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    01:26 AM Dominic Chan (Senior Associate Director, Characterist LLC)

    Extent and Limitation of a “Free-Hand Rights” Clause in Building and Construction Contracts where there are Defects: Ng Boo Han & Koo Oi Lian Audrey-Ann v Teo Boon Hiang Edward [2014] SGHC 267

        

    Introduction

    The Singapore High Court decision in Ng Boo Han & Koo Oi Lian Audrey-Ann v Teo Boon Hiang Edward [2014] SGHC 267 is an important decision which lays down the principles for construing the extent and limitation of a “free-hand rights” clause (which appears to grant a contractor extremely wide discretion in a building and construction contract) where there are building defects. This case deserves the attention of building contractors as well as potential customers or property owners, especially when they are entering into building and construction contracts.

    Background and Decision Below

    Ng Boo Han and his wife Mdm Audrey-Ann Koo Oi Lian (the “Appellants”) had asked their neighbour Edward Teo Boon Hiang (the “Respondent”) to renovate / rebuild their home. The Appellants entered into a simple 2-page contract, drafted by the Respondent, where they gave the Respondent “free-hand rights” in the construction.

    Subsequently, the Respondent sued for inter alia unpaid balance sums while the Appellants counterclaimed for defective works. The District Judge (“DJ”) substantially found in favour of the Respondent, and held inter alia that the Appellants had agreed to give him a free hand to build a rustic, English-country type house, and could not complain that the Respondent’s work and the materials used were not up to industry standards, insofar as these reflected the parties’ agreed “rustic” style.

    Decision of the High Court on Appeal

    On appeal, the Singapore High Court (the “Judge”) overturned many of the DJ’s findings. The Judge held inter alia that:

    (1) On the facts, there was no agreement to build the house in a “rustic” manner;

    (2) However, because the contract did give the Respondent a “free-hand” in designing and building the Appellants’ house, even if this was not expressly stipulated, it was open to him to build the house in a rustic manner if he so wished. However, there is a limitation to such wide discretion, and the Judge was of the view that “the argument in relation to rusticity cannot be used to whitewash every flaw in the Respondent’s work” (see para 44 of the Judgment). Items which were in breach of building regulations, were flawed on a functional level or which were a result of poor workmanship rather than a conscious aesthetic decision would clearly constitute defects which should have been rectified. 

    For a fuller account of the facts and holding of this decision, see here

    Commentary: What Constituted Defects Despite “Free-Hand Rights” Clause

    With the above principles in mind, the Judge went on to consider which items constituted defects.

    The items which were considered as defects include:

    (1)    Timber Laminate Floor Finish (on Second Floor): The Respondent admitted during cross-examination that this was damaged and needed to be rectified (i.e. poor workmanship);

    (2)    Roofing: The Respondent provided a zinc roof even though the contract provided for ceramic tile roofing. Furthermore, the roofing was incomplete and not watertight (i.e. poor workmanship / breach of contract specification / not functional);

    (3)    Glass Panel for Study Room: 4mm glass was used instead of the industry specifications which stipulated a minimum thickness of 10mm, raising safety issues (i.e. in breach of building regulations);

    (4)    Staircase Railings: Large gaps in staircase railings which were inconsistent with building regulations requiring the gaps to be no more than 150mm wide. The Judge held that pursuing a rustic design (as alleged by the Respondent) cannot justify breaching building regulations, which are imposed to ensure the safety of users (i.e. in breach of building regulations);

    (5)    Boundary Wall: The front driveway and boundary wall/gate protruded onto state land and needed to be pushed back (i.e. in breach of building regulations);

    (6)    Electrical Works: The electrical works for the house had failed to comply with industrial standards in numerous respects (i.e. in breach of building regulations).

    Items which were not considered as defects include the following:

    (1)    Ground Floor Marble Flooring Laid Upside Down: The marble tiles on the ground floor of the house were laid with the polished side down and unpolished backing side up as the floor finish. The Appellants’ expert opined that this was contrary to recognised building practice because, with the polished surface facing downwards, it was very difficult to get adhesion to the floor substrate. The expert, however, conceded during cross-examination that if the laying of the tiles upside down was deliberately done to achieve a rustic effect as part of the parties’ agreement, it would be acceptable to use the unpolished finishing for the marble tiles. Since the expert’s evidence was equivocal on this point, the Judge was of the view that it would not be safe to regard the unpolished marble flooring as a defect. This item illustrates how widely a “free-hand rights” clause would be read in favour of a contractor, even where it may seem inexplicable to a lay person that any contractor would pay good money for the supply of marble (presumably priced based on the polished side) only to lay them down facing the ground, buried for good indefinitely;  

    (2)    Timber Deck: While the Appellants’ timber expert had opined that the woods used for the patio deck were not recommended for external usage as they had “moderate durability” when exposed to the elements, the Judge did not read this report so far as to say that the Respondent’s choice of wood was so unreasonable that it constituted a defect;

    (3)    Rough Plaster Works and Poor Painting of Walls: There was no evidence that this would result in any functional (and not merely aesthetic) problems, and this fell within the “free-hand” allowance that the Respondent was given;

    (4)    Door and Window Handles: The Respondent’s evidence was that hollows had been carved out in the wooden windows to act as embedded handles as part of the rustic design. As this appeared to be a matter of aesthetic preference, this was not considered to be a defect.

    This is an important decision which lays down the principles for construing the extent and limitation of a “free-hand” clause which appears to grant a contractor extremely wide discretion in a building and construction contract.

    On the one hand, as can be seen above, even items which would, at first impression, amount to clear defects, may in the final analysis not constitute defects due to the wide reading of the “free-hands right” clause in favour of the contractor. 

    On the other hand, however, such wide discretion is in fact not unlimited, and the argument in relation to rusticity cannot be used to “whitewash” items which “were in breach of building regulations, were flawed on a functional level or which were a result of poor workmanship rather than a conscious aesthetic decision.” The Judge did not cite any existing authority for this proposition / principle, and this decision appears to be novel in this regard.

    Insofar as future contracting parties or customers wish to trust or empower their builder or contractor with such wide discretionary powers (e.g. for design and/or materials used), it would be imperative to expressly provide for the “style” of building, and to also expressly state that any works which breach building regulations, were functionally flawed, or were a result of poor workmanship, would constitute defects and must be rectified.   

    Commentary: Whether Rectification Works Must Have Been Carried Out

    The Judge went on to reiterate the trite principle that the normal measure of damages, in the case of defective construction works, is the cost of rectifying or completing the work. The Judge cited Mahtani and others v Kiaw Aik Hang Land Pte Ltd [1994] 2 SLR(R) 996 at [25] for this proposition. The Court in Mahtani held that such cost is assessed “at the time it was reasonable for such party to carry out the rectification work.”

    The important point of law laid out (or affirmed) in this case is that there has never been any rule that damages for defective works may only be awarded if the claimant proves that rectification works had in fact been carried out and paid for. Therefore, it was not essential that the Appellants had carried out the rectification works, and even if the DJ had disbelieved them on that score, he could still have gone on to award them damages based on the estimated cost of rectification. 

    While the Judge did not cite any authorities for this proposition, the Appellants had cited various authorities on appeal for the Judge’s consideration, including the following:

    (1)    Lo Lee Len v Grand Interior Renovation Works Pte Ltd and others [2004] 2 SLR(R) 1, where the Court held at [37]: “… The loss was the damage to the car. There is no magic to the repairs. The measure of loss is the estimated cost of restoring the car to its pre-accident condition and would remain so even if the repairs were never carried out. The plaintiff’s entitlement to compensation was not altered when the car was subsequently repaired at no cost to her…” [Emphasis added];

    (2)    The Teneriffe Development Pte Ltd v Alain Mahendran Arul and Another [2009] SGDC 107 at [28] where the Court awarded costs of rectifying certain building defects even though the rectification works had not been carried out: “… the fact that the defendants had not exercised their right to carry out their own repairs pursuant to clause 17 of the sale agreement should not be held against them. It being a contractual right, it was up to them whether they so wished to exercise it and a non-exercise of that right should not debar them from any claim for defects from the plaintiff developers if they were otherwise so entitled.” [Emphasis added].

    It is therefore important, in cases where there are alleged building defects, for the claimants to clearly document the alleged defects and to obtain an expert report from a building surveyor (or any equivalent report from a credible expert which would be accepted by the Court) to not only prove the defects, but also the estimated costs of rectifying them. Typically, such estimates will be based on or supplemented by two or more quotations from third party contractors (as well as the expert’s own database of estimated repair costs). Such a report and estimate will form the basis for the assessment of damages, and is all the more critical in cases where the claimants have not or cannot afford to carry out rectification works by the time damages are assessed by the Court.

    Commentary: Excessive or Unnecessary Remarks

    Finally, the Judge laid down a good guiding principle for decision-makers in the future when they are writing or delivering their grounds of decision. In this case, he cautioned against the making of excessive or unnecessary remarks by the Court against the losing party. He opined that such “remarks are, in [his] view, best avoided as they simply serve to compound the losing party’s sense of grievance, and might compel them to lodge appeals to vindicate themselves even though the cost of appealing is out of proportion to the sums at stake.” 

    In this case, the DJ had accused the Appellants of “flim-flamming the [Respondent] and squeezing him for more”, trying to extract their “pound of flesh” when they were not even entitled to a “jot of blood”. He even quoted four lines from William Blake’s poem Auguries of Innocence to describe what he perceived to be the Appellants’ unreasonable behaviour. In the Judge’s view, however, although the Appellants might be criticised for having unduly high expectations given the price they were paying for the Respondent’s work, there was no evidence of bad faith or unconscionable behaviour on their part, and the DJ’s remarks were thus not necessary. 

    * This blog entry may be cited as Dominic Chan, "Extent and Limitation of a 'Free-Hand Rights' Clause in Building and Construction Contracts where there are Defects: Ng Boo Han & Koo Oi Lian Audrey-Ann v Teo Boon Hiang Edward [2014] SGHC 267", Singapore Law Blog (29 January 2015) (http://www.singaporelawblog.sg/blog/article/81)

    ** A PDF version of this entry may be downloaded here

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