The Court of Appeal has handed down a judgment on Friday (28th August) ruling that defect liability clauses in building contracts, which provides for situations where contractors must rectify defects in a building, cannot oust the employer’s right to sue the contractor for damages unless there are clear words to such effect of taking away that right.
This ruling was made in the context of a dispute between businessman Thio Keng Thay and developer Sandy Island Pte Ltd, over numerous defects found in a $14 million Sentosa Cove waterfront villa owned by the former.
Mr Thio, who purchased and took possession of the property by March 2012, discovered several defects in the property and requested that rectification works be carried out by Sandy Island.
Following a joint inspection of the property by both parties, the developer did not acknowledge most of the defects but offered to investigate them, establish the causes of the same and proposed steps to rectify the defects.
However, Mr Thio refused to give permission for Sandy Island to carry out rectification works, reasoning that the proposed works were unsatisfactory and insufficient, and eventually engaged another contractor to do so instead.
Mr Thio – represented by Senior Counsel Cavinder Bull – then sued Sandy Island for breach of contract, claiming about S$2 million in damages for, among others, costs of engaging another contractor to carry out the rectification works. Sandy Island admitted to most of the defects but emphasised the point that Mr Thio had refused to grant them access to the property for rectification works.
Justice Lee Seiu Kin ruled in July last year that Sandy Island had breached its contractual duty to construct the property in “good and workmanlike manner”, while Mr Thio had breached the defects liability clause by unreasonably denying Sandy Island access to rectify the defects.
However, Justice Lee held that Mr Thio could nevertheless sue Sandy Island for damages despite his breach of the defects liability clause. He also found Mr Thio liable for defamation arising out of certain statements made in The Straits Times concerning the defects and awarded Sandy Island nominal damages of $1,000.
Sandy Island – whose legal team was led by Senior Counsels Davinder Singh and Lok Vi Ming – appealed only on the issue of Mr Thio’s right to sue for damages at common law, which was heard by the Court of Appeal in May this year and judgment was reserved then.
Justice Quentin Loh, who penned the judgment for the court, observed that Sandy Island’s case had shifted on appeal on two aspects. First, they had argued at trial that the defects liability clause completely excluded the developer’s right to sue for damages, but on appeal, they characterised the same clause as a “condition precedent”; i.e. that the employer, having not given them an opportunity to rectify the defects, had not fulfilled the pre-conditions in the clause and was therefore not entitled to sue for damages.
Second, Sandy Island had agreed on appeal that Mr Thio had the right to sue for damages in respect of defects which the developer did not admit to, whereas its case at trial was that the defects liability clause excluded the right to sue for damages in respect of any defects, a case which the Court of Appeal rejected as being “artificial”.
The court – which included Judges of Appeal Judith Prakash and Steven Chong – also agreed with Justice Lee’s analysis of the conflicting court decisions in this area of the law, holding that a High Court decision which Sandy Island’s legal team relied on had in turn relied only on an outdated legal textbook, and should no longer be followed in light of subsequent legal development.
Justice Loh also made reference to Parliament’s intention to “give a certain amount of protection to the innocent house purchaser by preventing the excesses of the building developers” when the Housing Developers (Control & Licensing) Act (Cap 130, 1985 Rev Ed) was enacted, in suggesting that defect liability clauses, as prescribed in standard form under the Housing Developers Rules, are not meant to replace the employer’s right to sue for damages.
The suit will now proceed to the assessment of damages stage, where the issues of whether the alleged defects were in fact defects and whether Mr Thio had failed to mitigate its losses by acting unreasonably to deny Sandy Island access for rectification works, will be canvassed.