Building and Construction Law

Date01 December 2007
Published date01 December 2007
AuthorCHOW 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.

6.1 During the year, several decisions were delivered which clarified important aspects of the law affecting the construction industry. First, in Sunny Metal & Engineering Pte Ltd v Ng Khim Ming Eric[2007] 3 SLR 782, a case involving an architect in a design and build contract, the Court of Appeal discussed the issue of proximity for liability in tort in relation to a separate relationship in contract and the subject of causation and remoteness of damage. Next in Spandeck Engineering (S) Pte Ltd v Defence Science & Technology Agency[2007] 4 SLR 100, a case dealing with the liability of a certifier in a construction contract, the Court of Appeal clarified several of the more difficult issues relating to the principles of foreseeability and the application of the two-stage test laid down in Anns v Merton London Borough Council[1978] AC 728 in determining liability for economic loss. Thirdly in Tiong Seng Contractors (Pte) Ltd v Chuan Lim Construction Pte Ltd[2007] 4 SLR 364, the High Court heard the first case arising from a claim for final payment under the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed). Finally in Anwar Siraj v Teo Hee Lai Building Construction Pte Ltd[2007] 2 SLR 500, the High Court was afforded a rare opportunity to review the arbitration provisions of the Singapore Institute of Architects Standard Form of Building Contract.

Contractual arrangements
Supplemental agreements

6.2 During the course of a construction contract, parties may vary the terms of the original stipulations relating to the scope of the contract, specifications or the time for completion of the works. These

and other changes are normally introduced by way of a supplemental agreement. The operation of a supplemental agreement presupposes that there is a principal contract. Consequently, a party seeking to enforce the terms of such an agreement cannot at the same time dispute the existence of the principal agreement

6.3 In Ho Pak Kim Realty Co Pte Ltd v Revitech Pte Ltd[2007] SGHC 194, the plaintiff was employed by the defendant as main contractors to construct a block of apartments. In this action, the plaintiff claimed that of a certified amount of $4.11m, they were only paid $3.34m. The defendant had issued a letter of award for the contract on 21 November 2002 but the parties only signed what purportedly constituted the other contract documents on 20 November 2003. The contract documents were set out as Volumes 1 and 2 of the tender documents and incorporated the terms and conditions of the lump sum version of the Singapore Institute of Architects Standard Form (1990 edition). Under the terms of the letter of award, the completion date of the works would have been 11 March 2004. On 2 December 2003, the parties executed a Supplemental Agreement the effect of which was to extend the completion date to 28 August 2004 and to waive liquidated damages for the period 12 March 2004 to 28 August 2004. In their pleadings, the plaintiff alleged that, in so far as the original contract was concerned, the letter of award was the only document that governed the contract between the parties until 20 November 2003 and that, except for the letter of award, they had neither seen nor signed other contract documents and that, accordingly, they did not form part of the contract between the parties. The plaintiff”s case, therefore, was that the subject contract was partly oral and partly written and that the effect of the oral terms was that ten items were either omitted or materially changed. These included the omission of items such as site supervision, provision of ground instrumentation and design of temporary works as well as changes in the specifications.

6.4 In her judgment, Lai Siu Chiu J noted that first, there was no dispute that Volume I of the contract documents was signed by the plaintiff and the evidence showed that it was part of the tender documents which had been examined by their representative. Secondly, the plaintiff had accepted that the Supplemental Agreement formed part of the contract between the parties. This being the case, the learned judge held that the plaintiff could not maintain that Volume I of the tender documents did not apply to the contract since logically, ‘there cannot be a Supplemental Agreement unless there is a principal agreement in the first place’ (at [72], [73]). Consequently, by applying the parol evidence rule as set out in s 94 of the Evidence Act (Cap 97, 1997 Rev Ed), the plaintiff could not introduce oral terms which contradicted the terms of Volume I.

‘Back-to-back’ subcontracts

6.5 The expression ‘back-to-back’ is frequently used within the industry in relation to the incorporation of the terms of one contract into the particular contract in which the expression is used. The effect of this expression was considered by the High Court in GIB Automation Pte Ltd v Deluge Fire Protection (SEA) Pte Ltd[2007] 2 SLR 918. In that case, the defendant was the main contractor appointed to provide a fire protection system for the construction of a prison complex. The defendant appointed the plaintiff to supply, test and commission a fire alarm system. The letter of award of the sub-contract had stated that ‘[a]ny variation works, omission or addition, shall be back to back basis. Such variation claim shall be base [sic] on your unit price break down as per your quotation to us in appendix A.’ The plaintiff”s claim was founded on its assertion that the defendant had represented to them that the contract would be awarded as a fixed lump sum contract so that the contract sum of $860,000 would be payable regardless of whether there were any additions or omissions to the plaintiff”s scope of work.

6.6 In his judgment, Sundaresh Menon JC noted that while the words ‘back to back basis’ were not the ‘most felicitous’, he considered that they were ‘adequate in my view to convey the sense that any variations would be valued and taken into account if and to the extent a like adjustment was made in the defendant”s own contract.’ (at [7]). He further noted that the express terms contained in the letter of award ‘make it clear that additions and omissions were liable to be valued and that this would be on the basis of the unit prices supplied by the plaintiff’ (at [7]). Accordingly, he ruled that the plaintiff”s assertion that the contract sum would be payable regardless of whether there was any addition or omission ‘was inconsistent with the express terms of the letter of award and no evidence was led to suggest that the letter of award had been consensually varied or in what circumstances this had transpired’ (at [8]).

6.7 In the course of his judgment, the learned judge reviewed the usage of the expression and observed (at [45]):

A clause providing for a particular contract to be entered into on a “back-to-back” basis to another is commonly found in construction sub-contracts in Singapore. To the extent this is intended to incorporate all the terms of some other contract into that containing the back-to-back stipulation, it may not always be successful. The commercial reality as I have noted above at [35] is that a party seeking to invoke the clause is usually an intermediate contractor who has undertaken certain obligations under a head contract and then attempts to pass on those obligations to a sub-contractor. However, it would be overly simplistic to conclude that such a desire can always be so easily achieved.

6.8 Menon JC suggested that such clauses are not to be taken as ‘a term of art’ and their defect depends on the construction to be accorded to ‘the sub-contract document as a whole’ (at [35]). He emphasised that notwithstanding the use of the expression, the approach to construction is to determine the intentions of the parties objectively and that, accordingly, ‘a back-to-back provision is to be construed in the light of the factual matrix known to the parties at the time they contracted’ (at [49]). Earlier (at [48]) he said:

The weight to be attached to the fact that a party had not seen the main contract must be considered in the light of the factual matrix as a whole. It may not be decisive if the circumstances are such that the terms said to be affected by the back-to-back provision are matters that would fall within the general appreciation and knowledge of the parties to the subcontract. On the other hand, if the terms are highly technical and particular, it may be more important. Further, consideration should be given to the subcontractor”s ability to ask for a copy of the main contract. It may also be overcome with sufficiently explicit language making it clear that the head contract was being incorporated and that the subcontractor was deemed to have acquainted itself with its terms.

Success fee agreements

6.9 A subject which has received considerable publicity some years ago concerns whether the prohibition against champerty should continue to apply to legal advisers and claim consultants in construction disputes. The Court of Appeal had to consider this subject in Otech Pakistan Pvt Ltd v Clough Engineering Ltd[2007] 1 SLR 989. In its judgment, the Court of Appeal approved the definition of the term ‘champerty’ as found in Cheshire, Fifoot and Furmston”s Law of Contract (2nd Singapore and Malaysian Ed, 1998) at 639:

[C]hamperty exists where one party agrees to aid another to bring a claim on the basis that the person who gives the aid shall receive a share of what may be recovered in the action. Public policy is offended by such an agreement because of its tendency to pervert the due course of justice.

6.10 The court also cited the following passage from the judgment of Lord Denning in Re Trepca Mines Ltd (No 2)[1963] Ch 199 at 219—220:

The reason why the common law condemns champerty is because of the abuses to which it may give rise. The common law fears that the champertous maintainer might be tempted...

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