Building and Construction Law

• Author: Philip JEYARETNAM SC MA (Cambridge); FSI Arb, Barrister (Gray’s Inn), Advocate and Solicitor (Singapore). George TAN Keok Heng LLB (University of Singapore); FCIArb, FSIArb, Advocate and Solicitor (Singapore).
• Date: 01 December 2004
• Citation: (2004) 5 SAL Ann Rev 76
• Published date: 01 December 2004

Introduction

5.1 The common law abhors a vacuum. Hence, if no proper remedy exists, the law will find some way to invent one. However, in the process there is always the danger that judge-made remedies designed to fill a gap in one area may have unintended consequences for other areas of the law. This is because judges act on the basis of legal principles or reasoned exceptions to those principles, and any adjustment of principle or exception cannot be limited purely to the situation at hand. There can be no such thing as law limited to management corporations or even construction contracts.

5.2 The legislative institution of management corporations greatly facilitated the development of condominiums. Management corporations hold and maintain the common property, and provide a democratic vehicle for the owners of individual units to decide on matters common to them all. Anyone who has lived in a leasehold building with management and maintenance vested in the reversionary owner will know how much easier life is in a condominium with a management corporation. But management corporations in law succeed the developer — and have no contract with the developer on which to sue for defects. This lacuna led to the courts holding that the management corporation had a remedy in the tort of negligence against the developer and others involved in the construction of the condominium. But subsequent efforts to make the developer subject to a non-delegable duty of care, by disallowing reliance on the generally applicable defence that any negligence was on the part of an apparently competent independent contractor, have been firmly rejected during the year under review, not least because it would be impossible to confine such an inroad into the general principle without consequences in other areas of economic activity. Nonetheless, the past year did see a developer being allowed to claim damages for breach of contract against the main contractor and architect for loss suffered in the form of defects occurring after the developer had transferred the property to the management corporation and

individual purchasers. What and where the limits are to this developing exception to the principle that a party to a contract is only entitled to recover substantial damages for his own loss is an open question.

5.3 The common law has been unable to find an effective solution to the difficulties faced by contractors in ensuring cash flow through the course of a project. Consequently, a new Act, the Building and Construction Industry Security of Payment Act 2004 (No 57 of 2004) was passed. This Act creates a statutory regime for the fast and effective adjudication of interim payment disputes (subject to eventual final resolution and adjustment of accounts in arbitration or in the courts). The effect of this Act is to consign to the bonfire many of the old chestnuts, such as the precise scope and ambit of ‘pay when paid’ clauses and the circumstances when a contractor may stop work for non-payment. But as the bonfire is a slow-burning one, given the Act”s transitional provisions, the interesting judicial analyses of some of these old chestnuts have been included in this review.

Contract formation

5.4 Time is a valuable commodity as much for those in the construction industry as those outside it. To avoid losing time while terms are negotiated, developers sometimes expect contractors to start work on the basis of the letter of award, even though the full contract has not been finalised and executed.

5.5 The case of Compaq Computer Asia Pte Ltd v Computer Interface (S) Pte Ltd[2004] 3 SLR 316 offers a useful reminder of how the period after the letter of award and before finalisation of contract terms will be analysed. The main issue concerns the interpretation of the words ‘subject to final terms and conditions being agreed’ contained in the letter of award. The Court of Appeal had to consider whether this phrase should be construed in the same way as the expression ‘subject to contract’ or as the trial judge had done, namely to mean that as ‘there were some final terms that the parties may agree upon, those terms (if agreed) would be included in the formal agreement to be signed’. The appeal was allowed, and it was held that the phrase was not intended simply to be ‘a reservation of a right to add more terms if they could be agreed’. Instead, the award of the contract was made conditional upon final terms and conditions being agreed. Hence, there was no concluded contract that could be enforced.

5.6 In coming to its decision, the Court of Appeal took the opportunity to set out some basic principles in construing a document (at [28]):

There are a number of settled principles which ought to be borne in mind in construing a document. The first is that a document should be construed objectively without regard to the subjective intention of the parties. The trial judge did apply this principle. The second is that any subsequent statement or conduct of the parties should not be taken into account in the construction of a document, although the court would be entitled to look at the factual matrix … However, this principle does not apply to determine whether a document evidenced a contract, where such document is not the whole of the contract.

5.7 While acknowledging at [31] that there ‘are authorities which show that where the parties have acted upon the faith of a written document, the court would be inclined to assume that the document embodies a firm contract’, the court held that this would not apply where there was a contrary intention. The court found that there was such a ‘contrary intention’ indicated in the letter of award ‘which contemplated, pending the finalisation of the written agreement, an interim arrangement’.

5.8 The issue whether there was a concluded contract was again central in Econ Corp Ltd v So Say Cheong Pte Ltd[2004] SGHC 234. On this occasion, the defendant main contractor raised the defence of set-off founded upon an alleged oral agreement. It was contended that there was an oral agreement by the plaintiff sub-contractor to pay the defendant main contractor a ‘2% commission on the final contract value to be determined at the end of the project when accounts are finalised’. First, the court held (at [9]) that ‘[t]he burden of proof is on the defendant to establish that the parties intended to make a binding agreement to the effect as pleaded’. Second, in considering whether the parties had actually formed the oral agreement the court considered it ‘permissible to look to the background circumstances from which it arose and the subsequent conduct of the parties’ at [31]. On the evidence, the court found (at [32]) that the circumstances and the words used by the parties were ‘inconsistent with an intention to reach a concluded agreement’ without ‘further negotiation leading to a written document’. The court showed a natural wariness of allegations of oral agreements raised to support arguments of set-off.

5.9 Subsequent conduct was rightly considered in Econ Corp Ltd v So Say Cheong Pte Ltd, while excluded in Compaq Computer Asia Pte Ltd v Computer Interface (S) Pte Ltd. The difference was that the question was whether an oral agreement had been made, as opposed to how particular words should be construed.

Scope of work and representations

5.10 It is quite common for employers to require contractors invited to bid for a contract to deliver in writing information concerning their ability to undertake the project that is the subject matter of the tender invitation. The information given is then included as part of the contract documents. What motivates such an approach is the perceived difficulty on the part of the employer or consultants to make their own investigations concerning the contractors, particularly, when there is a large number of them. In Wishing Star Ltd v Jurong Town Corp (No 2)[2005] 1 SLR 339, the employer imposed what were described as ‘evaluation criteria’ on the contractors submitting bids. There were two sub-sets of the evaluation criteria, called ‘Critical Criteria’ and ‘other Criteria’.

5.11 It was contended that the plaintiff contractor, in submitting information to meet the criteria, had made a number of representations that were false. It was also contended that the majority of the representations had become terms of the contract and that they were not merely statements made with the intention of inducing the defendant to award the contract to the plaintiff. The question before the court was ‘whether the representations were false or substantially false such that the defendant was entitled to terminate the contract’. To address this, the court found that it must first ask whether the defendant”s entry into the contract was induced by the plaintiff”s representations. The court noted (at [11]) that the ‘distinction between the items in the “Critical Criteria” and those in the “Other Criteria” lay in the fact that a non-compliance with the former ended the prospect of further evaluation or review’. The court accepted the plaintiff”s argument that this meant ‘a failure to observe the items in the “Other Criteria” would not rule out the plaintiff”s chances entirely’ (ibid).

5.12 The court drew a distinction between simple purchases, such as of a second-hand car, and the award of a massive and complex construction project. In the former, a simple statement such as, ‘this car is absolutely accident-free’ might be more easily shown to have induced the purchase and so establish actionable misrepresentation if it proved to be false. As for the latter, however, it was much harder to connect the making of the award to one particular representation and the court felt (at [12]) that it would ‘require very clear evidence that a party would not have entered into the contract if he had known that one or more representations made to him was not true for the court to find...