Extension of contract means an increase in payment

The Court of Appeal ruled that even though there is a fixed price contract, if there is an extension of the service, then the contractor would be justified to make it more than that agreed.

This was held in a judgment delivered on 19 December 2017 in an appeal between Design & Technical Resources Ltd and Konig, Heunisch und Partner -v- Direttur Generali tal-Kuntratti u l-Awtorita ghat-Trasport f’Malta.

The parties were part of arbitration proceedings, where the plaintiff companies explained that they had entered into a contract with Transport Malta in May 2005 to carry out supervision works on the Manuel Dimech Bridge. They had quoted a price of Lm169,000. The project consisted of 6 phases, the first 5 had to take 14 months. The plaintiff companies carried out the first 3 phases on time. The fourth phase was for the defendants to adjudicate a tender for the civil works on the bridge.

The plan was that this phase would take until March 2006, but in fact the defendants took until August to decide, an increase of 22 weeks. This moved the fifth phase a further 20 weeks. The contractors who carried out the works had to complete the job by January 2007, but the plaintiffs’ had to carry out their supervision work until August 2008. The plaintiff blamed the defendants for this delay. They asked the authorities to pay them for this extra length in time, which was not their doing.

Transport Malta (TM) disagreed by replying to the claim that this was not according to the agreement they had signed, since it was a lump sum contract, which could not have been varied. The Director of Contracts also argued that the contract provided for one fixed price and the delay was due to the contractor and not the Director of Contractors.

The Arbitration award upheld the companies’ claims and awarded them €206,150

Both defendants appealed from this award. The Director of Contracts argued that the award was legally flawed and went contrary to Article 1639 of the Civil Code and Regulation 72 of the Regulations on Public Contracts.

The two companies replied to the appeal by first claiming that the appeal could not be lodged because the arbitration was an international commercial arbitration, where appeals have to be expressly agreed upon, but also that the award was a just one.

The Court of Appeal, presided by Mr Justice Anthony Ellul, first dealt with the whether the appeal could have been filed. Article 69A(3) of the Arbitration Act reads:

“Recourse against an arbitral award delivered under Part V may be made to the Court of Appeal by an appeal on a point of law only if the parties to the arbitration agreement have expressly agreed that such right of appeal is available to the parties in addition to the rights of recourse as contemplated in article 34 of the Model Law. In such cases the provisions of articles 61(5), 70A, 70B and related articles shall apply.”

Article 55 of the same Act, states

“(1) Subject to this Part, the Model Law shall form part of the Laws of Malta and shall be enforceable as such.

(2) In the Model Law: ‘State’ means Malta and any foreign country; ‘this state’ means Malta.”

The criteria for an international arbitration if the place of business is in different countries and one is outside Malta.

The Court pointed out that from the special conditions of the contract, both companies gave the same address in B’Kara and the lead partner was Robert Sant. Although the plaintiff companies are different from one another, they are represented by the same person and the same place of business. The service was given in Malta. Therefore, as a consequence this arbitration cannot be considered as international in terms of Article 70a of the Arbitration Act:

“70A. (1) A party to arbitral proceedings may appeal to the Court of Appeal on a point of law arising out of a final award made in the proceedings unless -

(a) the parties have expressly excluded such a right to appeal in the arbitration agreement or otherwise in writing; or

(b) notwithstanding anything stated in the arbitration agreement, the parties have expressly agreed that no reasons are to be given in the award in accordance with article 44(3).”

The Court rejected this ground of appeal and allowed the appeal to continue. The Court then dealt with the merits of the case, in whether the plaintiff companies could ask for more money.

The plaintiffs argued that Article 1639 of the Civil Code allows them to charge more, since the delays were not their fault. The contract the parties signed was an all-inclusive fixed price and therefore should not be revised.

The Court analysed what the arbitrators had decided in their award. From the evidence, the contract provided for 40 weeks of work, but TM issued a contract with the contractor for 52 weeks. In actual fact, the project took 99 weeks. The arbitration panel quoted Article 1639, which states:

“1639. A contractor who has undertaken the construction of a building or other considerable work , according to a plan determined and agreed upon between him and the employer, cannot claim any increase in the price, on the ground of an increase in the rate of wages or the cost of the materials, or on the ground of deviations from or additions to the plan, which are not onerous to the contractor.”

According to Topserv Limited -v- Vella noe, decided by the Court of Appeal on 17 February 2003, the contractor may ask for more money in exceptional circumstances, when involved in a big project and it is not to blame for the extra works required.

This is intended to allow a remedy that avoids an unjust prejudice to the damage is not caused by the contractor. The Court of Appeal, held that this article could be applied in this particular case. The contract did not allow a revision in prices, if not specified in the contract and this is binding. Contracts are to be entered into in good faith and as a consequence in this case, the contracting authority did not stop the plaintiff companies from continuing their duties after the lapse of the time frame mentioned in the contract.

The Court then moved to reject the appeal.

Dr Malcolm Mifsud is partner in Mifsud & Mifsud Advocates