Interpro Engineering Pte Ltd v Sin Heng Construction Company Pte Ltd

• Jurisdiction: Singapore
• Judgment Date: 14 November 1997
• Date: 14 November 1997
• Docket Number: Suit No 821 of 1996
• Court: High Court (Singapore)

Interpro Engineering Pte Ltd

Plaintiff

and

Sin Heng Construction Co Pte Ltd

Defendant

[1997] SGHC 297

Choo Han Teck JC

Suit No 821 of 1996

High Court

Building and Construction Law–Subcontracts–“Pay when paid” provisions–Whether clause in contract was “pay when paid” provision–Contract–Contractual terms–Rules of construction

The plaintiff was a subcontractor to the defendant, who was in turn a subcontractor to Tavica. Clause 2 of the contract between the plaintiff and the defendant provided that the only profit that the defendant was entitled to retain was “5% of the builder's work of $4,650,000”, to be paid in accordance with c 17 of the contract. Clause 7 of the contract, the alleged “pay when paid” clause, provided that “as and when a progress payment for main contractors work is received by [the defendant] from [Tavica], [the defendant] shall promptly cause it to be banked into [the defendant's] bank account and shall immediately upon its clearance issue a cheque in [the plaintiff's] favour in the same sum as the progress payment received less 5% and any materials ordered on [the plaintiff's] behalf thereof …”. The defendant was not fully paid by Tavica, and paid the plaintiff the sum received less 5% of the contract sum of $4,650,000. The plaintiff sued for the balance outstanding.

Held, allowing the claim in part:

(1) In the construction of the terms of a contract, the literal interpretation rule was the first rule to be applied in any case unless there were grounds to indicate that an application of that rule would not yield any sensible meaning, or might lead to some absurd result which neither party could have intended: at [7].

(2) On a literal reading of cl 2 of the contract, it was clear that the defendant agreed to accept 5% of the stated amount of $4,650,000. There was no reference to an entitlement of a percentage of payment in respect of variation or additional works even though such works were contemplated in the contract. There was no reason to deviate from the literal interpretation of the words in cl 2: at [7].

(3) In the interpretation of a contractual clause, the court preferred to read the clause as it was, and if a clear meaning came through without the need to rely on any specific tool of interpretation, then that was the meaning the parties must have intended: at [15].

(4) Clauses such as cl 7 were common industry clauses which must be accepted by the parties with the knowledge of the attendant risks. The plain reading of cl 7 was that the plaintiff was not entitled to any progress payments until such payments were received by the defendant from Tavica. Thus, the plaintiff was not entitled to payment of the balance due until the defendant had been paid by Tavica: at [9], [16] and [20].

Brightside Mechanical & Electrical Services Group Ltd v Hyundai Engineering & Construction Co Ltd [1988] 1 SLR (R) 1; [1988] SLR 186 (refd)

Hong Kong Teakwood Works Ltd v Shui On Construction Co Ltd [1984] HKLR 235 (refd)

Iezzi Constructions Pty Ltd v Watkins Pacific (Qld) Pty Ltd [1995] 2 Qd R 350 (refd)

Pacific Lining Co Inc v Algernon-Blair Construction Co (USA) 819 F 2d 602 (5th Cir, 1987) (refd)

Schindler Lifts (Hong Kong) Ltd v Shui On Construction Co Ltd [1985] HKLR 118; [1985] 2 HKC 735 (refd)

K Bala Chandran and Parhana Moreta (Mallal & Namazie) for the plaintiff

Lawrence Hussein (Ng Thin Wah & Partners) for the defendant.

Choo Han Teck JC

1 This is a building contract claim for payment for work done by the plaintiffs under a subcontract with the defendants dated 10 November 1992. The defendants were themselves the subcontractors to Tavica Development Pte Ltd (“Tavica”). Tavica was employed by Empire Electronics Pte Ltd (“owners”) to construct a factory at Yishun Industrial Park A. The shareholders and directors of Tavica were also the directors and shareholders of the owners.

2 The defendants agreed with Tavica that it will build the said factory at its own cost in consideration of a sum of $7,025,000 as well as any sum due in respect of variation or additional works.

3 In turn, the defendants' contract with the plaintiffs provided, in cl 2, that:

The only total profit which [the defendants] shall be entitled to retain or make out of the contract shall be 5% of the builder's work of $4,650,000 and the [plaintiffs] shall be entitled to keep the remaining profit or shall bear the whole of any loss which may be made or incurred in the execution of the said works under the contract, which said profit is to be paid by [the plaintiffs] to [the defendants] in the manner as described in cl 7 below.

Clause 7 referred to above provides as follows:

1. (i) As and when a progress payment for main contractors [sic]work is received by [the defendants] from [Tavica], [the defendants] shall promptly cause it to be banked into [the defendant's] bank account and shall immediately upon its clearance issue a cheque in [the plaintiffs'] favour in the same sum as the progress...