No implied obligation to work with due diligence and expedition | White & Case LLP International Law Firm, Global Law Practice

No implied obligation to work with due diligence and expedition

The Singapore Court of Appeal has recently held that there was no implied term of due diligence and expedition in a construction contract. This case aligns the Singaporean approach with that of the English courts.

A term of due diligence and expedition imposes an obligation on contractors or sub-contractors to maintain certain levels of progress and performance throughout the life of a project. This obligation is separate and in addition to the obligation to complete the works by a certain date. The issue of whether and when such a term can be implied into a construction contract has not previously been addressed by the courts of Singapore.

 

CAA Technologies Pte Ltd and Newcon Builders Pte Ltd [2017] SGCA 53

The key facts of the case are as follows:

  • Newcon Builders Pte Ltd ("Newcon"), the main contractor on a medical technology hub project, entered into a sub-contract with CAA Technologies Pte Ltd ("CAA") to design, produce and install hollow core slabs (the "Sub-Contract").
  • The Sub-Contract was recorded in a brief Letter of Intent ("LOI") which envisaged the parties subsequently signing a more detailed Letter of Acceptance ("LOA"), but CAA never executed the LOA.
  • CAA repeatedly failed to deliver the hollow core slabs in accordance with the dates prescribed in the construction programme schedule, so Newcon terminated the Sub-Contract.
  • CAA sued Newcon for wrongful termination. Newcon brought a counterclaim against CAA for breach of contract, claiming reliance costs and the liquidated damages that Newcon had to pay to the Employer due to the delay in the overall project.

 

The decision

The Court of Appeal found that Newcon's termination was justified, but only on the basis that CAA had breached an express term of the Sub-Contract requiring CAA to follow the construction programme. While the term was not found to be a condition of the contract, CAA's constant delays and unresponsiveness deprived Newcon of substantially the whole benefit of the contract and therefore constituted a repudiatory breach.

On the question of whether an implied term of due diligence and expedition could be found, the Court considered, and ultimately followed, the approach of the English courts in Leander Construction Ltd v Mulalley and Company Ltd [2011] EWHC 3449 (TCC) and declined to imply any such term. On the facts, the Court found that there was no true "gap" to be filled in the original contract (so as to necessitate the implication of a due diligence and expedition obligation) because: (i) the parties could have used an express term but chose not to, and (ii) the Sub-Contract already contained an obligation to complete the works by a certain date.

The Court noted that due diligence terms are relatively common in standard form construction contracts in Singapore, but the LOI signed by the parties in this case conspicuously did not contain such a term. The Court also placed significance on the fact that Newcon's unsigned draft of the LOA did contain a due diligence clause, which meant that this type of term was not outside of the parties’ contemplation. There was thus no true "gap" left by the parties to be filled by an implied term.

The Court also found that, since construction contracts already provide for an ultimate completion date, it is unnecessary to impose any interim progress obligations on a contractor. An implied term was particularly unnecessary on the present facts since the LOI already provided Newcon with a mechanism to control interim progress in the form of the construction programme.

 

Conclusion

This case confirms that the courts of Singapore, like the English courts, will be hesitant to imply a term of due diligence and expedition into a construction contract. This is in contrast to the position taken by the courts in Hong Kong where such an obligation is routinely implied (see, for instance, Chan Shun Kei v Hong Kong Construction (Hong Kong) Ltd [2014] HKCFI 189). Parties desiring a due diligence term should therefore seek to include it expressly, even in preliminary agreements.

This case also serves as a reminder that where a contract requires adherence to a construction programme, contractors and sub-contractors should take this obligation seriously. Whilst it is clear that not every breach of the programme will be enough to create an entitlement to terminate, contractors should be communicative about the reasons for the delay, and be clear in their intentions to make up for lost time in order to avoid the presumption being made that they no longer intend to be bound by the time provisions of the particular contract.

 

Phoenix Kushner, a trainee solicitor at White & Case, assisted in the development of this publication.

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