Building and Construction Law

• Date: 01 December 2020
• Published date: 01 December 2020
• Citation: (2020) 21 SAL Ann Rev 172
• Publication year: 2020
• Author: CHOW Kok Fong PBM; LLB (Hons), BSc (Bldg) (Hons), MBA; FRICS, FCIArb; FCIS, FSIArb; Chartered Arbitrator, Chartered Quantity Surveyor; Senior Adjudicator. Christopher CHUAH LLB (Hons), DipSurv; FCIArb; FSIArb; FCIOB; Senior Accredited Specialist (Building and Construction Law); Senior Adjudicator; Advocate and Solicitor (Singapore). Mohan PILLAY LLB (Hons), LLM; FCIArb; FSIArb; Senior Accredited Specialist (Building and Construction Law); Chartered Arbitrator; Senior Adjudicator; Advocate and Solicitor (Singapore).

I. Contract formation

A. Scope of works and price as essential terms of a contract

7.1 Contract formation issues are frequently encountered in the industry when parties are prepared to proceed before all the terms are settled. An instructive analysis of the contract formation process is found in the judgment of the High Court in Ramo Industries Pte Ltd v DLE Solutions Pte Ltd.1 In that case, a subcontractor (“Ramo”) employed a structural steel fabricator (“DLE”) to supply and fabricate the structural steel for the project (“steel supply contract”). Ramo had issued a letter of award (“LOA”) on 20 January 2016. This was signed by DLE but DLE submitted that, at the point of signing the LOA, parties were still negotiating the contract price and that the LOA was therefore not part of the contract between the parties. DLE explained that the purpose of the LOA was to convince the upstream parties that Ramo had formally engaged a steel supplier for the project.

7.2 The preamble of the LOA stated that “[this] letter shall constitute a binding agreement” between the parties. Clause 1 described the scope of the works. Clause 14 stipulated the liquidated damages rate at RM 10,750 per day and cl 16 provided for retention money to be held against the

gross value of each invoice. The schedule of works annexed to the LOA stated that the quantity of work to be supplied was 1,295mt but the rate and the price were not stated. Ramo was said to have orally assured DLE that the LOA was “only temporary pending finalisation of the actual written agreement between the parties”. By an e-mail of 4 February 2016, DLE offered to supply the steel at the price of US$1,100/mt, but sometime before 14 February 2016 parties orally agreed to the rate of US$960/mt and another US$60 for delivery to the site (“Oral Price Agreement”).

7.3 Chan Seng Onn J approved the statements of principle on contract formation in construction contracts. An agreement as to the parties, price, time and description of works (or scope of works) is normally the minimum necessary to make the contract commercially workable. However, the absence of any of these terms — essential as they are — does not mean that no agreement has been concluded.2 He described the typical contract formation process in these terms:3

In the ordinary course of business, it is often the case that the scope of works/ services are first discussed, such as the specifications and quality of the steel structural materials in the present case, before the unit price can be agreed upon because the price depends substantially on (a) how extensive the scope of works/services is; (b) how stringent the specifications are; and (c) how onerous the contractual obligations are. As Mr Chow Kok Fong rightly notes in Law and Practice of Construction Contracts at para 1.057: ‘the description of the works, or what is normally referred to as the scope of works, is critically important. … The terms relating to price and time can only be understood in relation to the scope of works.’ Logic dictates that parties would usually negotiate over the price only after they have agreed upon the scope of works/services.

7.4 On these principles, Chan J held that the contract before him could not have crystallised at the time when the parties signed the LOA since the parties had not yet reached agreement on the price, which was clearly an essential term. However, when parties made the Oral Price Agreement, this was sufficient for the formation of the contract. Taking into account the factual chronology of events, the learned judge found that the contract crystallised when the Oral Price Agreement was made some time before 14 February 2016.4

7.5 However, he did not accept DLE's submission that the LOA was a mere formality. Both the preamble of the LOA stating that “[this] letter

shall constitute a binding agreement”5 and the fact that DLE signed and stamped on each page of the LOA suggested that, while the LOA was an incomplete agreement, the terms on the scope of works were agreed upon, subject to the finalisation of the price. The brevity of the purchase order (“PO”) and the letters of credit provided weight to the finding that the LOA was part of the contract. He noted that neither PO nor the letters of credit made any reference to any drawings for the fabrication of the steel structures or the quality of the steel. The learned judge concluded that the contract before him was constituted by the LOA, the Oral Price Agreement and the PO, with the letters of credit being undisputed to be a further part of the agreement.

B. Incorporation of document to be prepared

7.6 In GA Engineering Pte Ltd v Sun Moon Construction Pte Ltd6 (“GA Engineering”), a subcontract for the design, supply and installation of various furnishings included a glass curtain wall system, aluminium and glazing works. After the works had been completed and handed over, the main contractor brought an action to recover for defective works.

7.7 One of the subcontractor's defences was that the “glass specifications” were not incorporated into the subcontract. The subcontractor made three arguments on this point. First, the subcontractor alleged that the main contractor's reliance was an afterthought. Second, the subcontractor argued that it was never given a copy of the main contract. Finally, the subcontractor pointed out that the glass specifications came into existence only after the subcontract.

7.8 Vinodh Coomaraswamy J decided that the first and second arguments were not relevant to the issue of incorporation. On the third argument, the learned judge observed that there is no principle of law that a document which comes into existence only after a contract is formed cannot be incorporated by reference into that contract:7

It all depends on the parties' intention, objectively ascertained from the terms of their contract. Indeed, ‘it is not uncommon for parties to first agree on a set of essential terms which the parties may be bound by as a matter of law and on the basis of which they may act, even while there may be ongoing discussions on the incorporation of other usually detailed terms …”

7.9 The following principles emerged from the learned judge's review of the authorities on the subject:

(a) The law “adopts an objective approach towards questions of contractual formation and the incorporation of terms”.8

(b) Whether a set of terms has been incorporated turns on ascertaining the parties' objective intentions from their correspondence and conduct assessed in light of the relevant background. This includes the particular industry in which the parties operate, the character of the document which contains the terms in question as well as the course of dealings between the parties.9

(c) In the absence of fraud or misrepresentation, a party is bound by all the terms of a contract that it signs, even if that party did not read or understand those terms.10

(d) It is established that parties may first agree to be bound by a set of essential terms and act on that basis, even while there may be ongoing discussions on the incorporation of other usually detailed terms.11

7.10 In the present case, the learned judge concluded that it was the parties' objective intention to incorporate into the subcontract the specifications relating to the works which were contained in the main contract, whenever that might come into existence:12

The plaintiff subcontracted the Works to the defendant as glazing specialists. The clear reference to ‘all provisions of the main contract … applicable to the Sub-contract works’ and ‘all main contract … specifications in cll 8.1 and 24.1(b) of the Subcontract respectively puts it beyond doubt that the parties did intend for certain specifications further to govern the specialised nature of the Works, namely, the design, supply and installation of the glass curtain wall.

C. Where a term is void for uncertainty

7.11 One of the subcontractor's arguments in GA Engineering Pte Ltd related to cl 2.6 of the subcontract. Clause 2.6 reads:13

Submission of design, shop drawings, as-built drawings, installation details, samples, colour chart and method statement to the Architect/us for approval as and when required by us.

7.12 The subcontractor submitted that a literal reading of the phrase “as and when required” suggests that the main contractor was entitled to ask for as-built drawings at any time, even when goods and materials had yet to be installed or even before any works were carried out. The learned judge considered that this argument does not mean that the clause is uncertain:14

The most that can be said is that cl 2.6 is capable of operating unreasonably or uncommercially. Even then, a contextual interpretation of cl 2.6, bolstered by industry practice, suffices to alleviate any unreasonable or uncommercial consequences which may arise from a literal interpretation.

7.13 He observed that as-built drawings reflect the completed state of works in a building and are required for submission to the relevant authorities to obtain statutory approvals. It is consistent with the commercial purpose that as-built drawings can and will ordinarily be asked for and prepared only after construction works are completed.15 Accordingly, the learned judge considered that, applying the contextual approach, the phrase “as and when required” should be interpreted:16

… to refer to any time after the construction works are completed, save for circumstances which are commonly accepted in the industry as exceptional. There is therefore no basis for the argument that clause 2.6 is uncertain and unenforceable.

II. Delay

A. Liability for delay

7.14 In Comfort Management Pte Ltd v OGSP Engineering Pte Ltd17 (“Comfort (No 2)”), under what was essentially a sub-subcontract, OGSP

was employed to carry out air-conditioning and mechanical ventilation works which formed part of the works of an upstream...