Building and Construction Law
| Date | 01 December 2006 |
| Author | CHOW Kok Fong LLB(Hons), BSc(Bldg)(Hons), MBA, FRICS, FCIArb, FCIS, FSIArb, Chartered Arbitrator, Chartered Quantity Surveyor; Chief Executive Officer, Changi Airports International; Adjunct Associate Professor, National University of Singapore. Philip CHAN Chuen Fye Dip Bldg, LLB(Hons), LLM, PhD, Dip Ed, FSIArb; Barrister-at-law (Middle Temple), Advocate and Solicitor (Singapore); Associate Professor and Director of the MSc Programme in Construction Law, National University of Singapore; Deputy President, Strata Titles Board. |
| Published date | 01 December 2006 |
6.1 In preparing their bids, contractors usually enter into pre-bid agreements with selected subcontractors. While a pre-bid agreement is typically couched in skeletal form, the terms are intended to form the basis on which the eventual subcontract would be formulated in the event that the general contractor is awarded the main contract. In C S Bored Pile System Pte Ltd v Evan Lim & Co Pte Ltd[2006] 2 SLR 1, the executive director of the defendant main contractor affixed his signature on the plaintiff”s quotation for piling work and added the words ‘Terms & Conditions to be discussed’ just above the signature. The plaintiff”s case was based on this alleged acceptance by the defendant of its quotation which, it argued, formed a binding and enforceable agreement. Choo Han Teck J held for the plaintiff. He considered that it was not unusual that in construction contracts, some terms and conditions might have to be worked out subsequent to the formation of the contract, but as long as the nature and structure of the general agreement was clear, such an agreement was enforceable at law. In that case, the learned judge noted that the parties had met to calculate the prices for piling items so that the defendant could use them in its tender for the construction project; and the only reason the plaintiff subcontractor was open and diligent in sitting through such a session must lead to the view that once the agreement had been agreed, the prices would form the contract between them (at [6]). He decided that, in the circumstances, the insertion of the words ‘Terms & Conditions to be discussed’ was probably an act in excess of caution.
6.2 Most modern construction contracts frequently contain express provisions stipulating situations where a party may properly suspend the carrying out of its contractual obligations or terminate the subject contract. A ground which is frequently relied on for this purpose is force majeure.
6.3 In Sato Kogyo (S) Pte Ltd v RDC Concrete Pte Ltd[2006] SGHC 213, the High Court had to consider whether, under the terms of a contract for the supply of ready mixed concrete, the supplier was entitled to suspend the supply of the ready mixed concrete on the premise that there was a ‘shortage of raw materials’ pursuant to a force majeure clause. The plaintiff in that case was the main contractor for the construction of one of the stations on the Circle Line of the Mass Rapid Transit subway system. The defendant entered into a contract with the plaintiff to supply ready mixed concrete for the project. Some months after the parties had executed the contract, the defendant suspended the supply of the ready mixed concrete. The defence relied, inter alia, on a clause in the contract which read:
In the event of any circumstance constituting Force Majeure, which is defined as act of God, or due to any cause beyond the supplier”s control, such as market raw material shortages, unforeseen plant breakdowns or labour disputes, the duty of the affected party to perform its obligations shall be suspended or limited until such circumstance ceases.
6.4 Lai Siu Chiu J held that, on the construction of the terms of the supply contract, the defendant supplier was entitled to withhold supply of ready mixed concrete on the basis of force majeure. The learned judge said (at [81]):
Although it is arguable that the defendant undertook the risk of a fixed price contract and should bear the consequences, the force majeure clauses are clear; the parties intended for them to operate to cover shortage of the raw materials.
6.5 However, the learned judge also ruled that these clauses did not entitle the defendant supplier to withhold supply due to ‘unforeseen plant breakdown’ because the plaintiff had relied on the defendant”s representation that it had ‘two back-up plants and two friendly suppliers to accommodate the supply of concrete to the plaintiff’.
6.6 There are very few construction contracts which will not require the appointed contractor to furnish a performance bond to secure the performance of the underlying contract. The inevitable question which arises is whether a bond should be construed as a separate contract from the underlying building contract in respect of which it was issued. If it is indeed a separate contract, then it would follow that it can be exercised separately even if a claim made pursuant to the underlying contract would have been time barred.
6.7 In Econ Piling Pte Ltd v Aviva General Insurance Pte Ltd[2006] 4 SLR 501, the plaintiff piling contractors were employed by the Jurong Town Corporation (‘JTC’) to supply and install bored piles for a building project. A performance bond was issued by the defendant insurers in favour of JTC to secure the plaintiff”s performance. The bond provided that in the event of default by the plaintiff, a sum representing loss and damage would be paid to JTC. This sum was subject to a stipulated maximum and was to be certified by JTC”s superintending officer. Following the plaintiff”s completion of the piling work on 25 November 1992, JTC”s building contractor proceeded with the building works. During the building works, defects and serious damage were discovered on the installed piles. JTC terminated the building contract and proceeded in arbitration against the building contractor. The plaintiff was not a party to the arbitration. On 31 March 2003, the arbitrator decided that liability for the defective piles attached not to the building contractor but to the plaintiff and JTC was ordered to pay the building contractor for the rectification of the damaged piles. JTC decided to retain the plaintiff”s retention sum under the piling contract and at the same time made a call on the performance bond. In the High Court ([2006] 3 SLR 165), the learned judge noted that the subject performance bond did not have an expiry date and considered the bond to be a separate contract from the piling contract. He proceeded to hold that the expiry of the limitation period for claims under the piling contract did not, therefore, preclude JTC from making a call under the performance bond.
6.8 On appeal, the Court of Appeal pointed out that the purpose of the performance bond was to secure the performance of the underlying piling contract. As any claim under the piling contact was time-barred, the plaintiff was entitled to restrain JTC from calling on the bond in the same way it could have pleaded limitation as a defence had JTC sued on the piling contract. JTC”s only recourse for its claim would be to the retention sum which it still held and for which a similar time bar precluded the plaintiff
from recovery. In the course of delivering the decision of the Court of Appeal, Lai Siu Chiu J further suggested that while, in...
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