Overview
Backcharges by contractors are commonly implemented in Singapore construction projects due to issues such as delays in work or poor workmanship by subcontractors. The Singapore High Court has recently shut down a Singapore subcontractor's attempt to avoid paying backcharges claimed by its contractor. In Pro-Active Engineering Pte Ltd v. Prime Structure Engineering Pte Ltd, the claimant ("Pro-Active") alleged it was not given reasonable notice of the work to be de-scoped and backcharged by the defendant ("Prime"). It further alleged that it should also not be liable for them due to a lack of substantiation for the backcharged amounts by Prime. Pro-Active unsuccessfully relied on Vim Engineering Pte Ltd v. Deluge Fire Protection ("Vim"), in which the Singapore High Court had decided to substantially reduce the amount of a contractor's backcharges. In Vim, the subcontractor had raised these same two issues of notice and substantiation. Regarding notice, the Singapore High Court in Vim dismissed the subcontractors' pleas that alleged notice defects should defeat a claim for backcharges (but instead relied on the lack of documentation to reduce such backcharges).
Pro-Active had been appointed by Prime in January 2019 for the steelworks in a Singapore-based construction project. Prime and another contractor were however dissatisfied with Pro-Active's failure to meet its original June 2019 deadline. After sending a notification of delay on 31 October 2019 as well as a subsequent 'catch-up schedule' email on 6 December 2019, three days later on 9 December 2019, Prime then informed Pro-Active that it would be backcharged for the costs of another subcontractor to undertake a portion of Pro-Active's delinquent work.
Pro-Active disputed Prime's entitlement to backcharge for the de-scoped Works, its primary objection being that it "was not given prior notice nor was there prior discussion, of those charges before they were levied." Interestingly, it invoked Vim, which stated that a contractor ought to "g[ive] notice to the subcontractor of its default and a reasonable opportunity to cure it" in order to claim various backcharges. As Pro-Active argued, the 3 days between Prime's catch-up schedule email of 6 December 2019 and its backcharge notification of 9 December 2019 did not amount to the "reasonable notice" required by Vim. The Singapore High Court disagreed with Pro-Active's notice argument, which "conveniently overlooked" Prime's delay notification on 31 October 2019, issued approximately a month before the backcharge notification of 9 December 2019. Indeed, the delay notification expressly warned Pro-Active that "unless there is immediate and considerable improvement on your part, we will be forced to terminate your services and hire another contractor to take over these tasks … at your expense." Further, there was not a detailed backcharge notification clause under the terms of Prime's subcontract with Pro-Active.
The case is a good example of how a defense to backcharges based on notification requirements were not successful to defeat a contractor's backcharges. As long as a notification was provided and the subcontractor had been provided a reasonable opportunity to cure (in this case, approximately within a month), the notification requirements and any lack thereof would not be a reason for dismissing a backcharges claim. Notably, the reliance on Vim did not help Pro-Active's case, but rather prompted the Singapore High Court to seek to distinguish the facts of both cases. Where notification requirements are not clearly set forth in contracts, it would be interesting to see in the future what the courts will be willing to accept as the level of notice that would be insufficient to preserve a backcharge claim.
