CLAIM FOR VARIATION WORKS: WRITTEN INSTRUCTION AND WAIVER
Vim Engineering Pte Ltd v Deluge Fire Protection (S.E.A.) Pte Ltd [2023] SGHC(A) 2 highlights the importance of contractual provisions when it comes to claims for variations.
This decision from the Appellate Division of the High Court concerns an appeal from Vim Engineering Pte Ltd v Deluge Fire Protection (SEA) Pte Ltd [2021] SGHC 63, which we had previously blogged about in an earlier blog post.
This blog is a follow-up from our previous blog, and covers a few key points of the appeal decision. At the gist of over-simplification, what the appeal shows is that the wording of the clause and the context matters, as well as how you argue your case.
Variation works. As a start, cl 16 of the Subcontract governed variation works. We set out the relevant excerpt of cl 16 from [11] below:
“16 VARIATIONS
Any variation works such as addition[s] or omission[s] or modification[s], shall be on a back-to-back basis with the Main Contract. Such variation shall be carried out only with written instruction[s] from [Deluge’s] Project Manager and the unit rates are in accordance with the agreed SOR for this Subcontract.”
Any experienced contractor will notice that the ‘magic words’ “condition precedent” are not present. However, the clause does use the phrase “only with written instruction[s]”. So, the question is: if there is no written instruction, is that fatal to a variation claim?
Drafting of cl 16. Although cl 16 provided that variation works “shall be carried out only with written instruction[s] from [Deluge’s] Project” (emphasis added in bold), the Court considered the way in which cl 16 was drafted and held that the lack of such written instructions did not bar the variation claim under the clause.
The Court’s reasoning can be found at [32] – [35], but in gist, the Court held that:
Cl 16 “is not drafted in a stringent manner requiring strict compliance failing which a variation claim will fail”.
For example, the clause is not drafted to say that having written instructions is a condition precedent for any right to additional payment, or that if there are no written instructions then Vim will forfeit the right to any such payment or be barred from claiming such payment.
Courts have rationalised reasons to enable Contractors to recover without a variation order “by “implied contract” or “unjust enrichment” reasoning; by giving a wide interpretation to the Arbitrator’s power of review; by treating a particular variation agreed to by the Employer as outside the scope of the contract or by finding that there was a waiver of the required formalities.” (citing Hudson’s; emphasis added by the Court)
Each contract is fact-specific; “Every contract has to be construed on its particular terms and where necessary within the context in which it was entered into …”.
We note that many construction contracts do specify that a written instruction is a condition precedent for any right to additional payment. However, the Court’s reasoning makes clear that prudent employers may wish to scrutinize their contracts to see if they have put in such “stringent” conditions, as the absence of such “stringent” conditions may be very significant.
Mansource. The Court also distinguished Mansource Interior Pte Ltd v CSG Group Pte Ltd [2017] 5 SLR 203 (“Mansource”). The relevant clause in Mansource was “quite specific and quite different from cl 16” as it stated that (at [36]):
“This Sub-Contract shall be on a back-to-back basis to the contract between [the plaintiff] and [the main contractor] and there shall be no claim whatsoever unless it is a variation work authorised and approved by [the main contractor] only.” (emphasis in bold italics added by the Court)
It was therefore held by the court in Mansource that “… as a consequence, the defendant was precluded from advancing a variation claim under either sub-contract unless the main contractor authorised and approved the variations.” (at [36])
The Court emphasised that the problem faced by the defendant in Mansource was one of pleadings (at [36]):
“It is important to note that although the court in Mansource held, inter alia, that the defendant was unable to claim for variations, despite the plaintiff’s representative, Ms Lee, confirming at trial that instructions on variations were generally given verbally and that works under a particular variation order were in fact carried out, the court stated … that the defendant had not pleaded an alternative basis for its counterclaim for variations on the basis of quantum meruit in the law of unjust enrichment. The court in Mansource also stated there was no attempt by the defendant to make good its submissions on the basis of a waiver. This case is therefore of limited assistance to Deluge, as it accepts that despite the stringent drafting, there may still be a claim on alternative bases, except that they had not been pleaded.”
This highlights the importance of how you (or your lawyers) pitch your case when you are in dispute resolution proceedings. A “claim” may be framed in a variety of ways, and sometimes, it is prudent to do so.
Waiver. Notwithstanding the contractual requirement for written notice, there may be sufficient proof of waiver or estoppel to permit a claim for variation work (at [37]).
The Court noted that cl 16 of the Subcontract “provides that any variation works … shall be on a back-to-back basis with Deluge’s subcontract with Samsung but it goes on to provide that … Deluge … reserves to itself control over sanctioning of variations and Vim has to base its claims on the unit rates in accordance with the Schedule of Rates in the sub-subcontract with Deluge…” (at [41]).
Thus, when claims were submitted to Deluge’s representatives and they wrote comments, those comments were important to understand what was Deluge’s true basis for disallowing the claims. See [44] – [45]:
“44 Quite aside from the fact that Deluge’s representatives Mr Tamil and Mr Sundar signed 32 of the 34 variation work claims, what was of particular significance was the fact that, Deluge’s employees made written comments on 24 of the 32 signed forms stating that the claims would be subject to Samsung’s approval. Against the backdrop of the operating “back-to-back” mechanism as noted above, this was a clear acknowledgment that Deluge was not disallowing the claims on the basis of not having given written instruction under cl 16 of the Subcontract to carry out such work. Subsequently, even when the claims passed into the domain of Deluge’s administrators, there was no evidence that the administrators rejected the variation work claims on the basis of the requirement of written notice nor did they appear to regard Mr Tamil and Mr Sundar to be in error for receiving and accepting the same invoices and forms. In fact, for variation work claims UIC/DE/007, UIC/DE/008 and UIC/DE/009, the handwritten comments directed Vim to “clarify” or “discuss with [the] contract department”. Thereafter, from form UIC/DE/012 onwards, the comments were ostensibly made with greater confidence as they stated that the claims would be subject to Samsung’s approval. If any inference is to be drawn, it would be that on balance, Mr Sundar and Mr Tamil had sought such clarification and understood that such invoices/forms would be subject to Samsung’s approval. Deluge’s administrators must be taken to have known of the notice requirement in cl 16 and their silence amidst the passage of time indicates to us that there had been a voluntary relinquishment of this right.
45 In our judgment, it was irreconcilable for Deluge’s representatives to sign the variation work claims and include written comments that these would be subject to Samsung’s approval, and then for them to subsequently insist that the work ought to have been carried out only under written instructions from Deluge pursuant to cl 16 of the Subcontract. This is not to say that these acknowledgments, on their own, amounted to an acknowledgment that Vim would be paid for these works (given that this was subject to Samsung’s approval). But we are amply satisfied that Deluge, by the totality of circumstances, had – in at least 24 of Vim’s variation works claims – by election waived the requirement of written notice and could not now demand its strict adherence. As for Samsung’s approval, Deluge did not at trial contend that Samsung had denied Vim’s variation work claims. It is not open to Deluge to mount this argument now.”
(emphasis added in bold)
In fact, the Court found that (at [50]):
“50 … Mr Sundar was the Project Manager with the authority to issue written instructions under cl 16. … Mr Sundar was the one person who should have, but did not, reject Vim’s variation claims at the material time as not being carried out pursuant to his written instructions. Neither did he protest or reserve Deluge’s position in accepting them.”
The Court concluded that there was a “clear waiver of the written instruction requirement in cl 16” (at [53]) on the facts of the present case.
We pause here to note that there is one point which is not quite clear. In the first instance decision, the High Court held that shop drawings did not constitute written instructions. It is not clear if this point was reversed on appeal, as the Court did not seem to have found that drawings do constitute written instructions.
Significance. At the end of the day, what this case shows is that if the contract says that you need a written instruction before a variation can be claimed, it is prudent to ensure that you have obtained such a written instruction.
The absence of such a written instruction may not, depending on the facts of the case, be fatal, as ultimately, it is a fact-specific inquiry which depends on the way the contract clause is drafted.
Hence, a contractor may, depending on the facts of the case, be able to plead and succeed in arguing that there was a waiver of the contractual requirement by the upstream contractor or employer, or on the basis of quantum meruit.
However, depending on the facts of the case and the clause in question, there may be difficulties (which will have to be overcome) with arguments based waiver or quantum meruit as well.
And importantly, many contracts do specify that a written instruction is a condition precedent for a valid variation claim and do specify that requests to confirm an oral instruction must be made within a specified time. In such cases, it is quite likely that such clauses will require strict compliance.
Therefore, in general, a prudent contractor should either seek legal advice on the interpretation of the relevant clauses, or alternatively, ensure that any oral instruction for additional works is followed with a written instruction.
This publication is not intended to be, nor should it be taken as, legal advice; it is not a substitute for specific legal advice for specific circumstances. You should not take, nor refrain from taking, actions based on this publication. Chancery Law Corporation is not responsible for, and does not accept any responsibility for, any loss or damage that may arise from any reliance based on this publication.