In March 2001 the Singapore Court of Appeal handed down its decision in Hiap Hong & Company Pte Ltd v Hong Huat Development Co (Pte) Ltd [2001] 2 SLR 458 as the final word in a building case that spanned 15 years.
The central issue that was decided by the Court of Appeal, which is of importance to the construction industry in Singapore, was whether a building owner had an implied contractual obligation to the contractor to ensure the proper discharge by the architect of his certifying function, such that if an architect was (for any reason) late in issuing interim certificates entitling the contractor to progress payments, the contractor could recover compensation against the building owner for loss of use of the monies that were received late. The Court of Appeal decision in the Hong Huat Case effectively abolishes any previous notion that a building owner has such an implied contractual obligation.
The facts leading to the Court of Appeal decision in the Hong Huat Case are as interesting as the decision itself. In 1979 a building contract was signed between the owner and the contractor using the Singapore Institute of Architects (SIA) standard conditions, which were similar to the English Joint Contracts Tribunal (JCT) terms. In 1986 the contractor commenced arbitration proceedings against the owner, claiming compensation for loss of use of monies that were received late because the architect had issued late interim payment certificates. The contractor argued that it was an implied term of the building contract that the owner would ensure the proper discharge by the architect of his certifying functions. Evidence was completed and arguments submitted in 1988. Although a quantity surveyor was appointed in the early 1990s to assist in valuations of the project final account, it was not until 1998, 10 years later, that the arbitrator issued his arbitral award. As part of his award, the arbitrator awarded the contractor compensation at commercial interest rates for the loss of use of monies during the period that the interim payment certificates were delayed, and further interest on the sums awarded for the entire 12-year period of the arbitration.
As required under Singapore law, the owner applied to the Singapore High Court for permission to appeal the arbitral award on a question of law - whether owners under SIA building contracts owed the implied term to contractors. Permission was refused. The owner appealed to the Singapore Court of Appeal for permission to appeal the arbitral award and was granted permission. The owner's substantive appeal was sent for hearing by the High Court. After hearing arguments and considering a large number of cases, the Singapore High Court decided that building owners under the SIA standard conditions did not owe any implied contractual obligation to contractors to ensure the proper discharge by the architect of his certifying functions.
The contractor appealed against the High Court decision and in March 2001 the Singapore Court of Appeal issued its decision affirming the decision of the High Court. In affirming the High Court decision, the Singapore Court of Appeal held the following:
- Although an architect may be an agent or representative of the owner in other matters (eg, supplying the contractor with drawings and instructions, and supervising the works), when an architect certifies he is exercising a professional skill, opinion and judgment, and must act fairly, impartially and independently. In so doing, the architect cannot be an agent of the building owner, because such impartiality is irreconcilable with the primary duty of agents to protect the interests of their principal.
- In this respect, building owners do not undertake or guarantee that the architect will exercise his powers reasonably - that is a matter for the architect. What building owners do is to undertake that although the architect may be engaged or employed by them, they will leave him free to exercise his powers fairly and without improper interference.
- In any commercial contract, parties will be regarded as having impliedly agreed to cooperate to achieve the contractual objective. However, this does not mean that cooperation extends to an implied contractual obligation on the building owner to marshal or supervise the architect. In so doing, a building owner may actually disrupt the smooth running of the building project by erroneously interfering with the architect.
The effect of the Singapore Court of Appeal's decision is that, insofar as past and current editions of the SIA standard terms are concerned, claims by a contractor against an owner for loss of use of monies, as a result of the late issue of payment certificates, will no longer succeed (if these claims are based on the implied term argument). The principles established by the Hong Huat Case will, in all likelihood, be applicable to other forms of building contracts that contain the notion or concept of an architect exercising an independent and impartial professional judgment.
The Hong Huat Case does not necessarily mean that contractors can never sue building owners for loss of use of monies. Its effect is to clarify the law and to decide that a contractor cannot claim for loss of use of monies against an owner by arguing that the owner is impliedly responsible for ensuring that the architect performs his certifying functions. There is no such implied term in SIA building contracts.
For further information on this topic please contact Lawrence Teh or P Selvadurai at Rodyk & Davidson by telephone (+65 225 2626) or by fax (+65 225 1838) or by email ([email protected]).