Oral Variations And The Right To Payment In International Construction Contracts: A Strict Approach In Singapore

• Published date: 21 June 2021
• Subject Matter: Litigation, Mediation & Arbitration, Real Estate and Construction, Arbitration & Dispute Resolution, Construction & Planning
• Law Firm: Akin Gump Strauss Hauer & Feld LLP
• Author: Mr Hamish Lal, Brendan Casey and Léa Defranchi

FIDIC ("International Federation of Consulting Engineers") Contracts do not exclude a right to time and money if the Employer or Engineer instructs a Variation only orally. The FIDIC Red Book for example at Clause 3.3 allows "instructions" that are given orally but if such instruction is a Variation, the Contractor will need to give notice under Clause 20.1 to get additional time and/or money. Bespoke amendments to the FIDIC forms of contract typically seek to exclude rights to additional time and money by making it express that only Variations instructed, notified or requested in writing by the Engineer allow recovery of time and/or money. The High Court in Singapore has endorsed this tough approach. Vim Engineering Pte Ltd v Deluge Fire Protection (SEA) Pte Ltd [2021] SGHC 63, will now be cited by many in International Construction Arbitration to support the proposition that where a contract expressly provides that a variation shall be carried out "only" pursuant to written instructions, a contractor's claim for payment in respect of varied works instructed orally inevitably fails.

Vim Engineering

The case involved modest sums of money and a relatively common contractual matrix: Vim was sub-subcontractor to Deluge who in turn was subcontractor of the main contractor. Clause 16 of the sub-subcontract stated 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" [emphasis added]

The Court asked 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? 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).

Vim argued that Deluge was estopped from denying its claims because Deluge had...