Building and Construction Law

• Citation: (2001) 2 SAL Ann Rev 47
• Date: 01 December 2001
• Published date: 01 December 2001
• Author: GEORGE TAN KEOK HENG LLB (Sing), FCIArb, FSIArb, Advocate & Solicitor (Singapore) PHILIP JEYARETNAM MA (Cantab), Barrister (GI), Advocate & Solicitor (Singapore)

Introduction

5.1 The year under review produced a broad range of cases dealing with issues from contract formation to contract termination. The field of construction law has been a fertile one over the past decade, with the courts increasingly prepared to plough a furrow more closely adapted to Singapore”s landscape and terrain. One example of a development aimed to remedy a local mischief, namely the abuse by employers of performance bonds, is the jurisdiction to restrain calls on performance bonds on the ground of unconscionability. The past year saw an attempt by the bondsman (as opposed to the contractor who had procured the bond) to rely on this principle as a defence to an action on the bond.

5.2 Two cases were decided by the Court of Appeal. One dealt with the question of the extent to which there should be implied responsibility of the employer for late or under-certification by the architect. The other considered the construction of the deed of indemnity typically given by sub-contractors to developers in respect of specialist works.

Contract formation

5.3 A typical construction project involves a large number of parties required to carry out a variety of functions and roles. It is a challenging task to reduce this web of complex arrangements into binding contract documents. Owing to the pressure of deadlines or commercial considerations, contracts may be poorly drafted and not fully documented. Some or all of the agreements may remain informal and oral. Contractors may work with particular sub-contractors on more than one project, so that either one or the other party assumes that things will be done as before without specific documentation or clear incorporation of a past course of dealing. The assembly of sub-contract documentation tends to engender many disputes over the incorporation of terms and documents. A number of such disputes predictably end in litigation, making significant contribution to the development of local law on contract formation. An early local illustration of how the court”s findings on which documents form part of the contract may substantially determine the final outcome is provided by the case of Ohbayashi-Gumi Ltd v Kian Hong Holdings Pte Ltd[1987] SLR 94.

5.4 Similar issues arose in the High Court in Shia Kian Eng (trading as Forest Contractors) v Nakano Singapore (Pte) Ltd (Suit 600245/2000, HC, unreported judgment dated 3.4.2001). The English decision of Trollope & Colls Ltd v Atomic Power Construction Ltd[1962] 3 All ER 1035 was considered. In this case, the developer of an executive condominium appointed the defendants (“Nakano”) as their main contractor. Nakano in turn appointed a number of sub-contractors, including the plaintiff (“Forest”), to carry out different aspects of the works. There were a number of issues in this action. In relation to contract formation, the only common ground between the parties was that there was no single sub-contract that covered the works to be carried out by the plaintiff for the project. Forest contended that the sub-contracts were made partly orally, partly in writing and partly by conduct. Nakano, on the other hand, refuted this and contended that the sub-contracts were wholly in writing, namely the purchase orders issued by them and the various other documents mentioned in the purchase orders. None of the purchase orders were issued before Forest started work on any of the sub-contracts.

5.5 Nakano first submitted that Forest”s attempt to adduce oral evidence to contradict the written terms and conditions set out in the purchase orders contravened the parol evidence rule. Judith Prakash J rejected this submission on the ground that the rule does not apply when the issue to be determined is whether the contract was wholly in writing or not. In such a case, the court is entitled to receive evidence, whether parol or otherwise, of all the relevant circumstances in order to determine what sort of contract came into existence. The court then found that the sub-contracts were partly in writing and partly oral.

5.6 The court also had to deal with Nakano”s contention that certain documents mentioned in the purchase orders and described as being annexed thereto were incorporated in the contract. In support of this contention, Nakano put forward the decision in Trollope & Colls (supra), to support the argument that a contract could be binding on parties where they had been conducting their transactions with one another for many months on the assumption that the contract would ultimately be agreed on lines known to both the parties, although the final forms of various terms were still under negotiation. The court in that case had held that the contract would in these circumstances be applied retrospectively to the transactions in question. From the grounds set out by Prakash J in rejecting this argument, there are no special and distinct propositions of law dealing with the retrospective application of a contract to previous transactions. The outcome will turn on the facts and circumstances based on ordinary contractual principles and the evidence. Nonetheless, the approach of the court in this case in its assessment of the facts and the dealings of the parties provides a useful guide to how such an argument might be dealt with in future.

5.7 In this case, the question was whether certain drawings, specifications and product brochures mentioned in the purchase orders but not given to Forest prior to commencement of the work (and some not given even at the time of issue of the purchase orders) formed part of the contractual documents. Prakash J found, first, that it was not clear that there was active negotiation by the parties on the form of terms and conditions or that they had started work on the assumption that these would eventually be agreed and made applicable to the parties” relationship. Secondly, the court did not see any evidence that copies of standard purchase orders and conditions of sub-contract were furnished to the sub-contractor. Thirdly, Nakano was familiar with the practice in the construction industry of having letters of intent with a provision indicating that a formal contract would follow. Yet it did not issue such a letter of intent. Whilst the court accepted that Forest was likely to expect a written acceptance of its quotations, “it would not have expected to be inundated with contractual documents when it had not been given any such documents prior to commencing work”. Fourth, as for some other documents, the court found that while the purchase orders mentioned these documents as being annexed to them, not all the documents were in fact so annexed. If documents are not furnished by one party to the other either prior to or at the time of entry into the contract, then in the absence of a “clear indication by that other party that he would accept documents subsequently given as part of the contract”, it would be difficult to convince the court that those documents were incorporated as part of the contract.

5.8 Another common situation concerns disputes over quantities of building materials or equipment left on site. Often, a dispute over quantities surfaces as a measurement or valuation issue. However, unusually, in Ho Seng Lee Construction Pte Ltd v Nian Chuan Construction Pte Ltd[2001] 4 SLR 407, the issue was whether the contracts in question should be rectified or rescinded on the ground of common or unilateral mistake. This arose from a dispute over how many metal-forms were on a site under a rental arrangement. In this case, the plaintiffs were in the business of leasing metal-forms to builders for use in constructing buildings. These metal-forms are used as moulds for casting concrete. The defendants entered into three agreements with the plaintiffs under which the defendants rented metal-forms from the plaintiffs. The plaintiffs brought an action to recover rental from the defendants under the three agreements. The defendants contended that the quantities actually leased were not in accordance with the quantities stated as leased in the three agreements. They argued that “at the time the agreements were executed by the parties, both parties, alternatively the defendants alone, mistakenly but honestly believed that the quantities of metal-forms leased were as in the agreements”. The defendants submitted that when they took over the projects from an earlier contractor, Kong Siong, “the metal-forms had already been set up at the sites or were lying on the ground and it was

virtually impossible to count how many pieces were indeed handed over to the defendants.”

5.9 Although the court found that at the time the defendants took over the sites, the sites did not physically contain the exact numbers of metal-forms mentioned in the respective agreements, the court was not prepared to allow the defendants “to escape from their contractual liability to pay for the metal-forms hired in respect of the contractually stated numbers”. The court must be satisfied that the agreements had been vitiated by mistake:

“There are two types of mistake that the defendants rely on here. The first is common mistake and the second is unilateral mistake. The doctrine of common mistake was commented on at length in Associated Japanese Bank (International) Ltd v Credit du Nord SA[1988] 3 All ER 902 which reiterated the principle established in Bell v Lever Bros Ltd[1931] All ER Rep 1 that a contract would be void ab initio for common mistake if a mistake by both parties to the contract renders the subject matter of the contract essentially and radically different from that which both parties believed to exist at the time the contract was executed. However, the party seeking to rely on the mistake must have had reasonable grounds for entertaining the belief on which the mistake was based.” (at 422)

5.10 The court proceeded to outline the approach to be adopted. First, the law ought to uphold rather than destroy...