DEFECTS LIABILITY CLAUSE AND RIGHT TO RECOVER DAMAGES AT COMMON LAW
In Sandy Island Pte Ltd v Thio Keng Thay [2020] SGCA 86 (“Sandy Island v TKT”), the Court of Appeal clarified what happens if a party in the position of an owner refuses access to a party in the position of a main contractor to perform rectification works, and the owner then seeks to recover damages for defects at common law, when the contract has a defects liability clauses.
Salient Facts. The respondent-purchaser purchased a four-storey detached bungalow from the appellant-developer ([5] Sandy Island v TKT) via a sale and purchase agreement (the “SPA”) for the construction and sale of the said bungalow ([1] Sandy Island v TKT).
The SPA, which was in the standard form prescribed by rule 12(1) of the Housing Developers Rules (Cap 130, R1, 2008 Rev Ed), contained clauses on the appellant’s obligations in relation to the building and the defects liability period (“DLP”) ([6] Sandy Island v TKT).
It suffices to state that the respondent alleged various defects, some of which were admitted (in whole or in part) by the appellant, though the appellant emphasized that the appellant was prevented by the respondent from accessing the property to carry out rectification works ([10] Sandy Island v TKT).
Issues on appeal. The issues raised on appeal were set out by the Court of Appeal at [21] Sandy Island v TKT. In this short blog, we will focus on issues (a) and (b), namely:
“(a) whether the Judge had mischaracterised the key issue before him;
(b) whether cl 17 of the SPA precluded the respondent from making any common law claims for damages in respect of the admitted defects;”
In this regard, we highlight that [22] Sandy Island v TKT is important as on the facts of the case, certain findings made by the High Court were not appealed against, including that (a) the appellant was in breach of the SPA as the property contained numerous defects, (b) the respondent had invoked cl. 17 of the SPA, and (c) the respondent had behaved unreasonably in not granting the appellant access to the property and prevented the appellant from rectifying defects.
Key findings on appeal. In addressing the issues, the Court of Appeal made the following key findings:
1. The High Court judge did not mischaracterize the key issue before him, which was whether, notwithstanding the appellant’s breach, the respondent is precluded from claiming damages against the appellant as a result of his obligations under the defects liability clause of the SPA ([30] – [31] Sandy Island v TKT).
2. The purpose of a defects liability clause is to allow contractors the right to return to site to rectify defects and to allow employers to require contractors to return to site to rectify defects ([43] Sandy Island v TKT).
3. Such clauses are for the benefit of both the employer and the contractor ([43] Sandy Island v TKT).
4. Cl. 17 SPA is not a “complete code dealing with defects”. There are certain defects which would fall outside the contemplation of cl. 17, and it does not contain words to suggest that the respondent’s common law rights have been replaced by those under cl. 17 (which can only be done by clear words) ([54] – [59] Sandy Island v TKT).
It bears emphasizing that the Court of Appeal made clear that “… unless there are clear words or a clear and strong implication from the express words used in a defects liability clause or in the contract, an owner or employer in a building and construction contract containing a defects liability clause does not thereby lose the right to a claim for damages at common law for defects in the building …” ([80] Sandy Island v TKT).
However, the Court of Appeal was also careful to emphasize that “… if the owner or employer does not, without good reason, exercise this option to call for the contractor to return to site and rectify defects or having exercised that right, without good reason, prevents the contractor from carrying out such rectification, then such omissions or acts will impact on the owner’s or employer’s duty to mitigate and will be relevant to the amount of damages the owner or employer may recover from the contractor at common law …” ([80] Sand Island v TKT).
Takeaway. The key takeaways from Sandy Island v TKT are that:
1. Defects liability clauses are in the interests of both the owner and the contractor.
2. The presence of the defects liability clause (in general) confers an additional remedy to the owner on top of the owner’s common law rights.
3. But the owner is not obliged to use this remedy.
4. However, if the owner does not exercise this remedy or prevents the contractor from carrying out rectification (without good reason), then such omission or act may impact on the owner’s duty to mitigate, and will be relevant on the quantum of damages that may be recovered.
While Sandy Island v TKT may not be making “new” law, it is an important reminder of the importance of defects liability clauses in construction contracts.
Tags: Building and construction law; Defects Liability; Defects Liability Clauses; Damages at common law
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