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TERMINATION OF CONTRACTOR DUE TO THE CORRUPTION, UNLAWFUL OR ILLEGAL ACTIVITIES HASNITA HANA BINTI HASSAN UNIVERSITI TEKNOLOGI MALAYSIA
TERMINATION OF CONTRACTOR DUE TO THE CORRUPTION, UNLAWFUL OR
ILLEGAL ACTIVITIES
HASNITA HANA BINTI HASSAN
UNIVERSITI TEKNOLOGI MALAYSIA
PSZ 19:16 (Pind. 1/07)
DECLARATION OF THESIS / UNDERGRADUATE PROJECT PAPER AND COPYRIGHT
Author’s full name : HASNITA HANA BINTI HASSAN
Date of birth : 20th JANUARY 1985
Title : TERMINATION OF CONTRACTOR DUE TO THE CORRUPTION, UNLAWFUL OR
ILLEGAL ACTIVITIES
Academic Session: 2010/2011
I declare that this thesis is classified as :
I acknowledged that Universiti Teknologi Malaysia reserves the right as follows:
1. The thesis is the property of Universiti Teknologi Malaysia.
2. The Library of Universiti Teknologi Malaysia has the right to make copies for the purpose
of research only.
3. The Library has the right to make copies of the thesis for academic exchange.
Certified by:
SIGNATURE SIGNATURE OF SUPERVISOR
850120-14-6022 ASSOC. PROF. DR ROSLI ABDUL RASHID (NEW IC NO. /PASSPORT NO.) NAME OF SUPERVISOR
Date : JULY 2011 Date : JULY 2011
NOTES : * If the thesis is CONFIDENTAL or RESTRICTED, please attach with the letter from
the organization with period and reasons for confidentiality or restriction.
UNIVERSITI TEKNOLOGI MALAYSIA
CONFIDENTIAL (Contains confidential information under the Official Secret
Act 1972)*
RESTRICTED (Contains restricted information as specified by the
organization where research was done)*
OPEN ACCESS I agree that my thesis to be published as online open access
(full text)
“I hereby declare that I have read this project report and in my opinion this project report
is sufficient in terms of scope and quality for the award of the degree of Master of
Science (Construction Contract Management)”
Signature : ……………………………………………………
Name of Supervisor : ……………….…………………….……………...
Date : …………..………….……………….....................
ASSOC. PROF. DR ROSLI ABDUL RASHID
JULY 2011
TERMINATION OF CONTRACTOR DUE TO THE CORRUPTION, UNLAWFUL OR
ILLEGAL ACTIVITIES
HASNITA HANA BINTI HASSAN
A master’s project report submitted in partial fulfillment of the
requirements for the award of the degree of
Master of Science (Construction Contract Management)
Faculty of Built Environment
Universiti Teknologi Malaysia
JULY 2011
ii
“I declare that this Master Research Project entitled “Termination of Contractor due to
the Corruption, Unlawful or Illegal Activities” is the result of my own research and that
all sources are acknowledged in the references. The project report has not been accepted
for any degree and is not concurrently submitted in candidature of any other degree.”
Signature : ................................................................
Name : ................................................................
Date : ................................................................
HASNITA HANA BINTI HASSAN
JULY 2011
iii
Special dedicated to my beloved family for your love and support
‘With Love and Appreciation’
iv
ACKNOWLEDGEMENT
In the name of Allah, the Most Gracious, the Most Merciful. My praises goes to
Allah, who gave me chance and ability to finish this masters. Alhamdulillah.
In preparing this master project, I was in contact with many people. They have
contributed towards my understanding and thoughts. First and foremost, I wish to express
my sincere appreciation to my kind supervisor, Assoc. Prof. Dr Rosli Abdul Rashid for
the encouragement, guidance and critics to supervise me in completing this master
project.
My sincere appreciation also extends to all my friends who helped me to get lots
of books and materials for this master project. Besides, I am grateful to all my
Construction Contract Management, Session 10/11 classmates and lecturers who helped
me and always been supportive throughout the process of preparation and production of
this master project.
Last but not least, I am deeply grateful to my lovely parents and sisters, who
always support, motivate and help me trough out this masters courses. I will always
remember and appreciate their kindness and may Allah bless them.
v
ABSTRACT
A construction contract can be brought to an end in a various ways either by
performance, agreement, frustration or by breach. Normally, termination of contract is a
remedy for discharged of contract or put the contract to an end by breach. A contract for
government project normally use PWD Form 203A (Rev. 2007). In its effort to eradicate
corruption in the construction industry, the government has incorporated an anti-
corruption clause in the PWD standard form of contract that is Clause 53.0. However, it
is silent on the true meaning of the words corruption, unlawful or illegal activities. It can
be anything to the ordinary person since there is no clear meaning. It also raise a question
whether the clause (without clear definition) is adequate enough for the employer to
terminate the contract. The objectives of this research is to determine the meaning of
corruption and unlawful or illegal activities and their differences. It is also to determine
whether the employer, is entitled to terminate the contract based on Clause 53.0 of PWD
Form 203A (Rev. 2007). This research is confined to the Clause 53.0 of PWD Form
203A (Rev. 2007) and the reported English court cases on corruption, unlawful or illegal
activities. This research is carried out by analyzing selected court cases. It is found in this
research that the meaning of corruption is offences relating to the improper influencing of
people in certain position of trust and willing to act dishonestly in return for money or
personal gain. Meanwhile an unlawful or illegal activity is means by activities commit by
a person or a group of person that is forbidden by law. It also pointed out that it is wrong
for the employer to terminate the contract under Clause 53.0 of PWD Form 203A (Rev.
2007).
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ABSTRAK
Di dalam standard kontrak pembinaan bangunan, terdapat peruntukan untuk
membenarkan pihak untuk menamatkan kontrak itu mengikut pelbagai keadaan yang
telah dinyatakan di dalam standard kontrak bangunan. Kontrak boleh ditamatkan dalam
pelbagai cara sama ada oleh prestasi, perjanjian, kekecewaan, atau oleh perlanggaran.
Biasanya, penamatan kontrak adalah remedi yang berpunca dari kontrak yang berakhir
dengan perlanggaran. Kontrak bagi projeck kerajaan biasanya akan menggunaan Borang
JKR 203A (Pind. 2007). Dalam usaha untuk memansuhkan rasuah dalam industri
pembinaan, kerajaan telah memasukkan fasal anti rasuah iaitu Fasal 53.0 di dalam
Borang Kontak JKR 203A (Pind. 2007). Fasal ini tidak memberikan pengertian yang
sebenar kerana tidak mempunya maksud yang jelas. Selain itu, ia juga memberikan
persoalan sama ada kerajaan boleh menamatkan kontrak di bawah fasal tersebut atau
tidak. Objektif kajian ini adalah untuk menentukan makna dan perbezaan di antara rasuah
dan aktiviti atau perbuatan yang menyalahi undang-undang. Selain itu, ia juga untuk
menentukan sama ada kerajaan adalah berhak atau tidak untuk menamatkan kontrak di
bawah Fasal 53.0. Kajian ini akan memberi tumpuan kepada Fasal 53.0 di dalam Borang
JKR 203A (Pind. 2007) dan kes-kes mahkamah yang berkaitan dengan rasuah, aktiviti
atau perbuatan yang menyalahi undang-undang. Kajian ini dilakukan dengan
menganalisis kes-kes mahkamah sebelum ini. Oleh itu, pada akhir kajian ini, boleh
disimpulkan bahawa rasuah adalah kesalahan yang berhubung dengan pengaruh tidak
wajar dalam kedudukan tertentu dan bersedia untuk bertindak tidak jujur sebagai balasan
wang atau untuk keuntungan peribadi. Sementara itu, aktiviti atau perbuatan yang
menyalahi undang-undang aktiviti yang dilakukan oleh seseorang atau kumpulan orang
yang dilarang oleh undang-undang. Selain itu, kajian ini menunjukkan bahawa ia adalah
salah bagi kerajaan untuk menamatkan kontrak itu di bawah Fasal 53.0 Borang JKR
203A (Pind. 2007).
vii
TABLE OF CONTENTS
CHAPTER TITLE PAGE
DECLARATION ii
DEDICATION iii
ACKNOWLEDGEMENT iv
ABSTRACT v
ABSTRAK vi
TABLE OF CONTENTS vii
LIST OF FIGURES xi
LIST OF TABLES xii
LIST OF ABBREVATIONS xiii
LIST OF CASES xiv
1 INTRODUCTION
1.1 Background of research 1
1.2 Statement of Issues 3
1.3 Objective of Research 5
1.4 Scope and Limitation of Research 5
1.5 Significance of research 6
1.6 Research methodology 6
1.6.1 Identifying the Research Issue 6
1.6.2 Literature Review 7
1.6.3 Data and Information Collection 7
1.6.4 Data Analysis and Interpretation 7
viii
1.6.5 Conclusion and Recommendations 7
1.7 Organisation of Research 9
2 TERMINATION OF CONSTRUCTION CONTRACT
2.1 Introduction 11
2.2 Standard Form of Contract used In Malaysia 12
2.3 Termination and Determination 14
2.4 Determination of Contract 17
2.4.1 Common Law Determination of Contract 17
2.4.1.1 Employer‟s Breach 19
2.4.1.2 Contractor‟s Breach 21
2.4.2 Contractual Determination of Contract 23
2.4.2.1 Determination by Employer 24
2.4.2.2 Determination by Contractor 31
3 CORRUPTION, UNLAWFUL AND ILLEGAL ACTIVITIES
IN CONSTRUCTION CONTRACT
3.1 Introduction 34
3.2 Corruption 35
3.2.1 Definition of Corruption 36
3.2.2 Classification and Types of Corruption 37
3.2.2.1 Administrative Corruption 38
3.2.2.2 Political Corruption 39
3.2.3 Level of Corruption 39
3.2.3.1 Grand Corruption 40
3.2.3.2 Petty Corruption 40
3.3 Unlawful or Illegal Activities 41
3.3.1 Definition of Unlawful or Illegal Activities 41
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3.3.2 Classification and Types of Unlawful 42
Or Illegal Activities
3.3.2.1 Crimes against People 42
3.3.2.2 Crimes against Property 42
3.3.2.3 Crimes against Society 43
3.3.2.4 Crimes of Non-compliance 43
3.4 Procedure to Terminate the Contract due to 44
Corruption, Unlawful or Illegal Activities
3.4.1 Law of Natural Justice 46
3.4.2 Rule against Bias 46
3.4.3 Rule to „Hear the Other Side‟ 47
3.4.4 Breaches of the Principles of Natural 48
Justice
4 CASE ANALYSIS: CORRUPTION, UNLAWFUL OR
ILLEGAL ACTIVITIES
4.1 Introduction 49
4.2 Case Studies 49
4.2.1 City of Phoenix v Bellamy 50
4.2.2 Taylor v Bhail 51
4.2.3 Parkinson v College of Ambulance 53
4.2.4 Pearce v Brooks 55
4.2.5 Upfill v Wright 56
4.2.6 Alexander v Rayson 57
4.3 Analysis of Case Studies 59
4.3.1 Review of the Case Studies 59
4.5 Conclusion 65
x
5 CONCLUSION AND RECOMMENDATIONS
5.1 Introduction 68
5.2 Research findings 68
5.2.1 Objective 1: To Determine the 69
Definition and Differences of Corruption,
Unlawful or Illegal Activities
5.2.2 Objective 2: To Determine Whether the 70
Employer is Entitled to Terminate the
Contract under Clause 53.0 of PWD
Form 203A (Rev. 2007)
5.3 Research constraints 71
5.4 Recommendations 71
5.5 Area of future research 71
5.6 Conclusion 72
REFERENCES 74
xi
LIST OF FIGURES
FIGURE NO. TITLE PAGE
1.1 Outlines of Research Stages 8
xii
LIST OF TABLES
TABLE NO. TITLE PAGE
4.1 Summarize of Analysis on the Selected Cases 64
xiii
LIST OF ABBREVATIONS
AI Architect‟s Instruction
Ariz. Arizona Supreme Court
BLR Building Law Report
CIDB Construction Industry Development Board
CILL Construction Industry Law Letter 1983
Con LR Construction Law Report
Exch Exchequer
IEM Institute of Engineering Malaysia
IIM Integrity Institution of Malaysia
JKR Jabatan Kerja Raya
KB King‟s Bench
LJ Law Journal
LR Law Report
MATRADE Malaysian External Trade Development Corporation
MLJ Malayan Law Journal
NIP National Integrity Plan
NSWSC New South Wales Supreme Court
PAM Pertubuhan Arkitek Malaysia
PKFZ Port Klang Free Zone
PMC Project Management Consultant
PWD Public Work Department
QB Queen‟s Bench
S.O Superintending Officer
UTM Universiti Teknologi Malaysia
xiv
LIST OF CASES
CASE PAGE
Alexander v Rayson [1936] 1 KB 169………………………………….....…51, 58, 63, 66
Attorney General of Singapore v Wong Wai Cheng Trading and Union Contractor
[1980]…………………………………………………………………………………….19
Cheok Hock Beng v Lim Thiam Siong [1992]……………………………...……….……22
City of Phoenix v Bellamy [1987] 153 Ariz. 363…………………...……51, 61, 64, 67, 71
Disdain Project Services Ltd. v Opecprime Development Ltd.[2001] CILL 1698…...….47
Earth & General Contracts Ltd. v Manchester Corporation [1958] 108 LJ 665……..…19
F.G Cullis Construction Ltd. v HMV Fields (Properties) Ltd. & Anor [1990]……….....16
Feather & Co. (Bradford) Ltd. v Keighley Corporation[1953] 53 Local Government
Reports……………………...............................................................................................17
Government of Ceylon v Chandris [1963] 2 QB 327………………………….……..….48
Haji Kassim v Tegap Construction Sdn Bhd [1981]..........................................................20
Musico & Ors v Davenport & Ors [2003] NSWSC 977…………………………...........48
Parkinson v College of Ambulance [1925] 2 KB 1…………………….…….51, 54, 62, 64
Pearce v Brooks [1866] LR 1 Exch 213………………………...…….…51, 56, 58, 63, 65
Pebinaan LCL Sdn Bhd v SK Styrofoam (M) Sdn Bhd [2007] 4 MLJ 113.................…...21
Perini Corporation v Commonwealth of Australia [1969] 12 BLR 82......................…...20
Photo Production Ltd. V Securicor Transport Ltd (supra)………………………...……15
Sutcliffe v Chippendale & Edmondson [1971] 18 BLR 149.............................................22
Taylor v Bhail [1995] 50 Con LR 70…………………………..…………….51, 52, 62, 65
Upfill v Wright [1911] 1 KB 506..............................................................…...51, 57, 63, 65
1
CHAPTER ONE
INTRODUCTION
1.1 Background of Research
Contractors are builders who entered into a contract to build things or who
contracts for and supervises construction, as of a building. As a contractor, he owes
an obligation to carry out and completed the works accordingly to the contract and
provides the workmanship and materials as required by the specifications given by
the architects and engineers. In a construction industry, corruption might be happen.
It can be involved in pre-contract or post-contract stages. Corruption is the abuse of
entrusted power for private gain and it is damaging to a country because decisions
are taken not for the public benefit but to serve private interests. The best example
for corruption is bribery.
Construction industry cannot be escape from corruption and bribery. We can
see that in Malaysia there is some of the construction project that involved in
corruption. And due to this, many problems can occur such as delay in completing
the project and the project cost will balloons into a higher amounts. Corruption is
generally understood to be the giving or offering of any reward to any person in
power to influence his conduct so that he can abuse his power and act in favouring
2
the giver. In Malaysian Anti-Corruption Commission Act 2009, Section 17 (b)
stated:
Corruptly gives or agrees to give or offers any gratification to any agent as
an inducement or a reward for doing or bearing to do or for having done or
forborne to do any act in relation to his principal’s affair.
Clause 53.0 of PWD Form 203A (Rev. 2007) deals with the termination on
corruption, unlawful or illegal activities commit by the contractor and in year 2009,
Jabatan Kerja Raya Malaysia had issue an instruction to make an amendment to all
tender documents for procurement of employment and include additional provision
relating to corruption. Clause 53.0 stated:
“Termination on Corruption, Unlawful or Illegal Activities”
a) Without prejudice to any other rights of the Government, if the
Government is satisfied that the Contractor, its personnel, servants,
agents or employees is or are involved in corruption or unlawful or
illegal activities in relation to this Contract or any other agreement
that the Contractor may have with the Government, the Government
shall be entitled to terminate at any time, by giving immediate written
notice to that effect to the Contractor.
b) Upon such termination, the Government shall be entitled to all losses,
costs, damages and expenses (including any incidental costs and
expenses) incurred by the Government arising from such termination
and clauses 51.1 (c) (i) and (ii) shall apply.
c) Nothing in Clause 53 or anything else contained in this Contract shall
render the Government in any way liable for payments upon
termination.
3
To stop and to be a corruption free in the construction industry, all of the
parties should be responsible and play their roles properly. Previous prime minister
of Malaysia, Dato’ Seri Abdullah Ahmad Badawi had launched the National
Integrity Plan (NIP) and the Integrity Institute of Malaysia (IIM) as a new measures
to combat corruption according to the following quotation:
“Integrity is one of the several paths; it distinguishes itself from the others
because it is the right paths and the only one upon which you will never get
lost” M.H McKee
Forms of corruption exist in the construction industry can be summarized in
two groups which are contractor related and professional consultant clients of
government officers related. The forms of corruptions related to contractors include,
the construction company offer bribes to client or the tender evaluation committee
members in order to win the project. Bribery, normally for the tender evaluation
committee to lower the tendering price for the tenderer to win the project.
In November 2004, a local newspaper, The New Straits Times carried a
front-page story on seriously defective buildings and road. The immediate response
of the Minister of Works was that the 2 billion ringgit fiasco was not the fault of the
Public Works Department (PWD) but of a group of contractor known as Project
Management Consultant (PMC). The PMC practice allowed government agencies to
carry out their own projects through limited tender or direct negotiations. With the
introduction of the PMC, PWD was by-passed and the justification of this new
procedure was the speedy completion of projects but the cost for some projects
almost doubled.
For examples are a work on the RM167 million MATRADE (Malaysian
External Trade Development Corporation) building began in 1994 and was
scheduled to be completed in 1997 but till 2004 the building could not be occupied.
It was reported that repairs to the defects in the building would cost RM28.4 million.
4
Meanwhile, in The Star newspaper dated September 4, 209 reported on the
Port Klang Free Zone (PKFZ) scandal that shows a shocking trail of how
businessmen, top civil servants and professionals have colluded to cause multi-
billion ringgit losses to taxpayers.
Thus, the government of Malaysia had introduced Malaysian Anti-Corruption
Commission which is to incessantly eradicate all forms of corruption, abuse of
power sand malpractices. A quote from Karl Kraus (1874-1936) said that:
“Corruption is worse than prostitution. The latter might endanger the morals
of an individual, the former invariably endangers the morals of the entire
country.”
1.2 Statement of Issues
The foregoing discussion lead us to several important issues which are the
clause is silent on the true meaning of the corruption, unlawful or illegal activities.
Since it is a new clause, it has not been tested yet and really defined. It can be
anything to the ordinary person since there is no clear meaning and what exactly
does it mean by corruption, unlawful or illegal activities. Normally, people are
confusing in understanding or interpreting it. According to Begovic (2005), bribery
is most probably comes first to mind when people talking about corruption. Besides
that, it also raises a question of whether the clause (without clear definition) is
adequate and can be use by the employer to terminate the contract.
5
1.3 Objective of Research
The objectives of this research are:
1. To determine the definition and differences of corruption, unlawful or
illegal activities.
2. To determine whether the employer is entitle to terminate the contract
under Clause 53.0 of PWD Form 203A (Rev. 2007).
1.4 Scope and Limitation of Research
The scope of research will be focused on the following matters:
1. Clause 53.0 of PWD Form 203A (Rev. 2007) regarding on
termination due to the corruption, unlawful or illegal activities.
2. Reported English court cases related to the corruption, unlawful and
illegal activities based on Lexis Nexis Legal Database via UTM
Library website.
1.5 Significant of Study
There are many provisions relating to the termination of contract in the
standard form of contract. Termination of contract is one of the remedies that can the
6
aggrieved party take because of the one party fails to perform their obligation or
breach of the contract. However, termination of contract only can be done if one of
the party in the contract breach the contract and it is fundamental breach.
In PWD Form 203A (Rev. 2007), there is a provision to terminate the
contractor’s employment because of the corruption, unlawful or illegal activities
involved by the contractor, its personnel, servants, agents or employees. Therefore,
this research is done to determine whether illegal contract can be terminated or it was
wrong to terminate.
1.6 Research Methodology
In order to achieve the research objectives, a systematic process of
conducting this research had been organized. Briefly, the research process will be
divided into five (5) stages as shown in the Figure 1.1.
1.6.1 Identifying the Research Issue
The initial study will be carried out to identifying the research issue by
extensive reading on variety sources of published materials. From the issue, the
objectives of this research have been identified.
7
1.6.2 Literature Review
This is the second stage of the research where it involved in collection of data
and information from the books, internet, paper and previous thesis. Other than that,
reports court cases found through the access of Lexis Nexis Legal Database which is
available in the UTM Library website.
1.6.3 Data and Information Collection
After finishing the literature review stage by extensive readings on the related
issue, all the relevant information based on the secondary data will be collected and
carry out the case studies. Legal cases based on previous court cases which are
related to this research will be collected from Lexis Nexis Legal Database via UTM
library website.
1.6.4 Data Analysis and Interpretation
Data analysis will be done on collected information and those legal court
cases. In this stage, the objectives of this research will be determined whether it is
achieved or vice versa.
1.6.5 Conclusion and Recommendations
Conclusion and recommendations is the final stage of this research. Finally,
the author will make the conclusion from the analysis and able to show the result of
the research. Other than that, some recommendations related to the problem will be
made and further research will be suggested.
8
Figure 1.1: Outlines of Research Stages
Identifying the Research Issue
Stage 1
------------------------------------------------------------------------------------------------------
Literature Review
Stage 2
------------------------------------------------------------------------------------------------------
Data and Information Collection
Stage 3
------------------------------------------------------------------------------------------------------
Data Analysis and Interpretation
Stage 4
------------------------------------------------------------------------------------------------------
Conclusion and Recommendations
Stage 5
9
1.7 Organisation of the Research
This research is structured into 5 chapters and briefly described as follows:
Chapter 1: Introduction
This chapter presents an introduction to the subject, background and the
specific problem associated with it. This chapter also specifies the aim and
objectives, the methodology of conducting this study to achieve the objectives and a
brief summary on the structure of the research.
Chapter 2: Termination of Construction Contract
This chapter generally discussed about standard form of contract used in
Malaysian construction industry. Other than that, the definition of termination and
determination are determined in this chapter and the termination of contract by
common law or contractual provision.
Chapter 3: Corruption, Unlawful or Illegal Activities
This chapter discussed about the definition and differences between
corruption and unlawful or illegal activities. The classification and types of those
default also been discussed in this chapter.
Chapter 4: Analysis of Case Laws
This chapter analysed about the result from the judicial decisions based on the court
cases which are related to the research objectives.
10
Chapter 5: Conclusion and Recommendations
Conclusion on the research based on all the discussion in the previous
chapter will be presented in this chapter. Furthermore, recommendations and further
research will be suggested.
11
CHAPTER TWO
TERMINATION OF CONSTRUCTION CONTRACT
2.1 Introduction
Construction contract can be defined as an agreement which is legally
binding between the parties who is entered into the contract to construct and
complete a building, infrastructures and services. In the Contract Act 1950, the word
„contract‟ may be defined as „an agreement enforceable by law‟1 while Sir William
Anson defined contract as „a legally binding agreement made 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‟2.
As been defined as a legally binding agreement between two or more parties,
the construction contract is a very expensive, complex and prone to disputes.
Disputes in the construction arise because of a series of factors that combine in
various ways to produce arguments and disagreements. The inconsistencies and gaps
between the various consultants appointments involved in the contract will bring the
conflict and may lead to disputes which can very quickly become acrimonious.
1 Section 2(b), Contract Act 1950 2 Allan Ashworth (2001). Contractual Procedures in the Construction Industry. 4th Edition. Pearson
Education Limited. England
12
2.2 Standard Form of Contract Used in Malaysian Construction Industry
In a construction industry, contractors are builders who entered into a
contract to build things or someone who contracts for and supervises construction, as
of a building. As a contractor, he owes an obligation to carry out and completed the
works accordingly to the contract and provides the workmanship and materials as
required by the specifications given by the architects and engineers. Before entered
into a contract, standard form of contract that bind between employers/clients and
contractors will be issue and get familiarize in the contract to avoid dispute and to
inform the employer/client and contractor what is their obligation and duty and terms
and conditions on which the contract between the parties are to be carried out.
Standard form of contract is a legally binding agreement between two parties
to do and complete a certain things and does not allow for a negotiation. It is to
define the conditions under which the contract is to be administered and to spell out
the legal and contractual restraints which are to be imposed upon the contracting
parties. Furthermore, the standard form of contract is formal and consists of printed
forms which have been prepared by legal minds.
Generally every construction project has a standard form of contract which
will express all the contracting parties intention at the time the contract is entitled
into. Since a construction contract is widely used, there are various of types of
standard forms that have been drafted. Nowadays, in Malaysian construction
industry sector, there are three widely used forms which PWD, PAM Contract 2006
and CIDB.
Normally, for government project where government is a client the standard
form of contract will be used is the standard form drafted by the Public Work
Department of Malaysia (JKR). They are PWD 203A is used for a conventional
contract between government and contractor, PWD 230N is used for a conventional
contract between contractor and nominated subcontractor, PWD 203P used for a
13
conventional contract between contractor and nominated supplier and PWD DB for a
design and build contract between government and contractor.3
Other types of standard form of contract used for a private project in
Malaysia are PAM Contract 2006 where it was drafted by the Pertubuhan Arkitek
Malaysia, CIDB Standard Form of Contract, drafted by the Construction Industry
Development Board of Malaysia and IEM Standard Form of Contract, drafted by the
Institution Engineers Malaysia. However, the content listed or discuss in each and
every one of the form are more or less the same. Sometimes, for a construction
project involving private sector act as a client, they are using PWD 203A (Rev.
2007) standard form of contract with some amendment made to suit with their needs.
Even there are various types of standard form of contract in the construction
industry in Malaysia, the terms and conditions in each of the standard form is almost
the same or carried the same meaning. It is important for every party in the contract
to understand the terms and conditions stipulated in the standard form of contract.
Contract terms and definitions in standard form of contract are very important
because they eliminate ambiguity and misunderstanding. They also govern the
specific understanding and agreement of the parties to the contract, and provide the
framework for interpretation and resolution under the laws.4
Those standard forms of contract had been revised and amended from time to
time to meet the needs of the Malaysian construction industry nowadays. For
example, PWD 203A standard form of contract had been revised in 2007 from the
year 1983 and the latest PAM standard form of contract is PAM Contract 2006
which had been revised in 2006 from the previous years in 1998.
3 Sr. Amran B. Mohd Majid. Pengenalan Kepada Borang Kontrak Baru PWD 203/203A (Rev. 2007).
Cawangan Kontrak & Ukur Bahan. JKR Malaysia, Kuala Lumpur. 4 Hairani binti Hairudin, (2009). Building Contract Compared and Tabulated. Universiti Teknologi
Malaysia
14
2.3 Termination and Determination
The termination and determination of a contract is a series step and one that
must only be taken after careful consideration and proper advice. In the construction
industry, every standard form of contracts contains their own clauses for termination
and determination of a contract. Termination is a word that often termed to be a
taboo among the parties in the construction industry owing to the severity of the
consequences arising hereform. Common words such as a determination or forfeiture
are termed as synonymous to termination.5 Termination of contract take place at a
point in time in the course of the contract period when a legally binding contract
period is brought to an end before it has been discharge by performance due to the
acts of one or both parties.6
„Termination‟ and „determination‟ are different. Both of the terms carried the
different meanings in the dictionary. According to the Oxford Dictionary 10th
Edition, the word „termination‟ was explained as bring to an end or the act of ending
something while the word „determination‟ means the quality of being determined;
firmness of purpose. Often the term has been construed, mistakenly, as being the
same in meaning and implications when in fact they are somewhat different and can
be well distinguished. Further, it is often said that a contract has been determined or
the contractor‟s employment has been terminated, which in the strictest sense and
interpretation is wrong7. But in the contract forms prepared by various organisations,
there is no consistency of terminology in the words „determine‟ and „terminate‟ and
this two words are used synonymously.
In the context of construction contracts, the term “termination” of contract
occurs when a valid and enforceable contract is brought to an end either by
becoming impossible to perform due to unforeseeable circumstances at the time the
contract was forms or by the actions of one or both parties. Besides that,
5 Tay Lee Yong. (2006). Determination of Contract by Employer in Construction Industry. Universiti
Teknologi Malaysia 6 John Wong (2005), Terminated or be Terminated. The Malaysian Surveyor. 39.1. Page 12 7 Roslinda binti Rosly. (2009). The Profile of Construction Contract Termination Cases. Universiti
Teknologi Malaysia.
15
“determination” is employed in connection with the bringing to an end the
contractor‟s employment under the particular contract. In determination, it is the
contractor‟s obligation and responsibility to carry out the works under the contract
that is terminated and not the contract. The contractual and common law rights of the
parties remained intact and are not invalidated due to the determination.
It is important at the outset to understand the distinction between the two
concepts of “termination for breach” and “determination”, and the legal
consequences of that distinction. The common law right to terminate or „repudiate‟ a
contract can arise in either of two situations. First, one party may make clear that it
has no intention of performing its side of the bargain. Secondly, the party may be
guilty of such a serious breach of contract that it will be treated as having no
intention of performing. A breach of this kind is known as „repudiatory breach‟. In
both cases, the innocent party has a choice either to „affirm‟ the contract and hold the
other party to its obligations (while claiming damages as appropriate for the breach),
or to bring the contract to an end. If repudiation is opted for, then both parties are
released from any further contractual obligation to perform.8
Parties to a contract can terminate the contract under certain circumstances.
The usual cause for determination is default of one party for reasons set down in the
conditions of contract. Although there is provision for such action in condition of
contract, termination of a contract should be seen as a last resort as there are often
financial losses incurred and in most instances, there is a loss of time.
However, a breach does not necessarily bring a contract to an end.
“Determination” arises only when, it is brought to an end at the option of the party
not in default9. Lord Diplock in Photo Production Ltd. v. Securicor Transport Ltd.
(supra) stated that:
“When there has been a fundamental breach of condition, the coming to an
end of the primary obligations of both parties to the contract at the election
8 Murdoch, J and Hughes, W. (1997). Construction Contracts: Law and Management. E & FN Spon.
London 9 Maslie Ikran Ismail. (2008). The Validity of Determination by Insolvency Clause in Malaysia
Standard Form of Contract. Universiti Teknologi Malaysia
16
of the party not in default is often referred to as the „determination‟ or
„rescission‟ of the contract....The bringing to an end of all primary
obligations under the contract may also leave the parties in a relationship,
typically that of a bailor and bailee, in which they owe to one another by
operation of law fresh primary obligations of which the contract is not the
source.”
It has further been suggested that the “determination” only brings to an end
the right of the defaulting party to insist on the other party to continue the contract,
while the contract remains in existence. It has been contended that “determination”
doe not terminate the contract as a whole. Lord Clyde in F.G Cullis Construction
Ltd. v. HMV Fields (Properties) Ltd. & Anor (1990) stated that:
“only provides that the employment of the contractor shall forthwith be
automatically determined; it does not determine the contract”
In the contract of employment, its termination does not necessarily mean that
all legal relationships between the employer and the employee come to an end. When
a contractor‟s employment is determined, it does not necessarily bring an end to the
relationship between employer and contractor. It only brings to an end the right of
the same time amounting to continue working under the contract without at the same
time amounting to the employer avoiding the contract. The rights and obligations of
the parties thereafter are governed by the common law principles and termination
provisions as set out in the contract itself. The employer may be obliged, as provided
under the contract of employment, to assign patent right to the employer. For
example, arbitration clause may be continues to be enforceable after termination of
the contract.10
10 Roslinda binti Rosly. (2009). The Profile of Construction Contract Termination Cases. Universiti
Teknologi Malaysia
17
2.4 Determination of Contract
Determination of contract occurs when a valid and enforceable contract is
brought to an end by the action of one or both parties or by its becoming impossible
of performance by circumstances which were unforeseeable at the time the contract
was forms. A contract may be determined before completion at common law or by
the exercise of express rights set out in the contract itself. In the latter case, the
determination clause often seeks to improve on the common law rights of the parties
by giving grounds for determination which would not entitle one party to determine
at common law.11
A contract may be lawfully terminated by a party in two of the following
ways which are common law determination and contractual determination.
2.4.1 Common Law Determination of Contract
Most determination clauses also specify the rights and obligations of the
parties following the exercise of the power of determination, and leave the common
law rights of the parties intact. This significant, since where the ground of
determination is not one which would be treated as repudiator at common law, it has
been held that the party determining is entitled only to such remedy as the contract
itself specifically provides.12
In the case of Thomas Feather & Co. (Bradford) Ltd. v. Keighley
Corporation,13
a contract clause provided, somewhat ungrammatically:
11Powell-Smith, V and Sims, J. (1985). Determination and Suspension of Construction Contracts.
William Collins Sons & Co. Ltd. London 12 Tay Lee Yong. (2006). Determination of Contract by Employer in Construction Industry. Universiti
Teknologi Malaysia 13
(1953) 53 Local Government Reports
18
„Contractor shall not assign or underlet this contract or any part of it
or enter into a sub-contract except with the consent of the
Corporation. Compliance with these conditions is of the essence of
this contract and in the event of non-compliance by the contractor it
shall be lawful for the Corporation to adopt either of following
remedies:
a) The Corporation may absolutely determine the contract or,
b) The Corporation may call on contractor in respect of such non-
compliance for the sum of £100 by way of liquidated and
ascertained damages and not by way of penalty‟
The contractor did sub-contract in breach of this provision and the
corporation determined the contract. The work was completed by another contractor
and the Corporation claimed extra cost of £21,000 as damages for breach of contract.
The High Court held that they were not so entitled. Lord Goddard CJ said that the
contract clause conferred a specific right on the Corporation.
“.....that is that they can put an end to the contract once and for all. I
would have expected to find, if it was intended that, in those
circumstances, the contractor would be liable for damages, that
there would have been an express provision put in to that effect. I
think that his provision simply gives the Corporation a right to
terminate the contract, which they would not otherwise have had,
and that it gives them nothing more.”
The termination of contract at common law is a serious step which should be
taken only after careful consideration and appropriate professional advice required.
The right to terminating a contract depends on the nature and the seriousness of the
consequence of the other party‟s breach. The breach must either be of a fundamental
term of the contract, often described as one that goes to the root of the contract, or
alternatively the consequences of the breach must be such that they substantially
deprive the innocent party of the entire benefit intended by the contract.
19
The termination of contract at common law can occur when employers breach
the contract or the contractor breach the contract. The following cases discuss the
typical ground that may constitute repudiation by the employer or contractor.
2.4.1.1 Employer’s breach
Various acts by the employer can result in a repudiatory breach and thus
entitle the contractor to terminate the contract. These are listed and explained
below:14
a) Failure to give possession of site
In case of Earth & General Contracts Ltd. v. Manchester Corporation15
,
minor interference by the employer with the contractor‟s possession of the
site is not constitute as a repudiatory breach but an outright refusal to give
possession in the first place will be so. As to mere delay in giving possession,
the crucial question is whether the employer‟s conduct indicates an intention
no longer to be bound by the contract. For example, where an employer
delayed in giving possession of the site for two months despite repeated
requests from the contractor, and also announced that part of the contract
work was to be omitted and given to another contractor, it was held that these
two breaches, taken together, amounted to a repudiatory breach of contract.
Furthermore, in the case of Attorney General of Singapore v. Wong Wai
Cheng Trading and Union Contractor (1980), the Court of Appeal in
Singapore held that a delay in site possession by a period of 30 months which
was in excess of the contract period (24 months) itself was not a fundamental
breach having regard to the express provision in the contract that shows that
the parties had clearly considered at the time the contract was made, that
14 Murdoch, J and Hughes, W. (1997). Construction Contracts: Law and Management. E & FN Spon.
London 15 [1958] 108 LJ 665
20
hindrances and delays, including late site possession to the execution of
works were to be allowed for.16
b) Non-payment of sums due
Contract commonly provide express rights of determination for non-payment
if the employer failed or refuse to pay to the contractor. Meanwhile, failure to
pay on time or late payment is not in itself repudiatory and not normally be
treated as a sufficient breach to justify the other party in terminating that
contract. In the case of Haji Kassim v. Tegap Construction Sdn Bhd (1981),
the judges from the Court of Appeal agreed with the High Court‟s decision
that the termination of the contract was bad in law and the appellant had
failed to honor the architect‟s certificate. It was found that at that relevant
time, the appellant did not have the fund to make payment, and used the
complaint that the respondent used inferior materials in the construction as a
breach of agreement, which was found to be completely without merit.17
c) Witholding of certificates
Employer may constitute a breach of contract if the contract administrator
refuses to certify at the appropriate time or negligently under-certifies due to
the positive interference by the employer. In the case of Perini Corporation
v. Commonwealth of Australia,18
the contractor can claim damages or
recover what is due without the necessity of a certificate. Whether they will
justify termination of the contract will once again depend on whether the
breach is sufficiently serious to be regarded as repudiatory.19
16 Roslinda binti Rosly. (2009). The Profile of Construction Contract Termination Cases. Universiti
Teknologi Malaysia 17 Roslinda binti Rosly. (2009). The Profile of Construction Contract Termination Cases. Universiti
Teknologi Malaysia 18 [1969] 12 BLR 82 19 Murdoch, J and Hughes, W. (1997). Construction Contracts: Law and Management. E & FN Spon.
London
21
d) Hindrance of the contractor
A breach of the employer where an employer wrongfully ordered the
contractor not to complete the work may be so serious as to indicate an
intention not to be bound. For example, in a case Pembinaan LCL Sdn Bhd
v. SK Styrofoam (M) Sdn Bhd (2007), the appellant has wrote to the
respondent that it was entitled to temporarily stop work based on physical
impossibility or hindrance to doing work. After the appellant did not
recommence work, the respondent terminated the contract and the Arbitrator,
which was appointed by the parties, ruled that the respondent‟s termination
was invalid and the respondent had acted in breach of contract. However, the
High Court Judge set aside the Arbitrator‟s award and held that the Arbitrator
had committed errors of law when the respondent challenged the Arbitrator‟s
award. Upon appeal in the Court of Appeal, the learned Judge was convinced
with the Arbitrator‟s finding that the respondent was in breach of contract and
as the result, the learned Judge set aside the High Court‟s orders and restored
the Arbitrator‟s award.
2.4.1.2 Contractor’s Breach
Acts by the contractor that may constitute a repudiatory breach fall into the
following groups:20
a) Abandonment or suspension of the work
A total abandonment of the work by the contractor is the most obvious
example of „repudiatory breach‟ where in circumstances this is unjustified.
The contractors who were complaining of late payment retaliated by
withdrawing their labour and most of their plant from the site and thus slowed
20 Murdoch, J and Hughes, W. (1997). Construction Contracts: Law and Management. E & FN Spon.
London
22
down progress considerably. However, they retained a presence on site
through their supervisory staff, and they did nothing to discourage sub-
contractors from continuing with their work.21
In the case of Cheok Hock
Beng v. Lim Thiam Siong (1992), the owners of the land terminated the
agreement with the developer on the grounds that the developer had
repudiated them by failing to carry out the construction works or unable to
perform them. The High Court found that the plaintiff, which is the owner,
was entitled to repudiate the agreement and an order that the possession of the
land be given back to the plaintiff.
b) Defective work
Defect in the work do not entitle the employer to terminate the contract and
the remedy for them is to claim damages for the cost of rectification. But, a
very serious defects made by the contractor may justify the conclusion that
there has not been „substantial performance‟ by the contractor. Besides that,
an accumulation of lesser defects may amount to repudiatory breach of
contract and the employer need pay nothing and can terminate the contract. It
was held in one case Sutcliffe v. Chippendale & Edmondson, 22
the
contractor‟s „manifest inability to comply with the completion date
requirements, the nature and number of complaints from sub-contractors and
their own admission that.....the quality of work was deteriorating and the
number of defects was multiplying‟. This entitled the employer to terminate
the contract and made a conclusion that the contractor had either the ability,
competence or the will to complete the work accordance with the contract.
The employer gave an order to the contractor to leave the site.
21 Murdoch, J and Hughes, W. (1997). Construction Contracts: Law and Management. E & FN Spon.
London 22 [1971] 18 BLR 149
23
c) Delay
There are only three situations at common law in which delay by a contractor
will justify the employer in terminating the contract which are as follows:
Delay may be so great as to demonstrate the contractor‟s intention not
to be bound by the contract.
„The time is of the essence‟ where in the contract stipulated that the
time of completion is of fundamental importance.
Once the delay has occurred, the non-delaying party may make time
of the essence by giving reasonable notice to the other party.
2.4.2 Contractual Determination of Contract
The second way in which a party may lawfully determine the contract will be
by exercising powers to that effect expressly provided for in a contractual
termination clause. Such a termination will be different from a common law
determination in two vital respects which are:23
It will not be necessary to establish that the breach or event on which
the clause is expressly conditioned is of the fundamental repudiatory
character required for a common law determination. It will be
sufficient that it has been contractually defined or nominated as a
ground for contractual determination.
A contractual termination will provide no remedies to the rescinding
party beyond those expressly conferred by the termination clause
itself.
23 Duncan Wallace (1995), Hudson‟s Building and Engineering Contracts. 11th Edition, Sweet &
Maxwell, London
24
The standard form of building contract is one of the key methods of
ameliorating a potentially fractious relationship to achieve a common end. It
evidences the legal relationship between the parties in contract and provides the
administrative procedures necessary for the realization of the legal relationship. Any
standard form of building contract would need to appreciate and incorporate all the
special requirements and circumstances that a project would call for, particularly the
required work, the price to pay and the other terms under which the contract is to be
performed, settled and disputed.24
Nowadays, there are various types of standard form of contract can be choose
in the construction industry in Malaysia such as PWD 203A, PAM Contract, CIDB,
IEM and others. The PWD forms of contract are the de facto standard forms of
construction contract used by the Malaysian public sector. In fact, these has been in
recent years increasing usage of the PWD forms with amendments by the private
sector as well, especially in civil engineering construction.25
Besides that, for the
private sector project, the PAM Contract form is widely used rather than CIDB or
IEM form of contract. All of the standard form of contract contains clauses on the
determination of contractor‟s employment by employer or determination of own
employment by contractor.
2.4.2.1 Determination of Contractor’s Employment by Employer
Employer is rightfully allowed to terminate the employment of the
contractor and all of the standard form of contract contains clauses on
termination by the employer. Before employer can terminate the contractor,
the written notice by the architect should be issue specifying the default
committed by the contractor.
24 Tay Lee Yong. (2006). Determination of Contract by Employer in Construction Industry. Universiti
Teknologi Malaysia 25 Lim Chong Fong. (2004). The Malaysian PWD Form of Construction Contract. Thomson Asia Pte
Ltd.
25
PWD Form 203A (Rev. 2007)
Clause 51.0, 52.0 and 53.0 in PWD 203A (Rev 2007) standard form of
contract deals with the termination of contract by employer and set out the procedure
to be followed when this occurs. Clause 51.1 provided the event of default by the
contractor so that the employer can determine the contractor‟s employment. The
event listed in the clause as follows: 26
i. Fails to commence works at the site within two (2) weeks after
the date for possession
ii. Suspends or abandons the carrying out of the works or any
part thereof before the date of completion
iii. Fails to proceed regularly and diligently with the performance
of his obligations under the contract
iv. Fails to execute the works in accordance with the contract
v. Persistently neglects to carry out his obligations under the
contract
vi. Refuses or persistently neglects to comply with a written
notice from the S.O. in relation to any defective work or
equipment, materials or goods which are defective or do not
meet the requirements of the contract
vii. Fails to comply with the provision of Clause 47
viii. Fails to comply with any terms and conditions of this contract
The contractors are required to rectify such problems within fourteen (14)
days after they received the written notice issue by the S.O. In the written notice, the
S.O. will specifying the default commit by the contractors and if they fails to remedy
such default within such period, the S.O. shall have the right to forthwith terminate
the contract by giving a written notice sent by registered post or by recorded
delivery.
26 PWD Form 203A(Rev. 2007), Clause 51.1(a)
26
Meanwhile in Clause 51.1 (c) listed the consequences of termination by the
employer where the contractor shall:27
i. Forthwith cease all operations of the works
ii. Carry out any protection works so as to secure the site,
equipment, goods, materials therein against any deterioration,
loss or damage and to do all things necessary so as to leave the
site in a clean and tidy condition
iii. Remove its personnel and workmen from the site
iv. Vacate the site within the time stipulated by the S.O., remove
all temporary buildings, plant, tools, equipment, goods and
unfixed materials which have not been paid by the
government, as specified by the S.O. Failing which, the
government may (but without being responsible for any loss or
damage) remove and sell any such property belonging to the
contractor, holding the proceeds, less all cost incurred, to the
credit of the contractor.
v. Either –
Terminate all third party contracts entered into by the
contractor for the purposes of this contract
Assign to the government, if so required by the S.O., at
no cost or expense to the government, the benefit of
any agreement for the supply of materials or goods
and/or for the execution of any work or services for the
purposes of this Clause
Allow such third party to enter into a contract with the
government or any person deemed necessary by the
government for the purpose of completing the works.
Provided that the government shall not be obliged to pay any
third party for any materials or goods delivered or any work
executed or services for the purposes of this contract (whether
27 PWD Form 203A (Rev. 2007), Clause 51.1 (c) (i)
27
before or after the date of termination) for which the
government has paid but the contractor has failed to make
payment to the third party
vi. At no cost to the government, hand over to the government all
plans, designs, specification and other relevant documents
relating to the works.
vii. Pay to the government for any losses and damages as a result
of termination of this contract in the manner provided under
Clause 55
viii. Not be released from any of its obligations under the contract
Upon the termination of contractor‟s employment by employer, the
government shall:28
i. Call upon the Performance Bond or the Performance
Guarantee Sum
ii. Enter and repossess the site
iii. Be entitled to carry out and complete the works on its own or
employ any other person to carry out and complete the works
iv. Be entitled to claim against the contractor for any losses, costs,
expenses and damages suffered as a result of termination of
this contract in the manner provided under Clause 55
Besides that, Clause 51.2 deals with the general events of default by
contractor that can result in the termination of employment by the employer. If such
defaults occur, the employer has the right to terminate the contract and Clause 51.1
(c) (i) and (ii) shall apply for the consequences of the termination. In addition, Clause
53.0 of the contract also provides termination by employer due to the corruption,
unlawful or illegal activities. This clause will be discussed in detail in Chapter 3.
28 PWD Form 203A (Rev. 2007), Clause 51.1 (c)(ii)
28
Generally,, the provision both in PWD Form 203A (Rev. 2007) and PAM
Contract 2006 regarding to determination of contractor‟s employment by employer
seems like equivalent each other.29
PAM Contract 2006
PAM Contract 2006 was frequently used in the construction industry in
private sector. Similar with PWD standard form of contract, PAM form also has the
provision for determination of contract by employer but it has included extra clause
for determination of contract by contractor. However, under the PWD 203A (Rev.
2007), there are only provision of clause for determination of contract by the
employer.
In PAM Contract 2006, default under Clause 25.1 by the contractor is one of
the major avenues of reasons allowing the employer to exercise his power of
determination. The defaults listed are as follows: 30
i. If without reasonable cause, he fails to commence the works in
accordance with the contract
ii. If without reasonable cause, he wholly or substantially
suspends the carrying out the works before completion
iii. If he fails to proceed regularly and diligently with the works
iv. If he persistently refuses or neglects to comply with AI
v. If he fails to comply with the provision in Clause 17
vi. If he abandoned the works
Upon the concurrence of any default, the employer may determine the
contractor‟s employment by giving a written notice delivered by hand or by
registered post specifying the default. If the contractor continues with such default
for fourteen (14) days, then the employer may, within ten (10) days from the expiry
29
Roslinda binti Rosly. (2009). The Profile of Construction Contract Termination Cases. Universiti
Teknologi Malaysia
30 PAM Contract 2006, Clause 25.1
29
of the said fourteen (14) days determine the employment of the contractor by a
further written notice delivered by hand or by registered post.31
In the event of the
contractor becoming insolvent or have a winding up order made, the employment of
the contractor shall be forthwith automatically determined.32
33
On the other hand, if the contractor involved with one or more of the defaults
as been listed in Clause 25.1, the obligations and duties of the contractor is
discharged due to the termination of the contract by the employer. The respective
rights and duties of the employer and contractor, upon the termination of the
contractor‟s employment specify in Clause 25.4. the clause reads as follows: 34
i. The contractor shall vacate the site and return possession of
the site to the employer, who may employ and pay other
person to carry out and complete the works and to make good
any defects. Such person may enter into the works and use all
temporary buildings, construction plant, tools, materials and
goods intended for, delivered to and places on or adjacent to
the site (except materials and goods that is on hire by the
contractor) and may purchase all materials and goods
necessary for the carrying out and the completion of the
works.
ii. The contractor if so required by employer or architect shall
within twenty one (21) days of the date of determination,
assign to the employer the benefit of any agreement for the
supply of materials, goods and/or for the execution of any
work for the purposes of the contract to the extent that the
same is assignable.
iii. The contractor when instructed in writing by the architect shall
remove from the works any temporary buildings, construction
31 PAM Contract 2006, Clause 25.2 32
PAM Contract 2006, Clause 25.3
33 Roslinda binti Rosly. (2009). The Profile of Construction Contract Termination Cases. Universiti
Teknologi Malaysia 34 PAM Contract 2006, Clause 25.4
30
plant, tools, equipment, materials and goods belonging to or
hired by him. If within a reasonable time after any such
instruction has been issued to the contractor, and he has not
complied therewith, then the employer may without liability
remove and sell any such property belonging to the contractor
except those that are on hire and hold the proceeds less all cost
incurred to the credit of the contractor.
iv. The contractor shall allowed or pay to the employer all cost
incurred to complete the works including all loss and/or
expense suffered by the employer. The employer shall not be
bound by any provision in the contract to make any further
payment to the contractor, including payments which have
been certified but not yet paid when the employment of the
contractor was determined. Upon completion of the works, an
account taking into consideration the value of works carried
out by the contractor and all cost incurred by the employer to
complete the works including loss and/or expense suffered by
the employer shall be incorporated in a final account prepared
in accordance with Clause 25.6
However, the employer may pay any supplier for materials or goods, or a
subcontractor for work executed, who have not previously received payment. The
employer may also use discretion for paying nominated subcontractors, who should
have been paid previously under certificates. The employer will then try to recover
these sums from the contractor. In practice, those who should have been paid, but
have not been because of a default on the part of the contractor, may be unwilling to
carry on their work unless they receive a payment. The employer may therefore be
forced into this situation, in order to see progress in the works, and then try to
recover the amounts from the contractor.35
As a result, we can see that both of the standard form of contract which are
PWD Form 203A (Rev. 2007) and PAM Contract 2006 contains the similar defaulted
35 Allan Ashworth (2001). Contractual Procedures in the Construction Industry. 4th Edition. Pearson
Education Limited. England
31
which may cause the determination of contractor‟s employment by the employer.
The procedures for determination and the rights and duties of the employer and
contractor upon the determination also contains in both standard form of contract.
2.4.2.2 Determination of own employment by contractor
Many if not most of the private forms of contracts will, for obvious reasons,
contain no express contractor‟s termination clause. In Malaysia, PAM Contract 2006
contains a provision for the contractor to determine the contract where it gives the
legal right for contractor to do so. Contractor may terminate his own employment if
the employer defaults in any of the following:36
i. If the employer fails or neglects to pay the contractor the
amount due on any certificate (less Liquidated Damages and
set-off which the employer is expressly entitled to make under
the contract) within the period of honouring certificates.
ii. If the employer interferes with or obstruct the issues of any
certificate by the architect
iii. If the employer fails to nominate a succeeding architect or
consultant in accordance with Articles 3, 4, 5 and 6
iv. If before the date of Practical Completion, the carrying out of
the whole or substantially the whole of the uncompleted works
is suspended for a continuous period of time exceeding that
stated in the Appendix
Contractor can suspend their works at site if they are not received in due time
the necessary instructions, drawings, details or levels from the architect, where they
already made a specific request in writing. Other than that, the suspension of works
may occur regarding on the compliance with an Architect‟s Instruction (AI) issued
because of the discrepancies between documents, variations, and others unless
36 PAM Contract 2006, Clause 26.1
32
caused by the contractor. Delay in execution of work caused by persons or agents
employed directly by the employer may also bring to suspension of work and gives
the right to contractor to determine his own employment.37
A notice in writing must be sent to the employer specifying the default if the
contractor decides to terminate his own employment. This notice must be delivered
by actual, special or recorded delivery. The employer is given sufficient time to
rectify any default described in the notice and fourteen days (14) from receipt of the
notice must be allowed for employer to take appropriate action. The contractor must
then within ten (10) days period issue a further and final notice of determining
employment under the contract. These notices must not be given unreasonably by the
contractor.38
Clause 26.3 provides the events of insolvency of the employer. In the event
where the employers become insolvent or bankrupt, the employment of the
contractor is automatically determined. Other than that, in Clause 26.4 explained the
rights and duties of contractor and employer upon the determination. The following
shall be respective rights and duties of the contractor and employer: 39
i. The contractor shall within fourteen (14) days or within such
longer period as may be agreed in writing by the architect,
remove from the site all his temporary buildings, construction
plant, tools, materials and goods and shall give facilities for
his nominated sub-contractors to do the same.
ii. The employer shall allow or pay to the contractor the total
value of work properly executed and the value of materials
and goods supplied including any loss and/or expense suffered
by the contractor caused such determination.
Within six (6) months after determination of his employment, the contractor
shall submit a final account for the total value of work properly executed the value of
37 PAM Contract 2006, Clause 26.1 (d)(i)(ii)(iii) 38 PAM Contract 2006, Clause 26.2 39 Roslinda binti Rosly. (2009). The Profile of Construction Contract Termination Cases. Universiti
Teknologi Malaysia
33
materials and goods supplied and loss and/or expense suffered by the contractor
caused by such determination to the employer, architect, and quantity surveyor for
the employer‟s agreement.40
If nothing in the said final account is disputed within
three (3) months from the date of receipt of the final account, the final account
should be conclusive and deemed agreed by the parties.
In PWD Form 203A, there is no provision for the contractor to terminate the
contract, unlike other forms in Malaysia such as PAM Contract 2006 and CIDB 2000
Edition. Although the PWD Form 203A does not contain the provision that gives the
contractor right to determine the contract, this does not mean the contractor has no
such right under the law of contract. The contractor can always used to refer to the
Contract Act 1950 and common law principle of repudiation under breach of
contract. However, not all breaches entitle the contractor to terminate the contract.
The breach must be in relation to breach of condition of contract.41
40 PAM Contract 2006, Clause 26.6 41 Wan Nordiana Wan Ali. (2006). Determination of Contract by Contractor. Universiti Teknologi
Malaysia
34
CHAPTER THREE
CORRUPTIONS, UNLAWFUL AND ILLEGAL ACTIVITIES IN
CONSTRUCTION CONTRACT
3.1 Introduction
In PWD Form 203A (Rev. 2007) already contain a clause on termination on
corruption by the contractor. But in 2009, Jabatan Kerja Raya Malaysia had issue
‘Surat Arahan KPKR Bil. 4/2009’ regarding on instruction to make an amendment to
all tender documents and include reminder to contractor pertaining to the offence of
corruption and substitute the whole of existing Clause 53.0 with the new Clause 53.0
as follows:
“Termination on Corruption, Unlawful or Illegal Activities”
a) Without prejudice to any other rights of the Government, if the
Government is satisfied that the Contractor, its personnel, servants,
agents or employees is or are involved in corruption or unlawful or
illegal activities in relation to this Contract or any other agreement
that the Contractor may have with the Government, the Government
shall be entitled to terminate at any time, by giving immediate written
notice to that effect to the Contractor.
35
b) Upon such termination, the Government shall be entitled to all losses,
costs, damages and expenses (including any incidental costs and
expenses) incurred by the Government arising from such termination
and clauses 51.1 (c)(i) and (ii) shall apply
c) Nothing in Clause 53.0 or anything else contained in this Contract
shall render the Government in any way liable for payments upon
termination
The Government of Malaysia take this as a serious issue and have to make
the construction industry free from corruption. Any contractor, its personnel,
servants, agents or employees who is found guilty and commit with the corruption,
unlawful or illegal activities before, during or after the construction, they will be
punished.
3.2 Corruption
The most promising answer is made by Vito Tanzi where he said that
“corruption is the intentional non-compliance with the arm’s-length principle aimed
at deriving some advantage for oneself or for related individuals from this
behaviour.”42
Most of us have different ideas of what is corruption but we do not
necessarily share the same ideas. That is why we need to ask the question about what
corruption is for example:
Do you believe giving money to speed up the processing of an
application is a corruption?
42 Boris Begovic. (2005). Corruption: Concepts, types, causes and consequences.
36
Do awarding contracts to those who gave large campaign
distributions is a corruption?
Do you think using government construction equipment to build an
addition on one‟s house is a corruption?
In the definition giving by Vito Tanzi, there are three basic elements which
contribute an action as a corruption. The first element deals with the arm‟s-length
principle as it requires that personal or other relationships should play no part in the
economic decisions that involve more than one party. Equal treatment is essential for
a well-working market economy and bias will definitely violates the arm‟s-length
principle and fulfills a necessary condition for corruption. If there is no bias, there is
no corruption.
The second element is that the bias must be intentional and the third element
must be some advantage for the individual who commits a violation of the arm‟s-
length principle.
3.2.1 Definition of corruption
Corruption is not just the clearly “bad” cases of government officials
skimming off money for their own benefit. It includes cases where the systems do
not work well, and ordinary people are left in a bind or needing to give a bribe for
the licenses they need. According to the Oxford Dictionary 10th Edition, “corrupt” is
willing to act dishonestly in return for money or personal gain – evil or morally
depraved. On the other hand, the word “corruption” or “bribery and corruption” was
explained as offences relating to the improper influencing of people in certain
positions of trust. The offences commonly grouped under this expression are now
statutory.43
43 Elizabeth A. Martin.(2001). A Dictionary of Law. 5th Edition. Oxford University Press
37
There is an alternative definition of corruption frequently used by the World
Bank that specifies corruption as “the abuse of public office for private gain.” This
definition excludes the possibility of corruption in private sector and it only focuses
exclusively on corruption in the public sector. By contrast, private corruption is
between individuals in the private sector, for example the triad extorting money from
a local business or even the small amount of tip that someone might pay to the
busboy to secure the best table in a restaurant.
A few words on the ethical aspects in defining corruption should be added.
For an overwhelming majority of people corruption is something morally
unacceptable; it is the evil that should be fought because its very existence is against
basic moral principles. The analysis of corruption which follows is morally neutral.
In that sense Tanzi’s definition of corruption is morally neutral.44
3.2.2 Classifications and Types of Corruption
In general, corruption can be classified into bribery, nepotism, fraud and
embezzlement. “Bribery” is the most probably comes first to mind when talking
about corruption. “Bribery” can be defined as an offer of money or favours to
influence a public official. It also can be explain as payment that served to make
things pass more swiftly, smoothly and more favourably between two parties.
According to the World Bank, other common types of corruption include:
Nepotism - Favouritism shown by public officials to relatives
or close friends. This type of favouritism is the natural human
proclivity to give preferential treatment to friends and families
and occurs in both the public and private sectors.
44 Boris Begovic. (2005). Corruption: Concepts, types, causes and consequences
38
Fraud – Fraud occurs when a person cheats another through
deceit. It is usually a financial crime in which someone
manipulates or distorts information and facts. In the public
domain, a public official who commits fraud manipulates the
flow of information for his personal profit.
Embezzlement – When public officials stealing money or other
government property, or when disloyal employees steal from
their employers in the public and private sector.
Embezzlement is not focusing into money but includes all
goods that were meant for the people. It is sometimes one of
the quickest ways to gain wealth.
Basically, two types of corruption are identified and it is important to
distinguish between those types of corruption which are administrative corruption
and political corruption.
3.2.2.1 Administrative Corruption
Administrative corruption is corruption for achieving or speeding-up
materialization of some specific right that the citizen or legal entity is entitled to. For
example corruption that alters the implementation of policies, such as getting a
license even if you do not qualify for it. If a person bribes a civil servant in charge
of issuing a passport that a briber or corruptor is entitled to, where there is no legal
barrier for his passport to be issued, that is exactly the first type of corruption. Its
specific and more aggressive version is bribing officials for jumping the queue for
providing the service that is thoroughly legal.45
In other words, civil servants are corrupted to do their job or to do it more
quickly than they usually do, instead of not doing it. The frequency of this type of
45 Boris Begovic. (2005). Corruption: Concepts, types, causes and consequences
39
corruption is a good indicator of the capacity and effectiveness of a country‟s
administration where it is poor administrative capacities or poor supply of
administrative services.
3.2.2.2 Political Corruption
Political corruption or “state capture” is a concept develops by the World
Bank primarily for explaining the reality of political life in transitional economies.
“State capture” is a type of corruption that is aimed at changing the rules and
regulations into rules and regulations that favour the interests of the corruptor. The
underlying assumption is that legislation and public policies are decisively
influenced by the bribing of legislators by a few oligarchs where public policies are
inevitably formulated to favour the oligarchs and not the public.
The concept of “state capture” lacks analytical clarity in specifying a cut-off
line between legitimate political lobbying and “state capture” created by corruption
where political strong lobbying is an entirely legal and legitimate activity in mature
democracies. The state can be captured both by aggressive lobbying and by effective
corruption.
3.2.3 Levels of Corruption
Levels of corruption can be divided into two which are grand corruption and
petty corruption. It is very important to distinguish between these two levels of
corruption.
40
3.2.3.1 Grand Corruption
Grand corruption can be defined as corruption involving substantial amounts
of money and usually high-level officials. Grand corruption mostly occurs in large
procurement project involving construction of dam, airports, hospitals and others.
Highly placed individuals exploit their positions to extract large bribes from national
and transnational corporations, who appropriate significant pay-offs from contract
scams, or who embezzle large sums of money from public treasury into private bank
accounts.
3.2.3.2 Petty Corruption
Petty corruption is involving smaller sums and typically more junior officials.
On the other hand, is the low level corruption that citizens will face every day in
their life encounters with corrupt public officials, in struggle to obtain public
services such as obtaining licenses and paying taxes. The amount of money is much
lower than grand corruption. Petty corruption will often add up to quite a large sum
of money.
Corruption levels can vary within a country for different types. For example,
there may be very little grand corruption in a country with relatively clean elite but a
large amount of petty corruption in the lower offices of government.46
46 http://info.worldbank.org/etools/docs/library/35970/mod03.pdf
41
3.3 Unlawful or Illegal Activities
Unlawful and illegal activities carry the same meaning which is activities
commit by a person or a group of person that is forbidden by law. This sort of
activities is a violation of the legal laws, rules and duties of a society. In every
civilized society, there is a code of behaviour that governs how people must behave
and if a person violates that code, the action in violation is considered an unlawful
act. Vary codes and systems exist for regulating behaviour such as a code of
behaviour operates on a common law system or civil law system. The law imposes
legal duties on every person and breach of these legal duties usually carries some
form of penalty whether civil penalties or criminal penalties.
3.3.1 Definition of Unlawful or Illegal Activities
According to the Oxford Dictionary 10th
Edition, the word “unlawful” can be
defined as not conforming to or permitted by the law or rules while “illegal” comes
with the meaning of contrary to or forbidden by law.47
On the other hand, “activity”
is a condition in which things are happening or being done in pursuit of an objective.
Hence, we can conclude here that unlawful or illegal activities is a condition that is
forbidden by law or rules are happening or being done by an individual or a group in
pursuit of an objective or without an objective.
In Act 574 Penal Code, Section 43 stated that the word „illegal‟ or „unlawful‟
is applicable to everything which is an offence, or which is prohibited by law, or
which furnishes ground for a civil action. And in respect of the word „illegal‟, a
person is said to be „legally bound to do‟ whatever it is illegal in him to omit.
47 Elizabeth A. Martin.(2001). A Dictionary of Law. 5th Edition. Oxford University Press
42
3.3.2 Classifications and Types of Unlawful or Illegal Activities
The unlawful or illegal activities can be classified vary by region because
many factors have to considered including cultural norms. The penalties imposed to
a person who is committed in a crime in one country or region also might differ from
the penalties in other region, even if the offenses are identical. Unlawful or illegal
activities can be classified into four groups include crime against people, crime
against property, crime against society and crime of non-compliance.48
3.3.2.1 Crime against People
This class of crime can be including illegal activities such as murder, rape,
assault, battery and sexual assault. Other than that, robbery might be considered as a
crime against person where it is a form of theft that involves taking money or goods
from a person or in the presence of another by way of violent force or intimidation.
Murder also can classify into this type of crime because it is the unlawful act of
deliberately killing another human being. Assault can be defined as touching another
person inappropriately, invading his or her personal space or causing bodily injury
with a deadly weapon. Besides that, sexual assault is the direct contact or contact of
a sexual nature through clothing without the other person‟s consent.
3.3.2.2 Crime against Property
Property crime includes illegal actions such as burglary, theft, shoplifting,
arson and vandalism. Burglary and shoplifting basically can be considered as a theft
but these acts can be distinguishing each other because it differs in nature. Burglary
is the unauthorized entry into another person‟s home or building with intentions of
48 http://www.wisegeek.com/what-are-the-different-types-of-illegal-activities.htm
43
theft and various other crimes. Theft is an illegal activity that involves the taking of
personal property or goods without the owner‟s consent.
Other than that, shoplifting is a form of theft where it involves taking
merchandise from retail stores without paying for the cost of the goods. Arson is one
of the illegal acts that falls under crime against property. Arson is defined as setting
fire to another person‟s or property by accident or malicious behaviour or to one‟s
own property under ill intentions, such as insurance fraud. Meanwhile, vandalism is
among the most common property crimes, and it involves the act of intentionally
damaging public or private property.
3.3.2.3 Crime against Society
Society crime is an illegal activity that affecting public order or safety are
sometimes called victimless crimes because there is no direct harm to another person
or any property and the person commit with this crime do not follow the social
norms. This class of crime might include using or abusing illegal drugs, possession
or pornography, prostitution activities or sex work and lewd acts between adults.
3.3.2.4 Crimes of Non-compliance
Illegal activities that falls under category of crimes of non-compliance
include failing to pay taxes, driving faster than speed limit or possession of drugs
such as marijuana. Besides that, some countries guarantee their citizens the right to
free speech or the freedom of religion but speaking out against the government or
practicing certain religions can be illegal in other countries.
44
3.4 Procedure to Terminate the Contract due to Corruption, Unlawful or
Illegal Activities
According to the PWD Form 203A (Rev. 2007) Clause 53.0, the government
is entitled to terminate the contractor at any time, by giving immediate written notice
to the contractor. Once the contractor received the notice, the employment of the
contractor will be terminated immediately.49
This will be a big issue arises under this
clause on procedure of termination the contractor. How to terminate and how to
prove the contractor was committing with corruption, unlawful or illegal activities.
In this clause is not specified about how the contractor will found guilty and who is
liable to proof that the contractor commit with the default. Should the court proof it
or the contract administrator?
This clause give the power to contract administrator, the S.O., to give notice
of termination to the contractor if the government satisfy that the contractor, its
personnel, servants, agents or employees involved in corruption, unlawful or illegal
activities and terminate the contract at any time. We can see in that contractual
clause, the S.O can issue a written notice and easily terminate the contractor unlike
other clause regarding on procedure of termination or determination. In Clause 51.1
(a) and (b) of PWD Form 203A (Rev. 2007), it stated that:50
‘...............then the officer names in Appendix shall give written notice to the
Contractor specifying the default, and requiring the Contractor to remedy
such default within fourteen (14) days of the receipt of the default notice or
any period determined by the officer named in Appendix...........If the
Contractor fails to remedy the breach within such period, the Officer shall
have the right to forthwith terminate this Contract by giving a written notice
to that effect.’
49 PWD Form 203A (Rev. 2007), Clause 53.0 50 PWD Form 203A (Rev. 2007), Clause 51.1 (a)&(b)
45
In PAM Contract 2006, the procedure of termination is almost the same with
PWD Form 203A (Rev. 2007). This is the normal patent on how to terminate the
employment of the contractor with applying the law of natural justice. Clause 25.2 of
PAM Contract 2006 stated that:51
‘Upon the occurrence of any default under Clause 25.1, and if the Employer
decides to determine the Contractor’s employment, the Employer or
Architect on his behalf shall give to the Contractor a written notice delivered
by hand or by registered post specifying the default. If the Contractor shall
continue with such default for fourteen (14) days from the receipt of such
written notice, then the Employer my, within ten (10) days from the expiry of
the said fourteen (14) days, by a further written notice delivered by hand or
by registered post , forthwith determine the employment of the Contractor
under the Contract. Provided always that such notice shall not be given
unreasonably or vexatiously.’
Two important elements before the employer can terminate the employment
of the contractor are:
The written notice issue by the employer should specifying the
default commit by the contractor
The employer should give time to contractor for them to remedy such
default and if they fail or continue such default, then the employer
can terminate the contract.
When we go a little bit further, in PAM and PWD form of contract on clause
regarding on insolvency or bankruptcy, it is clearly stated that contractor is proven
bankrupt by the court and the government or contract administrator have the rights to
terminate the contract and the employment of the contractor shall be forthwith
automatically determined. 52
53
But in this Clause 53.0 of PWD Form 203A (Rev.
2007) on the termination on corruption, unlawful and illegal activities, it did not
51 PAM Contract 2006, Clause 25.2 52 PAM Contract 2006, Clause 25.3 53 PWD Form 203A (Rev. 2007), Clause 51.2 (a)
46
mention about when is the right time to terminate the contractor and who should
proof that the contractor is commit with the default.
3.4.1 Law of Natural Justice
The principles of natural justice are the minimum standards of fair decision-
making imposed on personal or bodies acting in a judicial capacity. Where the
relevant person or body is required to determine questions of law or fact in
circumstances where its decisions will have a direct impact on the rights or
legitimate expectations of the individual concerned, an implied obligation to observe
the principles of natural justice arises. In the event of the hearing taking place or a
decision being reached which breaches the principles of natural justice, the person
charged may seek a review of the hearing or decision in the courts.54
The concept of natural justice is formulated under two principles which are:
‘Nemo judex in causa sua’ – no man may be a judge in his
own cause or simply, the rule against bias.
‘Audi aiteram partem’ – the right of each party to be heard or
simply, the rule to „hear the other side‟.
3.4.2 Rule against Bias
The two main aspects of this rule are that a person adjudicating in a dispute
must have no pecuniary or proprietary interest in the outcome of the proceeding and
must not reasonably be suspected, or show a real likelihood of bias. For example, in
54 Ling Tek Lee. (2006). Natural Justice in Adjudication. Universiti Teknologi Malaysia
47
the case of Disdain Project Services Ltd. v Opecprime Development Ltd,.55
Bowsher J held that the court would refuse to enforce an adjudicator‟s decision if
there had been a serious and substantial breach of the principles of natural justice. In
this case, the adjudicator had failed to afford the other party an opportunity to deal
with the submission from its opponent. Having considered all the witnesses
evidence, the judge found that there were serious risk of appearance of bias in the
adjudictor‟s failure to consult one party on the submission made by the other party
and consequently, the judge refuse to enforce the award.
3.4.3 Rule to ‘Hear the Other Side’
In respect of the rule to „hear the other side‟, the adjudicator should refrain
from making a particular determination on a ground for which neither party has
contended without affording the parties notice of the same and an opportunity to
respond. Each party must be afforded an opportunity to advance his case before the
tribunal and to adduce evidence in support of his case. 56
In Musico & Ors v Davenport & Ors,57
Judge McDougall put the matter
simply as follow:
‘If an adjudicator is minded to come to a particular determination on
a particular ground for which neither party has contended then, in my
opinion, the requirements of natural justice require the adjudicator to
give the parties notice of that intention so that they may put
submissions on it.’
The principles of natural justice demand that a party in any judicial or
tribunal proceeding is entitled to address the evidence and submissions made by the
55 [2001] CILL 1698 56 Ling Tek Lee. (2006). Natural Justice in Adjudication. Universiti Teknologi Malaysia 57 [2003] NSWSC 977
48
other party. In Government of Ceylon v Chandris,58
Megaw LJ stated the principles
as follows:
‘It is.....a basic principle.....that no one with judicial responsibility
may receive evidence, documentary or otherwise, from one party
without the other party knowing that the evidence is being tendered
and being offered an opportunity to consider it, object to it, or make
submissions on it. No custom or practice may over-ride those basic
principles.’
3.4.4 Breaches of the Principles of Natural Justice
Breach would therefore include dealing with one party in the absence of the
other, an unjustified refusal to hear evidence and not giving opportunity to a party to
be heard. The recourse available to an aggrieved party in the face of the adjudicator‟s
failure to observe the principles of natural justice shall be to seek a court injunction
and declaration that the adjudicator‟s decision is void.
Although the above explanation about the rule against bias, rule to „hear the
other side‟ and breaches of the principles of natural justice is about the natural justice
in adjudication, the above cases and example also can be apply to government where
they must comply with the principles of natural justice before terminate the contactor
under the Clause 53.0 of PWD Form 203A (Rev. 2007) where if the government had
been a serious and substantial breach of the principles of natural justice, the
termination is void.
58 [1963] 2 QB 327
49
CHAPTER FOUR
CASE ANALYSIS: CORRUPTIONS, UNLAWFUL OR ILLEGAL
ACTIVITIES
4.1 Introduction
The classification and types of corruption and unlawful or illegal activities
had been explained in Chapter 3. Hence, this chapter will focus on the achievement
of second objective of this research. Based on the decided court cases, it will
determine whether the second objective that had been set in the earlier stage of this
research could be achieved or not.
4.2 Case Studies
The author has sort out all the previous court cases related to corruption,
unlawful and illegal activities. Although most of the cases below is not related to the
construction contract, but the nature of default can be apply to construction contract.
50
All of the cases are collected from the Lexis Nexis Legal Database via UTM Library
electronic database.
There are six (6) cases in this analysis which are as follows:
1. City of Phoenix v Bellamy63
2. Taylor v Bhail64
3. Parkinson v College of Ambulance65
4. Pearce v Brooks66
5. Upfill v Wright67
6. Alexander v Rayson68
4.2.1 City of Phoenix v Bellamy 69
The primary issue presented in this appeal is whether a public housing
tenant‟s single violation of the law constitutes a material breach of the terms of a
public housing lease, thereby justifying termination of the lease. Appellant Jereline
Bellamy (Bellamy) has been a tenant of public housing owned and operated by
appellee City of Phoenix (City). On or about May 8, 1985, she signed a lease with
the City wherein she agreed “not to use the dwelling for any illegal purpose.” The
lease also provided that it could be terminated for “serious or repeated violations of
material terms of the lease, including but not limited to failure to make any rental
payments due under the lease or failure to fulfill the tenant obligations hereunder, or
for other good cause.”
63 [1987] 153 Ariz. 363 64 [1995] 50 Con LR 70 65 [1925] 2 KB 1 66 [1866] LR 1 Exch 213 67 [1911] 1 KB 506 68 [1936] 1 KB 169 69 [1987] 153 Ariz. 363
51
On June 13, 1985, Bellamy was arrested for possession of dangerous drugs
and possession of marijuana, both felonies. On September 11, 1985, Bellamy
pleaded guilty to one felony count of possession of dangerous drugs and she was
later sentenced to probation. On August 30, 1985, the City gave Bellamy notice that
it was terminating her lease because of her illegal use of the premises. After Bellamy
refused to vacate the property, the City filed a forcible entry and detainer action on
October 1, 1985. The trial court held that Bellamy had breached the lease and found
her guilty of forcible detainer, from which judgement she now appeals.
Bellamy argues that possession of drugs on a single occasion does not
constitute a material breach of her lease with the City, and that therefore the City‟s
attempt to terminate her lease is unjustified. The City, on the other hand, claims that
Bellamy breached the lease when she used the premises for an unlawful purpose,
thereby justifying both its termination of the lease and the trial court‟s finding that
Bellamy was guilty of forcible detainer. We affirm the trial court‟s judgement.
Arizona courts have consistently upheld a landlord‟s right to terminate a
lease upon the tenant‟s breach of a material covenant. The Arizona Supreme Court
has stated that when a lessor dictates the terms of a lease the lessee accepts those
terms, lessee is bound by that lease. If the tenant violates any of the covenants of the
lease, and it is provided that such a violation shall cause a forfeiture of his lease, the
courts will enforce such forfeiture.
4.2.2 Taylor v Bhail 70
In this case, the defendant was the headmaster of a school Hounslow. The
school suffered damage as a result of gales and there were other building works to be
done at the school. The plaintiff, a building contractor, was engaged to do this work.
There were three contracts but no live issue survived as to contracts two and three.
70 [1995] 50 Con LR 70
52
Contract one related to works of repair which were covered by insurance.
The defendant told the plaintiff that if he inflated the price by £1000, and gave him
the £1000, he would see that the plaintiff got the work. The plaintiff agreed. The trial
judge held that the quality of the illegality affecting the transaction was not such that
the plaintiff should not be permitted to succeed on his claim for payment. The
defendant appealed.
Held, the plaintiff‟s claim for payment should fail as the plaintiff could not
present his case in any way which did not depend on the contract having been
procured by the payment of the additional £1000. Appeal allowed.
In his judgement, Millett LJ stated that the question in this appeal is whether
the plaintiff, who is a builder, can enforce a contract which was intended to be used
to practise a fraud on the defendant‟s insurers. The plaintiff was aware of the
intended fraud and he was a willing participant in it. The question is whether the
building contract can be identified and enforced separately from the fraudulent
arrangements of which it formed an integral part. In my judgement it cannot.
This was a conspiracy to defraud. It is quite unrealistic to regard it as a
building contract for the sum of £12,480 with a separate and independent agreement
to defraud the defendant‟s insurers superimposed upon it. The plaintiff was willing
to do the work for £12,480. The defendant agreed to give the work to the plaintiff
provided that the plaintiff would provide him with an inflated estimate for £13,480
and assist him in deceiving the insurers into believing that this was the true price for
the work.
In many contexts it maybe important to analyse a transaction in order to
determine whether it consisted of a single contract or two contracts. But illegality is
a question of substance, not form. Whether the arrangements between the plaintiff
and the defendant comprised a single contract or two separate contracts is, in my
judgement, immaterial; they constituted a single, indivisible arrangement tainted by
fraud, neither component of which was ancillary or subsidiary to the other, and
neither of which is severable so as to leave the other enforceable.
53
It is important to bear in mind that the law refuses to enforce not only
contracts which are in themselves illegal, but also contracts which are ex facie legal
but which, to the knowledge of the parties, have an illegal purpose or are intended to
be performed in an illegal manner.
4.2.3 Parkinson v College of Ambulance 71
The defendants, the College of Ambulance, Ld., was incorporated in
September 1918, under the Companies Act, 1908-1917, as a company limited
guarantee without share capital. The objects with which the college was forms were
(inter alia) to establish a college or school for the teaching of the principles and
practice of first aid and ambulance work, and to organize and carry on the
administration of immediate aid and assistance to poor persons. The president of the
college at the material times was H.R.H. Princess Christian, and it was governed by a
council composed of a number of distinguish persons. The defendant Harrison was
the managing secretary of the college and, subject to the direction of the principal,
Sir James Cantlie, K.B.E., was the responsible administrative officer, and had
control of the staff and the general business of the college. He was also mainly
responsible for collecting funds for the college.
In October, 1921, the plaintiff, Colonel Parkinson, was approached by a
gentleman, who asked whether he was interested in the subject of a knighthood.
Subsequently the plaintiff was introduced to the defendant Harrison at the College of
Ambulance. Harrison at an interview on October 10, 1921, told the plaintiff that he
himself or the College of Ambulance had the power to nominate persons to receive
titles of honour, and that he himself or the college through their president H.R.H.
Princess Christian had a call upon a certain number of royal honours as distinguished
from political honours, that he or the college had already arranged for the grant of a
peerage and a baronetcy in the then forthcoming list of honours, and that he or the
College of Ambulance would arrange for the grant to the plaintiff of the honour of a
71 [1925] 2 KB 1
54
knighthood, provided that the plaintiff would make a substantial payment by way of
donation to the College of Ambulance. Harrison suggested that the plaintiff should
pay £20,000 to the college.
At another interview on the following day, Harrison repeated his former
statements and said that the college would require £10,000. He suggested that the
plaintiff should purchase certain property at Birkenhead for the college and that he
should also rebuild the college hall in Queen Anne Street. Ultimately it was agreed
that the plaintiff should pay down £3,000 and that he should purchase the property at
Birkenhead for £2,000, which he should convey to the college, and provide other
moneys, bringing the total amount up to £10,000, when he received his knighthood.
Relying on Harrison‟s representations, the plaintiff handed to Harrison a cheque for
£3,000 drawn in favour of the College of Ambulance. This money was paid into the
baking account of the College of Ambulance.
The plaintiff on October 13 received a letter of thanks for the donation from
the council of the college, which was signed by the president, H.R.H. Princess
Christian. On the following day, the plaintiff received a letter from H.R.H. Princess
Christian expressing her great appreciation and sincere gratitude for his splendid gift
to the College of Ambulance, and that she was very pleased to hear of his promise to
purchase property for the College of Ambulance in Liverpool and build the new
lecture hall in Queen Anne Street. Princess Christian added that she had heard with
interest of Colonel Parkinson‟s work for the country during the war. The plaintiff
was introduced to an official at the Unionist offices who, when the plaintiff informed
him of the object of his visit and that he had paid £3,000 to obtain a knighthood, told
the plaintiff that he had been fooled. The plaintiff did not receive a knighthood.
Held, that the contract for the purchase of a title, however the money is to be
expended, is an improper and illegal contract, as being against public policy, and that
as Parkinson knew that he was entering into an improper and illegal contract he
could not recover back the money he had paid from the charity as money had and
received nor recover damages from the charity or its secretary nor claim to repudiate
the contract as being still executor and recover back the money paid.
55
4.2.4 Pearce v Brooks 72
The declaration stated that it was agreed between the defendant, Mrs Brooks
and the plaintiffs, Pearce and Countze, coachbuilder that the plaintiffs should supply
Mrs Brooks with a new miniature brougham on hire, until the whole of the purchase
price, 135 guineas, was paid, and that the defendant should hire the brougham with
the option to purchase as aforesaid, and should pay down 50 pounds and the balance,
with 5 percent interest thereon, by instalments periodically, so as to complete the
purchase within twelve months. Averments followed that the brougham had been
duly supplied and before payment of a second instalment had been returned in a
damage state, yet the defendant did not pay a forfeiture of 15 guineas provided for in
the agreement or the amount of the said damage.
It was alleged on behalf of the defendant at the time of making the agreement
the defendant was to the knowledge of the plaintiffs a prostitute, and that the
supposed agreement was made fox to supply of a brougham to be used by her as
such prostitute, and to assist her in carrying on her immoral vocation, as the
plaintiffs when they made the agreement well knew, and in the expectation by the
plaintiff that the defendant would pay the plaintiffs the moneys to be paid by the said
agreement out of her receipts as such prostitute.
At the trial before Bramwell, B, the learned judge left these questions to the
jury:
i. Did the defendant hire the carriage for the purpose of her prostitution?
ii. If she did, did the plaintiffs know the purpose for which it was hired?
The jury found that the carriage was used by the defendant as part of her
display to attract men, and that the plaintiffs knew it was to be supplied to be used
for that purpose. The learned judge directed the verdict to be entered for the
defendant, reserving leave to move to enter it for the plaintiffs for 15 pounds 15s,
being the amount found to be due by the jury supposing the plaintiffs to be entitled
72 [1866] LR 1 Exch 213
56
to be verdict. The plaintiffs were unable to recover the cost of the hire because the
jury found that the plaintiffs knew that the defendant intended to use the brougham
in the course of plying her trade.
4.2.5 Upfill v Wright 73
By an agreement in writing, dated July 4, 1901, the plaintiff, through his
agent, who managed the property for him, agreed to let the flat to the defendant, who
was a spinster, for the term of three years from June 24, 1901, at the yearly rent of
£145, payable by equal quarterly payments on the usual quarter days. The defendant
agreed not to permit the premises to be used for any unlawful or immoral propose;
and there was a proviso for re-entry without any notice to quit upon breach of any of
the tenant‟s agreement. After the expiration of the three years the defendant
continued as tenant from year to year. On December, 1909, the agent gave the
defendant notice to quit, the notice expiring on June 24, 1910. The rent for the half-
year ending June 24, 1910, not having been paid, the plaintiff brought this action.
The defence, so far as material to this report, was that the flat was to the
knowledge of the plaintiff‟s agent taken for an immoral purpose, and that therefore
the plaintiff could not recover. The plaintiff‟s agent in his evidence stated that at the
time when he let the flat to the defendant he was told that she was the mistress of a
certain man, who was one of her references, and he supposed that the rent would
come through her being a kept woman; that he knew that the man constantly came to
the flat, and he supposed that the man was finding the money for the rent. He further
stated that he did not know that the defendant was a prostitute or was intending to
use or was using the flat as a prostitute until the date when he gave her notice to quit.
The defendant in her evidence stated that she told the agent she was a
prostitute and was taking the flat for the purpose of receiving men there. The country
court judge accepted the evidence of the plaintiff‟s agent as true, and his judgement,
73 [1911] 1 KB 506
57
after saying that the contention on the part of the defendant was that, as the
plaintiff‟s agent was aware when he let the flat that the defendant intended to receive
there for immoral purpose the man who kept her, and as he believed that the rent was
in effect to be provided by him, the position was the same as if she was to his
knowledge intending the premises for prostitution generally, said:
“I have consulted the authorities, and in particular the well-known case of
Pearce v Brooks,74
where a claim against a prostitute for the hire of a
brougham failed, and there is no doubt that if a man or his agent knowingly
lets a house to a prostitute and he also knows that she intends to take or
receive men there (not if she intends to use it merely as her residence), the
rent is irrecoverable. But I am being asked to go a great deal further than
any decided case, and I am not prepared to go to the length of holding that in
the present case the rent is irrecoverable.”
Held, that it is sufficient if the agent knew that the defendant was an immoral
woman who took the flat in order to use it for an immoral purpose. The claim for the
rent is affected by the taint of immorality and is not enforceable.
4.2.6 Alexander v Rayson 75
In 1929, the defendant, Mrs. Rayson, agreed to take a flat in Piccadilly from
the plaintiff at a rent of £1,200 a year, which sum was to cover the provision by the
plaintiff of certain services. The plaintiff forwarded to her two documents:
i. A lease of the flat together with the benefit of certain services at a rent
of £450 a year
ii. An agreement for the rendering by the plaintiff of various services in
consideration of the payment by her of £750 a year.
74 [1866] LR 1 Exch 213 75 [1936] 1 KB 169
58
Except for the provision and maintenance under the agreement of a frigidaire, the
services to be provided under the agreement were practically the same as those to be
provided under the lease. Both documents were dated October 29, 1929.
The rent calculated at £1,200, was paid quarterly by the defendant up to and
including the instalment falling due at Midsummer, 1934, but as plaintiff had failed,
as the defendant alleged, to comply with certain of his obligations, she refused to pay
the full quarterly instalment falling due on September 29, 1934 (although she
tendered the quarter‟s rent under the lease, namely, £112.10, which tender was
refused), whereupon the plaintiff issued a writ claiming the full sum of £300, being
the quarter‟s instalment under the two documents. By her defence the defendant
alleged:
i. That there was no consideration for the agreement to pay the £750 a
year
ii. That the plaintiff had not performed his obligations and had thereby
repudiated the lease and agreement.
She pleaded the tender, and subsequently, by leave, amended her defence by adding
the following paragraph:
“The defendant will object that the said agreement is void for illegality and
that its enforcement would be contrary to public policy in that its execution
was obtained by the plaintiff for the purposes of defrauding the Westminster
City Council by deceiving them as to the true rateable value of the said
premises of the said premises was £450 and by concealing from them the
terms of the said agreement.”
The Court of Appeal held that, if the documents were to be used for this
fraudulent purpose, respondent was not entitled to the assistance of the law in
enforcing either the lease or the agreement. The respondent‟s intention was to
deceive the Assessment Committee, and in fact it did so far a time, and in those
circumstances the court will not assist him.
59
4.3 Analysis of Case Studies
The above are those cases related to the corruption, unlawful or illegal
activities which are referred to the court. The selected cases will need to be analyzed
and look at the result awarded by the judge in order to achieve the objective of this
study.
4.3.1 Review of the Case Studies
A contract may be void through illegality or other reasons such as the lack of
consideration or operative mistake. English law make a distinction between contracts
that are merely void and those that are void through illegality either at common law
or by statute. Contracts void through illegality are treated more strictly by the law,
and the general rule is that the court will refuse its aid to a person who founds his or
her cause of action upon an immoral or illegal act; the policy is encapsulated in the
maxim ex dolo malo non action. 76
According to the Contracts Act 1950, Section 2(g) stated that „an agreement
not enforceable by law is said to be void.‟ Other relevant provisions regarding on
illegality of the contract are in Section 10(1) where it state „all agreements are
contracts 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
to be void.‟ Other than that, in Section 19(1) of the Contracts Act 1950 stated that
„when consent to an agreement is caused by coercion, fraud, or misrepresentation,
the agreement is a contract voidable at the option of the party whose consent was so
caused‟ and Section 24 provides that:
76 Beatrix Vohrah and Wu Min Aun. (2009). The Commercial Law of Malaysia. Longman. Kuala
Lumpur
60
The consideration or object of an agreement is lawful, unless
a) It is forbidden by a law
b) It is of such a nature that, if permitted, it would defeat any law
c) It is fraudulent
d) It involves or implies injury to the person or property of another; or
e) The court regards it as immoral, or opposed to public policy
In each of the above cases, the consideration or object of an agreement is
said to be unlawful. Every agreement of which the object or consideration is
unlawful is void.
Based on the section stated in the Contracts Act 1950, it confirms that every contract
that is said to be unlawful is void and not enforceable by law.
But, in Clause 53.0 of PWD Form 203A (Rev. 2007), it give the rights to the
employer to terminate the contract due to the corruption, unlawful and illegal
activities involved by the contractor, its personnel, servants, agents or employees. As
been discuss previously in Chapter 3, we can defined that the corruption, unlawful
and illegal activities is an act forbidden by the law which is unlawful act and
according to the Contract Act 1950, the contract may be void and may prevent one or
both parties from enforcing it. Based on the cases above, the author finds out that
the contract which is fall under corruption, unlawful or illegal activities does not
bring the contract to the end and it is wrong and against the contract to terminate the
employment of the contractor. The contract or any agreement might become void.
City of Phoenix v Bellamy 77
In this case, Bellamy was convicted of felony possession of drugs. The
landlord filed a forcible detainer against the tenant alleging that the tenant breached
her lease by using the premises for an illegal purpose. The lease provided that the
77 [1987] 153 Ariz. 363
61
tenant would not use the dwelling for any illegal purpose. The court held that
possession of drugs on a single occasion constituted a material breach of the lease
and therefore the contract of leasing can be terminated.
Parkinson v College of Ambulance 78
The secretary of a charity fraudulently represented to Parkinson that he or the
charity was in a position to undertake that Parkinson would receive a knighthood if
Parkinson made a large donation to the funds of the charity, and undertook that the
title would be conferred if the donation was made. As Parkinson did not receive the
knighthood, he brought an action against the charity and its secretary to recover back
the money he had paid as money had and received or as damage for deceit or breach
of contract. The court held that a contract for purchase of a title, however the money
is to be expended, is an improper and illegal contract. The plaintiff knew that he was
entering into an improper and illegal contract and he could not recover back the
money and the contract was void.
Taylor v Bhail 79
In this case, the builder agreed to inflate the price of building works by
£1,000 so as to defraud the insurers who were paying for the works. This sum was to
be paid to the employer in return for giving the work to the builder. It was held that
this was an illegal contract and as a result it will be void and would not be enforced
by the court.
78 [1925] 2 KB 1 79 [1995] 50 Con LR 70
62
Pearce v Brooks 80
The plaintiffs agreed to supply the defendant with a brougham on hire-
purchase. The defendant was a prostitute and the jury found out that the plaintiffs
knew that she intended to use the brougham in the course of plying her trade. The
plaintiffs were unable to recover the cost on the hire and the contract was void. The
contract which was legal on the face of it but was unenforceable because it was
intended for an illegal and immoral purpose.
Upfill v Wright 81
The plaintiff by his agent let a flat to the defendant for a term of three years.
The agent knew that the defendant was the mistress of a certain man, and he assumed
that the rent would come through her being a kept woman and would come from the
man whose mistress she was and furthermore, he knew that the man went constantly
to the flat to visit her. After the expiration of the term, the defendant continued as
tenant from year to year. In an action to recover the rent, the court held that as the
flat was let for an immoral purpose, the plaintiff was not entitled to recover because
the contract was void.
Alexander v Rayson 82
In this case, Alexander let a flat in Piccadilly to Rayson at a rent of £1,200 a
year. The transaction was effected by two documents:
A lease of the flat at a rent of £450 a year covering certain services to
be rendered by the lessor.
An agreement to render services, which were substantially the same,
in consideration of an extra £750 a year.
80 [1866] LR 1 Exch 213 81 [1911] 1 KB 506 82 [1936] 1 KB 169
63
Rayson declined to pay an instalment due under the agreement. When sued by
Alexander, Rayson pleaded that the object of the two documents was that only the
lease was to be disclosed to the local authority in order to deceive them as to the true
rateable value of the premises. The Court of Appeal held that, if the documents were
to be used for this fraudulent purpose, Alexander was not entitled to the assistance of
the law in enforcing either the lease or the agreement which decided by the court that
the contract was void due to the intention to defraud the revenue.
Table 4.1 below shows summarize of the analysis of the selected cases that
referred to the court.
Table 4.1: Summarize of analysis on the selected cases
No. List of
Selected Cases
Type of default
Analysis Corruption
Unlawful /
Illegal
Activities
1 City of Phoenix
v Bellamy
[1987] 153
Ariz. 363
√
Bellamy breach the
lease when she used
the premises for an
unlawful purpose
Contract of leasing
the house was
terminated
2 Parkinson v
College of
Ambulance
[1925] 2 KB 1
√
It is improper and
illegal contract
because it is tending
to lead to corruption
in public life
The contract is void
and unenforceable
64
3 Taylor v Bhail
[1995] 50 Con
LR 70
√
The builder agreed
to inflated the price,
as been request by
the defendant, for
them to get the
contract
The contract is void
and unenforceable
4 Pearce v
Brooks [1866]
LR 1 Exch 213
√
The contract which
was legal on the face
of it but was
unenforceable
because it was
intended for an
illegal or immoral
purpose
The contract is void
and unenforceable
5 Upfill v Wright
[1911] 1 KB
506
√
The contract which
was legal on the face
of it but was
unenforceable
because it was
intended for an
illegal or immoral
purpose
The contract is void
and unenforceable
65
6 Alexander v
Rayson [1936]
1 KB 169
√
The documents in
the contract were to
be used for this
fraudulent purpose.
The respondent‟s
intention was to
deceive the
Assessment
Committee
The contract is void
and unenforceable
From the table above, the author found that from six (6) selected cases, three
(3) of it was cases commit with the corruption and the remaining three (3) cases
deals with the unlawful or illegal activities. From the analysis, five (5) out of six (6)
cases resulted in the void contract and one (1) case resulted in termination of contract
after the parties found guilty. As been identified before in the previous chapter,
corruption and unlawful or illegal activities is forbidden by law and this proves that
any types of contract that forbidden by law is discovered to be void.
4.4 Conclusion
From the analysis of the above cases, it can be learnt that every contract
which are the consideration or object of an agreement is said to be unlawful is void.
The research show that it is wrong to terminate the contract because termination of
the contract only can be done if one of the parties in the contract has refused to
perform or disabled himself from performing, his promise in its entirely, and the
contract will put to the end. Commit with the corruption, unlawful or illegal
activities is not a breach of the contract and thus, the employer are not entitled to put
66
the contract to an end. The contract between employer and contractor will declare
void.
According to Section 66 of Contracts Act 1950, the employer only entitled to
recover what may be due under the contract, or to obtain damages in full provided
that the illegality is not known to the employer. Section 66 reads as follows:
„When an agreement is discovered to be void, or when a contract becomes
void, any person who has received any advantage under the agreement or
contract is bound to restore it, or to make compensation for it, to the person
from whom he received it.‟
When a contract have to be discharged meaning that to terminate or bring it to the
end. A breach of a contract occurs when one party fails to perform an obligation
under the terms of the contract and discharge by breach is one of the ways to
discharge the contract. The party not in breach entitles to take appropriate action in
two situations either to continue with the contract and claim for damages or
terminate the contract.
In City of Phoenix v Bellamy 83
, the contract of lease provided that the tenant
would not use the premises for any illegal purpose. Unfortunately, the defendant was
breached her lease. The court held that the possession of drugs constituted a material
breach of the lease and the landlord has the right to terminate the lease. In this case,
even the defendant was commit with the illegal activities in the premises, the
contract of lease is terminated because she was breached the lease not because she
had commit with the illegal activities in the premises.
Besides that, in Clause 53.0, the author of the opinion, that the clause is very
unclear on the process of the termination due to the corruption, unlawful and illegal
activities. In that clause, it is very easy for the government to terminate the
contractor at any time and the clause does not follow the normal specific process of
termination unlike the other clauses on termination of contract in the standard form
83 [1987] 153 Ariz. 363
67
of contract. Other than that, this clause is unclear and ambiguous about who should
proof the contractor commit with that default. It did not mention about how and who
has the power to proof it unlike the clauses about bankruptcy and insolvent where the
court have the power to proof that contractor commit with such default and the
employment of the contractor shall be determine automatically.
68
CHAPTER FIVE
CONCLUSION AND RECOMMENDATION
5.1 Introduction
This is the final chapter of this research. This chapter will summarize
research findings based on literature review, case studies and analysis of the case
studies and conclude the findings according to the research objectives. At the end of
this chapter, it will determine whether the objectives were achieved or not.
5.2 Research Findings
As far as the objectives of this research is concerned, this research intended to
determine the definition and differences of corruption, unlawful or illegal activities
and whether the employer is entitled to terminate the contract when the contractor is
commit with corruption, unlawful and illegal activities that fall under Clause 53.0 of
PWD Form 203A (Rev. 2007). The research findings are summarised in following
subtopics.
69
5.2.1 Objective 1: To Determine the Definition and Differences of Corruption,
Unlawful or Illegal Activities
This objective had been achieved through the literature review in Chapter 3.
From the literature review, corruption can be defined as offences relating to the
improper influencing of people in certain position of trust and willing to act
dishonestly in return for money or personal gain. The World Bank give the definition
of corruption as the abuse of public office for private gain and this definition only
focuses exclusively on corruption in the public sector.
Furthermore, it was found that corruption can be classified into a few groups
which are bribery, nepotism, fraud and embezzlement where each of them carried the
different meaning. Two types of corruption had been identified as follows:
Administrative corruption
Political corruption
Besides that, level of corruption also can be group into grand corruption where the
corruption involving substantial amount of money and petty corruption is involving
smaller sums.
Unlawful and illegal activities carry the same meaning which is activities
commit by a person or a group that is forbidden by law. This activities is kind of
violation of the legal laws, rules and duties of a society. The word “unlawful” define
as not conforming to or permitted by the law or rules and “illegal” comes with the
meaning of contrary to or forbidden by law. Unlawful or illegal activities also can
classify into four groups which are:
Crime against people – murder, rape, assault, robbery
Crime against property – burglary, theft, arson, vandalism
Crime against society – abusing illegal drugs, possession of
pornography, prostitution activities
70
Crime of non-compliance – failing to pay taxes, driving faster than
speed limit, possession of drugs
5.2.2 Objective 2: To Determine Whether the Employer is Entitled to
Terminate the Contract under Clause 53.0 of PWD Form 203A (Rev.
2007)
The second objective of this research is achieved through the analysis of
court cases regarding on the corruption and illegal activities commit by the parties in
the contract. After studying all the selected cases, the author found that from six (6)
cases, three (3) of it was a cases committing with corruption and the remaining three
(3) cases deals with the unlawful or illegal activities. The research found that five (5)
cases resulted in the void contract and one (1) case resulted in termination of
contract.
Based on the clause, the government is entitled to terminate the employment
of the contractor if they are satisfied that the contractor involved in the corruption,
unlawful or illegal activities in relation to the contract or any other agreement. From
the case analysis, the author found that any types of contract or agreement that
forbidden by law is discovered to be void. According to the Section 2(g), Section
10(1), Section 19(1) and Section 24 of the Contracts Act 1950, it proved that a
contract or agreement is said to be unlawful is void and not enforceable by law.
It is also the finding of this research that, the case on City of Phoenix v
Bellamy84
which is resulted in termination of lease, because the defendant was
breach the lease not because of the illegal activities that she had commit in the
premises.
84 [1987] 153 Ariz. 363
71
5.3 Research Constraints
The main constraint of this research is insufficient of time as only eight
weeks for carrying out this research. Due to the fixed time, the scope of this research
has been narrowed down and limited to certain objectives. There are many issues can
be arising in this Clause 53.0 of PWD Form 203A (Rev. 2007) which is very unclear
clause and need more time to gain more materials and to do the research.
5.4 Recommendations
Clause 53.0 of PWD Form 203A (Rev. 2007) is a clause regarding on
termination of contractor who is involved with corruption, unlawful or illegal
activities. The author feels that this clause is unclear and recommended based on this
research that the following suggestions need to be considered:
Revised the clause since it is unclear in termination of contractor due
to corruption, unlawful and illegal activities.
Make it clearer on the process of termination and procedure on how to
proof that the contractor, its personnel, servants, agents or employees
are involved with such default.
5.5 Area of Future Research
In order to achieve the objective of this research within the time frame, the
research only managed to answer the questions regarding on the definition and
differences of corruption, unlawful or illegal activities and to determined whether the
72
employer is entitle to terminate the contract when the contractor commit with such
default. There are a few aspects not covered in this research due to the time
constraint mentioned above. Therefore in order to encourage further exploration and
investigation on the issues deal with Clause 53.0 of PWD Form 203A (Rev. 2007), a
few suggestions for future research emerged:
Research on the process of termination due to corruption, unlawful or
illegal activities that involved contractor, its personnel, servants,
agents or employees.
Research on how to determine the contractor involved with such
default and when is the right time to terminate the contract once the
contractor had been proven.
5.6 Conclusion
At the end of this research, it can be concluded that the objectives of this
research are achieved. Through literature review in Chapter 3, the definition and
differences between corruption and unlawful or illegal activities can be
distinguished. Most of us have an idea that “bribery” is corruption but we are not
aware that bribery is one of the classifications of corruption. Other than that,
“nepotism”, “fraud” and “embezzlement” are the other classifications of corruption.
From the analysis of court cases, we can found that every contract is said to
be unlawful is void. Corruption, unlawful or illegal activities is an unlawful or
forbidden by law and the illegal contract which is involved those activities will be
void and not bring the contract to an end. The employer is not entitled to terminate
the contract because termination of contract only can be done if one party in the
contract fails to perform their obligation thus, breach the contract.
73
From the research also find that this clause is very unclear and ambiguous in
terms of termination, process of termination and who should proved the contractor
was guilty. Other than that, when is the right time to terminate the employment of
contractor because in that clause it only mentions that the employer can terminate at
any time.
When we go through the clauses regarding on termination of contractor
employment by the employer, we can see that the procedure to terminate the
contractor is not as easy as in the Clause 53.0 of PWD Form 203A (Rev. 2007). Two
important elements before the employer can terminate the contractor are they must
issue a written notice and specifying the default commit by the contractor and
employer should give appropriate time to the contractor to remedy such default. If
the contractor fail or continue the default, then the employer can terminate the
contract.
Therefore, termination of contract is a serious issue in the construction
industry and must be operate with caution as it involves a big risk. The author feels
that this clause should be revised and makes it clearer on the process of termination
and who should proved that the contractor was guilty.
74
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