between a
contractor or a

construction company and

a customer are all too
common.
Disputes often arise out of
delays in getting the work
down, unsatisfactory work,
or a customer's failure to
make payments.
In many cases, the expense
involved in pursuing a
dispute is far out of
proportion to the money
actually at stake.
Whether you are building a
road, a residence, a
commercial building, or any
other major construction
project, it is almost
impossible to get through
the entire project without
having at least a few
disputes to handle.
Those disputes are usually
minor in nature and are
generally worked out
through discussion between
the contractor and project
owner.

Common cause of disputes

unrealistic expectations on
the part of certain parties
(generally owner) who do

not have sufficient

financing to accomplish
their goals
Ambiguous contract
provision
Poor communication
between and among parties
involved in the project
Reluctance on the part of
project participants to deal
promptly with changes and
unexpected changes
Contract administration
who want to avoid making
tough decision by passing
the problem to higher
authority within the
organization.

How to Reduce/Prevent
Construction Disputes
Allow reasonable time for
design team to produce
clear and complete contract
documents with no or
minimum errors and
discrepancies
Have a clear written
contract with no ambiguity
Read the contract several
times before signing it to
understand any unclear
clauses

 Establish an efficient quality

control techniques and
mechanisms that can be
used during tendering
process to minimize errors,
mismatches and
discrepancies in the
contract documents.
Have a third party to read
contract documents before
the bidding stage.
Develop cooperative and
problem solving attitudes
on projects through a risksharing philosophy and by
establishing trust among
partners. (e.g. owner,
contractor)
Establish a strategy on how
to deal with tighter
scheduling requirements.
Have signed change orders
before carrying out any
changes on site
Maintain proper job records
on a timely manner
including time sheets, diary
record, reports,
photographs, records of
labors and weather and its
effect on progress, progress
of the construction, site
instruction and etc.

Settling Construction Disputes

Disputes can be settled/resolved
through informal resolution
method or formal resolution
method
Informal resolution
+ negotiation the most
appropriate way to resolve
dispute because it is
inexpensive and maintain
good relationship between
the parties involved
+ Conciliation a
conciliator must be
absolutely independent of
the parties to the contract,
bring parties together for
open discussion, do not
take sides, do not make
decisions or make
judgement
+ mediation the
mediator consult first with
one party and then with the
other and if no negotiated
settlement results the
mediator will make
recommendations to settle
based on his own findings
+ dispute review board
the board have
representatives from each

contracting parties and a

mutually agreed impartial
third party and may meet
informally for open and free
discussion
Formal resolution
If informal resolution fails and are
not in favour for the parties
involved then the formal
resolution is inevitable even
though it is more complex, takes
longer time, more expensive and
integrity of company exposed to
media and public.
+ Arbitration involve one or
more neutral third parties as an
arbitrator who conduct hearing
according to specified rules and
procedures to determine who is
right or wrong on selected issues.
The decision can either be binding
or non-binding on all of the parties
when deciding which parties are
to receive an award
+ Litigation is the use of court
system to resolve disputes. The
process is from the issuance of
writ by the plaintiff appointed
lawyer to the court against the
defendant for hearing and
proceedings and finally the

judgment made by the judge.

Both disputed parties appoint/hire
lawyers that will represent them
in court.

Arbitration (Binding/Non-binding)

Resolving Construction
Disputes

Litigation that uses the court

system is a right granted by the
Constitution

The vast majority of construction

projects are completed without
any major disputes that cant be
resolved between those two
parties.
Most construction contracts set
out the manner in which disputes
are to be resolved.
Usually, those contracts call for
use of a means other than
litigation, such as arbitration or
mediation, to resolve disputes.
There are some constructionrelated disputes that will only be
resolved through litigation. (a
mechanic's lien requires court
action for enforcement )
Ways of resolving construction
disputes
1. Litigation
2.Alternative methods as
prescribed in the contract.

Mediation (Binding/Non-binding)
Litigation

If there is no provision for dispute

resolution in a construction
contract, either party, including
the contractor, has the right to
sue the other party using the
court system.

Problems with Litigation

One of the major problems
incurred by using the court
system is the very long
time it usually takes to
have a case come before
the court.
Many contractors go out of
business while waiting for
their case to be heard.
When litigation is used, if
either party is unhappy with
the verdict, they can
appeal. This appeal process
can add many months and

even years to the dispute

resolution process.
If a construction case is
heard by a judge and/or a
jury who have a limited or
no construction knowledge
related to the issues in the
dispute, it is generally the
best and most convincing
presentation that will be the
winner, not necessarily who
is right or wrong.
The construction industry
phrase that sums up this
problem is, If the judge
doesnt know the difference
between rebar and a Kit Kat
Bar, he or she is not the
right person to hear the
case.
Presentation of the case
most likely will be long and
costly due to the lack of
construction knowledge of
the judge or jury.
Alternative Dispute Resolution
(ADR)
Mediation and arbitration are two
forms of alternative dispute
resolution (ADR) that offer a
resolution to the dispute rather
than using the court system.

Mediation and arbitration, two

forms of alternative dispute
resolution (ADR), offer a simple,
expeditious process for settling
disputes quicklywithout a long
and costly court case.

Arbitration
Arbitration is like a trial,
except that it is usually
much less formal.
The dispute is heard by one
or more arbitrators, who are
selected from a panel of
neutral arbitrators.
Depending on the local
practices and rules, the
arbitrators may be
attorneys, or people with
expertise in the
construction industry.
The arbitrators act like a
judge, in that they hear the
case and make a final
decision based on the
evidence presented.
Arbitration may be made
binding on the parties, if
they so agree.
Many construction
contracts do require binding
arbitration, and if you sign
such a contract without

removing that provision,

you will be deemed to have
agreed to binding
arbitration.
The courts will not overturn
the order of an arbitrator in
binding arbitration unless
the arbitrator made a
decision that completely
lacked any legal foundation.
Many construction
contracts require that
disputes arising under the
contract be resolved by
arbitration .
In addition, many courts
will order that a case be
submitted to arbitration
before allowing it to come
to trial.
Although arbitration is less
formal and complex than a
regular trial, it still is
important that you have
legal counsel you can rely
on to make your case. An
experienced construction
law attorney will work hard
to present your case in the
best manner possible.

Disadvantages of Arbitration

The problem is that panels

set up to arbitrate tend to
be heavily biased towards
the construction industry
and so normal citizens will
not have their
constitutional rights
protected as they would not
get a chance to go through
a jury trial.
The decision to arbitrate or
litigate will generally
depend on how big is your
project and in case of big
and complex projects, then
arbitration will take a back
seat to litigation because
the latter will be more costeffective and also
advantageous since it will
allow for conducting
detailed pre-trial discovery
as well as dispositions.
The bottom line is that
arbitration that was meant
to allow construction
experts to settle disputes in
a cost effective manner,
has not lived up to such
expectations and is now
virtually the same as
litigation.


Mediation

Mediation is another
method of dispute
resolution that is often
ordered by courts before a
case may be brought to
trial.
Mediation is an effort to get
the parties to reach a
mutually agreeable
settlement.
A mediator, like an
arbitrator, is a neutral
party, but unlike an
arbitrator, a mediator does
not make a decision as to
who is right or who is
wrong, but will do what she
can to get the parties to
some common ground for
an agreement.
The mediator's role is
limited to listening to each
party, and presenting
settlement options and
proposals to the parties.
Most mediators are
selected for their

knowledge of a particular
area of the law.
The mediator advise a party
as to whether a particular
claim may or may not be
successful in court, and
whether a party might be
best advised to accept a
settlement offer. No one
forces the parties to come
to an agreement, and there
is ordinarily no penalty on a
party who refuses to
compromise or settle a
claim.
Mediation is seldom
required by a contract, and
it also differs from
arbitration in that it is not
like a trial.
No one forces the parties to
come to an agreement, and
there is ordinarily no
penalty on a party who
refuses to compromise or
settle a claim.
A settlement reached via
construction mediation can
be a good way for a builder
to avoid the bad publicity
associated with litigation,
so they will have a strong
incentive to negotiate.

In addition to saving money

on legal costs, mediation is
typically less of a hassle
than full-blown litigation.
About 95 percent of
mediations are successful
in settling construction
disputes if the mediator is
an experienced and trained
construction mediator.

Binding Arbitration/Mediation
To use a binding ADR, the parties
must agree in writing (in the
contract) that they will use either
binding mediation or binding
arbitration.

In effect, the parties are

giving up their right to sue
each other.
Both binding mediation and
binding arbitration offer a
final and binding decision to
construction disputes,
binding arbitration is more
widely used and accepted.
Binding mediation is
gaining in popularity,
especially in smaller
disputes, and is less costly
than arbitration.
Binding arbitration is more
final than going to court, as

the arbitration award is

final and binding and
generally not subject to
appeal.
Binding arbitration is more
final than going to court, as
the arbitration award is
final and binding and
generally not subject to
appeal.
It may only be appealed for
specific procedural reasons,
such as the arbitrator not
disclosing a former or
current personal or
business relationship with
one or the parties.
The award cannot be
appealed if one of the
parties does not like the
award results.

Final Remarks
Construction disputes can
be complex, expensive
affairs.
No matter the method used
to resolve your dispute, you
should be represented by
an attorney who can help
you explore your options,
and pursue your claim in a
way that meets your needs

and that is in your best

interest.
If disputes go to court,
construction projects would
normally not get completed
on time and within budget,
and the builder probably
would not be the builder
who completes the project.
Avoidance Is The Best
Option
Latest Dispute Prevention &
Resolution Technique
The "standing neutral"
concept. Vorster
one or more neutral dispute
resolution advisers are
selected at the beginning of
a construction project, to be
available for quick
resolution whenever
needed.
This concept is used
currently in very large civil
engineering projects.
The use of an objective
third party is a "remarkably
successful dispute
prevention technique," and
not just a resolution device.

Industrial Relations
Definition
industrial relations refers to
relations between employers,
employees and their trade unions.

LABOUR LEGISLATION AND

INDUSTRIAL RELATIONS
Labour legislation was first
enacted about 120 years ago, in
certain parts of what is now
Peninsular Malaysia to regulate
the employment of immigrant
Chinese and Indian labour in the
mines and the plantations, and
sought to legislate the conditions
under which such labour could be
employed
culminated in the Employment Act
1955
LABOUR LEGISLATION AND
INDUSTRIAL RELATIONS
Laws governing trade unions and
trade disputes were enacted only
in 1940, and it applied only in
certain parts of what is now
Peninsular Malaysia.
Today, their modern equivalent,
the Trade Unions Act 1959 and the
Industrial Relations Act 1967,
apply throughout the country.
The principal laws affecting
industrial relations in Malaysia
The Employment Act 1955,

The Trade Unions Act 1959,

and
The Industrial Relations Act
1967.
Other laws affecting
industrial relations in
Malaysia
safety and the health of
workers (primarily, the
Factories and Machinery Act
1967,OSHA 1994)
Social security (such as the
Employees Social Security
Act 1969, the Workmen's
Compensation Act 1952,
the Employees Provident
Fund Act 1951, various
Pensions Acts) and
wages in "depressed"
industries (namely, the
Wages Councils Act 1947)

same federal agency-the Ministry

of Labour (now the Ministry of
Human Resources).
However, the Employment Act
1955 presently applies only in
Peninsular Malaysia (private
sector only).
The Trade Unions Act 1959
(public and private sector) and the
Industrial Relations Act 1967
(primarily to the Private Sector )
apply throughout the country.
The Employment Act 1955

The 3 principal laws affecting

industrial relations in Malaysia
Under the Malaysian Constitution,
labour matters, including
industrial relations, fall within the
preserve of the Federal
Government, rather than within
that of the State Governments.
Consequently, all three laws are
federal laws, and are administered
by various departments in the

Regulates the employment

relationship as well as the
terms and conditions under
which employers may
employ employees.
The employment
relationship foreseen by the
Act is the old "master and
servant" (now replaced by
the more egalitarian
"employer and employee")
relationship, i.e. the wellknown "contract of service
relationship.
And among the terms and
conditions regulated by the
Act are the hours of work
and wages, as well as other

terms and conditions of

employment and work.

The Trade Unions Act 1959

Regulates trade unions

and union federations
per se.
This Act defines trade
unions, delineates their
membership prescribes
their registration, and
describes their rights
and responsibilities.

The Industrial Relations Act

1967
Regulates the relations
between employers and
workmen and their trade
unions, and provides for the
prevention or the settlement
of differences or disputes
arising between them.
This Act enshrines the principles
underlying Malaysian industrial
relations, namely:
(i) Trade Unionism the principle
that workmen (and employers
too) are entitled to basic trade
union rights such as the right to

form unions, the right to join

unions, and the right to
participate in the activities of
unions.
(ii) Union Recognition - the
principle that employee unions
must be recognised by employers
before they may represent
workmen, whether individually or
collectively.
The Employment Act 1955
The Contract Content:
Part I Preliminary: interpretation
of terms e.g. Director General
means the Director General of
Labour appointed under section
3(1); employer means any
person who has entered into a
contract of service to employ any
other person as an employee and
includes the agent, manager or
factor of such first mention person

The Employment Act 1955

Part V Relating to the truck
system e.g. payment of wages
through bank, wages to be paid in
legal tender, remuneration
Part VI Priority of wages e.g.
priority of wages over other debts
Part VII Contractors and
principals e.g. liability of principles
and contractors for wages
Part VIII Employment for Women
e.g. prohibition of night work,
prohibition of underground work
Part IX - Maternity protection e.g.
length of eligible period and
entitlement to maternity
allowance, payment of allowance
to nominee
The Employment Act 1955

Part II Contract of service e.g.

terminations, validity, conditions
Part III Payment of wages e.g.
wages period, time of payment,
advances
Part IV Deduction of wages e.g.
lawful deductions

The Employment Act 1955

applies to all employees in
Peninsular Malaysia and
Federal Territory of Labuan
whose monthly wages do
not exceed RM1,500 and all
manual labourers
irrespective of their wages.
Employers may draw up the
contract of service but it

should not contravene the

minimum benefits
stipulated under the law.
Employees who earn
between RM1,500 and
RM5,000 a month can seek
redress at the Labour Court
on terms and conditions in
their individual contracts of
service.
Regulates the hours of
work, including over
timework. It also regulates
wages - the payment of
wages, advances on wages,
deductions from wages,
etc. and
provides for the priority of
wages over other debts,
and the liability of
principals and contractors,
as well as employers, to
pay wages.
however, it does not specify
a minimum wage, nor fix
wage rates.

The Employment Act 1955

Provides for a Rest Day,
Public Holidays, Annual
Leave, Sick Leave,
Maternity Leave, Maternity

Allowance, and Termination

and Layoff Benefits.
Every employee, whether
unionised or not, is entitled
to all the benefits provided
by the Employment Act
1955, and
Every employer, whether
local or foreign, is obliged
to provide these benefits.
Obligations of an employer
under the Employment Act
1955;
Every employee must be
given a written contract of
service containing the term
and conditions of the
employment, including
provisions relating to the
termination of contract
Maintaining of labour
register pertaining to
personal particulars of
employees, payment of
wages and deduction of
wages
Special provisions for the
protection of female
employees pertaining to
night work and maternity
benefits

Obligations of an employer
under the Employment Act
1955;
Normal hours of work and
other provisions relating to
numbers of working hours
Entitlement of paid annual
leave, sick leave and public
holidays
Rate of payment for
overtime and extra work
The Employment Act 1955
These benefits have effectively
become the "minimum" below
which no employer may go, and to
which every employee is entitled.
However, in order to promote
foreign investment while
maintaining a measure of
protection for employees, the
Industrial Relations Act
1967provides that any collective
agreement affecting a "pioneer
company", i.e. one granted
pioneer status under the
Promotion of Investments Act
1986, cannot contain terms and
conditions of employment and
work more favourable to
employees than the terms and
conditions contained in the
Employment Act 1955, for at least

5 years from the time such a

company commences operations
in Malaysia

The Employment Act 1955

This restriction has effectively
made the benefits provided by the
Employment Act 1955 the
"maximum" beyond which
affected employers need not go,
and affected employees cannot
demand; it has also impeded the

development of employee unions

in "pioneer companies".
In the Public Sector, the terms and
conditions of employment and
work are determined primarily by
salaries commissions or
Committees and are administered
mainly by the Public Services
Department.