Reservation of rights in construction claims

Abstract

One of the common problems faced by contractors and project owners is their entitlement to claim for extension of time for delays and/or damages. It is understandable that not all projects have contract managers to advise the parties on every step of claiming procedures. Hence in most cases claimants are barred from asserting their claim due to failure of giving notices to claim or reserving their rights to claim. Most construction contracts require the notices as a condition precedent for claim entitlement. Contractors and project owners turn to reservation of rights (ROR) statement as a form of prompting the other party of their intention to claim in future, most of the time, for the unforeseeable and unknowable causes (ie. direct and indirect impacts of loss and/or expense, impacts of delays, additional compensation for numerous variation orders, damages due to defective works by contractor after the conclusion of final account, and other claims that cannot be assessed in the moment of issuing the notices). Alternatively, it is quite common for contractors and project owners to turn to ROR statement as a form of prompting the other party of their intention to put forward their claims in the future. The validity of the practice of ROR has been subject to dispute and there seem to be some conflicting judicial interpretations from the bench. It has been held that the ROR disregarded the condition precedent requirement. The purpose of the research is to determine the principles that judges used in upholding or denying the use of ROR statements in the construction claims. There were six (6) cases relevant to ROR in construction claims that were analysed in this research, three (3) were from the Malaysian jurisdiction, two (2) from the American jurisdiction and one (1) from UK jurisdiction. It is found that principal reason for denying the ROR was the failure of the claimant to conform to conditions of a proper notice when using the ROR; while the fundamental reason for upholding the ROR is because notice is not a condition precedent and the claim could not be established pursuant to any clause in the construction contract. It remains that an ROR will only stand provided that the notice is not a condition precedent to a claim.