Building and Construction Law

• Date: 01 December 2002
• Published date: 01 December 2002
• Author: PHILIP JEYARETNAM, SC MA (Cantab), Barrister (Gray’s Inn), Advocate & Solicitor (Singapore) GEORGE TAN KEOK HENG LLB (Sing), FCIArb, FSIArb, Advocate & Solicitor (Singapore)

Introduction

5.1 The year under review did not throw up any major issues of legal principle. Instead, the disputes reaching the courts were overwhelmingly concerned with payment and cash flow, a reflection of the difficult year that many in the industry had. Nonetheless, the practical importance of the points in issue was clear.

Contract formation

5.2 Three decisions in the year under review exemplify a recurring problem in the formation and execution of construction contracts. The terms and even the existence of the contract are often matters of dispute in construction disputes. Participants in a construction project often seem in such a rush to get on with doing the work that they neglect defining their rights and obligations under the contract. The effort of finding and assembling the missing pieces then falls to the tribunal faced with the unfortunate task of adjudicating the inevitable dispute. The courts, in dealing with such situations, have adopted practical solutions based on common sense, yet the outcome may not, in the end, accord with what the participants might have decided upon for themselves, if only they had paused at the right time.

Execution of documents

5.3 The decision of the High Court in Li Hwee Building Construction Pte Ltd v Advanced Construction & Engineering Pte Ltd (Suits 1500/2001 and 441/2002, unreported judgment dated 3.12.2002) exemplifies the situation where a contract was found to exist in the midst of disputed facts and strong differences over the interpretation of events.

5.4 In this case, one of the arguments advanced by the defendants was that there was no legally enforceable contract between the parties for a part of the works because the plaintiffs did not return the documents already signed by a director of the defendants or “communicate their acceptance of the terms

in the document”. In rejecting this argument, the court made it clear that it considered the defendants” director”s “unqualified execution” on behalf of the defendants as “disclosing an intention to be bound and was not conditional upon the execution of the document” by the defendants (at [12]). The court also found (at [13] and [14]) that:

(a) the terms of the document were also “typical of a commercial agreement intended to be binding” and

(b) subsequent events assisted in determining that there was a concluded sub-contract for the project.

5.5 A first glance, it appears unusual for the court to be looking at subsequent events for assistance. It has been held, usually in the context of the parol evidence rule, which the court did, after all, allude to (at [8]), that it is impermissible to look at the post-contractual conduct of the parties as an aid to construction of the agreement (see Wates Ltd v Greater London Council(1983) 25 BLR 1 and Evergrip Prestressing Sdn Bhd v Ken Construction & Trading Sdn Bhd[1991] 3 CLJ 2149). A closer examination of the judgment, however, makes it clear that the court was trying to ascertain whether there was a contract. It was not trying to interpret the terms of the contract. It is settled law that there is no need for there to be an express communication by an offeree of his acceptance of the terms of an offer. There can be acceptance by conduct demonstrating an intention to accept the terms of the offer (see Charnock v Liverpool Corporation[1968] 1 WLR 1498 at 1507). It has also been held in a line of decisions originating with Brogden v Metropolitan Railway Co(1877) 2 App Cas 666, that a contractor who, having received an offer for the performance of certain works based on certain terms, proceeds to carry them out without further communication, is bound by the terms of the offer.

The nomination process

5.6 A case with a different outcome was L K Ang Construction Pte Ltd v Chubb Singapore Pte Ltd[2003] 1 SLR 635. The facts by themselves were not unusual. The defendant had tendered successfully for fire protection installation works. It was informed by the mechanical and engineering (“M&E”) consultant that it would be appointed the nominated sub-contractor for the works. The identity of the main contractor was not disclosed in this letter.

5.7 Subsequently, the architect instructed the plaintiff to issue a letter of award to the defendant and to enter into a nominated sub-contract with it. The plaintiff then wrote to the defendant stating that it was “pleased to appoint” the defendant “as the Nominated Sub-Contractor for the Fire

Protection Installation Work for the above-mentioned project”. The letter also indicated that “formal contract will be issued” to the defendant “in the near future” and that the defendant should “take this letter as instruction to proceed with the preparation of the works for the timely delivery according to our project schedule”. It was not stated that a sub-contract was formed between them by the issuance of the letter but it was the plaintiff”s case that an agreement was formed.

5.8 The request was made to the architect in letters, one of which enclosed a copy of the credit report. In the letters, the defendant gave notice that it would not sign a sub-contract with the plaintiff if direct payment from the employer was not allowed. The request was refused and the plaintiff stopped work. The plaintiff regarded the stoppage of work as a repudiation of the sub-contract. It accepted the repudiation and treated the sub-contract as terminated. It appointed another sub-contractor to undertake the work and sued for damages for breach of the sub-contract.

5.9 In trying to ascertain whether there was a binding sub-contract, the court reviewed the contemporaneous documents beginning with the defendant”s tender, in a form provided by the architect. The offer contained therein was addressed to the employer indicating that if the tender was accepted, the defendant undertook “to enter into a Sub Contract with the Main Contractor in accordance with The Conditions of Sub-Contract”. There was also a paragraph with the words “until a formal agreement is prepared and executed this tender together with the Letter of Acceptance thereof by the Employer shall constitute a binding contract between us”.

5.10 The court noted two significant points, namely:

(a) that there was consistent reference to the execution of a formal contract, and no indication of the formation of a sub-contract between the plaintiff and the defendant at any time before that and

(b) the defendant”s tender offer in the form furnished by the architect provided that until the execution of a formal agreement, the tender and the employer”s letter of acceptance constituted a binding contract between it and the employer.

5.11 The court found that when the M&E consultant issued the letter to the defendant, there was a binding agreement between the defendant and the employer. This agreement was to be replaced by a sub-contract between the defendant and the plaintiff when the formal agreement was executed. If there was also a sub-contract between the defendant and the plaintiff prior to the execution of the formal agreement, the court found it unlikely that the parties

would have intended for the defendant “to have similar contracts with the employer as well as the plaintiff at the same time”.

5.12 The court also rejected the notion that “the parties to a building contract may be more concerned with the execution of the contracted works than the contract document, and are apt to delay or overlook the execution of the contract”. In rejecting any possibility that the court would want to “apply contractual rules differently to different activities” the learned judge said the following at [39]:

“Parties engaged in all activities should conduct their affairs in compliance with the rules, and should not expect that the rules be adapted for them. The parties had intended that there was to be a signed agreement. They had not stated expressly or impliedly that there was to be a sub-contract before or without a signed agreement, or that the execution of the agreement was a matter of formality only.”

5.13 The court also suggested, obiter, that there are existing principles which can assist an aggrieved and deserving party, particularly waiver and estoppel, which were not raised but felt that, in any event, there “can be no waiver or estoppel in the circumstances, or anything which rendered the execution of an agreement unnecessary”.

5.14 In L K Ang Construction, the usual problems of inadequate contract documentation were further complicated and magnified by faulty execution of the nomination process. The device of nomination, which enables the employer, with the assistance of the architect and consultants, to select sub-contractors or suppliers of his choice for the main contractor is a familiar practice in the building industry. By now, it is reasonably well entrenched, whatever its shortcomings, and detailed arrangements to facilitate the process exist in most traditional standard form building contracts. However, no matter how well-drafted these provisions may be, there is a tendency for events to go awry in the hiatus between the selection of the sub-contractors and the signing of formal documents. This has happened not just in Singapore, but almost anywhere else where a system of nomination exists (see for example, the South African decision of Concrete Construction (Pty) Ltd v Keidan & Co (Pty) Ltd1955 (4) SA 315 and the English decision of Hampton v Glamorgan County Council[1917] AC 13.

5.15 The universality of the problem and the difficult decisions it often engenders are shown by the English decision of Crittall Manufacturing Co v London County Council(1910) 75 JP 203 where the court apparently found that a contract to procure casements, prima facie made between the specialist sub-contractor and the main contractor, was also a contract by the main contractors as agents for the owner because it was to procure something for the owner”s benefit. The notion...