Liquidated and Ascertained Damages loom
Published on: Monday, November 24, 2014
KOTA KINABALU: Liquidated and Ascertained Damages (LAD) loom for many projects in Sabah chiefly caused by skilled and unskilled labour shortage since the Lahad Datu intrusion incident.This was followed by the subsequent crackdown on foreign migrants, besides the shortage of cement supply to increasing numbers of real estate construction projects, with more approved in the pipeline.Property buyers of abandoned real estate projects like Star City are also entitled if they can enforce their claims against a bankrupted developer or any rescuer or redeveloper of the project to be revived.ADVERTISEMENT Liquidated damages are a sum, which represents a genuine pre-estimate of the loss caused by the breach, that is, of what is needed to put the plaintiff or claimant as good a position as if the contract had been performed.Bryant Wong, a project manager for a housing project said: "Bigger companies could afford to pay more to entice workers to their projects. This has affected the smaller players in the industry. As a result, labour shortage led to some delays in completion."Those who could afford it have resorted to use Mainland Chinese contractors and labour.Labour issues now also plague oil palm estates affecting harvest yield, coupled with lower commodity pricing in the market which affected the income of smallholders and firms impacting their investment in the real estate sector.ADVERTISEMENT President of the Kota Kinabalu Chinese Chamber of Commerce and Industry (KKCCCI), Datuk Michael Liew, calls for the admission of workers from Bangladesh to resolve some of the business community's pressing needs.Early bird property buyers who signed the first batches of sale and purchase agreements could be entitled to claim for LAD for delays, like the 1Sulaman project here that was said by some buyers or investors to be two years late.
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A contract like sale and purchase agreement is an agreement enforceable by law and this also applies to construction contracts between developers and contractors, as only few developers are also contractors.Currently Sabah is in the midst of a construction boom cycle, but not necessarily in amidst of a blooming property market for all classes of real estate investors.When two or more persons enter into a contract, their intention is normally to carry out the terms of contract as promised.As a general principle, once a party enters into a contract, he or she must perform his obligations strictly according to the terms of contract.He or she is liable to answer for any of the obligations, which he or she has failed to discharge and it is no defence to an action for incomplete performance that the party has done everything that can be reasonably undertaken if the end result falls short of that required of the contract.There are only two parties to a property sale and purchase agreement: the vendor and the purchaser and in some cases, the landowners also are named. A breach of contract is essentially a non-performance of a contractual obligation under conditions for which no legal excuse for the non-performance exists.The ordinary remedy for breach of contract is an action for damages; the innocent party is entitled to claim for a financial amount, which would compensate him for the loss incurred as a result of the breach committed by the other party. In the example of late completion, the usual redress afforded the developer would be to award the purchaser liquidated damages calculated according to a rate stipulated in the contract.In exceptional cases, where a breach takes on a very serious nature so that it adversely affects some fundamental aspect of the contract, the innocent party may under common law, bring the contract to the end.Liquidated damages may as a provision in a contract, and therefore agreed between the parties to the contract at the time if entering into it, which aims to determine in advance the extent of the liability for some future, specified breach. Construction contracts frequently contain a "liquidated damages" clause in favour of the owner. This typical liquidated damages clause provides that if the contractor fails to complete the work by the agreed completion date, he will be required to pay the owner a stipulated amount for each day thereafter until completion. If the contractor fails to complete the works by the "Date for Completion" stated in the Appendix or within any extended time and the Superintending Officer (S.O. of the architectural firm) certificates in writing that in his opinion the same ought reasonably so to have been completed the contractor shall pay a sum calculated at the rates stated in the Appendix as Liquidated and Ascertained Damages for the period during which the said works shall so remain and have remained incomplete and the S.O. may deduct such damages from any monies due to the contractor. The Liquidated and Ascertained Damages stated in the Appendix is to be deemed to be as the actual loss which the owner or employer will suffer in the event that the contractor as in breach. The contractor by entering into a contract agrees to pay to the employer the said amount(s) if the same become due without the need of the employer to prove his actual damage or loss. The Contracts Act s75 provides an instance in which Malaysian law departs significantly from the line of English common law.Under common law, a liquidated damages clause must comply with the 'penalty' principle establish by Lord Dunedin in the landmark case of Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd. that: "The essence of liquidated damages is a genuine covenanted pre-estimate of loss." What is meant by the term 'genuine pre-estimate' was further explained in WT Malouf Pty Ltd v Brinds Ltd as: "A genuine pre-estimate means a pre-estimate which is objectively of that character: that is to say, a figure which may properly be called so in the light of the contract and the inherent circumstances. It will not be enough merely that the parties honestly believed it to be so." The court in Malaysia have concluded that the distinction between liquidated damages and penalties does not apply, the situation being governed by section 75 of the Contracts Act which has been held to have erased this distinction. In addition, there is a general duty requiring that reasonable steps to be taken to mitigate losses flowing a breach particularly in the case of anticipatory breach.The party who has failed to mitigate the losses cannot later recover any such loss flowing from his neglect. The party is only bound to take all reasonable steps in order to comply with the requirements and does not have to embark on hazardous or uncertain courses of action that will cause him or her to incur substantial expense or inconvenience, damage his or her reputation, or breach any contracts, in order to mitigate. The reasonable actions to mitigate will be determined on a case-to-case basis.Construction contracting is extremely time-sensitive and timely completion of a project is frequently seen as major criteria of a project success. Owners and property buyers lose opportunity and profits waiting for completion of late projects. Hence, a liquidated damages provision provides a straight forward method of calculating damages recoverable by an owner or buyer in the event of late completion. This is what buyers of Star City abandoned project hope to recoup from the landowner and new developer, but the landowner in the past was trying to get all to take a haircut preferably bald of any claims. Stay up-to-date by following Daily Express’s Telegram channel.
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Currently one of the highest LAD payment in Malaysia is to be made by the contractor of klia2 airport being fined with liquidated and ascertained damages (LAD) amounting to RM199,445.40 a day and is subjected to pay close to RM100 million in LAD accumulated since June last year.Caption: Star City worth a lot of LAD claims.