Hiap Tian Soon Construction Pte Ltd and Another v Hola Development Pte Ltd and Another

• Judge: Lai Siu Chiu J
• Judgment Date: 31 October 2002
• Neutral Citation: [2002] SGHC 258
• Subject Matter: Delay in handing over project site,Defences,Whether unconscionable to call on bond based on original contract sum,Equitable set-off,Equity,Breach of obligation to proceed regularly and diligently,Whether necessary to inform plaintiff before exercising right to set-off,Guarantees and bonds,Building and construction contracts,Whether defendant made reasonable assessment of losses,Building and Construction Law,Revision of contract sum,Whether right to equitable set-off excluded by contract
• Defendant Counsel: Yang Yung Chong and Eugene Tan (Lee & Lee)
• Published date: 19 September 2003
• Court: High Court (Singapore)
• Plaintiff Counsel: David Ong Lian Min and Yak Jinq Wee (David Ong & Co)

Held, awarding interlocutory judgment for the first plaintiffs’ claim and part of the first defendants’ counterclaims,

(1) Hola had a valid claim for damages as Hiap Tian Soon had conceded liability for the damaged piles (see [12]-[16]).

(2) Hola’s right to an equitable set-off was not excluded by contract. In a building contract, one starts with the presumption that each party is to be entitled to all remedies arising by operation of law, including the right to set-off. However, it is open to parties to rebut that presumption by contrary provisions in the contract, provided that clear and unequivocal words are used. Here the parties did not craft additional provisions to import the concept of ‘temporary finality’ into the contract, and it can only be inferred that Hola’s right of set-off remained intact (see [17] – [32]).

(3) It was not necessary for Hola to inform Hiap Tian Soon that it intended to exercise the right of set-off. In any case, Hola’s General Manager, Lau Yaw Seng, had testified that he had orally informed Hiap Tian Soon of his intention to set off the amounts (see [33]).

(4) However, a party purporting to exercise the right of set-off must quantify his loss by means of a reasonable assessment made in good faith. In deciding what a reasonable assessment is, the court must take into account, inter alia, the quantum of the sum purported to be set-off and the complexity of the rectification works required. The set-off sum of $214,196.90 claimed by Hola was by no means a small amount, and they ought to have done more than to obtain two casual verbal estimates of the costs involved. Hola had accordingly failed to quantify their losses by means of a reasonable assessment, and could not rely on the defence of equitable set-off. As such, Hiap Tian Soon’s termination of the contract was valid and they were entitled to succeed on their claim (see [34] – [45]).

(5) Hola’s counterclaim for loss and damages arising from Hiap Tian Soon’s failure to proceed with reasonable diligence would be allowed. Hiap Tian Soon’s progress of work had consistently lagged behind the construction programme they had furnished to both Hola and the architects. Further, they had persisted in their delay despite reminders from Hola to expedite the work (see [46] – [55]).

(6) Hiap Tian Soon was however not liable for delay in handing over the site from 24 July 2001 to 27 September 2001, since Hola were themselves in delay in checking on the progress of the hand-over, and had also consented to the delayed hand over (see [56] – [59]).

(7) As the original contract price was revised downwards from $10,090,000 to $7,995,000, it was unconscionable of Hola to call on the performance bond in the sum of $1,090,000. The sum payable under the performance bond is subject to revision unless the parties have agreed that that amount is to be unaffected by any changes to the original contract sum. Hola was therefore only entitled to call on and demand payment on the performance bond in the sum of $799,500, based on 10% of the revised contract sum (see [60] - [67]).

(8) With regard to Hola’s counterclaim for failure to rectify the defective works, Hiap Tian Soon had generally conceded liability on the damaged piles and as such were liable for 158 piles as well as for piles subsequently discovered damaged in grids 8/B and 6/A (see [68]-[72]).

Case(s) referred to

Aurum Building Services (Pte) Ltd v Greatearth Construction Pte Ltd

[1994] 3 SLR 330 (refd)

Dauphin Offshore Engineering & Trading Pte Ltd v The Private Office of HRH Sheikh Sultan bin Khalifa

[2000] 1 SLR 657 (refd)

GHL Pte Ltd v Unitrack Building Construction Pte Ltd

[1999] 4 SLR 604 (folld)

Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd

[1974] AC 689 (folld)

Jurong Engineering Ltd v Paccan Building Technology Pte Ltd

[1999] 3 SLR 667 (folld)

Kum Leng General Contractor v Hytech Builders Pte Ltd

[1996] 1 SLR 571 (refd)

Lojan Properties Pte Ltd v Tropicon Contractors Pte Ltd

[1991] SLR 80 (refd)

OCWS Logistics v Soon Meng Construction Pte Ltd

[1999] 2 SLR 376 (folld)

Pacific Rim Investments Pte Ltd v Lam Seng Tiong & Anor

[1995] 3 SLR 1 (folld)

Pembanaan Leow Tuck Chui & Sons Sdn Bhd v Dr Leela’s Medical Centre Sdn Bhd

[1995] 2 MLJ 57 (distd)

The Nanfri; Federal Commerce & Navigation Co. Ltd v Molena Alpha Inc

[1978] 1 QB 927 (refd)

Judgment Cur Adv Vult

GROUNDS OF DECISION

The facts

1. By a contract dated 20 May 2000 (the Contract), the first defendants, Hola Development Pte Ltd (Hola) employed Hiap Tian Soon Construction Pte Ltd (the first plaintiffs) to construct a light industrial flatted factory with a basement car park at Ubi Avenue 1. The contract period commenced on 24 July 2000 and was to end 15 months later (in October 2001). The first plaintiffs commenced piling works on or about 21 July 2000 and these works were completed in September 2000. In reliance upon two interim payment certificates issued by Mr Cheong Jiong Chian from the firm of IMT Architects (the Architects), Interim Certificate Nos 1 and 2, certifying that the piles were satisfactorily installed, Hola made payment to the first plaintiffs for the installed piles.

2. The first plaintiffs then began excavation works using the ‘open cut method’ for the basement excavation without obtaining prior approval from ASE Designtec, the project structural engineers, or the Building and Construction Authority (BCA). The excavation works resulted in soil movement which in turn damaged the piles that had been installed, causing substantial delays to the project. By this time, Interim Certificate Nos. 3, 4, 5, 6 and 7 had already been issued. Upon realising the full extent of the defects, Hola’s General Manager, Mr Lau Yaw Seng (Lau) approached the Architects to take into consideration the defective piles and works by way of a retrospective valuation of all work done when issuing the subsequent interim certificates. The Architects however, declined to certify the cost of the rectification works in subsequent interim certificates. Consequently, Hola decided to withhold payment of the sums certified under the said interim certificates.

3. On 18 July 2001, the first plaintiffs terminated the Contract on the grounds of non-payment by Hola. Hola however asserted that the first plaintiffs' termination of the Contract was conduct amounting to an unlawful repudiation of the Contract and accepted this repudiation, bringing the Contract to an end. Hola called on the performance bond furnished by the first plaintiffs, which had been guaranteed by the second plaintiff Goh Kim Hock (Goh) who is the first plaintiffs' director.

4. On 22 October 2001, the first plaintiffs applied for an injunction to restrain Hola from receiving any monies under the performance bond pending trial of this action. The injunction was granted on 15 January 2002. On 8 February 2002, the first plaintiffs discontinued this action against the second defendant Lonpac Insurance Bhd, who had issued the performance bond in favour of Hola.

The pleadings

5. The first plaintiffs' claim against Hola was for a sum of $457,152.13, being the retention sum and the amount certified under several interim payment certificates issued by the Architects. This amount was disputed by Hola, who argued that the first plaintiffs had failed to take into consideration the fact that one of the interim payment certificates (No. 13), amounted to a negative certification to reflect items that were allegedly removed from the building site when the first plaintiffs vacated the premises. Hola argued therefore that the correct sum due under the payment certificates (as well as the retention sum) should only be $358,107.94.

6. Hola refused to make payment under the payment certificates on the ground that they had valid claims against the first plaintiffs for defective building work which they purported to set-off against the certified amount due under Interim Certificates Nos. 8, 9 and 10; this amounted to $214,196.90.

7. Further, Hola asserted various counterclaims inter alia, for their losses resulting from the first plaintiffs' alleged invalid determination as well as from the delay in the progress of their work and in the hand-over of the site. Finally, Hola argued that it was entitled to receive the full sum of $1,009,000.00 pursuant to the performance bond procured by the plaintiffs.

The issues

8. At the outset, the parties were informed that only liability would be determined at the trial and the quantum of damages would be decided by the Registrar at a later stage, if necessary.

The plaintiffs' case

9. The first issue which I had to consider was whether the first plaintiffs' claim against Hola should succeed.

10. To decide this point, it was necessary to consider whether the first plaintiffs' termination of the Contract on 18 July 2001 was valid. The first plaintiffs argued that it had terminated the Contract in accordance with cl 26(1)(a) of the Conditions of Contract on the ground that Hola had failed to pay monies due to them under Interim Certificates Nos. 8, 9 and 10. Clause 26(1)(a) of the Conditions of Contract provides:

Without prejudice to any other rights and remedies which the Contractor may possess, if

(a) The Employer does not pay to the Contractor the amount due on any certificate within the Period for Honouring Certificates named in the appendix to these Conditions and continues such default for seven days after receipt by registered post or recorded delivery of a notice from the Contractor stating that notice of determination under this Condition will be served if payment is not made within seven days from receipt thereof; or

(b) …

(c) …

(d) …

then the Contractors may thereupon by notice by registered post or recorded delivery to the Employer or Architect forthwith determine the employment of the Contractor under this Contract; provided that such notice shall not be given unreasonably or vexatiously.’

11. While conceding...