ANALYSIS TO CLAUSE 5 CPWD CONTRACTS

ANALYSIS TO CLAUSE 5 CPWD CONTRACTS

Clause 5:

1. In old agreements only earnest money was to be forfeited but in new agreements EM and PG both are to be forfeited

 

1. Force majeure means the consequences of anything over which either party has no control-

 

1. Undertaking of contractor was under duress-

 

1. Extension of time can be granted to the contractor under this clause. Completion of work, if the work has been unavoidably hindered in its execution. This clause does not go beyond this provision does not prevent the contractor to raise a claim for damages.

 

1. Undertaking at the time of EOT- One may note that these are routine letters obtained by DDA while granting extension of time. However, this cannot imply that even where DDA has been found to be completely at fault for the delays, the Contractor is not even entitled to amounts due for idle manpower or idle machinery. In fact, it is normally when delays are attributable to Contractor, DDA still decides, in order to facilitate completion of contract, not to levy damages and such letter is obtained to ensure that the Contractor subsequently does not claim any damages predicated on a plea of extension of contract without levy of damages-

 

6.           This has also been noticed that two sets of conditions were filed before the Arbitrator alleging to be the terms of the agreement. In one set of conditions power to levy compensation was with the Chief Engineer and in the second set of terms and conditions filed the power to levy compensation was with the Municipal Engineer and the Executive Engineer. Since the respondent themselves were not certain as to who was entitled to levy compensation, the rejection of their counter claim cannot be faulted in the facts and circumstances on this ground also.

 

7.         Reasonable time cannot be undeferate, one can take clue from the earlier fact that if can be four  months from the time the work resented.

 

8.         The drawing was given late, site was not clear therefore to contend that claimant has delayed the matter would be travesty of facts and justice. The respondent is squarely liable for delay.

 

9.         Ordinarily, the Court should assume that the correspondence between the parties has been perused by the Arbitrator. Letters emanating from the Respondents such as those dated 23.4.99, 6.5.1991, 10.3.1991, 19.6.1991, 14.6.1991 etc. are indicative of the position that the NDMC had partially performed its obligations and that some delay was also attributable to the Contractor. On 9.10.1992, i.e. the stipulated date of completion, the NDMC had the necessary cause of action to make a claim for damages on account of alleged delay by the Contractor. In permitting an extension of time it must be held to have waived its right to make any claim, since notice as contemplated by Section 55, had not been given. Conversely, the contractor also had the necessary cause of action to claim damages if the delay cold rightly be placed at the door of the NDMC. A notional breach of contract had therefore occurred. However, both the parties had unconditionally agreed to continue to perform their respective obligations. On the Contractor's part, this was to complete the project on the terms contained in the principal document. On the part of the NDMC, it was to make the payments as envisaged in this document. Having solicited and invited each other to perform their respective contractual obligations, even under the principle of estoppel, (which have in essence been articulated in Chapter IV of the Contract Act), the respective performances had been accepted. Section 62 of the Contract Act enunciates that "if the parties to a contract agree to substitute a new contract need not be performed." In the present scenario, the parties had agreed to set time at large by altering or rescinding the initially stipulated date of completion of 9.10.1992. Since this must be held, in the circumstances of the case, to have been by mutual consent, a new contract had come into effect making the original contract redundant in respect of the stipulated date of completion. Section 63 of the Contract Act states "that every promise may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extended the time for such performance, or may accept instead of it any satisfaction which he thinks fit." On a combined reading of these Sections, owing to the absence of any contemporaneous writing or evidence neither party would be entitled to claim damages on account of delay. In order to elucidate that this was the situation prevailing at the relevant time, reference to paragraph 4 of the Appeal would be of relevance. In this paragraph the Contractor has stated that the "work got spilled over the stipulated contract period and the appellants/claimants were made to incur additional expense on account of abnormal rise in price with reference to the quantum of work executed between the period 9/10/1992 till actual completion. Besides this, the appellants were subjected to additional expense on account of establishment during the prolonged period of execution of work beyond the stipulated contract period. The Appellants claimed the said additional expense by way of compensation which the Respondents did not agree to pay. Accordingly the disputes arose and the reference was made to the Arbitrator in terms of arbitration agreement." However, as has been discussed above, no claim was lodged by either party at the crucial and critical time, i.e. on 9.10.1992 when parties mutually agreed to enlarge the time for completion of the project. Therefore, the Arbitrator was justified in rejection the claims of both the parties.

 

10.       Relied on the following observation in Hudson's 492 9th Edition that - "where the cause of delay is due to breach of contract by the employer, and there is also an applicable power to extend the time, the exercise of that power will not, in the absence of the clearest possible language, deprive the Contractor of his right to damages for his breach." Since this exposition of law runs counter to the provisions of the Section 55 of Indian Contract Act dealt with above, we are of the view that it is too widely stated for ubiquitous application.

 

 

11.       In respect of Rs.5,000/- wrongly recovered from the 6th running bill. This amount was recovered from 6th running bill in anticipation of grant of extension of time. There is no provision in the Agreement between the parties that an amount can be recovered from the bill in anticipation of granting extension. As and when the extension is applied by the contractor, DDA can either extend the contract conditionally or unconditionally or refuse an extension. If a condition is imposed of imposing penalty at the time of extension, that penalty can be recovered subsequently from the bill but an amount cannot be deducted from the bill in anticipation that a penalty would be imposed of 14 without considering the grounds for extension. I, therefore, find no ground to set aside award on this claim.

 

12.       The plea in regard to Clause 47 was taken which was a force majeure clause and it had been contended that loss was on account of unprecedented rain. The Arbitrator, however, recorded finding that flood was not due to unprecedented rain and the force majeure clause was not attracted. It was held that Arbitrator assigned sufficient and cogent reasons in support of his finding and Award was not set aside.

 

13.       "The parties to an executory contract are often faced, in the course of carrying it out, with a turn of events which they did not at all anticipate - a wholly abnormal rise or fall in prices, a sudden depreciation of currency, an unexpected obstacle to execution, or the like. Yet this does not in itself affect the bargain they have made. If, on the other hand, a consideration of the terms of the contract, in the light of the circumstances existing when it was made, shows that they never agreed to be bound in a fundamentally different situation which has now unexpectedly emerged, the contract ceases to bind at that point - not because the court in its discretion thinks it just and reasonable to qualify the terms of the contract, but because on its true construction it does not apply in that situation. When it is said that in such circumstances the court reaches a conclusion which is 'just and reasonable' (Lord Wright in Constantine Steamship Line Ltd. v. Imperial Smelting Corporation Ltd., 1942 AC 154 at p. 186) or one 'which justice demands' (Lord Sumner in Hirji Mulji v. Cheong Yue Steamship Co. Ltd. (1926) AC 497 (510), this result is arrived at by putting a just construction upon the contract in accordance with an 'implication ............. from the presumed common intention of the parties' - speech of Lord Simon in British Movietonews Ltd. v. London and District Cinemas Ltd. L.R. 1952 A.C. 166.

14.       There is no general liberty reserved to the courts to absolve a party from liability to perform his part of the contract, merely because on account of an uncontemplated turn of events, the performance of the contract may become onerous. That is the law both in India and in England, and there is, in our opinion, no general rule to which recourse may be had, as contended by Mr. Chatterjee, relying upon which a party may ignore the express covenants on account of an uncontemplated turn of events since the date of contract. Mr. Chatterjee strenuously contended that in England, a rule has in recent years been evolved which did not attach to contracts the same sanctity which the earlier decisions had attached, and in support of his contention, he relied upon the observations made in British Movietonews Ltd. v. London and District Cinemas Ltd., 1951 1 KB 190 at p. 201. In that case, Denning, L.J., is reported to have observed :

15.       "............. no matter that a contract is framed in words which taken literally or absolutely, cover what has happened, nevertheless, if the ensuing turn of events was so completely outside the contemplation of the parties that the court is satisfied that the parties, as reasonable people, cannot have intended that the contract should apply to the new situation, then the court will read the words of the contract in a qualified sense; it will restrict them to the circumstances contemplated by the parties; it will not apply them to the uncontemplated turn of events, but will do therein what is just and reasonable."

16.       But the observations made by Denning, L.J., upon which reliance has been placed, proceeded substantially upon misapprehension of what was decided in Parkinson & Co. Ld. v. Commissioners of Works (1949) 2 K.B.D. 632 on which the learned Lord Justice placed considerable reliance. The view taken by him, was negatived in appeal to the House of Lords in the British Movietonew's case - (1952) A.C. 166 - already referred to. In India, in the codified law of contracts, there is nothing which justifies the view that a change of circumstances, "completely outside the contemplation of parties" at the time when the contract was entered into, will justify a court, while holding the parties bound by the contract, in departing from the express terms thereof. 1949 2 KB 632 was a case in which on the true interpretation of a contract, it was held, though it was not so expressly provided, that the profits of a private contractor, who had entered into a contract with the Commissioners of Works to make certain building constructions and such other additional constructions as may be demanded by the latter, were restricted to a fixed amount only if the additional quantity of work did not substantially exceed in value a specified sum. The Court in that case held that a term must be implied in the contract that the Commissioners should not be entitled to require work materially in excess of the specified sum. In that case, the Court did not proceed upon any such general principle as was assumed by Denning, L.J., in 1951 1 KB 190

 

17.       By the application of Section 55 of the Contract Act and Clause 5 of the General Conditions of Contract the claim for damages cannot be entertained also for the reason that the parties ought to have put each other to caution/notice that the contract would be performed subject to claims for damages. The stipulated date of completion of the project was 9-10-1992. The contract envisaged the construction of three blocks but the possession of the site was given in piecemeal from January 1991 till as late as September 1992. Obviously, the construction could not possibly have been completed within one month atleast in respect of one block. The Contractor should have, but did not, lodge a caveat or protest that the contract would be continued with subject to his claim for damages. The NDMC should have similarly recorded that whilst agreeing to grant an extension of time, it had reserved its rights to claim damages for delay which in its opinion was attributable to the Contractor. Notification of claims contemporaneously is salutary for very practical reasons, foremost amongst which is the certainty that at that point of time the parties would have come to an understanding on all controversial issues. Commercial pragmatism would prevail upon either side to adopt a realistic stance. Section 55 of the Contract Act, 1872 incorporates that "if, in case of a contract avoidable on account of the promisor's failure to perform his promise at the time agreed, the promisee accepts performance of such promise at any time other than agreed, the promise cannot claim compensation for any loss occasioned by the non-performance of the promise at the time agreed, unless, at the time of acceptance, he gives notice to the promisor of his intention to do so." Moreover, extension of time for completion of a project is essentially a novation in the contract, and by application of Section 62 and 63 of the Contract Act, relieves the opposite party from performing the obligations pertaining to time as contained in the original contract. Where the extension of time is unconditional, the original date is substituted by the extended date sans any liability

18.       E.O.T CAN BE ORAL AND MAY BE PROVE BY CONDUCT

19.       The High Court dealing with Article 113 of the Limitation Act, 1908, which was in pari materia with Article 54 of the Schedule to the Limitation Act, 1963, took the view that the force of the word "fixed" implies that the date should be fixed definitely and should not be left to be gathered from surrounding circumstances of the case. It must be a date clearly mentioned in the contract whether the said contract be oral or in writing.

 

20.       Force majuere clause -- Benefit of, condition for availing -- Works contract with State Government -- Clause in agreement that neither party shall be liable to the other party for any loss or damage occasioned by or arising out of acts of God, such an unprecedent floods, earthquake etc. -- Claim made by petitioner-respondent on account of material having been washed away because of floods on account of excessive rains in the relevant year -- "Protection bund" constructed by petitioner-company -- Held, in the absence of any evidence relating to discharge data of water prior to floods, benefit of force majuere clause cannot be granted to State -- Claim of contractor for losses suffered due to floods justified.

 

21.       Reasonable time extension is must after removal of all hindrances – otherwise breach

22.       It is now settled law that where in a contract it is provided that the period of contract can be increased conditionally or unconditionally, the time is not the essence of the contract and the period so increased is to be considered as the period of contract.-

 

23.       EXTENSION OF TIME

            If the employer or his architect makes a valid extension of time in respect of the delay which he has cost, a new date is set for completion and, subject to any further extension of a special defence raised by the contractor, liquidated damages will be payable from their extended date in the event of non-completion. (GT Gajaria p-866).

 

24.       In building contracts for the purpose of assessing delays, the practice has developed where the Department prepare a debit and credit amount of numbers of days of various delays, which obviously result in the delay in completion of work. This practice is unrealistic and only judicum unless there is sufficiently specific clause permitting this method. Where the contract date has ceased to be applicable, it is not open to the Department to make out a kind of debtor and creditor account, allowing so many days or weeks for delay forced by himself and after crediting that period to the builder, to seek to charge him with damages at the liquidated rate for the reminder (See Hudson’s BC 10th Edn. P-625) (GT Gajaria p-904). In calculating the extent and duration of the delay caused either by the employer or by the contractor or by both, it may not be possible to lay down any particular formal accept that the delay should be assessed on the basis of cumulative effect of all the acts of commission and omission of the employer and the contractor which would have a direct impact upon the progress of the work and is timely completion for fixing the liability.

 

25.       Clause 5- No bar for claiming damages-         Clause 5 is applicable for extension but that would not stand in the contractor's way in claiming damages, as Clause 5 does not bar any such claim, either expressly or by implication  Hudson's Building and Engineering Contracts (Page 492, 9th Edition) states the principle as “Where the clause of delay is due to breach of contract by the employer, and there is also an applicable power to extend the time, the exercise of that power will not, in the absence of the clearest possible language, deprive the contractor of his right to damages for the breach."

 

 

26.       Whether clause 5 is excepted matter- Clause 5 in the contract is pertaining to the extension of time for completion of work on certain grounds. The Engineer-in- Charge of the appellants was given power to take decisions in such matters. Contention of the contractor can be that this Clause legally cannot be treated as "excepted matters" since all these matters were submitted to arbitration. Department has to raise the issue of excepted matters before arbitration. Mere existence of certain clauses in the contract providing that the decision of a designated authority on a particular matter shall be final and binding would not ipso facto bring such matters within the mischief of "excepted matters" and/or bar the claimants from raising claims in this regard. Existence of such decision on those aspects is the primary and necessary pre-requisite for invoking excepted matters clauses. The authority, said to be designated by the said clauses, had not taken any decision pertaining to those matters. Such decisions, to be taken by the named authority, should be considered decisions, after giving reasonable opportunity to the contractor to put forth his case. To constitute an "excepted matter", the competent authority should act justly and fairly. The decision in such matters should be taken after giving notice to the affected contractor and after giving reasonable opportunity of being heard. None of these matters did happen in this case. In State of Karnataka Etc vs Shri Rameshwara Rice Mills ... on 24 February, 1987 it was held that Even if the clauses (related to excepted matter) empowered the officer to decide upon the question of breach as well as assess the quantum of damages, an adjudication by the officer regarding the breach of contract cannot be sustained under law, because a party to the agreement cannot be an arbiter in his own cause. In State Of Karnataka Etc vs Shri Rameshwara Rice Mills ... on 24 February, 1987 it was held that Even if the clauses (related to excepted matter) empowered the officer to decide upon the question of breach as well as assess the quantum of damages, an adjudication by the officer regarding the breach of contract cannot be sustained under law, because a party to the agreement cannot be an arbiter in his own cause. Law relating to "excepted matter" clauses in the contract, therefore, can be summarized in the following terms. The "excepted matter" clauses in a contract do not require adjudication as the parties have already agreed to resolve the dispute through a named adjudicator. To constitute a clause in a contract as "excepted matter", it must provide for an adjudicatory process. It must be remembered that the true essence of any arbitration agreement is to arbitrate the matters in the event of disputes/differences. So, a clause in a contract shall not be readily inferred as an "excepted matter" to destroy the very foundation of the bargain. The named adjudicator should have taken a decision in the matter after complying with the legal requirements and principles of natural justice.

 

27.       Extension to be granted under clause 2 within 3 months otherwise personal responsibility- CPWD (TLQA dated 10/05/2001)

 

28.       It is settled law that, where a power is given to do a certain thing in a certain way, they must be done in that way or not at all. All other methods of performance are forbidden. The facts show that the Council could not have issued the orders/directions to the Petitioner, in violation of Section 18 of the 2006 Act. Accordingly, as the Council did not have the power to issue directions for payment of money in the manner it has done, without a source of power being in existence for the same, the Council's orders/directions passed are without jurisdiction and are arbitrary