In Thio Keng Thay v Sandy Island Pte Ltd [2022] SGHC 69, the General Division of the High Court dealt with a range of issues concerning claims for damages for defects.

This decision arose out of the earlier case of Thio Keng Thay v Sandy Island Pte Ltd [2019] SGHC 175, where the Court gave its decision on the issue of liability. The appeal against the Court's decision on liability was dismissed in Sandy Island Pte Ltd v Thio Keng Thay [2020] SGCA 86, and the present decision is the decision on quantum of damages. While the present decision does not raise new law, it nonetheless serves as a useful refresher on some of the common issues surrounding claims for damages for defects.

Mitigation and Defects Liability Clause. At [6] – [9], the Court held that if a plaintiff fails to mitigate its loss by availing itself of the defects liability clause in the contract between the plaintiff and the defendant, then the plaintiff cannot recover more than what it would have cost the contractor to rectify the defects. As determined in the decision on liability, the Plaintiff had been found to have breached the defects liability clause.

However, at [10] – [12], the Court held that as the Defendant failed to prove that it would have cost them nothing to rectify the relevant defects (or, indeed, how much it would have cost the Defendant to do so), the Defendant failed to prove that the Plaintiff had failed to mitigate damages.

In most construction contracts, there will be a defects liability clause. This is a reminder that you should avail yourself of the remedy under the said clause, unless there is a good reason not to do so. A failure to avail yourself of the contractually provided remedy may limit the quantum of damages recoverable if you are found to have failed to mitigate your losses.

Given the fact-specific nature of mitigation, defendants who allege a failure to mitigate must also keep in mind that they bear the burden of proving a failure to mitigate. While this should not be too difficult to prove in most instances, a failure to do so properly will have consequences.

In addition, it is relevant to note that the Plaintiff had claimed for loss of use of property due to the defects (see [69]). One of the reasons relied upon by the Court in dismissing this claim is that as the Plaintiff had breached the defects liability clause, the Plaintiff had acted unreasonably and caused delay to the rectification, and as such, even if the Plaintiff was "... entitled on the basis of equivalent rental, it cannot be for the entire period."

So, a failure to mitigate may not only affect the recovery of damages for defects: depending on the facts, it can affect other matters such as damages for loss of use of the property in question.

Betterment. At [16], the Court held that if a plaintiff engages a third party to rectify defects, and the works went beyond mere rectification and entail improvement, the plaintiff is not entitled to additional costs.

On occasions, defendants may be confronted with situations where plaintiffs attempt to improve upon the additional works and pass on the costs to the defendants. This is a reminder that there is a difference between rectification of damages and betterment.

Of the items for betterment examined at [17] – [21], we would just highlight that for the second item, the Court agreed with the Plaintiff's solution for rectification, even though it was more expensive. This was because the Defendant's costing was an estimate, whereas the Plaintiff's costing represented the actual price paid. Hence, the Court held that "... there may not be a substantive difference were the Defendant's method to go out to tender."

This is a reminder that estimations are not as persuasive as the evidence of the actual pricing. Hence, in such situations, actual pricing should be used (where possible). A possible alternative if actual pricing is unavailable is to consider if you can supplement the estimations with, e.g., quotations for similar works in similar conditions from other contractors.

Deterioration and neglect. At [25] – [27], the Court applied a discount to take into account deterioration caused by delay due to the gap when the rectification works could have commenced versus when the rectification works did commence. This is relevant because as the Court noted at [26], "... had the rectification works been done timeously, some of the parts may not have deteriorated to such an extent that wholesale replacement is required."

Where possible, defects should be rectified in a timely manner. Not only because it is practical to do so in many instances, but this is also because where there is no timely rectification of defects, issues of deterioration may creep in which will affect the quantum of damages that can be recovered.

In this regard, the Defendant alleged that there were defects which were caused by the Plaintiff's neglect or lack of maintenance (at [28]). The Court did not find for the Defendant on the basis of the evidence before it (at [29]). What is relevant to note is that the Court stated at [29] that "... I accept that it is difficult for the Defendant to mount such evidence, but that does not alter or relieve them of that burden. ..."

Often, defendants raise the issue of neglect or lack of maintenance as causing, or at least contributing, to the defects / extent of defects. This is a reminder that in such instances, he who alleges must prove: the burden rests on the defendant in such instances to prove the case. The burden does not rest on the plaintiff to disprove neglect or lack of maintenance.

Architectural intent. The Defendant also claimed that some "defects" were not defects but were rather purposely designed as such by the Architect. While the Defendant failed in four out of the five items so contended, the Defendant succeeded in respect of the fifth item: a timber lattice screen.

Finding for the Defendant, the Court distinguished between a design defect and a choice of material which required more maintenance (see [35]). As the Court noted, while it was a design defect to have an unroofed atrium resulting in water flooding through the front door due to Singapore's high rainfall environment, the timber lattice screen was simply the Architect's choice of material since it was an external architectural feature and some degree of maintenance was required. Hence, more maintenancedoes not mean that the timber lattice was defective.

What this illustrates is that the design intent and purpose of the relevant item must be examined to determine whether it is a design defect or not. While this may be fairly obvious on some occasions, on other occasions, the line may be finely drawn. In such instances, parties should consider the facts carefully.

Investigation costs. While not strictly a defect, the Plaintiff also claimed for costs of engaging independent third parties to investigate the defects. On the facts, the Plaintiff was not cross-examined on his reasons for engaging the consultants and the Court found that given the extent of defects, it was reasonable for the Plaintiff to have engaged them. Hence, the Plaintiff's claim for investigation costs was allowed.

Given the fact-centric nature of such disputes, the Court's finding should not be taken as standing for the proposition that investigation costs would always be allowed. If, e.g., it had been established that the investigation costs were incurred unreasonably, or if the costs were disproportionate or if there were overlaps in terms of the work done by the experts engaged, then the Court may have arrived at a different conclusion.

Conclusion. While defects are frequently encountered, as this decision illustrates, sometimes, some of the more "technical" aspects of claims for damages for defects may be missed out in the heat of the moment, especially if parties are in the midst of a dispute. This can lead to implications down the road when the parties commence formal dispute resolution: certain heads of damages may potentially be barred, while for other heads of damages, the quantum claimable may be affected.

Hence, parties would do well to address their mind early when defects surface on not only how to rectify the defects, but also the legal implications of their choice of method of defects rectification (which extends to, among others, the time taken to rectify the said defects).

Originally Published 04 April 2022

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.