Broadley Construction Pte Ltd v Alacran Design Pte Ltd

CourtCourt of Appeal (Singapore)
JudgeJudith Prakash JA
Judgment Date16 May 2018
Neutral Citation[2018] SGCA 25
Citation[2018] SGCA 25
Published date19 May 2018
Plaintiff CounselEugene Thuraisingam and Syazana Binte Yahya (Eugene Thuraisingam LLP)
Defendant CounselNg Hweelon and Ibsen Low (Veritas Law Corporation)
Docket NumberCivil Appeal No 139 of 2017
Hearing Date20 March 2018
Date16 May 2018
Subject MatterMisrepresentation,Contract,Fraudulent,Unilateral mistake
Steven Chong JA (delivering the judgment of the court):

The conclusion of most written agreements is typically preceded by oral discussions and/or negotiations. In situations where the parties contemplate that the agreement would eventually be reduced into writing, not infrequently, the written text may vary or even contradict what parties believed was orally agreed. To the question as to what terms would govern the contractual relationship between the parties, the answer would almost invariably be the express terms of the written agreement. Should the position be any different if one of the parties, in the course of the oral discussions, indicates a different understanding of the agreement and the other party remains silent in the face of such indication? On these bare facts, the position may not be altogether clear as a host of imponderables may affect the outcome.

This dispute concerned a case where the party who allegedly remained silent had, following the meeting at which the alleged understanding was conveyed, produced a draft written agreement which contained a clause in direct contradiction to the other party’s alleged understanding. Instead of rejecting the clause or seeking clarification, that other party signed the written agreement without any reservation or qualification. Under these circumstances, is it open to that other party to renounce the terms of the written agreement on the basis that by keeping silent, the party who drafted the written agreement is precluded from relying on the written text on account of fraudulent misrepresentation and/or unilateral mistake? For the reasons set out below, we hold that the answer is in the negative.

Facts

In July 2013, the appellant, Broadley Construction Pte Ltd (“Broadley”), entered into a contract with the respondent, Alacran Design Pte Ltd (“Alacran”), for Alacran to supply equipment for the construction of a residential development project (“the Contract”). Broadley was Singbuild Pte Ltd (“Singbuild”)’s sub-contractor and used the equipment supplied under the Contract to fulfill its obligations under its contract with Singbuild.

Broadley began defaulting on payments to Alacran in 2015 because Singbuild, in turn, was not paying Broadley. Mr Lin Zhonghan (“Mr Lin”), Alacran’s former business development manager, chased Mr Govindaraju Elanthiriyan (“Mr Govin”), Broadley’s managing director, for the payments. They met twice to discuss Broadley’s payment of the outstanding sum of $423,407.34 (“the Outstanding Sum”). They first met in August 2015 (“the First Meeting”) and again three months later in November 2015 (“the Second Meeting”). Certain facts regarding the meetings are disputed. For the First Meeting, it is not disputed that Broadley issued post-dated cheques (for September 2015) to Alacran for the Outstanding Sum (“the Cheques”), to be encashed by Alacran only after Singbuild had paid Alacran. What is disputed is who suggested the issuance of the Cheques. Mr Lin and Mr Govin point to each other.

The main factual dispute arises from the Second Meeting: Mr Lin, representing Alacran, claims that (i) Mr Govin proposed that an undertaking be issued to authorise Singbuild to pay the Outstanding Sum directly to Alacran from the money that Singbuild owed Broadley; (ii) Mr Lin informed Mr Govin that it did not matter who paid the Outstanding Sum as long as it was paid, but if Singbuild defaulted on the payment, Broadley would remain liable for any outstanding amount; and (iii) Mr Govin remained silent in response to Mr Lin’s statement in (ii). Mr Govin, representing Broadley, alleges that (i) Mr Lin asked Mr Govin to issue an undertaking as Alacran wished to collect the Outstanding Sum directly from Singbuild; (ii) Mr Lin said that he would return the Cheques to Broadley once the undertaking was signed; and (iii) Mr Govin agreed to prepare an undertaking and informed Mr Lin that the undertaking would absolve Broadley from all further liability to Alacran. For reasons we will go into later (see [9] below), the Judge found that Mr Lin’s version was more likely on a balance of probabilities.

Two days after the Second Meeting, on 6 November 2015, Broadley (through one Ms Chatterly, a senior quantity surveyor at Broadley) sent a draft of the undertaking to Mr Lin via email. The email stated “please find draft Undertaking letter which we [Broadley] will send to SingBuild”.1 The undertaking is a one-page letter (“the Undertaking”), on Broadley’s letterhead and addressed to Singbuild. When the draft of the Undertaking was sent to Mr Lin on 6 November 2015, it had not been signed by any of the parties. Broadley (through Mr Govin) and Singbuild signed the Undertaking at a subsequent site meeting. Mr Lin then took the Undertaking back to his office and signed it on behalf of Alacran.2 No changes whatsoever were made to the text of the Undertaking. It read as follows:

RE: UNDERTAKING LETTER FOR SWITCHES & ELV SYSTEMS OUTSTANDING BALANCE

We, [Broadley] … has appointed [Alacran] … to supply … [equipment] for the above mentioned project. Two payments has been issued to Alacran, and to date we have outstanding balance amounting to S$423,407.35, including GST. This amount is final and has been agreed with Alacran and no further claims shall be submitted in relation to this contract.

We, [Broadley] … hereby authorises [Singbuild] … to pay on our behalf, the total outstanding balance due to Alacran, which sums to S$423,407.35 including GST, details as attached and agreed by the supplier. We agree that this amount be deducted from our Remaining Contract Amount with Singbuild Pte Ltd.

This agreement has been agreed by [Singbuild], [Broadley] and [Alacran]. This letter indemnifies [Broadley], and is free of any responsibility and is no longer liable with regards to the outstanding balance with [Alacran].

Both Mr Lin and Mr Govin state that the Undertaking was meant to reflect what they had discussed at the Second Meeting. Mr Lin’s evidence was that he believed that the Undertaking only authorised Singbuild to pay on behalf of Broadley without releasing Broadley from liability for the Outstanding Sum, whereas Mr Govin’s evidence was that the purpose of the Undertaking was for Singbuild to assume all of Broadley’s liability to Alacran and to absolve Broadley from all liability to Alacran. In other words, Mr Govin understood the Undertaking as effecting an assignment of the debt, ie, the Outstanding Sum.

The Judge’s decision

Eventually, Singbuild did not pay Alacran and Alacran sued Broadley for the Outstanding Sum. Broadley predictably relied on the Undertaking, arguing that it was absolved from any liability in respect of the Outstanding Sum to Alacran. In response, Alacran pleaded that:3 the Undertaking did not have the effect of releasing Broadley from its obligation to pay, but was merely a letter authorising Singbuild to pay Alacran the Outstanding Sum owed to them by Broadley; the Undertaking was not a valid agreement because there was a total failure of consideration; if the Undertaking was a valid agreement, Alacran entered into it by its unilateral mistake of a kind sufficient to vitiate the Undertaking; Alacran was not aware of the nature and effect of the Undertaking and could rely on the doctrine of non est factum; and/or Alacran had been induced into entering into the Undertaking based on Broadley’s fraudulent misrepresentation that the Undertaking would not absolve Broadley of its liability.

The Judge found in favour of Alacran. Her judgment is published as Alacran Design Pte Ltd v Broadley Construction Pte Ltd [2017] SGHC 162 (“the Judgment”). On the facts, she found that since both parties accepted that the Undertaking arose out of the discussions from the Second Meeting, she had to first determine what transpired at the Second Meeting. She preferred Mr Lin’s account of the events which took place at the Second Meeting as summarised at [5(a)] above for the following reasons:4 Mr Lin’s testimony had been consistent and credible. In particular, his evidence that it was Mr Govin who had suggested the Undertaking appeared in his affidavit filed for summary judgment well before the trial. This was not refuted by Mr Govin until Mr Govin was cross-examined. Alacran’s conduct in retaining the Cheques was consistent with Mr Lin’s account that Alacran would look to Broadley if Singbuild did not pay Alacran. Mr Govin’s evidence that he had agreed with Mr Lin that Singbuild would assume full responsibility for the Outstanding Sum and Broadley would be absolved of all liability to pay the same, and that this would be reflected in the Undertaking (drafted by Broadley), did not comport with the actual terms of the Undertaking. Singbuild’s role, as expressed in the Undertaking, was instead limited only to be authorised to pay the Outstanding Sum to Alacran on Broadley’s behalf. Mr Govin’s evidence had been inconsistent. He first stated that he was the one who mentioned to Mr Lin that Broadley would be absolved of all liability if Singbuild were to assume it in place of Broadley, but then said that it was one Mr L N Ramesh, who also worked for Broadley, who mentioned it. Mr Ramesh was not called to testify. Mr Govin’s version of the agreement made no commercial sense as Alacran already knew that Singbuild was facing cash flow problems and it was unlikely that Alacran would agree to absolve Broadley of its liability and seek recourse against Singbuild instead.

Based on the above factual findings, the Judge found that the Undertaking was a valid agreement in the sense that the parties intended to create legal relations and sufficient consideration was furnished.5 But the Undertaking could be rescinded for fraudulent misrepresentation or alternatively, it was void for unilateral mistake. She found that Mr Govin had, through his silence at the Second Meeting, fraudulently misrepresented to Mr Lin that...

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