Building and Construction Law

Citation(2012) 13 SAL Ann Rev 92
Published date01 December 2012
Date01 December 2012

7.1 The Court of Appeal delivered a number of decisions during the year under review which should be followed with considerable interest by the construction industry. In Lee Wee Lick Terence v Chua Say Eng[2013] 1 SLR 401 (‘Chua Say Eng’), the Court of Appeal considered the jurisdiction of an adjudicator appointed pursuant to the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) (‘SOP Act’) and the construction of the timeline stipulations in both the SOP Act and the Building and Construction Industry Security of Payment Regulations (Cap 30B, Rg 1, 2006 Rev Ed) (‘SOP Regulations’). In BS Mount Sophia Pte Ltd v Join-Aim Pte Ltd[2012] 3 SLR 352 (‘BS Mount Sophia Pte Ltd’), the Court of Appeal clarified the concept of unconscionability in relation to the operation of on-demand performance bonds and the evidential threshold required to support an application for injunctive relief on this ground.

7.2 In Store+Deliver+Logistics Pte Ltd v Chin Siew Gim[2012] SGHC 89 (‘Chin Siew Gim’), the High Court examined, inter alia, the obligations of an architect in a design and build contract and in Kosui Singapore Pte Ltd v Kamigumi Singapore Pte Ltd[2012] SGHC 43 (‘Kosui Singapore Pte Ltd’), an opportunity was taken by the court to re-visit the distinction between a lump contract and a measurement contract.

Architect: Liability for breach

7.3 An interesting decision was delivered which examined the basis on which damages may be determined in respect of a claim by an owner against an architect for breach in the discharge of his duties. In Chin Siew Gim, an architect was appointed to design and supervise the reconstruction of an existing warehouse into a new warehouse cum office. On the instruction of the owner and despite the protestations of the architect, the main contract was awarded a contractor at a price considered by the architect to be too low. Nevertheless, Works commenced and the architect certified that the Works were completed on 15 October 2003. The contractor was served with notice of a list of defects. On 27 December 2003, a fire broke out in the warehouse, causing extensive damage to the completed Works. The damage caused by the fire was undertaken by a third party and paid for by the insurers. Subsequently, disputes arose between the owner and the contractor in respect of the final account and these were referred to arbitration. The arbitrator awarded the contractor a net sum of $331,097.55 after allowing part of the amount counterclaimed by the owner. The action in the case was taken out by the owner against the architect on the ground that the architect had been in breach of contract and negligence in the performance of the contract.

7.4 Lee Seiu Kin J had to consider a number of heads of claims brought against the architect by the owner. First, he dismissed (at [24]) the owner's claim for the recovery of fees paid to the architect. He held that the warehouse was built and statutory approval had been obtained for it to be used as a warehouse. There was therefore no failure of consideration for the fees.

7.5 Lee J also rejected (at [26]) the owner's claim for $170,000 in respect of liquidated damages which they had failed to recover before the arbitrator. In the arbitration, the claim was made on the basis of delay certified by the architect. The learned judge observed that the arbitrator had determined that the contractor was entitled to an extension of time for the full period of delay and that as a result, the contractor was not liable for any liquidated damages. There was no evidence that the architect had caused this delay and the learned judge concluded that the architect could not be liable for losses due to the delayed completion. In any case, the liquidated damages clause was not a term of the contract between the owner and the architect; hence, even if the owner had suffered loss caused by the architect, he could only succeed if actual loss was proved.

7.6 The court allowed (at [30]) a claim of $95,000 in respect of the architect's failure to provide for a ‘superflat’ floor in the design or the contract documents prepared by him. The ‘superflat’ floor was considered necessary to support the required racking system of the warehouse. Lee J found that the owner had made known this requirement to the architect and that at inception the use of the racking system was envisaged. While the learned judge considered that the inclusion of the ‘superflat’ floor might have led the contractor to put in a higher price for the contract, the architect did not give evidence of this and he therefore allowed the owner the full amount claimed for this item.

7.7 The owner claimed a further sum on the basis that the architect failed to expressly insist on the installation ‘Parsec’ radiant barrier in the building contract but, instead, had permitted the building contract to provide for both Parsec and ‘Sisalation’ although the latter was not suitable for use in the particular warehouse. As a result, the arbitrator found that in installing the ‘Sisalation’ radiant barrier, the contractor complied with the terms of the contract. Lee J held (at [36]) that the architect was in breach of his duty ‘to properly specify the correct material’ for the roof insulation. However, as the owner failed to discharge his burden of proof of the quantum of damages, the court only awarded a nominal amount of $1 for this head of claim.

7.8 The court also found that the architect failed to deliver the as-built drawings and awarded the sum of $4,500 in respect of this breach. Finally, the court disallowed the owner's claim in respect of a sum of money which he had received following a call on the performance bond but which the arbitrator ordered to be re-paid to the contractor. This was because the arbitrator's order merely affirmed the correct position to be taken on the final account.

Lump sum or measurement contract

7.9 One of the decisions during the year under the review provides a useful instance of the matters to be considered in characterising a contract as a measurement contract. In Kosui Singapore Pte Ltd (above, para 7.2), the defendant main contractor secured a contract for the construction of a theme park consisting of eight attractions and employed the plaintiff subcontractor to supply the labour for the project. The subcontractor had quoted its price on the basis of a fax which set out in a spreadsheet the number and types of worker, the number of days' work for each part of the project, the number of man hours required for each category of worker and a multiple of 1.5 to adjust for the productivity difference between Japanese and Singapore workers. These particulars were subsequently captured in a bill of quantities and priced by the subcontractor. There were delays to the project and it was common ground that this was not attributable in any way to the subcontractor. However, because of this, there was a very low take-up rate of man hours that had been catered for and unutilised labour in the first few months of the contract. This was followed by a subsequent need to accelerate Works to make up for lost time. The subcontractor put in more workers and its workers often worked overtime. The contract period overran the scheduled end date.

7.10 One of the issues before the court was whether the subcontract was a lump sum contract or a measurement contract. The main contractor argued that this was a true lump sum contract in the sense that a price for the construction and installation work for the eight attractions was fixed and agreed upon. The subcontractor contended that the contract was a measurement contract for the following reasons. First, payment was to be on a measurement basis. Secondly, if it was a lump sum contract, it would not have been necessary to make detailed calculations for the estimation of man-days. The main contractor countered by pointing out that since interim invoices were rendered on a milestone basis, this was a clear indication of a fixed price contract. No interim claims were made for additional man hours, and there was no mechanism for calculation of costs for the additional supply of labour and additional man hours incurred. The subcontractor disagreed, pointing out that it had no experience at all in such Works and was pricing its work on the main contractor's estimates. In these circumstances, they could hardly have agreed to a true lump sum basis which may have turned out to be quite inadequate to cover their costs.

7.11 Quentin Loh J noted (at [31]) that one of the terms in the subcontractor's quotation stated unambiguously that the main contractors ‘will be charged if there are changes which are more than your original [bill of quantities]’. He considered that the meaning of these words is clear and unambiguous (at [31]):

… This is clearly not the wording of a lump sum or fixed price contract where the contractor has promised to carry out and complete a set piece of work for a fixed sum agreed in advance.

7.12 In addition, the contract provided, inter alia, the man days required per category of worker for each attraction, their respective unit rates, the normal eight-hour day charge and a two-hour overtime charge per day, which details would not be consistent with the subcontract being a lump sum contract (at [31]). An interesting consideration which the learned judge considered pertinent in the context of the case was that a lump sum contract is normally used where the construction design is well developed and where the quantities can be estimated with some degree of accuracy. On the evidence, he found that this was not the situation in this case because the type of installations to which the subcontract related had not been erected before in Singapore.

Establishing liability for payment

7.13 In Republic Airconditioning (S) Pte Ltd v Shinsung Eng Co Ltd (Singapore Branch)[2012] 2 SLR 601 (‘Republic Airconditioning (S)...

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