CAA Technologies Pte Ltd v Newcon Builders Pte Ltd

• Jurisdiction: Singapore
• Judge: Judith Prakash JA,Tay Yong Kwang JA,Steven Chong JA
• Judgment Date: 18 September 2017
• Court: Court of Appeal (Singapore)
• Docket Number: Civil Appeal No 63 of 2016
• Date: 18 September 2017

CAA Technologies Pte Ltd

and

Newcon Builders Pte Ltd

[2017] SGCA 53

Judith Prakash JA, Tay Yong Kwang JA and Steven Chong JA

Civil Appeal No 63 of 2016

Court of Appeal

Building and Construction Law — Building and construction contracts — Subcontract for supply of hollow core slabs — Express term requiring subcontractor to follow site progress and including any revisions to construction programme schedule for subcontract works — Whether subcontractor also bound by subsequent delivery schedules issued by main contractor

Building and Construction Law — Terms — Implied terms — Subcontract for supply of hollow core slabs — Whether term of due diligence and expedition should be implied

Contract — Discharge — Ground for termination of contract — Whether subcontractor's multiple delays in supplying hollow core slabs amounted to repudiatory breach

Damages — Appeals — Causation — Whether subcontractor liable for main contractor's payment of liquidated damages to employer — Whether subcontractor liable for main contractor's costs of hiring crawler crane and renting system formwork

The respondent, Newcon Builders Pte Ltd (“Newcon”), was engaged by Jurong Town Corporation (“JTC”) as the main contractor for a medical technology hub project (“the Project”). On 2 November 2012, through a letter of intent (“the LOI”), Newcon subcontracted the production and delivery of hollow core slabs (“the Subcontract”) to the appellant, CAA Technologies Pte Ltd (“CAA”). Under cl 2 of the LOI, CAA “agreed to follow the site progress and including any revisions to construction programme schedule for [the] Sub-Contract Works”. It was implicit from the construction schedule attached to the LOI (“the LOI Schedule”) that CAA would have to deliver the first batch of the HCS before 26 February 2013. The LOI also envisaged that a letter of acceptance would be executed. On 11 January 2013, a letter of acceptance (“the LOA”) was sent from Newcon to CAA for signature. The LOA set out a “tentative delivery schedule” (“the LOA Delivery Schedule”) under which CAA would have to deliver the first batch of HCS by 18 February 2013. CAA never signed the LOA.

On 30 January 2013, Newcon asked CAA to submit the schedule for the first casting of the HCS, which JTC's representatives were required to witness. CAA did not respond to this e-mail or subsequent reminders sent by Newcon on 4, 7 and 8 February 2013. The first casting finally took place on 26 February 2013 and no HCS was delivered in February. On 1 March 2013, Newcon sent CAA an e-mail containing a revised schedule for the delivery of HCS (“the 1 March Delivery Schedule”), under which the first delivery date was 8 March 2013. However, delivery of the HCS only commenced on 16 March 2013, and the HCS delivered were not in conformity with the sequence or quantity stipulated in the 1 March Delivery Schedule. On 21 March 2013, Newcon sent CAA another e-mail containing a “proposed delivery schedule”, and proposed a meeting to go through the proposed delivery schedule. The meeting took place the very next day. Between 21 and 25 March 2015, more HCS were delivered, though only 12 of those delivered were suitable for the area required under the 1 March Delivery Schedule. On 23 March 2013, Newcon sent CAA an e-mail to put CAA on notice that Newcon was ready to receive these HCS, but CAA had failed to deliver. A formal notice of delay, purportedly served under cl 7.13(a) of the LOA was attached. The notice directed CAA to respond by 25 March 2013 on how CAA could expedite its delivery of HCS according to Newcon's schedule. On 25 March 2013, not having received any response from CAA, Newcon e-mailed CAA a letter of termination, purporting to terminate the Subcontract pursuant to clauses in the LOA.

CAA instituted proceedings against Newcon, claiming that Newcon had breached the Subcontract by failing to pay CAA sums due under the Subcontract, and in purporting to terminate the Subcontract without any proper basis. Newcon counterclaimed against CAA for breach of contract, claiming liquidated damages under cl 7.15 of the LOA, costs for engaging an alternative supplier of the HCS, reliance costs (eg, in hiring workers and equipment in anticipation of CAA's punctual delivery of the HCS, which included costs for the hiring of a crawler crane and the rental of system formworks) and liquidated damages that Newcon had to pay to JTC for the delay to the Project.

The main issue before the trial judge (“the Judge”) was whether Newcon was justified in terminating the Subcontract. Although the Judge found that the LOA itself did not have contractual effect, he found that the termination was justified on three broad bases. First, CAA breached cl 2 of the LOI, and this breach was a repudiatory breach under the common law (either because cl 2 of the LOI was a condition of the Subcontract, or because CAA's breach of cl 2 of the LOI deprived Newcon of substantially the whole benefit of the Subcontract). Second, CAA breached an implied term of due diligence and expedition (“the Due Diligence Implied Term”), and this breach was a repudiatory breach under common law for the same reasons. Third, CAA breached both the Due Diligence Implied Term, and an implied term that time was of the essence in relation to the Due Diligence Implied Term. The Judge granted most of Newcon's counterclaims, including claims for liquidated damages that Newcon paid to JTC, and costs incurred by Newcon for the crawler crane and the system formwork. CAA appealed against the decision.

Held, allowing the appeal in part:

(1) CAA breached cl 2 of the LOI because it failed to deliver the HCS in accordance with the LOA Delivery Schedule and the 1 March Delivery Schedule. Clause 2 of the LOI envisaged that Newcon would provide and CAA would follow such delivery schedules. This interpretation was consistent with CAA's witness's testimony on cl 2 of the LOI. CAA's argument that the delivery schedules were unreasonable could not be considered on appeal, for two reasons. First, the argument, despite being fact-sensitive in nature, was new and unpleaded. Second, issues of reasonableness typically arose for determination where the revisions to the construction programme sought to “accelerate” and thereby shorten the original schedule. Here, the time for delivery of the HCS in the 1 March Delivery Schedule was extended for the benefit of CAA, because of CAA's failure to deliver in accordance with the LOI Schedule and the LOA Delivery Schedule. Even though the 1 March Delivery Schedule partly changed the sequence of the HCS to be delivered, it in fact benefited CAA by extending the delivery date for both types of HCS: at [35], [37], [38], [40] and [41].

(2) Clause 2 of the LOI was not a condition of the Subcontract. The normal rule was that time was not of the essence in construction contracts, unless it was expressly so provided. The parties did not intend any breach of cl 2 of the LOI, however minor, to entitle Newcon to terminate the contract. The contract was 15 months long. In the context of a fairly long contract, it was not likely that the parties intended that any failure to meet any interim timeline would give Newcon the right to terminate. In fact, by issuing the 1 March Delivery Schedule after CAA had failed to meet the LOA Delivery Schedule, Newcon's conduct at that point in time demonstrated that it could still meet or at least cope with its obligations to JTC: at [44] to [47].

(3) Newcon was deprived of substantially the whole benefit of the Subcontract by CAA's breaches of cl 2 of the LOI. CAA's record of delayed deliveries and its conspicuous silence in the face of Newcon's repeated chasers evinced CAA's intention to perform the Subcontract in a manner substantially inconsistent with its contractual obligations. In addition, CAA's failure to meet the delivery schedules had contributed to the delay in the main contract works. Accordingly, Newcon was entitled to terminate the Subcontract as CAA's breaches of cl 2 of the LOI had substantially deprived Newcon of the whole benefit of the Subcontract. This finding alone was dispositive of the issue of whether Newcon was entitled to terminate the Subcontract: at [53], [55], and [59] to [61].

(4) The Judge erred in allowing CAA's claim for liquidated damages paid by Newcon to JTC for late completion of the Project. To succeed, Newcon had to prove that the liquidated damages were payable solely due to CAA's breaches. The mere fact that CAA was not able to establish that the delay was caused by other subcontractors did not per se prove that CAA was solely responsible for Newcon's payment of the liquidated damages to JTC. There was no evidence directly linking JTC's imposition of the liquidated damages to CAA's breaches. Further, the Judge failed to take into account the undisputed evidence that Eastern Pretech, the subcontractor hired by Newcon to replace CAA, was itself late and presumably caused some delay: at [83] to [86].

(5) The Judge was right in awarding Newcon the costs of hiring the crawler crane and the costs of renting the system formwork. CAA's arguments on these issues were only raised for the first time on appeal, and Newcon was prejudiced because its witnesses were not afforded the opportunity to explain: at [87] to [90].

[Observation: The question of whether a term of due diligence and expedition should be implied in fact into construction contracts was a controversial one. There was no clear authority for the implication of a term of due diligence and expedition in the construction context. Several explanations have been proffered for the courts' reluctance to imply a term of due diligence in the construction context, and two explanations were pertinent in the present case. First, parties had the ability to make such terms an express term of the contract. Due diligence clauses were commonly found in standard form construction contracts in Singapore. Given that parties to construction...