8 December, 2016
The Singapore High Court has found that a contractor was justified in terminating a subcontract on the basis of breaches of implied terms. These terms required the subcontractor to proceed with due diligence, and with 'time of the essence' in regard to that due diligence.
The contractor, Newcon Builders, had subcontracted the design, production, and delivery of precast concrete slabs for the construction of a medical centre to CAA Technologies.
When CAA failed to deliver on time, Newcon revised its delivery schedule. CAA then failed to meet this new schedule, in that it did deliver some parts but these were out of sequence, incomplete and late. Newcon therefore terminated the subcontract.
In ruling that Newcon was justified in doing so, Justice Vinodh Coomaraswamy differentiated between an implication of the terms 'in law' and 'in fact'.
Implying these two terms into the subcontract as a matter of 'law' appeared contrary to previous legal authorities, he found.
However, the Court may, in an appropriate case, find that these two terms can be implied 'in fact', although that is unusual in a construction contract. This was such a case, he said, since the commercial purpose of the subcontract "required CAA to deliver slabs on time", which was "fundamental to the parties' bargain".
The slabs had to be delivered in a particular sequence to allow Newcon to fulfil the main contract, which also followed a set sequence. CAA knew of this direct connection between the timely performance of its own subcontract and Newcon's performance under the main contract. As such, business efficacy necessitated the implied terms of due diligence and time of the essence, Justice Coomaraswamy said.
Justice Coomaraswamy said the general rule that time is not of the essence in construction contracts remains unchanged. Newcon would not have been able to terminate for "any" breach of the implied terms, he said. It was only able to do so if CAA was guilty of "persistent" breach of its obligation of due diligence and if that breach, "taken together with other breaches, goes to the root of the parties' bargain".
Singapore-based Ang Wee Jian of Pinsent Masons, the law firm behind Out-Law.com said: "This decision stands out because, generally, time is not implied as being of the essence for construction contracts. As this decision has been appealed, it will be interesting to see what the Singapore Court of Appeal says about this matter."
For further information, please contact:
Ian Laing, Partner, Pinsent Masons
ian.laing@pinsentmasons.com
