Building and Construction Law

• Citation: (2013) 14 SAL Ann Rev 113
• 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.
• Date: 01 December 2013
• Published date: 01 December 2013

[NB: Part A was contributed by Chow Kok Fong; and Part B was contributed by Philip Chan.]

PART A

Contract formation

Essential terms

7.1 Frequently, in order to fast track the delivery of construction work, parties overlook the importance of settling important terms of contract before commencing work. Not surprisingly, among the ‘essential terms’ of a construction contract is the price for the works to be delivered, and the absence of an agreed price suggests that an agreement has not been reached.

7.2 This point was considered in Stone World Sdn Bhd v Engareh (S) Pte Ltd[2013] SGHC 22 (‘Stone World’), which concerned a subcontract to supply and fabricate marble and granite work for the Marina Bay Sands Project (‘MBS Project’). The plaintiff's claim was made on the basis that the subcontract was made partly orally and partly by a course of dealings premised on the actions and conduct of the parties. They submitted that the price for the work had been stated in the invoices. These invoices were partly paid by the defendant and this conduct constituted agreement with the price stated in the invoice. At the hearing, the plaintiff conceded that at the date when they alleged that the contract was made, the parties had not agreed the essential terms of the contract, ie, the rate to be charged.

7.3 In her judgment, Lai Siu Chiu J considered (at [28]) that this amounted to a ‘fatal flaw’ in the plaintiff's case. She referred to the House of Lords decision in May and Butcher, Ltd v The King[1934] 2 KB 17 at 21, where Viscount Dunedin said that ‘undoubtedly price is one of the essentials of sale, and if it is left still to be agreed between the parties, then there is no contract’. Thus, without solid independent evidence showing that the parties had agreed to further terms, the plaintiff's case that the essential term relating to the rate to be charged was determined by the invoices failed ‘on the basis that there was an incomplete agreement’: Stone World at [30].

Determining the scope of works

7.4 Another important term of a construction contract is the scope of works. One of the decisions affirms the general position that the absence of quantities and contract rates do not necessarily prevent the ascertainment of the scope of works. In Qwik Built-Tech International Pte Ltd v Acmes-Kings Corp Pte Ltd[2013] SGHC 278, one of the issues which had to be addressed by the High Court concerned the scope of works of a contract for the supply of a steel framing system. The contract was formed by way of a quotation. The contract was titled ‘Fabrication on Qwik Steel Framing Systems for Ex-Factory Only to the Building Works (Back of House) Project at Kuda Huraa Island, Male’. It was argued that the scope was uncertain because on its terms, ‘infinite amounts of steel’ could be supplied. In the High Court, Lionel Yee JC dismissed this argument. In his judgment, he referred to the letter of acceptance of the contract and noted that this expressly incorporated various correspondence and tender documents into the contract, including design drawings. The learned judicial commissioner said (at [24]):

To the extent that the Main Contract did not specify the unit rate or the quantity of certain materials or items to be provided, the Plaintiff's obligation would be to supply such quantities as would be required for the purposes of the Project as defined by the contract … In other words, for these items, the Main Contract was a lump-sum contract in that the Plaintiff undertook to perform defined work (viz, fabrication of steel framing systems for the Project) at a fixed price.

Frustration and force majeure

7.5 The High Court recently revisited the subject of frustration and force majeure. In Alliance Concrete Singapore Pte Ltd v Sato Kogyo (S) Pte Ltd[2013] SGHC 127 (‘Alliance Concrete’), a contractor entered into three separate agreements with the same supplier for the supply of ready mixed concrete (‘RMC’) for three construction projects. A year later, Indonesia imposed a ban on the export of sand to Singapore (‘the Sand Ban’). Sand is an essential ingredient for the production of RMC. To counter the Sand Ban, the Singapore Building and Construction Authority (‘BCA’) released sand from its stockpile to meet the needs of the industry. However, the price of sand rose because of, inter alia, higher transportation costs. Following these events, the supplier wrote to the contractor that the previously agreed prices were no longer applicable and that they were only prepared to supply RMC if the contractor signed new agreements to allow for an increase in prices. Before the court, the supplier contended that it was no longer bound by the contracts because of frustration and, in respect of two of the contracts, by the application of the force majeure clauses.

7.6 Tan Lee Meng J observed firstly that there was no express or implied term in the contracts that the sand for the RMC had to come from Indonesia although ‘it was common knowledge that Indonesia was the cheapest source of sand at the material time’: at [27]. Although the Sand Ban was unforeseen and unexpected, the learned judge considered (at [31]) that:

… what matters is whether or not the Sand Ban radically altered the nature of [the supplier's] obligations under the Contracts or merely made it more expensive or onerous for it to fulfil its obligations to [the contractor].

On the facts, the supplier was in a position to fulfil its obligations under the contracts notwithstanding the Sand Ban as it had surplus stocks and, further, sand was readily available for the projects from the BCA stockpile. The supplier ‘had not been rendered incapable of performing its obligations under the Contracts at the material time and nothing had occurred that radically altered the obligations undertaken by it under the Contracts’ although admittedly it had to incur higher costs if it continued to supply RMC to the contractor: at [40].

7.7 The court distinguished the facts in this case from that in Holcim (Singapore) Pte Ltd v Kwan Yong Construction Pte Ltd[2009] 2 SLR(R) 193 (‘Kwan Yong’) and Holcim (Singapore) Pte Ltd v Precise Development Pte Ltd[2011] 2 SLR 106 (‘Precise Development’). Tan J noted that in Kwan Yong, the contractor refused to assist the RMC supplier to apply for the release of sand from the BCA stockpile with the result that the supplier had no sand to produce RMC for the contractor: Alliance Concrete at [50]. The evidence before the court in Precise Development on the availability of sand from the BCA stockpile following the Sand Ban was quite different from the evidence presented in the present case: Alliance Concrete at [53].

Defects

Definition of defect

7.8 In Longyuan-Arrk (Macao) Pte Ltd v Show and Tell Productions Pte Ltd[2013] SGHC 160 (‘Longyuan-Arrk’) at [54], Belinda Ang Saw Ean J accepted the term ‘defective work’ to mean:

… work which fails to comply with the requirements of the contract and so is a breach of contract. For large construction or engineering contracts, this will mean work which does not conform to express descriptions or requirements, including any drawings or specifications, together with any implied terms as to its quality, workmanship, performance or design.

Defective goods and equipment

7.9 Defects in construction equipment are not immediately apparent and the courts have recognised that a buyer should be afforded a reasonable time period to test and use the equipment before acceptance. Within this period, the buyer is entitled to reject the equipment if it is found that the equipment is not of satisfactory quality. In Sun Qi v Syscon Pte Ltd[2013] SGHC 38 (‘Sun Qi’), the subject agreements relate to the sale and installation of three 30-ton overhead travelling cranes and two 20-ton overhead travelling cranes. The cranes were delivered and installed. The buyer was in the business of manufacturing precast concrete slabs and bomb shelters for Housing and Development Board projects. Under each agreement, they paid a deposit equivalent to 20% of the purchase price. Two months after installation, various problems began with the cranes and these escalated over the next four to five months. In particular, there were defects in connection with the cranes' (a) electrical motors; (b) electrical wiring and control systems; and (c) the metal used in the gears, axles, shafts, and gear box assembly. The buyer claimed that the seller had not responded to their calls for service and repair. The seller disputed that they had any obligation of repair and accused the buyer of using the breakdowns as a means of delaying payment. The undisputed facts were the $263,700 owing under the agreements by the buyer to the seller and that the cranes were defective. The question remaining was whether the buyer was entitled to withhold that payment, reject the cranes and rescind the agreements.

7.10 In his judgment, Quentin Loh J considered that the right of rejection and rescission arises from the breach of the implied condition of satisfactory quality. Under s 14(2) of the Sale of Goods Act (Cap 393, 1999 Rev Ed) (‘SGA’), this would give rise to a right of rejection, subject to the defence of acceptance by use. The general principle is that if a buyer is deemed to have accepted the goods, he loses his right to reject for breach of conditions but can only claim for damages: Eastern Supply Co v Kerr[1971–1973] SLR(R) 834. In this case, the buyer had used the three 30-ton cranes under the first agreement for five months and the first crane for 11 months, and retained the two 20-ton cranes on its work site without installation or commissioning for seven months. The seller relied on s 35(4) of the SGA which provides that the buyer ‘is also deemed to have accepted the goods when after the lapse of a reasonable time he retains the goods without intimating to the seller that he has rejected them’. On what constitutes a ‘reasonable time’ for...