Building and Construction Law

Citation(2008) 9 SAL Ann Rev 121
Published date01 December 2008
Date01 December 2008
Interpretation of contracts

6.1 A persistent issue encountered with disputes arising from construction contracts remains the extent to which extrinsic materials may be imported in the interpretation of the terms recorded in a contract. There is, on the one hand, the compelling presumption that the essential terms of a modern commercial transaction are expected to be reduced to writing and, on the other, the reality that the task of interpreting contracts frequently requires an inquiry into the surrounding circumstances or context of a contract. In Singapore, the extent to which extrinsic evidence may be imported in the construction of written terms in a contract has been reviewed by the courts on a number of occasions, but many in the construction industry will welcome the searching analysis on the subject undertaken by the Court of Appeal in Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd[2008] 3 SLR 1029.

6.2 In Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd[2008] 3 SLR 1029, B-Gold was engaged as the term contractor to carry out maintenance, repair, addition and alteration works at a broadcast centre. In accordance with cl 18 of the contract conditions, B-Gold took out a Contractors All Risks Policy with Zurich Insurance. Section I of the policy covered physical loss of or damage to items listed in a schedule to the policy. Section II of the policy covered third-party liability with two material exclusions: Special Exclusion 2, which excluded coverage in respect of expenditure incurred in repairing anything covered or coverable under Section I and Special Exclusion 4(b), which excluded coverage in respect of liability consequent upon loss of or damage to property belonging to, inter alia, the building owner. A fire broke out on the premises, caused by the negligence of one of the B-Gold”s subcontractors. The building owner successfully sued B-Gold for the damage caused by the fire. B-Gold commenced third party proceedings against Zurich Insurance on the policy.

6.3 The District Judge found that the schedule under Section I of the policy did not include the physical premises on which the works were undertaken: Media Corporation of Singapore Pte Ltd v B-Gold Interior Design & Construction Pte Ltd[2007] SGDC 7. He observed that it had been open to B-Gold to require the insurance cover to cover these physical premises but they did not ask for such an extension. Special Exclusion 2 stated that Zurich was not liable to indemnify B-Gold for loss or damage ‘covered or coverable under Section I’. Furthermore, Special Exclusion 4(b) expressly excluded any indemnity in respect of loss or damage to property owned or possessed by the building owner. The result of this analysis is that B-Gold was precluded from making a claim under Section II and, accordingly, the District Judge dismissed B-Gold”s claim in the third party action.

6.4 B-Gold appealed to the High Court. The learned judge accepted that B-Gold”s claim in respect of the damaged property was not covered under Section I: B-Gold Interior Design & Construction Pte Ltd v Zurich Insurance (Singapore) Pte Ltd[2007] 4 SLR 82 at [30]. He considered that Special Exclusion 2 had to be read in the light of a memo which had the effect of limiting the ‘insurable’ items. He agreed that Special Exclusion 4(b) was prima facie applicable to the claim. However, he decided — after taking into account the genesis of the Policy, in particular, his finding that B-Gold had relied on the insurer to provide cover for a specific purpose — that the exclusion clause should be denied its efficacy. The learned judge thereupon set aside the decision of the District Court (at 62).

6.5 The Court of Appeal held that where, as in this case, the parties did not dispute that the terms of the policy represented the complete agreement between them, the parol evidence rule as provided under s 94 of the Evidence Act (Cap 97, 1997 Rev Ed) applied. No extrinsic evidence was admissible to ‘contradict, vary, add to or subtract from the terms of the Policy’. The court took the opportunity to review the common law contextual approach to contractual interpretation, in particular the principles laid down by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society[1998] 1 WLR 896 (‘Investors Compensation Scheme’), and held (Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd[2008] 3 SLR 1029 at [121]) that this approach was statutorily embedded in proviso (f) to s 94 of the Evidence Act. This proviso would admit extrinsic evidence not only to ascertain the identity or extent of the subjects referred to in a document or the sense in which particular terms have been used, but also to clear up any other doubt that may arise in applying the document to the case. The court also affirmed the contextual approach to contractual interpretation as laid down in its earlier decision of Sandar Aung v Parkway Hospitals Singapore Pte Ltd[2007] 2 SLR 891. Extrinsic evidence is always admissible even if there is

no ambiguity in the language of the contract (Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd[2008] 3 SLR 1029 at [115]), but, as stated by Lord Hoffmann in Investors Compensation Scheme, such extrinsic evidence must be relevant and reasonably available to all the contracting parties (Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd[2008] 3 SLR 1029 at [125]) and they must relate to a clear or obvious context (at [129]).

6.6 However, in the instant case (Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd[2008] 3 SLR 1029), the court ruled that, in relying on the genesis of the policy to hold that an entire exclusion clause — Special Exclusion 4(b) — was inoperable, the learned judge had ‘strayed far into the realm of varying a contract in contravention of s 94’. V K Rajah JA in delivering the judgment of the court said (at [134]):

This was not a case where the court read down broad words within the scope of their penumbral meaning … nor could one argue that this was merely a case of aggressive or intrusive interpretation. Instead, it was a case where the court read an entire provision out of the contract being construed. There is a conceptual difference between attributing a meaning to words or phrases that might strain the contours of their penumbral meaning and simply ignoring a provision altogether. Thus, on the basis of the parol evidence rule (as statutorily embodied in s 94 of the Evidence Act) alone, the Judge”s approach was legally impermissible.

6.7 Accordingly, since extrinsic evidence could not be introduced to render Special Exclusion 4(b) inoperative, this provision was held to be effective to exclude Zurich Insurance”s liability to indemnify B-Gold under Section II.

Contract administration
Choice of construction contract

6.8 In Sonny Yap Boon Keng v Pacific Prince International Pte Ltd[2009] 1 SLR 385, the architect offered the owner, who was a layman, the choice between (a) an arrangement under which the appointment of the architect was separate from that of a contractor employed to undertake the construction and (b) the ‘design and build’ route, where the architect and contractor were subsumed under a single appointment. The question arose as to whether the architect was obliged, in this instance, to go beyond just stating the convenience of the design and build option and to draw to the attention of the owner the disadvantages of this route.

6.9 Justice Judith Prakash decided (Sonny Yap Boon Keng v Pacific Prince International Pte Ltd[2009] 1 SLR 385 at [166]) that the architect owed a duty in this case not only not to give the owner negligent advice, but also to be careful to ensure that he gave the respondent complete advice. In this case, the learned judge considered that the architect was in breach of this duty of care when he failed to give the owner a complete picture of what each of the options entailed. In the process, the architect prevented the owner from making an informed decision or from choosing to adopt practices that would make up for the absence of the architect in his role of supervisor, certifier and arbiter. She emphasised (at [169]) that, whilst it was correct that from January 2004 architects had been permitted to offer both architectural and building services, their actions in this regard were still subject to the duty encompassed in r 13(1) of the Board of Architects” Code of Professional Conduct and Ethics. This code prohibits an architect from holding, assuming or consciously accepting a position in which his interest is in conflict with his professional duty to his client without previously informing his client of the same. He is also obliged to inform his client of the possibility of any conflict between his own interest and that of his client.

Negligent certification

6.10 The year under review also saw the courts dealing with an action against an architect for negligent certification. In Lian Kok Hong v Ow Wah Foong[2008] 4 SLR 165, the plaintiff had terminated the contract of his contractor in reliance of a termination certificate issued by the defendant architect. In an ensuing arbitration, the contractor succeeded against the plaintiff for wrongful termination, the arbitrator having decided that the architect”s termination certificate was procedurally incorrect and in breach of the contract between the plaintiff and the contractor. Thereafter, the plaintiff sought an indemnity from the defendant which led to the matter being brought before the courts.

6.11 In the Court of Appeal, the case centred on the operation of s 24A(3)(b) of the Limitation Act (Cap 163, 1996 Rev Ed). The plaintiff appellant had argued that, in respect of the subject action, time did not start to run until the appellant had...

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