DIRECT PAYMENT ARRANGEMENT - CONTRACT OR NO CONTRACT
In Ten-League Engineering & Technology Pte Ltd v Precise Development Pte Ltd [2022] SGHC 317, the issue before the High Court was whether an oral contract had been formed between a main-contractor and a sub-sub-contractor for direct payment from the main contractor to the sub-sub-contractor, and if so, whether the oral contract been breached?
Background to the oral contract. By a sub-contract agreement dated 18 April 2019 (the “G-Con Sub-contract”), Precise Development Pte Ltd (‘Precise’) engaged G-Con Foundation Pte Ltd (‘G-Con’) as its piling sub-contractor for a Housing & Development Board project at Punggol North (‘Project’).
G-Con rented machinery and equipment from the plaintiff, Ten-League Engineering & Technology Pte Ltd (‘Ten-League’) to carry out piling works, including drilling and boring rigs, excavator cranes and excavators (the ‘Equipment’). The Equipment was rented by Ten-League to G-Con between August 2019 and February 2020. When Ten-League rented the Equipment to G-Con in this period, it issued invoices to G-Con monthly which set out the terms and conditions for the rental and the rental charge (the ‘Rental Agreements’).
In January 2020, G-Con fell into arrears in respect of its payment obligations to Ten-League. According to Ten-League, as of 29 February 2020, G-Con owed Ten-League $1,910,702.70.
Formation of the oral contract. From 14 January 2020 to 31 January 2020, Precise, Ten-League and G-Con were engaged in meetings and correspondence to attempt to resolve the issue of payments to Ten-League.
It suffices to say that Ten-League raised the issue of Precise making payments to Ten-League directly, and that Precise responded to say that if any such direct payments were to be made, there would be no contract between Precise and Ten-League, and that direct payment would be made purely on a goodwill basis.
No documents were signed by Precise in this period. In fact, one of Precise’s officers stated that Precise would not sign an acknowledgment issued by Ten-League because “there [was] no privity of contract” between Precise and Ten-League.
Subsequently, following a discussion between Mr Choo, CEO of G-Con, and Ms Poon, an officer of Precise, Precise issued a letter addressed to G-Con dated 4 February 2020 (‘4 Feb Letter’) stating, among others, that Precise would assist G-Con in making direct payments to Ten-League, though this was “purely to assist [G-Con]’s cash flow and without any obligation to do so” and that it “… would not create any sub-contract relationship between Ten-League and Precise”.
The parties then met on 6 February 2020 (‘6 Feb Meeting’) at Precise’s office. It is at this meeting that Ten-League alleged that a tripartite contract was formed between Ten-League, G-Con and Precise regarding a direct payment arrangement (the ‘Direct Payment Agreement’).
On 7 February 2020, a letter was sent by G-Con to Precise (‘7 Feb Letter’) allegedly recording the terms of the Direct Payment Agreement which had been reached at the 6 Feb Meeting. Importantly, this 7 Feb Letter referred to the 4 Feb Letter and “… stated that G-Con was acceptable to Precise’s terms…”.
Precise did not respond to this letter though Precise denied that any such agreement was in fact reached.
Payments to G-Con. On 24 February 2020, Precise issued a cheque for $811,316.78 to G-Con pursuant to Payment Certificate No. 13, and G-Con then used the sums to settle other debts.
As such, Ten-League proceeded to shut the Equipment down immediately and started demobilising the Equipment from 6 March 2020, as it was of the view that Precise had failed to make payment per the alleged Direct Payment Agreement since Precise did not make payment to Ten-League.
The Dispute. On 26 August 2020, Ten-League commenced the present suit against Precise and Mr Choo for, among other things, breach of contract.
Ten-League claimed that the Direct Payment Agreement was formed on 6 February 2020, or, in any event, on 7 February 2020 ([39]).
Ten-League argued (in gist) that either an agreement arose at the 6 Feb Meeting, or the 6 Feb Meeting culminated in a counteroffer by Precise which was accepted by G-Con in the 7 Feb Letter and impliedly accepted by Ten-League ([40]).
Precise denied that any oral agreement was reached on 6 February 2020.
Precise argued that while it consented to a direct payment arrangement by the terms of the 4 Feb Letter, it was clear that such a direct payment arrangement was not intended to create any contractual relationship between Precise and Ten-League, and that any sums payable would be subject to G-Con’s assessment and confirmation. Therefore, Precise argued that no offer by Ten-League was accepted by Precise.
Further, Precise argued that even if it did accept Ten-League’s offer at the 6 Feb Meeting, there was no consideration provided by Ten-League so as to give rise to a contract.
What the High Court held. Thean J found that the documentary evidence showed that no agreement was reached in the 6 Feb Meeting nor after the 6 Feb Meeting.
Thean J found that Ten-League’s aim was to obtain an agreement from Precise that it could enforce, and it sought to do so in the Draft Acknowledgement which Precise did not sign.
Hence, the parties went in to the 6 Feb Meeting with Precise having clearly expressed its position that it would not be entering into a contract with Ten-League as can be seen from the 4 Feb Letter.
In this regard, Ten-League’s then Chief Financial Officer, Mr. Lim Teck Meng, who drafted the 7 Feb Letter, conceded on cross-examination that while the 7 Feb Letter was a very important letter, there was no reference to an oral agreement reached on 6 February in the letter itself, and in fact accepted the terms in Precise’s 4 Feb Letter unconditionally.
Thean J gave weight to Precise’s careful statements throughout the correspondence where Precise had consistently and repeatedly denied any contracts between itself and Ten-League. See, e.g., [123] as excerpted below:
“123. For there to be a contract enforceable by Ten-League, there must be a contract between Precise and G-Con. However, there is no evidence of such a contract between Precise and G-Con. First, as discussed at [88] above, the 4 Feb Letter is clear that it does not create any obligation on Precise to make direct payment to Ten-League. This is made clear from Precise’s statement that it was agreeing to assist in making direct payments to Ten-League “purely to assist [G-Con]’s cash flow and without any obligation to do so” [emphasis added]. To my mind, this makes clear that Precise did not make a “definite promise to be bound” and there was therefore no offer capable of giving rise to a contract between it and G-Con (see [90] above). Further, this makes clear that Precise did not intend, by this arrangement (if it were ever to materialise), to create any legal relations with G-Con. And as I have found at [112] above, the terms of the 4 Feb Letter persisted throughout parties’ discussions. Second, even on Ten-League’s case, the main motivation for Precise entering any Direct Payment Agreement was to secure Ten-League’s continued leasing of the Equipment to G-Con such that the Project would not be delayed. A contract only between Precise and G-Con would not result in Ten-League being obliged to do so. There is therefore no reason why Precise would enter such an agreement. Precise has been clear that in the 4 Feb Letter it simply consented to an arrangement that had been proposed by G-Con. This explanation is consistent with the contents of the 4 Feb Letter.”
(emphasis in original in italics; our emphasis in bold)
As such, Valerie Thean J held that no Direct Payment Agreement as pleaded by Ten-League was reached between the parties ([120]), and hence dismissed the application.
Conclusion. When a sub-contractor faces difficulties in paying its sub-sub-contractor, it is not unusual for the sub-sub-contractor to suggest that the main contractor makes payments directly to the sub-sub-contractor to keep the works going. However, many main contractors are wary that agreeing to such arrangements would cause them to assume responsibilities to the sub-sub-contractor that would otherwise not have arisen.
Ten-League Engineering & Technology Pte Ltd v Precise Development Pte Ltd [2022] SGHC 317 is therefore an important case as it shows that it is possible for a main contractor to “agree” to such arrangements, without entering into any contracts with the sub-sub-contractor.
As the facts of the case shows, it is important to ensure that the contemporaneous correspondence would support that there was no intention to enter into a contractual relationship. For instance, this may be done by carefully stating that the payments were made purely on a good-will basis without any obligation (on the part of the payor) to do so, and that the payments were not intended (if they ever materialise) to give rise to any legal relations. Otherwise, there may be considerable uncertainty, and the facts may support the finding that an oral agreement (or an agreement by conduct) had arisen between the parties.
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