Building and Construction Law
| Published date | 01 December 2014 |
| Date | 01 December 2014 |
| Citation | (2014) 15 SAL Ann Rev 102 |
| Author | CHOW Kok Fong LLB (Hons), BSc (Bldg) (Hons), MBA; FRICS, FCIArb, FCIS, FSIArb; Chartered Arbitrator, Chartered Quantity Surveyor. Philip CHAN Chuen Fye Dip Bldg, LLB (Hons), LLM, PhD, Dip Ed; FSIArb; Barrister-at-law (Middle Temple), Advocate and Solicitor (Singapore); Associate Professor, National University of Singapore. [NB: Part A was contributed by Chow Kok Fong; and Part B was contributed by Philip Chan.] |
7.1 Among the subjects considered by the courts during the year are the authority of certifiers in construction contracts, the interpretation of endeavours clauses, novation and the determination of rectification costs. In addition, several decisions on the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) (SOP Act)are noteworthy. These include a case which settled the issue of repeat claims and a decision which affirmed that the best result for a respondent in adjudication is that no part of the claimed amount is payable.
7.2 Endeavours provisions may be provided in a construction contract to address situations where performance outcomes are subject to a degree of uncertainty. An important decision on the subject delivered by the Court of Appeal during the year considered how a party may satisfy its obligations in the context of dynamic and often unforeseen circumstances in which these clauses are expected to operate.
7.3 In KS Energy Services Ltd v BR Energy(M) Sdn Bhd[2014] 2 SLR 905 (KS Energy Services), BR Energy (M) Sdn Bhd (BRE) was contracted to charter an oil rig to Petronas Carigali Sdn Bhd (Petronas). The rig was described as a workover pulling unit (WPU). After the original rig builder pulled out of the project, BRE approached KS Energy Services Ltd (KSE) to find a rig builder to construct the WPU. KSE arranged for Oderco Inc (Oderco) to replace the original builder, following which BRE and KSE formed a joint venture company to charter the rig. Petronas was assured by BRE that notwithstanding the replacement of the original rig builder, the WPU would be constructed according to specifications and that the WPU would be delivered within six months. The joint venture agreement between KSE and BRE contained an endeavours clause which provided as follows:
[KSE] shall use all reasonable endeavours to procure the WPU is constructed and ready for delivery in Abu Dhabi or other location specified by [KSE] within six months after the Charter Agreement is executed.
7.4 Oderco did not construct and deliver the WPU on time. Petronas terminated the charter agreement with BRE. BRE in turn terminated the joint venture agreement with KSE on the ground that KSE had breached the endeavours clause. The primary issue before the court was whether KSE had discharged its obligation to use all reasonable endeavours to procure Odercos construction of the WPU in accordance with the terms of the clause. On the facts, it was clear that Oderco s performance was woeful and KSE had to keep close tabs on the goings-on: at [126].
7.5 V K Rajah JA, in delivering the judgment of the Court of Appeal, noted that while the phrase all reasonable endeavours had not previously been considered in Singapore, the interpretation of the phrase best endeavours had been authoritatively set out in an earlier Court of Appeal decision in Travista Development Pte Ltd v Tan Kim Swee Augustine[2008] 2 SLR(R) 474 (Travista). He agreed with the judge below that, despite some authorities pointing otherwise, there is little or no relevant difference between the standard constituted by the formulation all reasonable endeavours and that constituted by the formulation best endeavours (KS Energy Services at [62]):
We therefore hold that the test for determining whether an all reasonable endeavours obligation has been fulfilled should ordinarily be the same as the test for determining whether a best endeavours obligation has been fulfilled, ie, the Travista test should apply in both situations. This test should ordinarily apply even if the parties use a variation of the phrase all reasonable endeavours or best endeavours (as the case may be).
7.6 However, the court considered that the Travista test may not be entirely applicable where the contract stipulates the steps which are to be taken in connection with the endeavours clause (KS Energy Services at [62]):
In that scenario, the inquiry would be centred on whether the stipulated steps have been taken. It also bears emphasis that whether an all reasonable endeavours or best endeavours obligation has been fulfilled can only be ascertained through a fact-intensive inquiry.
7.7 Rajah JA endorsed the following guidelines in determining the operation of both all reasonable endeavours and best endeavours clauses (KS Energy Services at [93]):
(a) Such clauses require the obligor to go on using endeavours until the point is reached when all reasonable endeavours have been exhausted (see [Yewbelle Ltd v London Green Developments Ltd, Knightsbridge Green Ltd[2007] 1 EGLR 137 (Yewbelle (HC))] at [123] ) or to do all that it reasonably could (see [Jet2.com Ltd v Blackpool Airport Ltd[2011] EWHC 1529 (Comm) (Jet2com)] at [31]).
(b) The obligor need only do that which has a significant (see [A P Stephen v Scottish Boatowners Mutual Insurance Association[1989] 1 Lloyd's Rep 535 (The Talisman)]) or real prospect of success (see Yewbelle (HC) and [Yewbelle Ltd v London Green Developments Ltd, Knightsbridge Green Ltd[2007] 2 EGLR 152 (Yewbelle (CA))]) in procuring the contractually-stipulated outcome.
(c) If there is an insuperable obstacle to procuring the contractually-stipulated outcome, the obligor is not required to do anything more to overcome other problems which also stood in the way of procuring that outcome but which might have been resolved (see Yewbelle (CA)).
(d) The obligor is not always required to sacrifice its own commercial interests in satisfaction of its obligations (see [CPC Group Ltd v Qatari Diar Real Estate Investment Co[2010] EWHC 1535]), but it may be required to do so where the nature and terms of the contract indicate that it is in the parties' contemplation that the obligor should make such sacrifice (see [Jet2.com]).
(e) An obligor cannot just sit back and say that it could not reasonably have done more to procure the contractually-stipulated outcome in cases where, if it had asked the obligee, it might have discovered that there were other steps which could reasonably have been taken (see [EDI Central Ltd v National Car Parks Ltd[2011] SLT 75 (EDI)]).
(f) Once the obligee points to certain steps which the obligor could have taken to procure the contractually-stipulated outcome, the burden ordinarily shifts to the obligor to show that it took those steps, or that those steps were not reasonably required, or that those steps would have been bound to fail (see EDI).
7.8 In this case, the Court of Appeal held that KSE had duly discharged the diligence expected of the subject endeavours clause when it asked for recovery schedules as construction of the WPU fell behind schedule and when periodic inspections coupled with constant and robustly worded correspondence proved ineffective, they deployed a supervisor to Oderco's yard: KS Energy Services at [126].
7.9 One of the issues considered in KS Energy Services (above, para 7.3) was whether the alleged breach by KSE that it failed to procure the construction of the WPU by the date stipulated in the contract led Petronas to terminate its contract with BRE. On the facts, the Court of Appeal thought that the alleged loss did not occur immediately upon the non-delivery of the WPU. In the course of its judgment, the court reiterated (at [139]) that it is almost too obvious to state as a principle, but damages may only be awarded if the breach of contract is shown to have caused the loss sustained by the aggrieved party. To sustain its case, BRE had to demonstrate on a balance of probabilities that KSE's breach of cl 6.2 of the joint venture agreement had led to that termination: at [145]. The court held (at [148]) that this had not been established in this case, particularly given that the effective cause of delay was the time taken for the delivery, installation and commissioning of an important item of equipment, the Variable Frequency Drive.
7.10 Both the authority of a certifier (such as an architect in a building contract) and the effect of certificates derive from the terms of the underlying contract. The matters certified for purposes of interim payments (or progress payments) frequently include variations and these may turn on the validity of instructions issued in respect of the variation work. Issues relating to certificates and instructions are at the core of most construction disputes. In recent years, there have been relatively few opportunities for the courts to address these issues because they are generally disposed of in arbitration or adjudication under the SOP Act. Since the courts have generally refrained from disturbing the substantive findings of these proceedings, these issues have not been visited by the courts in recent years. During the year under review, the issues surfaced before the High Court in a case which is expected to attract considerable interest from the construction industry.
7.11 In H P Construction & Engineering Pte Ltd v Chin Ivan[2014]3 SLR 1318 (H P Construction), the building contract incorporated the Singapore Institute of Architects (SIA) Articles and Conditions of Building Contract (Lump Sum Contract) (7th Ed, April 2005) (SIA Conditions). The architect issued two instructions which approved a list of variations, including items relating to preliminaries for extension of time and certain items described as Disputed Items arising from the alleged extension of the defects liability period. The contractor raised a payment claim of $1,171,646.37 in respect of which a sum of $614,375 related to the disputed items. The quantity surveyor allowed a sum of $120,000 in respect of the claim for extended preliminaries but did not provide any sum in respect of the Disputed Items. On the basis of these valuations, the architect issued a progress payment certificate for $321,383.94. A year later, in response to the...
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