Substitute and Vicarious Performance

Lecture week 7

Vicarious Performance

In building contracts, this normally refers to the sub letting of the works by the contractor to the domestic subcontractor

Sub letting takes place when main contractor delegate performance of part of the works to another firm/individual , usually one who specialized in particular aspect of work/design.

The main contractor will normally protects himself against action brought by the employer in respect of defective work of the sub-contractor by requiring the subcontractor to indemnify the main contractor against such potential liabilities and also against loss arising out of the sub-contractor’s use of the main contractor site facilities.

Such indemnities are normally incorporated into terms of the sub contract and may be required to be supported by insurance.

The terms on which the contractor may sublet his work are normally of no concern of the employer and it is not necessarily to have implicit relationship between terms of the main contract with terms of the sub contract.

clause 27.10 PAM 2006

Ohbayashi –Gumi v Kian Hong Holdings

The app contracted with the Housing Dev Board for a reclamation work at Telok Ayer Basin. Part of the contract was sub let to the resp as the sub contractor. In the main contract, there were terms which indicated that the main contractor accepted the risk of a lump sum contract where as in the sub contract, it was stated that the risk shall be based upon unit-rate. Cl 20 of the sub contract, however provides that in the event where there is a conflict between terms of the main contract and the sub contract, the latter shall prevail.

CA: Once the intention had been ascertained, the contract is bound to give effect to that intention by supplying anything necessary to be intended from the term used. The main contractor appeal that terms of the main contract should be applied was accordingly dismissed.

Royden (M) Sdn Bhd v Syarikat Pembenaan Yeoh Tiong Law Sdn Bhd

The def (main contractor) entered into a contract with plf (sub contractor) to supply and install air conditioners, ventilation and lifts at luxury condominium apartments in Kuala Lumpur. The sub contractor obtained summary judgment from the Senior Assistant Registrar for money unpaid by the def to plf on progress certificates. The main contractor claimed that the cl 27 (a)(vii) of the main contract provides that payment to sub contract to be maid within 14 days after receipt of payment by the main contractor frm the employer. Such payment had not been received.

High Court of KL:per Lim Beng Choon“ Provisions of cl 27(a)(vii) of the

main contract were not reproduced expressly in the sub contract. Since the sub contractor was not party to the main contract, under the doctrine of privity, its provisions could not bind him.

Substitute Performance

This normally involved an assignment.

An assignment is different from sub letting and sub contracting as it involves transfer of right or obligation to another.

The effect of legal assignment is to substitute relationship between one of the original contractual party and the assignee

The contractual relationship for this purpose must be clarified as : Contractual rights,i.e the right to

receive the performance of the other party

Contractual obligations, i.e. the necessity to perform

Sec 4(6) Civil law Act 1956: Contractual rights are legal ‘choses in

action’ which may be validly assigned to a third party (assignee).

Sec 4(3) Civil Law Act 1956: An assignment must be in writing and

signed by the assignor. If the statutory procedure was not complied, an equitable assignment can be clarified provided that the intention to assign can be proved.

In building contracts , assignment normally involved nominated sub contractors/suppliers.

North West Metropolitan Regional Hospital Board v TA Bickerton & Son Ltd

Per Lord Reid: “…certain parts of the works reserved for sub contractors to be nominated by the employer…so the tendering contractor has no concern either with the details of this work or the price to be paid for it…

The employer obtains tenders from specialist selected by him for the prime cost work and then when he has made his contract with the contractor, he instructs the contractor with the sub contractor whom he nominates on terms which dictates, having settled these terms with the nominated sub

contractor… I would therefore read this clause as directing that sums payable in respect of prime cost work shall be expended in favour of nominated sub contractors and no one else.’

Malayawata Steel Bhd v Govt of Malaysia & Anor

The app was a steel supplier. They agree to supply steel bars to the main contractor for a project in KL. The resp was the client (through Public Works Division) of the main contractor. There was an agreement between the main contractor and the app that certain progress (interim) payment receivable from the client would be used to pay for the steel bars. The app claimed that the progress payment had been assigned to them.

Privy Council: There is an equitable assignment…equally, it is clear that if the debtor (the PWD) knows of the assignment and pays the debt, nevertheless to the assignor, he may still be held liable to the assignee…no particular form is required to constitute an equitable assignment.

Involuntary assignment

This takes place upon the death of a party to the contract whereby the rights and obligations of the deceased passes to the personal representatives.

Bankruptcy also effected involuntary assignment where rights of the bankrupt passes to the trustee in bankruptcy.

Rights of Employer to appoint sub contractor/supplier (NSC/NS)

NSC- cl 27.1 and NS-cl 28.1

Relationship between the employer with NSC/NS.

Even the NSC/NS was appointed by the employer, there is no privity of contract between the employer with the NSC- cl 27.10 and/or NS- cl 28.8.

Liability of contractor for breach by NSC/NS

Generally, the contractor is not liable for breach of contract committed by the NSC or NS.

Gloucestershire County Council v Richardson

The plf entered into a building contract with a contractor for extension of technical college. The plf nominated the def as supplier for the concrete columns. In the contract of supply, there was a limitation clause which limit the liability of the supplier for defective materials and also exclusion clause to exempt their liability for consequential loss for defective materials. The concrete columns were discovered to have latent defects and the architect instructed the contractor to stop the works. The plf claimed that the contractor was responsible for breach of contract arising from goods supplied by the NS.

HL: The contractor could not made liable for the defective materials supplied by the NS as the supplier was nominated by the plf without giving the def any rights to express views. The def is simply instructed to obtain supplies from the nominated supplier.

Nonetheless, the standard form of building contract provides that the contractor shall be fully responsible for the works of NSC- cl 27.7 and/or for supplies of NS-cl 28.7 of PAM 2006.

This provision however does not cover liability for terms which are not responsibility of the contractor.

Norta Wallpapers (Ireland) Ltd v John Sisk & Sons (Dublin) Ltd

The app (employer) employed the resp as the contractor for the construction of a factory using a design prepared by the German sub-contractor who were supplying the building system for super –structure. Upon completion of the works and after the expiry of the DLP, serious leaks occurred in the roof, which ultimately made the building nor suitable for its purpose. The arbitrator found that causes for the defect were 85% design and 15% bad workmanship/materials. The trial court held that the resp was only liable for the bad workmanship and materials supplied by the subcontractors but not liable for the breach of terms on fitness of design for its purpose.

Irish Supreme Court (per Henchy J):An implied warranty on the part of the contractor that the design of the roof would be adequate to keep the out rain could not be read into the contract unless it could be held that the employer relied on the contractor to discover the flaw and that the contractor knew that the employer was relying on them. Thus, while there would normally be implied in a building contract a term rendering the contractor liable for any deficiencies in the work of sub-contractors (in the absence of express provision to this effect), such a term could not be implied as to fitness of sub-contractor’s design where the circumstances negatived intention that the employer should rely on the contractor to check suitability of the design.

Rights of contractors

To object the appointment of NSC- cl 27.3 and/or NS- cl 28.3

To determine the employment of NSC subject to written consent of the architect- cl 27.8.

Employer’s risk

Although the contract has been assigned to the contractor/nominated sub contractor, the employer will still be liable to the third party for the defective building.

Hygiene Medical Supplies Pte Ltd v Tri-Star Rotary Screen Engraving Works Pte Ltd

The independent contractor was appointed by the employer to set up a rotary screen engraving equipment cooled by a water chiller. The contractor had left the water pipes inadequately connected , causing a leak which damaged the plf’s premises.

Kan Ting Ghiu JC: ‘While the owner could delegate the duty, reasonable skill and care in doing so had not been shown, so the owner remained liable although the independent would be obliged to indemnify the owner for this liability.

Datuk Bandar Dewan Bandaraya Kuala Lumpur v Ong Kok Peng

The building owned by the app was found to be defective as the lift shaft was left dangerously unguarded. The app claimed that they had delegate the duty to maintain the lift to a maintenance contractor.

Supreme Court: The DBKL(owner) duty was non delegable, as in the case of Tarry Ashton & Rylands v Fletcher. The maintenance contractor was also liable for breach of duty in negligence in failing to guard against for the risk.

Tortious liability

Junior Books v Veitchi

Held: The NSC could owe a duty of care in tort directly to client (employer).

However, recent development in law: NSC would not be liable directly to the employer for negligence except for personal injury and damage to property

Dept of Environment v Thomas Bates Brentwood

The plf leased 9 out 11 storey of a building to the employer. It was found that the concrete in the supporting pillars was too weak to bear its design load because the mix specification had not been followed. The plf sued the contractors employed by the employer for negligence.

HL: The loss suffered in carrying out the remedial work was purely economic loss and as such not recoverable in tort since there had been no damage and no injury or imminent threat to health and safety.