Building and Construction Law

Citation(2003) 4 SAL Ann Rev 70
Date01 December 2003
Published date01 December 2003

5.1 The year under review saw a number of decisions concerning payment provisions and the chain of contracts between employer, main contractor and sub-contractors, particularly nominated sub-contractors. A number of procedural and evidential points have also been covered as they arise from construction settings and are of particular importance in this field.

Quality and fitness for purpose

5.2 Where a contractor is obliged to supply equipment or materials, there is an implied term that the material supplied will be of good quality and be reasonably fit for its intended purpose. The court in Adventure Training Systems (Asia-Pacific) Pte Ltd v Signature Lifestyle Pte Ltd[2003] SGHC 135 had to decide whether this familiar implied term was breached on the facts of that case. It held that in the circumstances, rust found on metal parts of the equipment supplied did not mean that the items were defective. It further found that, having confirmed at the time of delivery that the items were received in good order and condition, it was too late for the managers to assert otherwise at the trial.

Incorporation of terms

5.3 A recurrent source of difficulty in the analysis of sub-contracts is the frequent attempt to incorporate the terms of another contract without complete clarity. The case of Hi-Amp Engineering Pte Ltd v Technicdelta Electrical Engineering Pte Ltd[2003] SGHC 316 dealt with such familiar issues. Both parties in the action were involved in the electrical engineering contracting business. The plaintiff was a sub-sub-contractor of the defendant. The contract between the parties was for the supply of labour for the completion of electrical services work at two Mass Rapid Transit stations. The plaintiff claimed that it had duly supplied labour and so discharged its obligations under the contract and that the defendants had breached its payment obligations. The defendant denied the plaintiff”s claims and asserted that the plaintiff was in fact overpaid.

5.4 Of the issues to be decided by the court, many simply turned on the facts. One of the main issues, whether the sub-sub-contract between the parties was ‘back to back’ with the sub-contract entered into between the defendant and another party, has some wider practical significance. Not untypically, the contract assembly and documentation had been hasty and not properly executed. The court refused to accept that the conditions to the sub-contract were incorporated as part of the sub-sub-contract because there was considerable doubt whether the plaintiff even had sight of the sub-contract at the time of contracting. Moreover, as the court observed, the contract documents were furnished in ‘dribs and drabs’.

5.5 It is, of course, not always the case that a party must actually have sight of the other contract or its terms before it can be incorporated as part of the contract in question. A common provision found in sub-contracts is a clause ‘deeming’ that the relevant party has read or seen the main contract (or document that is supposed to be incorporated). There is, however, no indication that such a provision existed in the sub-sub-contract in this case. Where the purported incorporation clause is unclear or ambiguous, courts have generally been reluctant to accept that such a clause has the effect of incorporating the provisions of the main contract into the sub-contract (see for example, Kum Leng General Contractor v Hytech Builders Pte Ltd[1996] 1 SLR 751). In this case, the court noted (at [98]) the ‘ambiguous and not so precise phraseology’ of the relevant provision, which contained the common phrase that ‘all terms and conditions of the main contract shall apply, mutatis mutandis, to the sub-contract’. In the light of this decision, it is now clear that the presence of such a phrase may not be enough to ensure incorporation. The prudent course of action remains the attachment to the sub-contract of the relevant terms of the main contract, or at least clear documentation that a copy has been provided to the sub-contractor.

5.6 A similar situation occurred in Lam Hong Leong Aluminium Pte Ltd v Lian Teck Huat Construction Pte Ltd[2003] SGHC 53. The plaintiffs were engaged by the first defendants to be their sub-contractors by a letter of award. One of the issues that the court had to determine was whether the terms of the main contract were incorporated into the sub-contract. The court also made the observation (at [91]) that the evidence ‘clearly showed the plaintiffs were not even shown the main contract documents’ and ruled that the plaintiffs were not bound by the terms of the main contract.

5.7 In this instance, the defendants” case for incorporation of the terms of the main contract, however, had an even weaker foundation. The letter of award contained a provision requiring the plaintiffs to ‘enter into a subcontract with the first defendants on the same terms and conditions as those in the main contract’. Such a provision is not an adequate

incorporation clause, and is directed more at establishing the terms of the intended contract when executed. As the court noted at [4], ‘no subcontract … was ever executed between the parties, let alone on the terms and conditions set out in the main contract’.

‘Pay when paid’ arrangement

5.8 The court in Hi-Amp Engineering (para 5.3 supra) also had to deal with another familiar situation. On the plaintiff”s claim for the retention sum and outstanding progress payments, the court dismissed as ‘poor reasoning’ the defendant”s argument that no payment could be made to the plaintiff until receipt of payments by the defendant itself. Such arguments, based on what are now commonly known as ‘pay when paid’ clauses, have been dealt with previously by the courts (see for example, Interpro Engineering Pte Ltd v Sin Heng Construction Co Pte Ltd[1998] 1 SLR 694 and Brightside Mechanical & Electrical Services Group Ltd v Hyundai Engineering & Construction Co Ltd[1988] SLR 186). What is novel in this case appears to be court”s observation at [100] that the defendants ‘had not provided to the court any satisfactory evidence that payments had indeed been withheld by the main contractor on works completed thus far’. The court further noted (ibid) that ‘apart from some equivocal utterances, there was also no satisfactory evidence from the [defendant] to evince to the court that [it] had not been fully paid up’ by the contractor that engaged it. The court therefore appears to be suggesting that the onus is on the contractor denying payment to its...

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