Schindler Lifts (Singapore) Pte Ltd v Paya Ubi Industrial Park Pte Ltd and Another

• Jurisdiction: Singapore
• Judge: Judith Prakash J
• Judgment Date: 24 February 2004
• Neutral Citation: [2004] SGHC 34
• Court: High Court (Singapore)
• Year: 2004
• Published date: 01 March 2004
• Plaintiff Counsel: Paul Wong and Loh Jen Wei (Rodyk and Davidson)
• Defendant Counsel: Stanley Wong (Jing Quee and Chin Joo),Christopher Chuah and Michael Chia (Drew and Napier LLC)
• Subject Matter: Building and Construction Law,Sub-contracts,Novation,Whether implied novation possible.,Whether "pay when paid" term in sub-contract applied to the release of retention monies.,Building and construction contracts,Main contract ended and contractor absolved from liability for defects,Whether deductions from contract price could be made for defective work,Whether failure to comply with contractual specifications amounted to "defective work".
• Citation: [2004] SGHC 34

24 February 2004 Judgment reserved.

Judith Prakash J:

Introduction

1 This suit is between various parties who were involved in the development of a construction project known as the Paya Ubi Industrial Park. The developer of the project was Paya Ubi Industrial Park Pte Ltd (“Paya Ubi”) and it appointed Tekken Corporation (“Tekken”) as the main contractor. The plaintiff in this action, Schindler Lifts (Singapore) Pte Ltd (“Schindler”), was the nominated sub-contractor for lift installation. The project involved the construction of four multi-storey blocks of flatted industrial buildings at Ubi Avenue 1.

2 The main contract between Tekken and Paya Ubi (“the Main Contract”) incorporated the Articles and Conditions of Building Contract issued by the Singapore Institute of Architects (Lump Sum Contract, 5th Ed) (“the Main Contract Conditions”). The sub-contract between Tekken and Schindler (“the Sub-Contract”) was made in March 1999 and it incorporated the Conditions of Sub-Contract for use in conjunction with the Main Contract issued by the Singapore Institute of Architects (“the Sub-Contract Conditions”).

3 During the course of the project, various disputes arose between Paya Ubi and Tekken. As a result, Tekken commenced legal proceedings against Paya Ubi in the High Court. By a settlement agreement made on 21 August 2000 (“the Settlement Agreement”), Tekken and Paya Ubi settled all their disputes. Consequentially, Tekken stopped working on the project and demobilised its staff. Schindler’s works were not completed at that time and Schindler remained at the site and continued work for some time thereafter. The intention of Tekken and Paya Ubi had been that contracts between Tekken and nominated sub-contractors like Schindler would be novated to Paya Ubi. Although some efforts were made in this direction, in the event, no formal novation agreement was signed between Tekken, Paya Ubi and Schindler in respect of the Sub-Contract. In practice, on the site, Paya Ubi’s representatives gave directions to Schindler on the lift installation work.

4 On 1 September 2000, the project architect (“the Architect”) issued the completion certificate for the project. The relevant temporary occupation permits for the project were obtained in two phases: the first on 23 September 2000 and the second on 1 February 2001. The final certificate for the project (“the Final Certificate”) was issued on 17 December 2002.

5 In the meantime, a certain percentage of the value of the lift installation works completed had been held back as retention moneys. The total amount retained was $550,000. The first half (ie $275,000) was released to Schindler at or about the time the project was completed. Under the Sub-Contract Conditions, the second half of the retention moneys was to be released upon the expiry of the maintenance period.

6 The Final Certificate certified that:

(a) the remaining half of the retention moneys was released;

(b) the final Sub-Contract sum for the lift installation was $11m less two sums:

(i) $847,750 for work that was omitted; and

(ii) $607,948.19 being deductions for alleged non-performance of maintenance work or for defective works.

There was no dispute that $847,750 had to be deducted for work that was omitted. Taking this deduction into account meant that the final Sub-Contract sum was reduced to $10,152,250. As $9,855,000 had been certified and paid to Schindler prior to the issue of the Final Certificate, this meant that a balance of $297,250 remained unpaid. Schindler did not accept that $607,948.19 had to be deducted from the Sub-Contract sum.

7 Schindler commenced this action against both Tekken and Paya Ubi on 18 March 2002 to recover $275,000 plus goods and services tax (“GST”) being the balance of the retention moneys and $34,423.20 (plus GST) being amounts due for variations and outstanding works. Schindler alleged that there had been a novation of the Sub-Contract to Paya Ubi and that Paya Ubi had assumed all liabilities and benefits of the Sub-Contract in place of Tekken. Alternatively, if there had been no novation of the Sub-Contract to Paya Ubi, Tekken remained liable to Schindler under the Sub-Contract for the amounts claimed.

8 Paya Ubi’s defence was straightforward: there was no novation of the Sub-Contract and therefore no privity of contract between itself and Schindler. In the alternative, if the court found that such a novation had taken place, then Paya Ubi was entitled to set off against Schindler’s claim the various deductions in relation to the lift installation works that had been certified by the Architect in the Final Certificate. Paya Ubi also contended that Schindler was not entitled to make a claim for the replacement of certain batteries. It made a counterclaim for the amount by which the deductions certified by the Architect exceeded Schindler’s claim.

9 Tekken’s position was more complicated. It pleaded that the contractual documents provided that certain conditions precedent had to be met before payment was due from Tekken to Schindler. These conditions precedent had not been met because the Architect had not issued the necessary certificates and therefore no payment was yet due to Schindler. On the basis that it might be found liable to Schindler, Tekken made a counterclaim against Paya Ubi to recover from the latter any sums that it might have to pay Schindler.

10 Following the issue of the Final Certificate on 17 December 2002, Tekken instituted a counterclaim against Schindler to recover certain amounts that had been deducted from the certificate on account of Schindler’s actions. Tekken also instituted a counterclaim against Paya Ubi in relation to the Final Certificate. At this time too, Schindler instituted a counterclaim to counterclaim against Tekken asking for an order, in the alternative, that it was entitled to certain payments based on the Final Certificate.

11 Various issues arise out of these various claims, counterclaims and counter-counterclaims. It would be confusing to set them out here and I will deal with them in context as this judgment proceeds.

Schindler’s claim against Paya Ubi

12 Schindler’s case against Paya Ubi is that there had been an implied novation of the Sub-Contract such that Paya Ubi stepped into the shoes of Tekken and came into a direct contractual relationship with Schindler. Schindler said this case was supported by the following facts:

(a) After Tekken stopped work on the project and immobilised its staff, it sought to procure Schindler’s signature on a novation agreement that would put Paya Ubi into its place. The negotiations carried out did not, however, result in a novation agreement being signed.

(b) Although no novation agreement was signed, Paya Ubi started to deal directly with Schindler on all matters relating to the Sub-Contract and Schindler performed the Sub-Contract pursuant to Paya Ubi’s directions. Such performance included acting on Paya Ubi’s directions in relation to lift installation, breakdown of lift units, handover of lifts, and on defects and outstanding works.

(c) On 23 August 2000, Tekken assigned to Paya Ubi the performance bond that Schindler had provided to Tekken pursuant to the terms of the Sub-Contract.

13 Schindler also argued that its maintenance obligations under the Sub-Contract were part of Tekken’s maintenance obligations under the Main Contract. It submitted that its maintenance obligations arose from Tekken’s maintenance obligations. Tekken’s maintenance obligations were extinguished under the terms of the Settlement Agreement. As a consequence, Schindler’s maintenance obligations under the Sub-Contract were also extinguished. Therefore when Paya Ubi started giving instructions to Schindler in respect of the maintenance obligations under the Sub-Contract and Schindler accepted these instructions, there arose an implied novation in which Paya Ubi took over the Sub-Contract from Tekken and revived Schindler’s maintenance obligations under the Sub-Contract. This new contractual relationship had to be premised on the Sub-Contract since that was what the parties were relying on to govern their relationship.

14 I cannot accept Schindler’s submissions on implied novation. The novation of a contract is a matter that has to be established by clear evidence of consent and agreement to the changes in the obligations and rights of various parties inter se. Such consent is usually evidenced by a written novation agreement especially in a case like the present where the contract to be novated is complex. Whilst a novation agreement can be concluded orally, clear evidence is needed to establish this fact.

15 Subsequent to Tekken’s discharge, negotiations did take place in respect of a novation agreement to be signed by all the parties but these negotiations did not result in a signed agreement. That absence is itself significant. Tekken could only be discharged from its obligations to Schindler if Schindler expressly agreed to such discharge. I cannot accept that Schindler’s agreeing to take instructions on site from Paya Ubi amounted to an agreement to discharge Tekken as its contractual counter-party and to accept Paya Ubi in its place as a contractual counter-party. There was no evidence that Schindler only took instructions from Paya Ubi on condition that Paya Ubi agreed to be directly responsible for payments due under the Sub-Contract. Nor could the giving of instructions alone on the part of Paya Ubi amount to an assumption of direct liability to Schindler. The Settlement Agreement contemplated that, despite the parties’ intentions that the various sub-contracts be novated, in some cases, novation might not succeed. In that event, payment to those sub-contractors whose sub-contracts had not been novated was to remain in accordance with the terms of the Main Contract and the respective sub-contracts. Since the Settlement Agreement also provided for Paya Ubi to either...