Building and Construction Law

• Published date: 01 December 2005
• Date: 01 December 2005
• Author: Philip JEYARETNAM SC MA (Cambridge); FSIArb, Barrister (Gray’s Inn, UK), Advocate and Solicitor (Singapore). George TAN Keok Heng LLB (University of Singapore); FCIArb, FSIArb, Advocate and Solicitor (Singapore).

Introduction

5.1 The year under review was one of consolidation rather than novelty. It saw the Court of Appeal decide on appeals in two cases that had sparked the most comments within the industry in the previous year, namely MCST Plan No 2297 v Seasons Park Ltd (No 2)[2004] SGHC 160 (HC), MCST Plan No 2297 v Seasons Park Ltd[2005] 2 SLR 613 (CA); and Prosperland Pte Ltd v Civic Construction Pte Ltd[2004] 4 SLR 129 (HC), Chia Kok Leong v Prosperland Pte Ltd[2005] 2 SLR 484 (CA). In both cases, the first instance judgments were upheld. A management corporation”s remedy against a developer in the tort of negligence is, therefore, limited to situations where the developer has itself been negligent; apart from a contractual relationship, a developer will not ordinarily be liable to purchasers for the negligence of the builder or consultants engaged by it. However, a developer can sue the builder or consultants in contract for defects in the property that it has already transferred in defence of its performance interest in the contract.

Interpretation of contract

5.2 The reduction of terms into writing should reduce uncertainty and, consequently, disputes. However, while the manner in which the agreement was expressed may be clear, what the words in fact mean may not be. Such a situation occurred in MAE Engineering Ltd v Fire-Stop Marketing Services Pte Ltd[2005] 1 SLR 379 (‘MAE Engineering Ltd’) where the subcontractor (the respondent, Fire-Stop Marketing Services Pte Ltd (‘Fire-Stop’)) was engaged by the appellant for what is described in the subcontract as the ‘Supply, Delivery, Installation, Warranty & Endorsement of 2 Hours Fire Rated Board Cladding to 5,000M² of ACMV Ductwork’ (at [6]). It was common ground that the total area of ACMV duct actually cladded exceeded 5,000m², and the dispute was over whether on the true and proper construction of the subcontract, payment to Fire-Stop should have been based on the area of cladded or uncladded ACMV duct. In allowing the appeal, the Court of

Appeal held that on a plain and ordinary reading of the subcontract, payment should have been calculated on the basis of the area of uncladded ACMV duct. Lai Siu Chiu J, described the applicable principles (at [17]) as follows:

The principles applicable to the construction of contracts are well established. The object of the construction exercise is to determine the mutual intention of the parties as expressed in the words of the document … The task of ascertaining the intention of the parties must be approached objectively; the question is not what one or the other of the parties meant or understood by the words used, but the meaning the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties at the time of the contract …

5.3 The court accepted the appellant”s argument that ‘the fact that the quoted area of 5,000m² was only an estimate did not necessarily mean that it carried no weight whatsoever’ (at [21]). The court observed that the area of 5000m² together with the lump sum price of $400,000 indicated that the rate of $80/m² should apply to the uncladded duct. Although the court recognised that evidence of prior negotiations was inadmissible, it nonetheless held that ‘evidence of an antecedent agreement [was] an objective fact that [could be taken] into account as part of the “factual matrix” in which the parties made their contract’ (at [24]). In the circumstances, the court took into account a pre-award document which provided that Fire-Stop would be paid ‘S$400,000 (Singapore Dollars Four Hundred Thousand Only) (5,000m²x $80/m²)’ and held that ‘the fact that the figure S$400,000 corresponded exactly to the revised rate based on the area of the uncladded duct could hardly be a coincidence’ [emphasis in original] (at [24]).

5.4 Thus, what proved decisive was evidence of an antecedent agreement as ‘an objective fact’ that was ‘part of the “factual matrix” in which the parties made their contract’ (at [24]). In this way, a distinction was drawn between evidence of an antecedent agreement and evidence of prior negotiations which, in principle, is inadmissible. This illustrates a flexible and purposive approach to the construction of an agreement. However, it can sometimes be unclear whether the agreement being construed is meant to carry over a meaning from an antecedent agreement, or instead to vary that earlier meaning.

Estoppel

5.5 As an alternative to arguments on the construction of an agreement, a party may argue that regardless of the meaning of the words viewed in isolation, the parties conducted themselves on a different (conventional) basis so that the parties are estopped (by convention) from asserting the literal meaning of the words. This argument has become much more widely relied on in recent years, and the year under review saw several such cases reach trial.

5.6 One of these cases was MAE Engineering Ltd (supra para 5.2). The subcontractor, Fire-Stop, contended that the appellant ‘was estopped by its conduct from contending that payment should be made on the basis of the area of the uncladded duct’ (at [42]). The Court of Appeal relied on the locus classicus, Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd[1982] QB 84 (‘Amalgamated Investment’) and applied its earlier decision in Singapore Island Country Club v Hilborne[1997] 1 SLR 248 (‘Singapore Island Country Club’), which laid down the criteria for estoppel by convention (at [27]) as follows:

(i) that there must be a course of dealing between the two parties in a contractual relationship;

(ii) that the course of dealing must be such that both parties must have proceeded on the basis of an agreed interpretation of the contract; and

(iii) that it must be unjust to allow one party to go back on the agreed interpretation.

5.7 While examining the circumstances in the light of the criteria, the Court of Appeal noted that ‘for a claim of estoppel by convention to succeed, it must be shown that acceptance of a particular state of things was the foundation of the dealings between the parties’ (at [47]). There was an absence of evidence of ‘a shared assumption that the contract price should be derived from the area of cladded duct’ [emphasis in original] (ibid). The court found that if there was indeed a shared assumption by the parties, the correspondence suggested that it was for payment to be based on the area of uncladded duct.

5.8 This statement of the law and its application by the court was uncontroversial. The decision to reject Fire-Stop”s argument was derived from the court”s conclusions on the evidence of the manner in which the parties had, in fact, conducted themselves following the agreement.

5.9 Estoppel was again raised as an alternative argument in C S Geotechnic Pte Ltd v Neocorp Innovations Pte Ltd[2005] SGHC 116. In an action by the plaintiff to recover amounts due under a subcontract, the defendant contended that it was not the ‘real party’ to the subcontract. It argued that it had assigned the subcontract to another and that the plaintiff was estopped by its action from denying that the subcontract had been so assigned. In particular, the defendant relied on estoppel by convention and estoppel by acquiescence. Reference was made (at [25]) to Amalgamated Investment (supra para 5.6) and the decision of the Court of Appeal in Yongnam Development Pte Ltd v Somerset Development Pte Ltd[2004] SGCA 35.

5.10 The defendant relied mainly on the fact that the plaintiff had submitted progress payment claims and other concerns relating to the project to both the defendant and the alleged assignee. The court pointed out that ‘[f]or there to be estoppel, the words or conduct relied on must be clear and unequivocal’ (at [27]). All parties involved were found to be at fault for not making the position clearer. What was supposed to be a notice of assignment was poorly drafted and made on the wrong letterhead. After reviewing the events that followed, the court found there was ‘insufficient evidence of estoppel by convention or any other type of estoppel’ (at [38]). It is hard to see how the defendant”s argument, based on the material before the court, could succeed and the court was right to reject it notwithstanding its observation that both parties were at fault for not making the position clearer. It was, after all, the defendant who relied on estoppel as an argument and the onus was obviously on it to put forward adequate evidence on which a decision in its favour could be made.

5.11 The plaintiff”s failure to object to deductions made against progress...