The Construction Disputes Law Review: Singapore

Introduction

Like many other jurisdictions, the construction sector in Singapore has been significantly impacted by the covid-19 pandemic. We have seen robust intervention by the Singapore government to implement measures for extensions of time and cost-sharing for projects materially affected by the pandemic. In addition to statutory relief that is granted on a just and equitable basis, construction disputes continue to be resolved in the well-developed alternative dispute resolution (ADR) ecosystem of mediation, adjudication, arbitration and litigation. The Singapore courts have also published a number of decisions to guide parties on interpreting common issues such as extensions of time, liquidated damages and variations. These developments are discussed below.

Year in review

In the past 18 months, Singapore saw significant developments in construction law, in terms of both legislative developments and judicial precedents. As a result of the evolving covid-19 situation, Singapore's Parliament passed relief measures under the Covid-19 (Temporary Measures) Act 2020 (COTMA).2 In brief, COTMA seeks to offer temporary relief to businesses and individuals affected by the covid-19 pandemic. For example:

  1. Under Part 2 of COTMA, construction contractors and suppliers who are unable to perform contractual obligations because of covid-19 may seek a moratorium on (1) the counterparty's commencement or the continuation of court or domestic arbitration proceedings by the counterparty; (2) the counterparty's enforcement of court judgments, domestic arbitration awards or adjudication determinations; (3) the counterparty's calling of any performance bond; or (4) the counterparty's imposition of contractual liquidated damages, in respect of the inability to perform.
  2. Under Part 8 of COTMA, parties who have entered into contractual arrangements that are in turn affected by delays in the performance of separate construction or supply contracts caused by covid-19 may also seek a moratorium on (1) the commencement or continuation of court, domestic arbitration or adjudication proceedings, or (2) the making of any applications for winding up or bankruptcy, by counterparties to the affected contractual arrangements.
  3. Parts 8B and 10A of COTMA facilitate the parties' sharing of costs that have (1) accrued as a result of a party's inability to perform construction works under a construction contract because of covid-19 (e.g., equipment or storage rental costs); and (2) increased because of covid-19 (e.g., foreign manpower costs).

COTMA also provides for an adjudicatory framework before an assessor, who will decide whether reliefs have been properly and justifiably sought. As at the time of writing, the relief period under Part 2, Part 8B and Part 10A of COTMA in relation to construction contracts is slated to expire on 31 December 2021.

Another notable legislative development was the announcement in June 2021 by the Singapore Ministry of Law that it would extend third-party funding from international arbitration proceedings to domestic arbitration proceedings, certain proceedings in the Singapore International Commercial Court (SICC) and related mediation proceedings. This offers businesses an alternative avenue to fund meritorious claims and further strengthens Singapore's position as an international commercial dispute resolution hub, which will benefit the local legal community. Furthermore, against the backdrop of the covid-19 pandemic, additional funding options such as third-party funding will offer another solution for these litigants, to enable them to pursue meritorious claims in permitted proceedings.3

There have been developments in judicial precedents in the area of liquidated damages, delays and extensions of time.

GTMS Construction Pte Ltd v. Ser Kim Koi (Chan Sau Yan (formerly trading as Chan Sau Yan Associates) and another, third parties)4 considered the implications where an architect had acted negligently in administering the contract. The court found that where the architect had acted negligently and caused acts of prevention, this had the effect of rendering the liquidated damages clause inoperable against the contractor plaintiff,5 and rendered time at large.6 To prevent a result of this kind, the employer should have ensured that the contract had a mechanism for granting extensions of time in the event of such prevention.7

Crescendas Bionics Pte Ltd v. Jurong Primewide Pte Ltd8 addressed the issue whether the liquidated damages clause operated as a cap on the general damages for which the contractor was liable. The High Court found that the liquidated damages clause did not operate as a cap.9 The Court reasoned that general damages and liquidated damages are underpinned by different considerations. General damages are intended to compensate the innocent party for the actual losses suffered as a result of the breach. In contrast, liquidated damages are intended to be a genuine pre-estimate of the likely losses that would be suffered in the event of a breach. Accordingly, there was no principled reason for capping the amount of general damages recoverable by the employer with reference to the liquidated damages clause.10

The issue of liquidated damages was also considered in the context of the statutory adjudication process under the Building and Construction Industry Security of Payment Act (SOPA).11 In Range Construction Pte Ltd v. Goldbell Engineering Pte Ltd,12 the Court of Appeal had to consider the question whether an adjudicator had jurisdiction to set off an employer's claim for liquidated damages against a contractor's payment claim. The Court of Appeal found that the pre-amendment SOPA did confer this jurisdiction on the adjudicator under Section 15(3)(a) and Section 17(3). However, the Court of Appeal also observed that the position had changed under Section 17(2A) of the post-amendment SOPA, which prohibits claims relating to damage, loss or expense, whether made in payment claims or in payment responses, save for stipulated exceptions, as the consequence of which an adjudicator no longer has jurisdiction to permit the aforesaid set-off.

In Frontbuild Engineering & Construction Pte Ltd v. JHJ Construction Pte Ltd, the Singapore High Court had to consider whether 'pay when paid' provisions were unenforceable under the SOPA even where the contract in question had been terminated. This issue arose because Section 4(2)(c) of the SOPA provides that the SOPA will not apply to a terminated contract in specified circumstances, whereas Section 9 of the SOPA renders 'pay when paid' provisions in a construction contract unenforceable and of no effect. The Singapore High Court held that if a contractual provision engages both Section 9 and Section 4(2)(c), the court will first consider whether the provision is rendered unenforceable under Section 9. If the provision is not found to be unenforceable, the court will then consider whether Section 4(2)(c) applies to exclude the application of the SOPA.

Courts and procedure

i Fora

The Supreme Court, comprising the High Court and the Court of Appeal, and the State Courts of Singapore, comprising the district courts and magistrates' courts, are empowered to hear and determine construction disputes.

The General Division of the High Court hears civil cases with claims exceeding S$250,000 in value. The General Division also hears appeals from the decisions of district courts and magistrates' courts in civil cases and has general supervisory and revisionary jurisdiction over the State Courts in any civil matters.

The SICC is a division of the General Division and part of the Supreme Court of Singapore designed to deal with transnational commercial disputes. Generally, the SICC has the jurisdiction to hear and try an action if:

  1. the claim in the action is of an international and commercial nature;
  2. the parties to the action have submitted to the SICC's jurisdiction under a written jurisdiction agreement; and
  3. the parties to the action do not seek any relief in the form of, or connected with, a prerogative order (including a mandatory order, a prohibiting order, a quashing order or an order for review of detention).

Court applications in aid of arbitration are ordinarily first heard by the General Division. In specific instances, certain applications may also be heard by the SICC if the requirements for SICC jurisdiction are satisfied.

Although the Supreme Court does not presently maintain a specialist construction or arbitration court, the General Division of the High Court operates building and construction and arbitration lists under which disputes of this nature are assigned to judges and judicial commissioners with specialist experience.

The SICC has recently introduced a Technology, Infrastructure and Construction (TIC) List. The TIC List is a specialised list that deals primarily with complex disputes and disputes arising out of infrastructure and construction projects. The SICC has allocated specialist TIC judges to hear cases on the TIC List.

Cases may be placed on the TIC List if they generally involve technically complex issues, such as building and construction disputes, engineering disputes, disputes relating to architects and surveyors, and claims relating to the supply of goods or services for technology, infrastructure and construction projects.

Cases placed on the TIC List will be dealt with using additional case management features. These include providing the court with broad and flexible powers relating to the management of expert evidence and allowing for the presentation of the parties' cases using Scott Schedules.

The Appellate Division of the High Court hears all civil appeals not allocated to the Court of Appeal under the Sixth Schedule to the Supreme Court of Judicature Act,13 and any civil appeal or other process that any written law provides lies with the Appellate Division. Civil appeals (1) arising from cases relating to the law of arbitration, and (2) against a decision of the SICC, are to be made to the Court of Appeal and not the Appellate Division.

Statutory adjudications commenced under the SOPA are conducted and administered by the Singapore Mediation Centre (SMC). These adjudication determinations may be enforced with leave of the General Division in the same manner as a judgment or an order of the court to the same effect.

Parties may also choose to mediate construction disputes on an ad hoc basis or under the auspices of the SMC and the Singapore International Mediation Centre (SIMC).

ii Jurisdiction

The Singapore courts have recognised the principle that the wording of arbitration and jurisdiction clauses should be given a broad or generous interpretation, based on the presumption that rational businesspersons are likely to have intended that all the questions that arise out of the relationship they have entered into, or purported to enter into, are to be submitted to the same forum. No strict demarcation should be drawn on the basis whether the conduct leading to the dispute pre-dates or post-dates the entry into the contract: Bunge SA and another v. Shrikant Bhasi and other appeals.14

Equally, a bare arbitration clause that merely provides for submission of disputes to arbitration without specifying the place of the arbitration, the number of arbitrators or the method for establishing the arbitral tribunal remains a valid and binding arbitration agreement if the parties have evinced a clear intention to settle any dispute by arbitration. The Court of Appeal in Insigma Technology co Ltd v. Alstom Technology Ltd15 held that where the parties have evinced a clear intention to settle any dispute by arbitration, the court should give effect to this intention, even if certain aspects of the agreement may be ambiguous, inconsistent, incomplete or lacking in certain particulars, so long as the arbitration can be carried out without prejudice to the rights of either party and so long as giving effect to this intention does not result in an arbitration that is not within the contemplation of either party. In situations where an arbitration is seated in Singapore but no mechanism has been provided by the parties for the appointment of an arbitrator, Section 13(8) of the domestic Arbitration Act16 and Section 8(2) of the International Arbitration Act17 designate the President of the Singapore International Arbitration Centre (SIAC) Court of Arbitration as the appointing authority.

Nevertheless, to avoid drafting pitfalls or subsequent disputes, parties should avoid bare arbitration clauses and consider incorporating the template arbitration clauses drafted by arbitral institutions such as the SIAC or the International Chamber of Commerce.

If court proceedings have been commenced by one party in violation of a contractual arbitration clause, the Singapore courts, upon the application of a counterparty, are empowered to stay the proceedings in favour of arbitration under both the domestic and international arbitration regimes (i.e., the Arbitration Act and the International Arbitration Act respectively). While the court retains some discretion whether to grant a stay under the Arbitration Act even where a valid arbitration clause exists, a stay of court proceedings in favour of arbitration is mandatory in the case of international arbitration governed by the International Arbitration Act, unless the court is satisfied that the arbitration agreement is null and void, inoperative or incapable of performance.

The Singapore courts will enforce a dispute resolution clause that gives only one party the option to arbitrate: Wilson Taylor Asia Pacific Pte Ltd v. Dyna-Jet Pte Ltd.18

Multi-tiered dispute resolution provisions are common in construction contracts. The Singapore Court of Appeal commented in International Research Corp PLC v. Lufthansa Systems Asia Pacific Pte Ltd19 that where parties have clearly contracted for a specific set of dispute resolution procedures as preconditions for arbitration, those preconditions must be fulfilled before resort can be made to arbitration.

iii Procedure rules

Construction disputes before the Singapore courts are conducted in accordance with the procedural rules set out in the Rules of Court.20

Under the Limitation Act,21 the statutory limitation period for a claim arising out of a construction dispute is ordinarily six years from the date on which the cause of action accrued. In general:

  1. where the cause of action is based upon a breach of contract, the claimant has six years from the date of the breach to bring an action;
  2. where the cause of action is based upon the commission of a tort, the claimant has six years from the date that the damage occurred to bring an action; and
  3. where an action for damages for negligence, nuisance or breach of duty is concerned, if the action concerns latent damage, the claimant is entitled to commence the action within three years of the earliest date on which the claimant first acquired the necessary knowledge to commence an action and possessed the right to bring such an action (if this is later than six years). While this may extend the usual six-year limitation period, the Limitation Act imposes an overriding long-stop date of 15 years from the date of the negligent act in respect of such claims.

iv Evidence

The collection and submission of evidence in construction disputes before the Singapore courts are based on the procedures in the Rules of Court and the Evidence Act.22

The Evidence Act does not govern arbitration proceedings. It is for the arbitral tribunal to decide on matters of admissibility and the weight of any evidence adduced. Equally, the Evidence Act does not apply to statutory adjudications commenced under the SOPA.

The conduct of expert witnesses in court proceedings is governed by Order 40A of the Rules of Court. Order 40A Rule 2 provides that it is the duty of an expert to assist the court on matters within his or her expertise and that this duty overrides any obligation to the person from whom the expert has received instructions or by whom he or she is paid.

There are no specific provisions in the Arbitration Act or International Arbitration Act regarding party-appointed experts. However, both acts provide that an arbitral tribunal retains wide discretion on the conduct of the proceedings and the power to determine the admissibility, relevance, materiality and weight of any evidence.

The Rules of Court and the Evidence Act neither prescribe nor prohibit the use of expert witness conferencing in court proceedings and its use is largely left to the discretion of the courts. However, the SICC Practice Directions state, at Paragraph 90, that the court may direct that the evidence of several experts be taken concurrently. If the court so directs, then it retains the discretion to determine the manner in which the evidence is to be taken; a full cross-examination or re-examination in these circumstances is said to be 'neither necessary nor appropriate'.

In April 2019, the Chartered Institute of Arbitrators launched its Guidelines for Witness Conferencing in International Arbitration. The Guidelines provide arbitrators, parties and experts with a checklist of issues to consider when deciding whether to hold a witness conference, and standard and specific procedural directions to be adopted or tailored as appropriate to provide a framework for the process.

Alternative dispute resolution

ADR is commonly known as a process in which a neutral third party – a mediator, adjudicator or arbitrator – helps parties embroiled in a dispute come to an agreement or resolution. This section briefly introduces the suite of ADR options commonly used or available to stakeholders in the Singapore construction industry, namely: (1) statutory adjudication, (2) arbitration, (3) mediation, and (4) other ADR methods.

i Statutory adjudication

In Singapore, adjudication of claims for payment for work or supply of goods and services in the construction industry is facilitated by a statutory dispute resolution process governed by the SOPA and its accompanying regulations,23 both of which came into operation on 1 April 2005 (with key amendments made in 2018). The SOPA introduced a fast and low-cost adjudication mechanism to deal with payment disputes and was designed to 'facilitate cash flow in the construction industry'24 and to operate in tandem with the contract mechanism. However, it is worth noting that reliefs under the SOPA, while binding on the parties, are interim in nature. Therefore, the adjudication mechanism has often been described by stakeholders as encompassing a 'pay first and fight later' regime.

Adjudication is available to a party (i.e., the claimant) who has (1) carried out construction works or supplied goods and services,25 (2) served a payment claim for progress payment, and (3) not received payment or is dissatisfied with the quantum certified as payable by the employer or main contractor (i.e., the respondent).26 Importantly, the claimant's rights to adjudication cannot be contractually excluded.27 The process is engaged by the lodgement of an adjudication application with the SMC (as the authorised nominating body)28 and heard before an adjudicator appointed by the SMC.

As alluded to, the adjudicator's determination is of temporary finality.29 This means that, at a later stage, parties can commence arbitration or litigation proceedings to fully resolve the dispute. Although there is no right of appeal to the courts, parties may apply (1) for an adjudication review,30 or (2) to set aside the determination (but on very narrow grounds, inter alia, alleging a breach of natural justice).31

A successful claimant who has not received payment of the adjudicated sum can take steps to enforce the determination by a variety of means: (1) converting the determination into a court judgment,32 (2) suspending works on site,33 (3) seeking direct payment from the principal,34 or (4) claiming a lien over the goods supplied.35

A successful claimant may not easily wind up a respondent if the adjudicated amount is not paid. A recent Court of Appeal decision held that:36 (1) a respondent could resist or stay a winding up proceeding (for an unpaid adjudicated amount) if it had a bona fide cross-claim that could equal or extinguish the adjudicated amount, and (2) generally, a respondent is not required to pay the adjudicated amount into court as a precondition to staying the proceedings.

ii Arbitration

Arbitration is a consent-based dispute resolution process and arbitration clauses are often found in construction contracts. Many standard form contracts, for example, the Singapore Institute of Architects (SIA) and the Public Sector Standard Conditions of Contract forms of contract, provide (by default) for arbitration before institutions such as the SIA or the SIAC.

With Singapore as the seat of arbitration, it follows that the Arbitration Act or the International Arbitration Act (as applicable) will apply as part of the lex arbitri (i.e., the procedural law of the arbitration). This legislation provides the framework for the power of the courts in supervising and supporting the arbitration as well as challenges. Parties are free to choose the governing law of the contract.

Singapore is signatory to many significant arbitration-related treaties and conventions. Singapore has 38 bilateral investment treaties in force and 31 treaties with investment provisions in force. Further, Singapore is also a signatory to the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States37 and the Convention on Recognition and Enforcement of Foreign Arbitral Awards (i.e., the New York Convention).

Therefore, (1) arbitration awards seated in Singapore are recognised by signatory countries, and (2) the recognition and enforcement of foreign arbitral awards in Singapore are also relatively straightforward. While Section 31 of the International Arbitration Act sets out an exhaustive regime of the grounds on which the recognition or enforcement of a foreign award may be refused, many decisions by the Singapore courts have confirmed the principle of minimal court interference in arbitration.38

iii Mediation

Mediation is a process where parties agree to negotiate and try to arrive at a settlement of their disputes with the help of a neutral mediator. Mediation is without prejudice: matters discussed in mediation cannot be tendered as evidence in court if the mediation fails. In Singapore, mediation is also often used in construction disputes. It is common for contracts to elect mediation as the specific dispute resolution procedure as a precondition to arbitration or litigation (i.e., a multi-tiered dispute resolution clause). In Singapore, the courts have recognised that a multi-tiered dispute resolution clause in the contract that sets out, in a mandatory fashion, a series of steps (which can include mediation) that parties are to comply with before resorting to arbitration can be a precondition that must be fulfilled.39

Generally speaking, for construction disputes, two main categories of mediation are relevant: (1) court-based mediation, and (2) private mediation. Mediation was first introduced into the court system when pretrial conferences were incorporated into the management of civil cases in the courts and it is encouraged by the courts. Mediation may also be carried out under the auspices of the SMC or the State Courts Centre for Dispute Resolution (if civil litigation is pending in the State Courts).

iv Other ADR methods

The Singapore Infrastructure Dispute-Management Protocol is another ADR mechanism, which helps to manage disputes between developers and contractors of large infrastructure projects. This is similar to the creation of a dispute adjudication board (DAB) or dispute resolution board (DRB) under certain standard form contracts. The DAB/DRB is a creature of contract. Therefore, whether a DAB/DRB's decision is mandatory, advisory, final or interim will hinge on the exact terms of the contract under which the DAB/DRB is constituted. In contrast with arbitration, there is no express legislative effect given to the decision of the DAB/DRB. In PT Perusahaan Gas Negara (Persero) TBK v. CRW Joint Operation (Indonesia),40 the court recognised that a DAB's decision has the effect of interim finality pending the final determination of the dispute.

In addition to the above, it is also worth noting that hybrid forms of ADR such as 'arb-med-arb' are also commonly utilised by parties – an example of this is the SIAC–SIMC Arb-Med-Arb Protocol. Parties who have signed an arbitration agreement or commenced arbitration may wish to refer their dispute to mediation, either before they commence arbitration or during arbitration. If the parties settle their dispute through mediation, their mediated settlement may be recorded as a consent award. If mediation fails, they may continue with the arbitration proceedings.

Construction contracts

In Singapore, the public sector is projected to contribute the majority (about 65 per cent in 2021)41 of the total construction demand, especially during the ongoing covid-19 pandemic. Issues of public procurement will be discussed below.

It is anticipated that insolvency risks in the construction sector will increase. In this regard, Section 440 of the Insolvency, Restructuring and Dissolution Act42 renders unenforceable contractual provisions that allow an employer to terminate or modify the contract upon the commencement of insolvency proceedings against the contractor.

i Public procurement

The main source of public procurement law is the Government Procurement Act (GPA)43 and its subsidiary legislation, including the Government Procurement Regulations (GPR). Regulation 7 of the GPR provides that a contracting authority shall conduct procurement in a transparent and impartial manner that, among other things, avoids conflicts of interest and prevents corrupt practices.

Specifically for construction contracts, the Building and Construction Authority operates the Contractors Registration System (CRS) scheme, which registers contractors intending to tender or undertake construction and construction-related public sector works in Singapore. A contractor's eligibility to participate in a tender depends on its registration under (1) the applicable workhead (such as construction, mechanical and electrical works), and (2) the financial grades corresponding with the tendering limit measured in terms of project values. A contractor intending to register itself under the CRS has to meet requirements on financial capability, technical personnel, management certifications, track record and builder licence (under the separate Licensing of Builders Scheme of the Building and Construction Authority (BCA)). A contractor is also assessed for its performance in past public sector projects under BCA's C41 appraisal system.

The Public Sector Standard Conditions of Contract are the standardised conditions of contract for use in most public sector construction projects and these were last revised in July 2020.44

In the event a contracting authority fails to comply with the GPR, it may be subject to a challenge brought before the Government Procurement Adjudication Tribunal. The applicant bringing the challenge may apply to the tribunal for an order to suspend the procurement process in accordance with Section 16(1) of the GPA. The tribunal has the discretion under Section 16(2) of the GPA as to the orders to be made. In the event that the subject procurement contract has already been awarded at the time of the tribunal's determination, the tribunal may only order compensation for the wasted cost of participation or tender preparation.45

ii Contract interpretation

Under Singapore law, an objective approach to contractual interpretation is adopted. Specifically, the court in Master Marine AS v. Labroy Offshore Ltd and others46 set out the following principles of contractual interpretation, among others:

(a) first, the aim of the exercise of construction is to ascertain the meaning the document would convey to a reasonable business person; (b) secondly, the courts are concerned with the objective expressed intention of the parties and not their actual intentions;

The Singapore court has affirmed a contextual approach to contractual interpretation. Extrinsic material is admissible in aid of contractual interpretation if relevant and reasonably available to all the contracting parties and it relates to a clear and obvious context.47 There is no absolute or rigid prohibition against evidence of previous negotiations or subsequent conduct.48

Terms may be implied using a three-step process: Sembcorp Marine Ltd v. PPL Holdings Pte Ltd and another and another appeal:49

(a) The first step is to ascertain how the gap in the contract arises. Implication will be considered only if the court discerns that the gap arose because the parties did not contemplate the gap. (b) At the second step, the court considers whether it is necessary in the business or commercial sense to imply a term in order to give the contract efficacy. (c) Finally, the court considers the specific term to be implied. This must be one to which the parties, having regard to the need for business efficacy, would have responded 'Oh, of course!' had the proposed term been put to them at time of the contract. If it is not possible to find such a clear response, then the gap persists and the consequences of that gap ensue.

Collateral contracts may also be found to exist in contractual arrangements. A collateral contract requires a promissory (rather than representational) statement, certainty of terms, separate consideration and intention to be legally bound: Independent State of Papua New Guinea v. PNG Sustainable Development Program Ltd.50

A 'no oral modification' clause raises a rebuttal presumption that, in the absence of an agreement in writing, there would be no variation to the contract. It is not strictly necessary for the parties to have specifically considered the matter of dispensing with such a clause when agreeing to an oral variation.51

Common substantive issues and remedies

i Time bars as condition precedent to entitlement

Whether a time-bar clause is upheld is likely to depend significantly on the specific language of the clause in question. Unless a clause expressly states that compliance with a given requirement is a condition precedent, the Singapore courts are likely to require very clear language before they will construe a contractual time bar as a condition precedent. In addition, even requirements stated as conditions precedent are likely to be construed narrowly and in favour of the obligor given the serious consequences that may result if the obligor fails to comply with the condition.

ii Right to payment for variations and varied scope of work

In Singapore, the courts take a flexible approach with respect to a contractor's right to payment for varied works. Typically, this right is governed by the express contract terms, for which in many construction contracts there are often express provisions requiring a contractor to follow a specific procedure to propose and obtain approval for variation works before the right to claim for varied work can arise. This was the case in Mansource Interior Pte Ltd v. CSG Group Pte Ltd,52 where the contractor was disallowed from claiming for variation work done without compliance with the express terms of the contract, which required the main contractor's written authorisation or approval as a condition precedent to payment.

Similarly, in Wei Siang Design Construction Pte Ltd v. Euro Assets Holding (S) Pte Ltd,53 the High Court held that the contractor was not entitled to payment in respect of four items of variation works as these were unauthorised variations. The contractor was contractually entitled to be paid for a variation only if the architect had approved it and the approval had to be either in writing or, if given orally, confirmed subsequently in writing. There was no evidence that the architect had approved any of these four items either before or after they were carried out. By failing to adhere to the condition precedent set out for variation orders, the contractor was not only not entitled to compensation but, further, was in breach of contract by having carried out these variations.

In Fongsoon Engineering (S) Pte Ltd v. Kensteel Engineering Pte Ltd,54 the High Court dismissed the subcontractor's claim for variations, holding that on a plain reading of the contract provisions in question, a variation order is required to be in writing and a written variation order is a condition precedent for any claim or payment for variation work. The claimant had not produced any written variation order and, in any event, had also not established any verbal instructions for variation works.

However, failure to follow the prescribed contractual procedure will not necessarily disentitle a contractor from claiming payment for variation works. In an appropriate situation, the courts may find that the contractual procedure was waived by the parties or that the employer is estopped from relying on the same. Thus, in Comfort Management Pte Ltd v. OGSP Engineering Pte Ltd,55 the Court of Appeal held that non-compliance did not completely bar the contractor from claiming for variation work but merely raised a rebuttable presumption that no variation was ordered, and the contractor therefore bore the risk of proving that a variation was nevertheless ordered by the employer in the absence of a written order as required under the contract.

iii Concurrent delay

The prevention principle applies in Singapore. Generally, if an employer's actions delay the works or prevent a contractor from achieving completion, the employer is not able to claim liquidated damages for the period in question.

Concurrent delay has been considered in several Singapore court decisions.56 The courts are likely to be guided by the expert evidence adduced, but the courts are not bound by the experts' opinions, especially when they relate to mixed issues of fact and law.

iv Suspension and termination

Suspension and termination are governed by contract. The circumstances under which a contract may be terminated are typically specified in the contract and are also governed by common law, namely:

  1. where a party renounces a contract by words or conduct, conveying to the other party that it will not perform its contractual obligations at all; or
  2. where there is a breach of a 'condition' (i.e., a term so important that any breach, regardless of the actual consequences of such a breach, would entitle the innocent party to terminate the contract) or where the breach deprives the innocent party of substantially the whole benefit of the contract.

v Penalties and liquidated damages

Generally, liquidated damages will be upheld unless they can be shown to be penal. The Court of Appeal, in Denka Advantech Pte Ltd and another v. Seraya Energy Pte Ltd and another and other appeals,57 reaffirmed the approach set out in Dunlop Pneumatic Tyre Co Ltd v. New Garage and Motor Co Ltd58 (i.e., that a contractual provision that stipulates an amount to be paid that exceeds the pre-estimated loss is penal, not compensatory). The Court of Appeal chose not to follow the approach of the United Kingdom Supreme Court in Cavendish Square Holding BV v. Makdessi,59 which looked at whether the impugned provision is a secondary obligation that imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation. The Court of Appeal reasoned that the legitimate interest test was overly flexible and would lead to uncertainty if adopted.

vi Defects correction and liabilities

The courts allow parties to agree on how defects arising post-completion are to be treated. Legislation does not impose civil liability for defective construction.

In Management Corporation Strata Title Plan No. 3322 v. Tiong Aik Construction Pte Ltd and another,60 the Court of Appeal considered the scope of a contractor's duties under the Building Control Act,61 clarifying that this statute did not create any construction-related duties other than those of structural soundness and safety in construction. The Court thus rejected arguments that the Building Control Act gave rise to a general duty on the contractor to ensure that a development's common property was designed and built with reasonable care.

In one ruling on defects,62 the High Court ruled on the definition of a defect and held that where there are specific contractual requirements, it sufficed to show a departure from the specifications to establish a defect. In contrast, where there are no specifications, whether alleged defects constitute defects for which a defendant would be held liable depends on whether more general contractual requirements (e.g., reasonable care and diligence in designing and installing the features and ensuring the building is fit for purpose) are breached. To this end, it may also be relevant to consider whether the features might have given rise to safety risks.

It should also be noted that in Sandy Island Pte Ltd v. Thio Keng Thay,63 the Court of Appeal ruled that defect liability clauses do not necessarily exclude the right to sue for breach of contract, in the absence of clear and express wording.

vii Bonds and guarantees

Performance bonds are treated as a security equivalent to cash. Calls on performance bonds may be restrained for either fraud or unconscionability, although it is open to parties to contract out of unconscionability as grounds for restraining calls on performance bonds.64 It is not uncommon to see clauses stipulating that a contractor agrees not to restrain a call on a performance bond for any reason whatsoever, although it is unlikely that the courts will allow parties to agree to validly contract out of fraud as grounds for restraining a performance bond call.

viii Overall caps on liability

Generally, contractual exclusion clauses are upheld, provided that they are clearly worded and validly incorporated into a contract. An exclusion clause must be properly brought to the attention of the plaintiff.65 Under Section 2(1) of the Unfair Contract Terms Act,66 contractual clauses purporting to exclude or restrict liability for death or personal injury resulting from negligence are not valid. Under Section 2(2), contractual clauses purporting to exclude or restrict liability for negligence are not valid, unless they are reasonable. The test for reasonableness is set out in Section 11 of the Unfair Contract Terms Act read together with the Second Schedule.

Outlook

The construction industry will continue to face challenges not just from the pandemic. Stakeholders will have to up their game in, among other things, ensuring projects apply technology and become sustainable. The nature of disputes will also evolve, with a greater emphasis on documentary evidence in the face of an increase in virtual hearings. Statutory adjudication and restructuring work will remain key to ensuring that affected businesses can manage traditional cash flow disputes and constraints. On procurement, public sector reform will also disclose how future tenders will change to allow for more equitable risk allocation for cost pressures and disruption arising from the pandemic.

Footnotes

1 Andre Yeap, SC is the senior partner and Soh Lip San is a partner at Rajah & Tann Singapore LLP.

2 Covid-19 (Temporary Measures) Act 2020 (No. 14 of 2020).

4 GTMS Construction Pte Ltd v. Ser Kim Koi (Chan Sau Yan (formerly trading as Chan Sau Yan Associates) and another, third parties) [2021] SGHC 9.

5 ibid., at [661].

6 ibid., at [663].

7 ibid., at [663].

8 Crescendas Bionics Pte Ltd v. Jurong Primewide Pte Ltd [2021] SGHC 189.

9 ibid., at [57].

10 ibid., at [58].

11 Building and Construction Industry Security and Payment Act (Cap. 30B, 2006 Rev Ed) (SOPA).

12 Range Construction Pte Ltd v. Goldbell Engineering Pte Ltd [2021] 2 SLR 91.

13 Supreme Court of Judicature Act (Cap. 322, 2007 Rev Ed).

14 Bunge SA and another v. Shrikant Bhasi and other appeals [2020] 2 SLR 1223.

15 Insigma Technology co Ltd v. Alstom Technology Ltd [2009] 3 SLR(R) 936.

16 Arbitration Act (Cap. 10, 2002 Rev Ed).

17 International Arbitration Act (Cap. 143A, 2002 Rev Ed).

18 Wilson Taylor Asia Pacific Pte Ltd v. Dyna-Jet Pte Ltd [2017] 2 SLR 362

19 International Research Corp PLC v. Lufthansa Systems Asia Pacific Pte Ltd [2014] 1 SLR 130.

20 Rules of Court (Cap. 322, R 5, 2014 Rev Ed). It should be noted that as at the time of this publication, extensive reforms to the Rules of Court are being contemplated and mooted by the Singapore Ministry of Law.

21 Limitation Act (Cap. 163, 1996 Rev Ed).

22 Evidence Act (Cap. 97, 1997 Rev Ed).

23 Building and Construction Industry Security of Payment Regulations (Cap. 30B).

24 Second Reading Speech by MOS Zaqy Mohamad on the Building and Construction Industry Security of Payment (Amendment) Bill.

25 S 5, SOPA.

26 S 13, SOPA.

27 S 36, SOPA.

28 S 28, SOPA.

29 S 21, SOPA.

30 S 18, SOPA. The SOPA refers to the 'review of the determination', which, the court clarified, refers to the entire determination. See: Ang Cheng Guan Construction Pte Ltd v. Corporate Residence Pte Ltd [2017] SGHC 9. In other words, a review adjudicator is entitled to review the entire adjudication determination.

31 S 27(6), SOPA.

32 S 27, SOPA.

33 S 26, SOPA.

34 S 23, SOPA.

35 S 25, SOPA.

36 Diamond Glass Enterprise Pte Ltd v. Zhong Kai Construction Co Pte Ltd [2021] SGCA 61.

38 BLC and others v. BLB and another [2014] SGCA 40.

39 International Research Corp PLC v. Lufthansa Systems Asia Pacific Pte Ltd and another [2013] SGCA 55, PT Selecta Bestama v. Sin Huat Huat Marine Transportation Pte Ltd [2015] SGHC 295.

40 PT Perusahaan Gas Negara (Persero) TBK v. CRW Joint Operation (Indonesia) [2015] SGCA 30.

42 Insolvency, Restructuring and Dissolution Act (No. 40 of 2018).

43 Government Procurement Act (Cap. 120, 1998 Rev Ed).

45 Section 18(5) of the GPA.

46 Master Marine AS v. Labroy Offshore Ltd and others [2012] 3 SLR 125 at [41].

47 Zurich Insurance (Singapore) Pte Ltd v. B-Gold Interior Design & Construction Pte Ltd [2008] 3 SLR(R) 1029 (Zurich) at [124]–[125], [129].

48 Zurich at [132(d)].

49 Sembcorp Marine Ltd v. PPL Holdings Pte Ltd and another and another appeal [2013] 4 SLR 193 at [101].

50 Independent State of Papua New Guinea v. PNG Sustainable Development Program Ltd [2016] 2 SLR 366 at [68]–[69].

51 Charles Lim Teng Siang and another v. Hong Choon Hau and another [2021] 2 SLR 153 at [61].

52 Mansource Interior Pte Ltd v. CSG Group Pte Ltd [2017] 5 SLR 203.

53 Wei Siang Design Construction Pte Ltd v. Euro Assets Holding (S) Pte Ltd [2019] 4 SLR 628.

54 Fongsoon Engineering (S) Pte Ltd v. Kensteel Engineering Pte Ltd [2011] SGHC 82.

55 Comfort Management Pte Ltd v. OGSP Engineering Pte Ltd [2018] 1 SLR 979.

56 See, for example, Compact Metal Industries Ltd v. PPG Industries (Singapore) Pte Ltd [2012] SGHC 91 affirmed on appeal in PPG Industries (Singapore) Pte Ltd v. Compact Metal Industries Ltd [2013] SGCA 23).

57 Denka Advantech Pte Ltd and another v. Seraya Energy Pte Ltd and another and other appeals [2021] 1 SLR 631.

58 Dunlop Pneumatic Tyre Co Ltd v. New Garage and Motor Co Ltd [1915] AC 79.

59 United Kingdom Supreme Court in Cavendish Square Holding BV v. Makdessi [2016] AC 1172.

60 Management Corporation Strata Title Plan No. 3322 v. Tiong Aik Construction Pte Ltd and another [2016] 4 SLR 521.

61 Building Control Act (Cap. 29, 1999 Rev Ed).

62 Millenia Pte Ltd (formerly known as Pontiac Marina Pte Ltd) v. Dragages Singapore Pte Ltd (formerly known as Dragages et Travaux Publics (Singapore) Pte Ltd) and others (Arup Singapore Pte Ltd, third party) [2018] SGHC 193.

63 Sandy Island Pte Ltd v. Thio Keng Thay [2020] 2 SLR 1098.

64 See CKR Contract Services Pte Ltd v. Asplenium Land Pte Ltd and another and another appeal and another matter [2015] 3 SLR 1041.

65 See Chua Chye Leong Alan v. Grand Palace Deluxe Nite Club Pte Ltd [1993] 2 SLR(R) 40.

66 Unfair Contract Terms Act (Cap. 296, 1994 Rev Ed).

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