VARIATION CLAIMS: A GENTLEMAN’S CONTRACT IS HIS BOND
In Vim Engineering Pte Ltd v Deluge Fire Protection (SEA) Pte Ltd [2021] SGHC 63, the High Court held that when a construction contract stipulated that variation works shall be carried out only with written instructions from a designated person, those conditions must be met for a successful variation claim.
Brief facts. The defendant, Deluge Fire Protection (SEA) Pte Ltd (“Deluge”), was a subcontractor of Samsung C&T Corporation (“SCT”), the main contractor for a building and construction project (at [3]).
Deluge in turn subcontracted to Vim Engineering Pte Ltd (“Vim”) certain plumbing and sanitary works for part of the project (the “Subcontract”) (at [3]).
After the temporary occupation permit was obtained, but before the end of the defects liability period (“DLP”), Vim left the project site and did not do any further work (at [4]).
Vim claimed against Deluge for balance payment due for main works and alleged variation works, with an alternative claim for a fair and reasonable sum based on quantum meruit (at [5]).
Deluge counterclaimed for costs incurred by Deluge in completing the remaining main works and costs for rectification works during the balance of the DLP after Vim left the site (at [7]), as well as for various back-charges (at [8]).
A key issue before the High Court was Vim’s claims for variation works (at [10]), which we will be focusing on.
Variation works. Variation works was governed by clause 16 of the Subcontract, the key portion of which provided that “[a]ny variation work … shall be carried out only with written [instructions] from [Deluge’s] Project Manager …” (at [18]).
The High Court found that Vim’s variation claims failed (at [19]) because:
There were no written instructions from Deluge’s project manager; and
There was no waiver or estoppel in this regard.
No written instructions. The High Court followed and applied Mansource Interior Pte Ltd v CSG Group Pte Ltd [2017] 5 SLR 203 (“Mansource v CSG”), where the court had dismissed the variation claims for certain variation works carried out pursuant to verbal instructions (Mansource v CSG at [94]) (at [20]).
In Mansource v CSG, the contract had contained an express term precluding variation claims, save for variation works authorised and approved by the main contractor (Mansource v CSG at [7]). Since the main contractor had not authorised or approved any of the variation works for which the subcontractor claimed payment, the contractual conditions for a successful variation claim were not satisfied (Mansource v CSG at [101]).
Similarly, in this case, the Subcontract expressly provided that variation works shall be carried out only with written instructions from Deluge’s Project Manager (at [21]).
Vim did not plead that it had any written instructions to support its variation claims (at [22]).
Shop drawings did not constitute written instructions. Instead, Vim tried to say that for 6 of the 49 variation claims, it had received shop drawings from SCT which constituted the necessary written instructions (at [26]). But clause 16 of the Subcontract required written instructions from Deluge’s project manager (at [24]), and the High Court found that those drawings did not involve written instructions for variation works, let alone written instructions from Deluge’s project manager as (at [27]):
One of the drawings pre-dated the Subcontract;
Two of the drawings had references to rectification, and rectification of Vim’s defective works would not amount to a variation; and
The remaining three drawings were not explained by Vim in evidence.
Therefore, Vim could not satisfy the contractual conditions for a successful variation claim (at [28]).
No waiver or estoppel. Vim also sought to assert that Deluge was estopped from denying its claims, having allegedly: (at [22])
waived the requirement for “written instructions”;
verbally instructed Vim to carry out the variation works;
assured and/or represented to Vim that Deluge will pay the claim for variation works; and/or
accepted Vim’s invoices for variation works by signing on them.
The court found no such waiver or estoppel on the facts (at [30]).
Alleged verbal instructions. Vim argued that “a gentleman’s word is his bond” and said that as it had acted on verbal instructions, Deluge should pay notwithstanding the lack of written instructions (at [31] – [32]).
But the High Court found that such allegation would simply mean that the contractual requirement of written instructions had not been complied with (at [31]), and therefore, by not paying for such alleged variation works, Deluge was simply honouring the parties’ agreement pursuant to clause 16 of the Subcontract (at [32]).
The High Court further commented that even if Vim had trusted Deluge to pay Vim (which the High Court was not persuaded of), such trust was misplaced as Vim had contracted on the basis that it would only carry out variation works pursuant to a written instruction from Deluge’s project manager. Therefore, Vim should have expected variation claims without such instructions to be rejected (at [33]).
Signature of designated person on invoices. Vim also relied on the signatures of Deluge’s project manager, Veeraiah Nagasundarapandian (“Mr Sundar”), and his subordinate, on various purported variation works invoices to say that Deluge had accepted that Vim had carried out variation works and that Deluge would pay for them (at [34]).
However, the court accepted the evidence of Mr Sundar and his subordinate that they were simply acknowledging that the works had been carried out. This is different from accepting that those works were variation works, or that Vim would be paid for them (at [35]).
Further, on all the acknowledgment pages signed by Mr Sundar, he had added a comment to this effect: “[w]e will submit to SCT accordingly. Upon approval respond to [Vim]”.
The court accepted that this comment meant that Mr Sundar would submit the claims to SCT for approval and let Vim know the outcome of that: i.e., at most, Mr Sundar was only saying that if SCT were to approve and pay Deluge for those claims, Deluge would in turn pay Vim (at [35]). But as there was no evidence that SCT approved or paid Deluge for any of Vim’s variation claims, Deluge was not entitled to be paid.
No authority to waive contractual requirement. In any event, the court found that Mr Sundar and his subordinate had no authority to waive the requirement of written instructions under clause 16 of the Subcontract (at [36]).
The court found that the requirement of written instructions from a designated person served the following objectives: (at [37])
First, it provided for a written record, thus obviating disputes as to what was allegedly said.
Second, it focused the parties’ attention, at the time, on whether in principle there might be an adjustment to the contract sum.
The court then found that these objectives would be defeated if the designated person could dispense with written instructions which the parties had contractually stipulated for (at [38]).
Director’s alleged promise to pay. Vim also asserted that a director of Deluge had promised that Vim would be paid “upon Deluge receiving payment from SCT” (at [39]) in three meetings (at [40]).
The court found that it made no commercial sense for Deluge to have made such a promise, regardless of whether the variation claims were accepted and paid for by SCT (at [41]). This was because Vim had been sending invoices for variation claims over a few months, to which not only did Deluge not certify any for payment, but Deluge had also been deducting back-charges.
Given such history, the court held that “it was incongruous and unlikely for Deluge to have done a U-turn” (at [42]) at the time when Deluge and SCT had both carried out certain works within Vim’s scope for defects and delays, and for Deluge to promise to pay Vim all outstanding amounts claimed by Vim. It made even less sense after Vim had left the site while the DLP was still running that Deluge would make any promises of payment to Vim (at [43]).
No evidence in writing of oral agreement. The court also ascribed significance to the fact that it was unbelievable that there was nothing in writing (whether by email, WhatsApp, or otherwise) recording the alleged promise to pay (at [44]).
The court highlighted that on Vim’s case, it was at least the third time that the director was promising (and almost a year had passed since the first) and Deluge had not made any payment to Vim: yet there was still nothing in writing of such a promise (at [44]).
Therefore, the court dismissed Vim’s variation claims (at [49]).
Conclusion. Vim Engineering Pte Ltd v Deluge Fire Protection (SEA) Pte Ltd [2021] SGHC 63 is a classic case showing the importance of compliance with the contractual provisions for claiming variations.
When the contract provides that variation works should be carried out only with written instructions, it is insufficient for the contractor to claim for payment for variations simply on the basis that it had acted on verbal instructions or that the other party was unjustly enriched.
As the High Court stated, while a gentleman’s word is his bond, a gentleman’s word is also embodied in the contract itself.
It is also important to note that while the High Court accepted that such written requirements can be waived, on the facts of the case, none of the arguments for waiver succeeded.
Therefore, if you receive what you view as an oral instruction to carry out a variation, but your contract calls for a written instruction for variations, make sure that you obtain a written instruction before you carry out the works. If not, you may find it difficult to obtain payment for such works later, especially if the other party subsequently disavows that any oral instruction for a variation was given.
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