Building and Construction Law

Published date01 December 2011
Date01 December 2011

7.1 The year under review saw a number of cases which reiterated a number of well-established principles. These included the principles relating to contract formation, repudiation, extension of time, act of prevention and liquidated damages. It also ushered in an important development on the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed).

Contract formation

7.2 One of the decisions delivered during the year provided an interesting demonstration of a principled approach to the analysis of contract formation in relation to the placement of a subcontract. In Fongsoon Engineering (S) Pte Ltd v Kensteel Engineering Pte Ltd[2011] SGHC 82 (Fongsoon Engineering), a contractor on 24 January 2007 invited a subcontractor to quote for the fabrication and erection of the structure for a switchgear building, attaching the terms and conditions and the schedule of work. The subcontractor was specifically asked to review the terms and conditions and to revert with comments. On 30 January 2007, the subcontractor wrote to the main contractor quoting a total price of S$480,000 and requiring a deposit of 20%. On 9 February 2007, the contractor e-mailed a letter of intent to the subcontractor purporting to award the works to the subcontractor at a subcontract price of S$400,000, 10% of which was to be paid upon signature and the remainder by way of progress payments.

7.3 On 10 February 2007, the subcontractor replied accepting the contract subject to additional terms. These provided for 10% of the subcontract price to be paid upon signature and 20% fortnightly progressive payments for the remaining Contract [sic] Sum. On 12 February 2007, the contractor wrote to the subcontractor:

Please note my comments below in blue. Hope all clear and agreeable. Pls concur.

Among the text inserted in blue was an additional stipulation that progress payments were to depend on progress and that the earliest date for payment would be two weeks from invoices.

7.4 In her judgment, Belinda Ang Saw Ean J pointed out that the usage of letters of intent that give rise to some limited rights and liabilities is common in the construction business but that the full effect of any letter of intent depends entirely on the objective meaning of the language used as well as the context in which it was given: Fongsoon Engineering at [12]. In reviewing the events relating to the formation of the subcontract, she decided that:

(a) the contractor's offer was constituted by the e-mail, Letter of Intent and the STC [standard terms of contract]: Fongsoon Engineering at [13]; and

(b) the subcontractor's e-mail reply of 10 February 2007 was a counter-offer which was accepted by the contractor on 12 February 2007.

Her Honour also decided that the text in blue did not contain counter proposals, but rather the contractor's attempts at stating their understanding of the ambiguous and imprecisely worded terms put forward by the subcontractor and that, accordingly, a concluded and binding contract was therefore formed between the parties on 12 February 2007.

7.5 Consequently, when the subcontractor on 7 March 2007 signed the contract and altered the delivery time from 10 weeks end of April 2007 to 10 weeks from total receipt of raw materials, Ang J held that this was an attempt by the subcontractor to change the completion date unilaterally. In her view, this was ineffective as it was inserted well after the contract had been concluded, and without the prior knowledge and consent of the defendant: Fongsoon Engineering at [21].

Repudiation of contract

7.6 In Chua Tian Chu v Chin Bay Ching[2011] SGHC 126 (Chua Tian Chu), one of the issues before the court was whether a party's failure to pay sums which fell due under the terms of the contract amounted to repudiation. In that case, the plaintiffs were the purchasers and the defendants were vendors as well as developers of a residential property. Under the terms of the agreement, the defendants were required to deliver vacant possession of the property to the plaintiffs by delivering a notice to take possession and this was stipulated as being not later than 31st December 2007. Vacant possession was not delivered until 6 January 2009. As at 15 January 2009, the plaintiffs had completed the payment of 20% of the purchase price in accordance with the schedule of progress payments. Under the agreement, a further 70% was payable after receipt by the plaintiff of the notice to take possession with a photographic copy of the temporary occupation permit issued by the Building and Construction Authority. On 30 January 2009, following receipt of the notice to take possession, the plaintiffs paid a sum representing 70% of the purchase price, but relying on the terms of the agreement, deducted therefrom a sum representing the amount which had allegedly accrued as liquidated damages for delay. On 2 February 2009, the defendants gave the plaintiffs notice to complete the sale and sought payment of a further S$418,000.00. The plaintiffs withheld this further sum on the basis that the property was not fit for occupation and demanded rectification works to be carried out immediately. The defendants elected to accept what they considered to be the plaintiffs' repudiation and rescinded the agreement.

7.7 Andrew Ang J held that the defendants had wrongfully rescinded the agreement by mischaracterising the plaintiffs' conduct as a repudiation of the agreement. Whilst the plaintiffs' decision to withhold the payments due gave rise to the defendants' election to rescind the agreement, this action on the part of the plaintiffs should not be viewed in isolation. The plaintiffs had evinced that they were willing to complete the sale and purchase of the property, albeit under protest. Since the plaintiffs were entitled under the agreement to deduct liquidated damages and rectification costs, the plaintiffs were merely exercising their right of set-off: Chua Tian Chu at [25].

Time at large

7.8 Several of the decisions delivered by the High Court during the year addressed the circumstances under which time may be set at large in a construction contract. The significance of time at large bears directly on a contractor's liability for liquidated damages. The decisions during the year affirmed the established principle that a contractor relying on this premise to avoid liability for liquidated damages must firstly prove the existence of an act of prevention and secondly show that this had resulted in a delay in completion of the works.

Act of prevention

7.9 The issue was considered by Andrew Ang J in Chua Tian Chu. The plaintiff-purchaser in that case had contributed to the delay as a result of amendments and alterations to the works ordered by them and the question was whether this had led to time being set at large. In determining this issue, Ang J reviewed the leading authorities on the subject and cited (Chua Tian Chu at [59]) with approval the following statement of principle by Lord Esher MR in Dodd v ChurtonELR[1897] 1 QB 562 at 566:

if the building owner has ordered extra work beyond that specified by the original contract which has necessarily increased the time requisite for finishing the work, he is thereby disentitled to claim the penalties for non-completion provided by the contract. The reason for that rule is that otherwise a most unreasonable burden would be imposed upon the contractor.

In the course of his judgment, the learned judge referred to authorities which suggested that an act of prevention which renders time at large may include events which may constitute quite legitimate conduct such as ordering of extra work as well as failures or omissions on the part of the employer to fulfil certain express or implied obligations including inadequate instructions or providing inadequate access to the site: Chua Tian Chu at [60][61]. It should be noted that the agreement in this case, unlike a normal construction contract based on one of the major standard forms of contract such as the Singapore Institute of Architect Standard Form, did not contain an extension of time clause which would have preserved the operation of the liquidated damages clause in the face of an act of prevention.

7.10 The subject of an act of prevention was also raised before Judith Prakash J in Lim Chin San Contractors Pte Ltd v LW Infrastructure Pte Ltd[2011] SGHC 162 (Lim Chin San). In the course of her judgment, her Honour referred to her earlier decision of Yap Boon Keng Sonny v Pacific Prince International Pte Ltd[2009] 1 SLR(R) 385 where at [34] she had adopted the description of the expression in Chow Kok Fong, Law and Practice of Construction Contracts (Sweet & Maxwell Asia, 3rd Ed, 2004) at p 401:

An act of prevention operates to prevent, impede or otherwise make it more difficult for a contractor to complete the works by the date stipulated in the contract.

This definition of the expression was also cited with approval by Andrew Ang J in Chua Tian Chu at [62].

Delay in completion of the works

7.11 In Lim Chin San, it was emphasised that before an act of prevention had the effect of setting time at large it must be shown that the act had resulted in a delay to the completion of the works. In that case, under the terms of a subcontract, the subcontractor was required to complete the subcontract works by 2 August 2002. The works would be deemed to have been practically completed upon receipt of a Temporary Occupation Permit. On 22 May 2002, both parties agreed to extend the period for completion by three months to 31 October 2002. Four days were awarded by the arbitrator for exceptionally adverse weather, therefore extending the completion date to 4 November 2002. On 12 May 2003, the main contractor terminated the subcontract on the basis of the subcontractor's failure to proceed regularly and diligently with the subcontract works. The main contractor eventually engaged...

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