Contract: Contractor Released from Liability

Broadley Construction Pte Ltd v Alacran Design Pte Ltd [2018] SGCA 25

1. Introduction

We acted for the appellant, Broadley Construction Pte Ltd (“Broadley”), in an appeal against its supplier, Alacran Design Pte Ltd (“Alacran”). There was an oral agreement for Broadley to authorise its main contractor, Singbuild Pte Ltd (“Singbuild”) to pay Alacran on its behalf. Alacran told Broadley that if Singbuild did not pay, Broadley remained liable. Broadley remained silent. Parties subsequently entered into a settlement agreement under which, contrary to what Alacran said, stated that Broadley will be free from further responsibility with regards to Alacran. The High Court set aside the Settlement Agreement on the grounds of fraudulent misrepresentation and unilateral mistake. On appeal, this was overturned.

2. Background

Broadley was engaged by Singbuild as a sub-contractor in a project relating to the construction of a residential development (the “Project”). Broadley then entered into a contract with Alacran for the supply of equipment for the Project.

From December 2013 to June 2015, Broadley made several orders for equipment from Alacran. Alacran supplied the equipment to Broadley pursuant to these orders, such that there was an outstanding sum of S$423,407.35 (“Outstanding Sum”) from Broadley to Alacran.

The representatives of Broadley and Alacran met to discuss the defaults in payment. Broadley explained that it was unable to pay Alacran because Singbuild did not pay Broadley. It was orally agreed that Broadley would authorise Singbuild to pay Alacran on its behalf. Alacran told Broadley that if Singbuild did not pay, Broadley remained liable (“Alacran’s Representation”). Broadley remained silent.  It was proposed that a letter of undertaking be issued to formalize the agreement. The Undertaking read as follows:

RE: UNDERTAKING LETTER FOR SWITCHES & ELV SYSTEMS OUTSTANDING BALANCE

We, [Broadley] … has appointed [Alacran] … to supply … [equipment] for the above mentioned project. 1vo payments has been issued to Alacran, and to date we have outstanding balance amounting to 8$423,407.35, including GST. This amount is final and has been agreed with Alacran and no further claims shall be submitted in relation  to this  contract.

We, [Broadley] … hereby authorises [Singbuild] … to pay on our behalf, the total outstanding balance due to Alacran, which sums to 8$423,407.35 including GST, details as attached and agreed by the supplier. We agree that this amount be deducted from our Remaining Contract Amount with Singbuild Pte Ltd.

This agreement has been agreed by [Singbuild], [Broadley] and [Alacran]. This letter indemnifies [Broadley], and is free of any responsibility and is no longer liable with regards to the outstanding  balance  with [Alacran].

The last paragraph absolving Broadley of responsibility is inconsistent with Alacran’s Representation.

Singbuild did not pay Alacran and Alacran sued Broadley in the High Court, arguing that there was fraudulent misrepresentation by Broadley – in the form of its silence in response to Alacran’s Representation – that Broadley would remain liable in the event Singbuild did not pay. In the alternative, Alacran claimed that there was unilateral mistake i.e. that Alacran was mistaken about the terms of the contract and Broadley knew about it all along.

The High Court gave judgment in favour of Alacran, finding that Broadley’s silence did amount to misrepresentation and that the express words of the contract did not ‘correct’ any such misrepresentation.

3. Conclusion

We successfully overturned the entire judgment on appeal. The Court of Appeal agreed with our arguments and reinstated 2 useful points of contract law:

1. First, in relation to when silence can amount to a representation, the Court of Appeal held that silence is passive and does not usually amount to a representation unless there was a duty on the alleged representor to speak or disclose certain facts. In this case, there was no misrepresentation. Broadley’s silence would have been viewed by a reasonable party as an unequivocal assent to Alacran’s Representation. It was not a case where Broadley had shrugged, or nodded, or did anything by way of his conduct that might have signified agreement.

2. Second, in relation to whether there was inducement, the Court of Appeal held that:

a.  If a misrepresentation is corrected, representee cannot still be said to have been induced by the misrepresentation to enter into the contract. The representor must show that representee was aware of the correction prior to his entry into the contract.

b. A representee would not ordinarily be held to be induced by a misrepresentation if the express contractual terms, which the representee placed importance on, read and signed, and which the representor expected that the representee would read and understand, contradicted or corrected the representor’s misrepresentation.

c. In the present case, there was no inducement because Broadley’s misrepresentation, if any, was dispelled by the express terms of the contract, which clearly contradicted or corrected the position that Broadley would remain liable for the Outstanding Sum.