BUILDING CONSULTANTS’ EXPOSURE AND LIABILITY UNDER SINGAPORE LAW — FROM OCEAN FRONT TO HONG HUAT
| Citation | (2001) 13 SAcLJ 358 |
| Published date | 01 December 2001 |
| Date | 01 December 2001 |
1. This paper reviews the expanding role and responsibilities of building consultants under Singapore law, as it has developed over the last half decade or so. It will consider and analyse key Singapore court decisions from the landmark 1996 decision in Management Corporation Strata Title Plan No. 1272 v Ocean Front Pte Ltd1 (“Ocean Front”) to the recent 2001 judgment in Hiap Hong & Company Pte Ltd v Hong Huat Development Co (Pte Ltd)2 (“Hong Huat”).
2. This paper will consider, from a broad general perspective, the judicial and legislative trend over the last few years which has seen increasing liabilities being imposed on building consultants. The courts’ willingness to enlarge the consultants’ scope of responsibility is, it will be submitted, traceable to the perception that real property owners are entitled to, and deserving of, appropriate consumer protection. In the absence of any statutory or industry regime that affords them this protection, such as exists in England, the courts in Singapore have been willing to step into the breach by recognising causes of action rejected under English law.
3. Amongst the cases to be reviewed is the potentially far reaching decision of the Singapore Court of Appeal (“the CA”) in Hong Huat. This case has raised the prospect (although it has not finally determined it) of consultants becoming personally liable to contractors for delay (or possibly other default) in certifying payments.
4. The key milestone cases that will be considered here have all been in the area of pure economic loss. The starting point is the rejection of the House of Lords case of Murphy v Brentwood3 (“Murphy”) by the CA in its 1996 decision in Ocean Front.4Ocean Front was a landmark decision not only in terms of signalling the clear willingness of the CA to depart from the highest English authorities, but also in terms of the extension of liability it marked for the building industry. Three years later, the CA affirmed and further extended the position with their decision in Management Corporation 1075 v RSP Architects & Planners & Engineers5
(“Eastern Lagoon”). Eastern Lagoon extended liability for pure economic loss from a Management Corporation (“MC”)/Developer relationship (as in Ocean Front) to the MC/Building Consultant relationship in Eastern Lagoon.
5. This examination of the judicial and legislative trend will consider 3 areas:
(i) building consultants’ liabilities in negligence;
(ii) judicial imposition of objective standards of care within the industry; and
(iii) criminal liabilities of building consultants.
6. The most significant change in this area in the last 6 years has been the refusal of the Singapore courts to follow English cases limiting liability in tort for what is known as “pure economic loss”. Economic loss simply means financial/monetary loss, and pure economic loss means financial/ monetary loss not consequent upon physical injury or damage to property (apart from the negligently designed or built property itself).6
7. To illustrate the distinction between pure economic loss and other types of loss in a building scenario, consider the situation of a defectively designed/built external wall of a high rise block, part of which collapses from a height and crashes through the roof of a lower neighbouring block. The rest of the defective external wall stays in place. The repair to the defective external wall still in place is pure economic loss, because that financial expense is not the result of any physical damage to other property (apart from the damage to the external wall itself which renders it defective). The repair to the damaged neighbouring roof is however consequent upon physical damage to other property caused by the collapse of part of the external wall. That damage is not pure economic loss.
8. In the United Kingdom, one sees a restrictive approach to tortious liability in negligence for pure economic loss. Pure economic loss in the UK is recoverable only when the plaintiff can establish a “special relationship” with the defendant, such that the defendant can be said to have assumed responsibility for the plaintiff’s economic welfare.7 Where no such “special relationship” exists, English caselaw makes it clear that pure economic loss is irrecoverable however readily foreseeable that loss may be and however “unfair” the plaintiff’s plight may seem.8
9. The English position on tortious liability in the construction industry for pure economic loss is reflected by two leading English House of Lords decisions, D & F Estates Ltd & others v Church Commissioners of England9 (“D&F Estates”) and Murphy. These two cases illustrate the very considerable reluctance in England to allow claims for pure economic loss arising from negligence in construction/design.
10. The CA acknowledged in Ocean Front that if it were to follow the English position in Murphy and D&F Estates, the MC would fail in its claim against the developers.10 In that event, it must be open to serious doubt whether Eastern Lagoon would have ruled that building consultants in Singapore owe a duty of care outside the existing contractual relationship to third parties like the MC for defects causing pure economic loss.
11. These English cases deal with claims for pure economic loss by parties who were not in any contractual relationship, i.e. the claims were in tort. There are two important points to note about these cases.
(a) They do not concern (and therefore do not restrict) a claim for pure economic loss in a contractual relationship, e.g. a developer can claim pure economic loss rising from negligent construction/design by the contractor/professionals he engaged for the job, on the basis of a claim in contract, as can the first purchaser of any property vis-à-vis the developer-vendor.
(b) Parties outside a contractual relationship are not restricted by these cases for claims that do not involve pure economic loss, i.e. financial loss arising from physical injury or physical damage to property, other than the property negligently built/designed, e.g. if a building collapses causing physical injury to a person or his property (other than the negligently built/designed property), this damage would be recoverable from the building consultants on proof of negligence, i.e. there is no need to rely on either contract or found the cause of action in pure economic loss.
12. The English courts’ rationale for refusing to allow recovery of pure economic loss in tort is, in some measure, due to the fear that allowing such claims would be tantamount to requiring building consultants to effectively provide an indefinitely transmissible warranty of quality of
their buildings to all who buy them. As was observed by the House of Lords in D&F Estates:
“To make him so liable would be to impose upon him for the benefit of those with whom he had no contractual relationship the obligation of one who warranted the quality of the [work] as regards materials, workmanship and fitness for purpose.”11
13. The building industry’s response in the UK to the “seismic changes”12 brought about by D&F Estates and Murphy was the widespread use of the Duty of Care Deed (“the DCD”). The DCD provided a contractual duty of care from the builders/consultants to subsequent purchasers, by way of an assignable deed. The DCD was designed to plug the gap created by D&F Estates and Murphy which refused to recognise a tortious duty of care in such situations. The DCD substituted a duty of care in contract where the English Courts held none existed in tort. Through the device of the DCD, subsequent purchasers could acquire, by assignment, a direct remedy against the builders/consultants in respect of any failure to exercise reasonable skill and care (which was the usual standard imposed by DCDs) in matters within their respective scopes of work.
14. This development was not mirrored in Singapore in any significant way. Adopting Murphy and D&F Estates in Singapore would consequently, given the absence of a scheme similar to the DCD, leave a party outside the immediate contractual framework without remedy for pure economic loss from defective design or construction. The CA’s decision to reject Murphy and D&F Estates, and allow claims by the MC in Ocean Front and Eastern Lagoon, appears to stem in part from a recognition that public policy dictated the availability of some degree of consumer protection. This is based on 2 observations by the CA in Eastern Lagoon.
15. First, the CA considered that the permanence of the structure and the significant financial investment that real property represented in Singapore constituted part of the “simple realities … which, to our mind, are instrumental in dictating the expectations and degree of reliance placed upon the persons developing, building or designing the structure which stands upon it.”13 Secondly, the CA, in the paragraph immediately following this reference to the parties’ expectations and reliance, highlighted the existence of the 1972 Defective Premises Act in England
which, the CA observed, “provided for consumer protection in respect of building defects”.14 The CA considered this an “important [factor] to bear in mind” when considering D&F Estates and Murphy.
16. Implicit in these observations is the acknowledgement that Singapore consumers are entitled to expect some degree of protection in this area. Parliament has considered and dealt with this in England through the Defective Premises Act, thus providing some explanation for the reluctance of the House of Lords in D&F Estates and Murphy to expand on the protection afforded by Parliament.
17. In the absence of any protection (statutory, like the Defective Premises Act or industry generated, like the DCD) in Singapore, the CA appears to have felt far less (if at...
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