Management Corporation Strata Title Plan No 1933 v Liang Huat Aluminium Ltd

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 25 May 2001
• Neutral Citation: [2001] SGCA 41
• Docket Number: Civil Appeal No 125 of 2000
• Date: 25 May 2001
• Published date: 19 September 2003
• Year: 2001
• Plaintiff Counsel: Lee Hwee Kiam Anthony and Chew Mei Lin Lynette (Bih Li & Lee)
• Citation: [2001] SGCA 41
• Defendant Counsel: Goh Phai Cheng SC and Cheah Kok Lim (Ang & Partners)
• Court: Court of Appeal (Singapore)
• Subject Matter: Construction of deed,When cause of action arises,Credit and Security,Facts relevant to construction of deed,Principles of construction,Guarantees and indemnities,Whether deed in nature of indemnity or warranty,Contractual terms,Whether breach of obligations under indemnity gives rise to action for damages at law,Contracts of indemnity,Contract

JUDGMENT:

Cur Adv Vult

Introduction

1. This appeal arose from a claim by the appellant, The Management Corporation Strata Title Plan No. 1933 (the MC), which is the management corporation constituted under the Land Titles (Strata) Act (Cap 158, 1999 ed) for the condominium known as Domer Park (the Condominium), against the respondents, Liang Huat Aluminium Ltd (Liang Huat) for damages for breach of contract under a deed made on 27 October 1997. The High Court dismissed the claim on the ground that the claim by the MC under the deed is one for an indemnity and such claim has not arisen, and that the MC is not entitled to claim damages for breach of contract. Against the decision, this appeal is now brought.

Background

2. The material facts that gave rise to the appeal are briefly these. The Condominium was developed and built by Hong Leong Holdings Ltd (Hong Leong). The main contractor engaged by Hong Leong to construct and complete the Condominium was Comtech Corporation Pte Ltd (Comtech). Comtech in turn engaged Liang Huat as the sub-contractor for the design, supply and installation of aluminium windows and glazing works (collectively called the Works) to be carried out in the Condominium. In respect of the Works, Comtech and Liang Huat executed a deed called INDEMNITY FOR ALUMINUM & GLAZING WORKS dated 27 October 1997 (the Deed) in favour of Hong Leong. We shall refer to the relevant terms of this Deed in detail in a moment.

3. After the completion of the Works, defects appeared and these were drawn to the attention of Liang Huat. On 20 March 1999, their representatives visited the site and inspected the defects complained of. However, Liang Huat refused to accept responsibility for such defects, and no rectification or remedial works were carried out by them. There was a further inspection of the Works on 11 May 1999, and after that inspection Liang Huat agreed to submit proposals to resolve the problem, but no proposal was submitted.

Legal proceedings

4. On 30 August 1999, Hong Leong by a deed of assignment assigned to the MC, inter alia, all their interests, rights and benefits under the Deed. On 15 September 1999, the solicitors for the MC wrote to Liang Huat demanding that they rectify the defects complained of, but no rectification at all was carried out. Some five months later, on 21 February 2000, a formal notice was given by the solicitors again requiring Liang Huat to rectify the defects, and a copy of this notice was sent to Comtech. Liang Huat continued to default in rectifying the defective works, and in consequence legal proceedings were brought against Comtech and Liang Huat claiming damages for breach of contract. Before the trial took place, Comtech went into liquidation, and the proceedings were then continued only against Liang Huat.

5. The trial judge found (a) that both the window handles and the powder coating of the window frames in the Condominium were defective; (b) that Liang Huat were liable to make good these defects under the Deed; and (c) that the defects were not caused by any act or omission of the MC, their servants or agents. Nor were they the result of any fair wear and tear. Turning to the terms of the Deed, the judge held that in substance the deed was in the nature of an indemnity and that was consistent with the title of the Deed. On that basis, he held that, as Liang Huat had failed to make good the defects, the MC was entitled under cl 4 of the Deed to proceed with rectifying and making good such defects and claim reimbursement for the costs and expenses incurred from Comtech and Liang Huat. However, the MC itself had not proceeded with rectifying and making good the defects and expended any monies therefor. On that ground, he held that the claim for reimbursement had not arisen. He further held that, on the construction of the terms of the Deed, the MC is not entitled to claim damages for breach of contract. Accordingly, he dismissed the MCs claim.

The appeal

6. The appeal essentially turns on the construction of the relevant provisions of the Deed. In approaching this issue, it is necessary to consider the following matters. First, the Deed bears the caption INDEMNITY FOR ALUMINIUM & GLAZING WORKS. This is only a title or a label. In our opinion, not too much importance should be attached to the title or label of the instrument. In construing the Deed, we should look at the substance thereof rather than the title or label. The textbook, Interpretation of Contracts (2^nd edn) by Ken Lewison, QC at 8.07 states:

The nature of the relationship between the parties is to be determined by the substance of the obligations into which they have entered; and if their contract is described by a label inconsistent with that substance, or if the parties incorrectly state what they believe to be the effect in law of their contract, the label or the statement will be rejected.

7. The second matter, which should be considered, is that the Deed by paragraph 3 states:

3. The Contractor [Comtech] and the Supplier [Liang Huat] have agreed to jointly and severally indemnify the Employer in the manner hereinafter appearing, against any failure of any defects in the workmanship, quality of materials or deterioration in the works to be applied to the Premiums.

This paragraph is relied heavily by Liang Huat in support of their contention that, on the true construction of the Deed, it is an indemnity. We have two observations on this point. First, a recital in an instrument can only assist in the construction of the substantive terms thereof; it cannot override or control the operation of the substantive terms, where such terms are clear and unambiguous. In Walsh v Trevanion and Anor (1850) 15 QB 733, 751, Patteson J laid down the following rule of construction on the recital in relation to the operative part of a deed:

[W]hen the words in the operative part of a deed of conveyance are clear and unambiguous, they cannot be controlled by the recitals or other parts of the deed. On the other hand, when those words are of doubtful meaning, the recitals and other parts of the deed may be used as a test to discover the intention of the parties, and to fix the true meaning of those words.

Further, the relationship of a recital in a deed to its operative part was explained by Lord Esher MR in Ex parte Dawes, re Moon (1886) 17 QBD 275, 286 as follows:

Now there are three rules to the construction of such an instrument. If the recitals are clear and the operative part is ambiguous, the recitals govern the construction. If the recitals are ambiguous, and the operative part is clear, the operative part must prevail. If both the recitals and operative part are clear, but they are inconsistent with each other, the operative part is to be preferred.

Secondly, the manner or the extent of the indemnity as recited in paragraph 3 of the Deed is expressed to be in the manner provided in the operative provisions of the Deed. It is therefore the operative provisions of the Deed to which we should have regard.

8. The third matter to bear in mind is that the court should place itself in thought in the same factual matrix as that in which the parties were at the time Deed was executed: per Lord Wilberforce in Reardon Smith Line Ltd v Yngvar Hansen-Tangen (trading as H E Hansen-Tangen) [1976] 1 WLR 989, 997. In an earlier passage of his speech in that case, Lord Wilberforce said at pp 995-996:

No contracts are made in a vacuum: there is always a setting in which they have to be placed. The nature of what is legitimate to have regard to is usually described as "the surrounding circumstances" but this phrase is imprecise: it can be illustrated but hardly defined. In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.

..

It is often said that, in order to be admissible in aid of construction, these extrinsic facts must be within the knowledge of both parties to the contract, but this requirement should not be stated in too narrow a sense. When one speaks of the intention of the parties to the contract, one is speaking objectively the parties cannot themselves give direct evidence of what their intention was and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties. Similarly when one is speaking of aim, or object, or commercial purpose, one is speaking objectively of what reasonable persons would have in mind in the situation of the parties.

9. In this case, the background facts were that Hong Leong engaged Comtech as the main contractor to construct the Condominium, and Liang Huat were engaged by Comtech as the sub-contractor to carry out the design, supply and installation of the aluminium windows and glazing works in the Condominium. In connection with such works, Hong Leong required certain undertakings from Comtech and Liang Huat as to the making good of any defects in the Works and required Liang Huat to be joined as a party to these undertakings. The parties negotiated and eventually the Deed was prepared and agreed to by the parties and was executed by Comtech and Liang Huat in favour of Hong Leong. Substantially those were the background facts that could be relied upon in the construction of the Deed.

10. Liang Huat, however, go further. They refer to the discussions and the warranty dated 22 September 1997 submitted by Comtech and Liang Huat to Hong Leong which was rejected by Hong Leong, and also to the terms of such warranty. These matters are relied by Liang Huat to support their contention that the Deed is intended to be an indemnity. In our opinion, all these matters are inadmissible in construing the Deed. These matters may be the objective facts in the...