Variation of works – a reminder to comply with contractual requirements

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Authored by: KK Cheung

Where a construction contract stipulates that variation works shall be carried out only with written instructions from a designated person, can a contractor nevertheless get paid on his variation claims because he trusted that he would be paid, notwithstanding what the contract said? That was the issue before the High Court of Singapore in Vim Engineering Pte Ltd v Deluge Fire Protection (SEA) Pte Ltd [2021] SGHC 63. The contractor (Vim) argued that “a gentleman’s word is his bond”, and so its employer (Deluge) should pay for variation works that had been orally requested, although the contract between the parties stipulated that variation works shall be carried out only with written instructions from Deluge’s project manager (and there were no such written instructions). The court held that Vim’s variation claims failed because there were no written instructions from Deluge’s project manager as required under the Subcontract and there was no waiver or estoppel in this regard. This case serves as a reminder for contractors to ensure that they fully comply with the contractual requirements for variation of works.

Background

Deluge, was a subcontractor for a construction project. Deluge subcontracted part of the works to Vim (Subcontract). Vim left the project before completion of the main works and later claimed from Deluge the balance it said was due for the main works and also an amount for alleged variation works.

Variation works provision in Subcontract

Clause 16 of the Subcontract provided that “[a]ny variation work such as [additions] or [omissions] or [modifications], shall be on a back-to-back basis with the Main Contract. Such variation shall be carried out only with written [instructions] from [Deluge’s] Project Manager … [Vim] shall be entitled to ninety percent (90%) … or shall allow a discount of 10% (Profit & Attendance) for [Deluge], on any approved variation claim for additional work orders”.

Vim accepted that it did not have any written instructions to support its variation claims, but argued that Deluge was estopped from denying its claims because Deluge had allegedly waived the requirement for “written instructions”, verbally instructed Vim to carry out the variation works, assured and/or represented to Vim that Deluge would pay the claim for variation works and/or accepted Vim’s invoices for variation works by signing on them.

Court’s Decision

No written instructions

The court held that there were no written instructions from Deluge’s project manager for the purpose of variation works and variation claims under clause 16 of the Subcontract and, therefore, the contractual conditions for a successful variation claim by Vim were not satisfied.

The court noted that the requirement of written instructions from a designated person serves various objectives and that these objectives would be defeated if the designated person (or his subordinate) could dispense with written instructions, which the parties had contractually stipulated for. First, it provides for a written record, thus obviating disputes as to what was allegedly said (which happened in the present case). Second, it focuses the parties’ attention, at the time, on whether in principle there may be an adjustment to the contract sum. If, without written instructions, Vim proceeded to do work that it considered to be a variation, it did so at its own risk. The court added that firming up the parties’ positions contemporaneously as to whether variation works are involved is better than fighting about it in court (and in hindsight) long after the project.

No waiver or estoppel

The court found that there was no waiver or estoppel.

Vim asserted that it acted on verbal instructions, but the court said that this in itself could not amount to a waiver or estoppel in relation to a contractual clause requiring written instructions (i.e. clause 16 of the Subcontract). The alleged giving of verbal instructions simply meant that the contractual requirement of written instructions had not been complied with.

As regards Vim’s argument that “a gentleman’s word is his bond”, so Deluge should pay notwithstanding the lack of written instructions, the court said that Vim gave its word, as embodied in clause 16 of the Subcontract, that it would only carry out variation works with written instructions from Deluge’s project manager. In not paying for alleged variation works carried out without such written instructions, Deluge was simply honouring what the parties had contractually agreed to in clause 16 of the Subcontract.

In relation to Vim’s argument that Deluge had accepted Vim’s invoices for variation works by signing on them, the court accepted Deluge’s argument that when they signed the invoices they were just acknowledging that the works had been carried out and not that these were variation works or that they would be paid for them.

The court said that Vim’s plea that it trusted that Deluge would pay, did not avail Vim. Since Vim contracted on the basis that it would only carry out variation works with written instructions from Deluge’s project manager, it should have expected its variation claims to be rejected for the lack of such instructions.

Comments

The usual way for contractors to argue that they are entitled to be paid based on verbal instructions is to rely on waiver or estoppel. There must be conduct of one party which leads the other party reasonably to believe that the strict legal rights would not be insisted on. In order to succeed, the contractor has to prove that it suffered a detriment as a result of the conduct of the employer. Vim failed to prove any detriment. In UBC (Construction) Limited v Sung Foo Kee Limited [1993] 2 HKLR 207, the Hong Kong Court found that the main contractor gave every encouragement to the sub-contractor to get on with the work, carry out the variation orders (and paid some of them in full) and employed men on their behalf – all of this in the context that the sub-contractor would be paid for the work although they did not comply with the contractual requirements that agreements and notices must be in written form.

Key Contacts

Kwok Kit (KK) Cheung

Partner | Litigation and Dispute Resolution

Email or call +852 2825 9427