DEFECTS AND CONTRACT
Many construction disputes involve disputes over defects. It is important for the parties to bear in mind that the parties’ contract would affect what amounts to a defect, and the consequences flowing from such a defect.
What is a defect? In Millenia Pte Ltd (formerly known as Pontiac Marina Pte Ltd) v Dragages Singapore Pte Ltd (formerly known as Dragages et Travaux Publics (Singapore) Pte Ltd) and others (Arup Singapore Pte Ltd, third party) [2018] SGHC 193 (“Millenia v Dragages”), the Singapore High Court (“SGHC”), affirming the concept of a defect as set out in Hudson’s Building and Engineering Contracts (Sweet & Maxwell, 13th Ed, 2015), held that a “defect obtains in every case where work does not comply with contractual requirements” ([226] Millenia v Dragages).
The SGHC then proceeded to distinguish between two types of defects ([227] – [228] Millenia v Dragages):
(a) Where there are specific contractual requirements: In such instances, the SGHC held that it sufficed to show a departure from the specifications to establish a defect.
(b) Where there are no specific contractual requirements: In such instances, the SGHC held that whether the alleged defects are indeed defects would then turn on more general contractual requirements, such as, e.g., fitness for purpose and safety requirements.
Since a departure from a contractual specification is a defect, and a departure from a contractual specification is a breach of contract, can the parties then agree that any such departure would amount to a material breach of contract?
“Materially affect the size”. In recent English Court of Appeal (“EWCA”) decision of Mears Ltd v Costplan Services (South East) Ltd & Ors [2019] EWCA Civ 502 (“Mears v Costplan”), one of the issues considered by the EWCA was whether a breach of Cl. 6.2.1 of the contract amounted to a material breach of contract.
Cl. 6.2.1 of the contract provides as follows:
“6.2. The Landlord shall not make any variations to the Landlord's Works or Building Documents which:
6.2.1. materially affect the size (and a reduction of more than 3% of the size of any distinct area shown upon the Building Documents shall be deemed material), layout or appearance of the Property;”
In brief, it was argued by the appellant that any breach of Cl. 6.2.1 would be a material breach of contract ([28] Mears v Costplan). In other words, a single breach, no matter how trivial, would be a material breach.
“Materially affect the size” vs. material breach. The EWCA held that the effect of this clause was that the parties had agreed and identified the circumstances on when a departure from the room size amounted to a breach of contract, and had agreed that a reduction of 3% would be “material” ([38] – [40] Mears v Costplan).
However, the EWCA held that the language of this clause does not say that the resulting breach of contract would itself be “material”. As per EWCA at [41] Mears v Costplan, “… There is nothing in clause 6.2.1 which addresses the character or quality of the breach. The clause simply provides a mechanism by which a breach of contract can be indisputably identified.”
Commercial impact. The EWCA also stated that if any breach of the 3% requirement would amount to a material breach, that would “lead to a very uncommercial result. It would mean that every room would be the subject of minute measurement and remeasurement, and that one trivial failure to meet the 3% tolerance, allowed Mears to determine the AFL. … clear words would be necessary for such a draconian result and there are no such words in clause 6.2.1” ([42] Mears v Costplan).
More specific, less ambiguity, less (potential) dispute. Tying the threads together:
(a) If there is a specific requirement, breaches of that requirement would amount to a defect.
(b) Where there are no specific requirements, then the parties would fall back to the other contractual requirements to determine if there was a defect.
(c) Parties can contract to provide that a failure to meet the requirement would amount to a material breach of contract.
(d) However, in factual scenarios similar to Mears v Costplan, unless clear words are used, the courts would be slow to say that any breach (no matter how trivial) would amount to a material breach.
In other words, the clearer the specifications, the less ambiguity there would (or should) be over whether there is a defect. This would (or should) in turn reduce the likelihood of a dispute.
Furthermore, if the parties want to make clear that a breach of a particular specification is a material breach of the contract, the parties would do well to ensure that the contract clearly specifies so. Otherwise, the courts may be slow to say that any breach (no matter how trivial) would be so important as to amount to a material breach.
Tags: Building and Construction; Defects; Contractual Interpretation; Material breach
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. Many construction disputes involve disputes over defects. It is important for the parties to bear in mind that the parties’ contract would affect what amounts to a defect, and the consequences flowing from such a defect.
What is a defect? In Millenia Pte Ltd (formerly known as Pontiac Marina Pte Ltd) v Dragages Singapore Pte Ltd (formerly known as Dragages et Travaux Publics (Singapore) Pte Ltd) and others (Arup Singapore Pte Ltd, third party) [2018] SGHC 193 (“Millenia v Dragages”), the Singapore High Court (“SGHC”), affirming the concept of a defect as set out in Hudson’s Building and Engineering Contracts (Sweet & Maxwell, 13th Ed, 2015), held that a “defect obtains in every case where work does not comply with contractual requirements” ([226] Millenia v Dragages).
The SGHC then proceeded to distinguish between two types of defects ([227] – [228] Millenia v Dragages):
(a) Where there are specific contractual requirements: In such instances, the SGHC held that it sufficed to show a departure from the specifications to establish a defect.
(b) Where there are no specific contractual requirements: In such instances, the SGHC held that whether the alleged defects are indeed defects would then turn on more general contractual requirements, such as, e.g., fitness for purpose and safety requirements.
Since a departure from a contractual specification is a defect, and a departure from a contractual specification is a breach of contract, can the parties then agree that any such departure would amount to a material breach of contract?
“Materially affect the size”. In recent English Court of Appeal (“EWCA”) decision of Mears Ltd v Costplan Services (South East) Ltd & Ors [2019] EWCA Civ 502 (“Mears v Costplan”), one of the issues considered by the EWCA was whether a breach of Cl. 6.2.1 of the contract amounted to a material breach of contract.
Cl. 6.2.1 of the contract provides as follows:
“6.2. The Landlord shall not make any variations to the Landlord's Works or Building Documents which:
6.2.1. materially affect the size (and a reduction of more than 3% of the size of any distinct area shown upon the Building Documents shall be deemed material), layout or appearance of the Property;”
In brief, it was argued by the appellant that any breach of Cl. 6.2.1 would be a material breach of contract ([28] Mears v Costplan). In other words, a single breach, no matter how trivial, would be a material breach.
“Materially affect the size” vs. material breach. The EWCA held that the effect of this clause was that the parties had agreed and identified the circumstances on when a departure from the room size amounted to a breach of contract, and had agreed that a reduction of 3% would be “material” ([38] – [40] Mears v Costplan).
However, the EWCA held that the language of this clause does not say that the resulting breach of contract would itself be “material”. As per EWCA at [41] Mears v Costplan, “… There is nothing in clause 6.2.1 which addresses the character or quality of the breach. The clause simply provides a mechanism by which a breach of contract can be indisputably identified.”
Commercial impact. The EWCA also stated that if any breach of the 3% requirement would amount to a material breach, that would “lead to a very uncommercial result. It would mean that every room would be the subject of minute measurement and remeasurement, and that one trivial failure to meet the 3% tolerance, allowed Mears to determine the AFL. … clear words would be necessary for such a draconian result and there are no such words in clause 6.2.1” ([42] Mears v Costplan).
More specific, less ambiguity, less (potential) dispute. Tying the threads together:
(a) If there is a specific requirement, breaches of that requirement would amount to a defect.
(b) Where there are no specific requirements, then the parties would fall back to the other contractual requirements to determine if there was a defect.
(c) Parties can contract to provide that a failure to meet the requirement would amount to a material breach of contract.
(d) However, in factual scenarios similar to Mears v Costplan, unless clear words are used, the courts would be slow to say that any breach (no matter how trivial) would amount to a material breach.
In other words, the clearer the specifications, the less ambiguity there would (or should) be over whether there is a defect. This would (or should) in turn reduce the likelihood of a dispute.
Furthermore, if the parties want to make clear that a breach of a particular specification is a material breach of the contract, the parties would do well to ensure that the contract clearly specifies so. Otherwise, the courts may be slow to say that any breach (no matter how trivial) would be so important as to amount to a material breach.
Tags: Building and Construction; Defects; Contractual Interpretation; Material breach
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.