December 1, 2015
In contrast to main contract documents, which are usually drafted, compiled and vetted by the employer’s consultants and lawyers, sub-contract documents are usually prepared by the main contractor incorporating bits and pieces of the main contract.
The recent decision of UES Holdings Pte Ltd v Grouteam Pte Ltd  SGHC 275 illustrates how greater care in the preparation of sub-contract documents will avoid disputes.
UES Holdings Pte Ltd (“UES”) was the main contractor to Changi Airport Group (Singapore) Pte Ltd (“CAG”). Grouteam Pte Ltd (“Grouteam”) was UES’s domestic sub-contractor. Grouteam applied for and obtained an adjudication determination against UES for a progress claim of about S$2.9 million. UES applied to the High Court to set aside the adjudication determination on the basis that Grouteam failed to comply with the relevant statutory timelines for the adjudication application.
The dispute turned on the contractual timeline for the making of a payment claim. Ascertaining this was difficult and the Court described the Sub-contract as “cobbled together”, “enigmatic” and “confusing”. The Court observed that this was unfortunately not all that unusual in some of the construction contracts that end up in arbitration or the courts.
The Sub-contract, which consisted of 507 pages, began with a “Sub-contract Agreement” containing four schedules and included Annexes, Annex 1 entitled “Summary of Contract Negotiations” and Annex 4 entitled “Price Schedule and Rate Schedule”. Annex 4 contained two versions of a document titled Preliminaries (General Conditions and Preliminaries) extracted from the tender documents of the main contract. One version was with handwritten notations, while the other was with typewritten notations. Both were signed and stamped.
Dispute as to intended deadline for payment claim
UES’s case was that Grouteam’s payment claim should have been submitted within seven days from the end of each calendar month according to Item E of Sect 1.1/16 of the Preliminaries. As the payment claim was submitted on 20 April 2015, it was served out of time.
Grouteam’s case was that Clause E of Annex 1 referring to the submission of a monthly invoice reflecting the value of work carried out submitted not later than the 20th of each month, meant that its payment claim was submitted on time.
UES argued that Item E applied because it refers to “payment claim” while Clause E referred to “invoice”. Also, Clause K of Annex 1 stated that all stipulations agreed upon in Annex 1 shall remain valid until the actual placement of a purchase order. As the purchase order was placed, Annex 1 (and Clause E) no longer applied. Even if Clause E applied, Item E should prevail because it constituted a reference to the Main Contract and Section 6 of the First Schedule to the Sub-contract Agreement gave precedence to any term referring to the Main Contract in case of inconsistency.
Grouteam argued that Item E did not apply and should be disregarded because Item E referred to “Contractor” and “Superintending Officer”, which are terms that are not defined in the Sub-contract Agreement. Also, “Employer” is defined in the Subcontract Agreement as CAG. Therefore, Item E applied to payment claims from “Contractor” to “Employer” (i.e. UES to CAG) but not payment claims from Grouteam to UES. Also, Item E was not a reference to the Main Contract but to a standard form main contract and so there was no conflict to be resolved by Section 6. Further, given that Item E and Clause E were ambiguous, the ambiguity should be resolved in Grouteam’s favour, pursuant to the contra proferentum rule that disallows UES from benefiting from the ambiguity it had created as it drafted both provisions.
Court’s determination of parties’ intentions
To come to its decision, the Court had to work out what UES and Grouteam intended in the Sub-contract Agreement, untangling the web caused by parts of the Sub-contract which did not fit with another, and bad drafting which made it difficult to understand what was meant.
- The Court first had to decide if Item E applied. The Court rejected Grouteam’s argument that Item E did not apply and its overly technical reading of the Preliminaries. The Preliminaries, which was a tender document for the Main Contract, was clearly included in the Sub-contract and may apply mutatis mutandis, meaning with the necessary alterations such that references to “Contractor” and “Employer” would mean Grouteam and UES respectively. This was especially since the Preliminaries were annotated, signed and stamped by Grouteam.
- The Court then had to decide whether Item E, Clause E or any other provision of the Sub-contract stipulated the timeline for Grouteam’s payment claim. The Court observed that Clause K of Annex 1 indicated the true nature of Annex 1 – that it was a quotation which terms are to remain firm. Looking at the terms of the quotation and of the purchase order that followed, it was clear that some provisions of Annex 1 survived the issue of the purchase order.
- The Court considered Clause B of Annex 1 that seemingly gave precedence to Annex 1, then the Sub-contract Agreement, followed by the Preliminaries. Clause B itself had many various inconsistent terminologies and the Court did not think it was necessary to try to resolve them. Instead, the Court found that parties could not have intended that Clause B of Annex 1 (which was a document prior to the concluded sub-contract) overrides Section 6 of the First Schedule to the Sub-contract Agreement (which is the concluded sub-contract), especially given Clause K of Annex 1 that essentially provided that Annex 1 will remain valid until a contract is concluded. Thus, the Court found that Clause B was superseded. The Court also found that Clause E was superseded by Item E.
- The Court also found that even if Clause E survived, Section 6 of the First Schedule to the Sub-contract Agreement pointed towards Item E applying over Clause E. Section 6 listed Annex 1 (containing Clause E) and Annex 4 (containing Item E). Section 6 provided that in the event of any inconsistency between the documents listed, references to the Main Contract shall prevail. The Court found that as Item E was in the Preliminaries taken from the Main Contract, Item E would prevail over Clause E.
Accordingly, the Court agreed that the payment claim should have been submitted within seven days from the end of each calendar month and Grouteam’s payment claim was out of time. The adjudication determination was set aside.
The learning point from this case is that sub-contract documents should be prepared with greater care, especially when parts of the main contract are incorporated into the sub-contract to ensure that there is no ambiguity and that the key contractual provisions (in this case, the timeframe for submission of payment claims) can be easily and readily identified. Although precedence clauses are useful to act as a tie-breaker, their effectiveness may be hampered by poor drafting and the presence of more than one precedence clause (as occurred in this case).