In Keppel DC Singapore 1 Ltd v DXC Technology Services Singapore Pte Ltd [2024] SGHC 7 ("Keppel v DXC"), the High Court was faced with the issue of whether the written agreement in question allowed the Defendant, DXC to unilaterally amend the scope of services the Plaintiff, Keppel, was to provide.
In Keppel v DXC, Keppel operated a six-storey data centre facility (the "Facility"). DXC and Keppel entered into a Standard Services Agreement (the "SSA") on 30 November 2010 which contained the terms and conditions under which Keppel was to provide data centre space (the "Data Centre") in the Facility (and associated services) to DXC for a period of five years with an option for renewal.
The Statement of Work ("SOW") at Exhibit A of the SSA stated that the total space to be provided to DXC was 20,300 sq ft, comprising four modules (the "Modules") – Modules A to D. DXC was to pay Keppel a Monthly Recurring Charge (the "MRC") and electricity charges. These charges were set out in the "Contract Pricing" document (the "Contract Pricing") at Exhibit B of the SSA.
The SSA provided that Keppel was not to commence the provision of services to DXC until it received a Purchase Order ("PO") from DXC. Following the execution of the SSA, DXC issued the first PO on 8 March 2011. The SSA was subsequently renewed twice – first for five years commencing 1 March 2017 and then for five years from March 2020 to 31 March 2025. DXC continued to issue yearly POs in relation to its use of all four Modules until May 2021.
DXC subsequently decided that it did not need all 4 modules and decided to give up the use of Modules C and D. On 13 May 2021, DXC issued a PO (the "2021 PO") for the use of only Modules A and B for the period between 1 April 2021 and 31 March 2022. On 17 May 2021, DXC issued a Change Order ("CO") (the "2021 CO") reflecting its intention to return Modules C and D to Keppel.
Keppel however disputed this change and the 2021 PO, taking the position that DXC was required to pay for the use of all 4 Modules, and continued to issue invoices for the same. DXC however only partially paid the invoices for its use of Modules A and B.
Keppel accordingly commenced proceedings to recover the outstanding fees for Modules C and D and/or damages suffered as a result of DXC's alleged breach.
The Court's findings
The SSA was for a fixed term and an entire fixed space
The Court found that the SSA was meant to be a renewable fixed-term contract for a period of five years, under which Keppel was obligated to provide a fixed amount of space and specified services, and that in exchange, Keppel was to be paid the MRC and accompanying charges for the entire fixed space for the initial five-year term and second five-year term (if renewed). This was based on several provisions in the SSA, namely:
(a) The "Work Summary" in Clause 1.2 of the SOW stated
that Keppel will provide the Data Centre space "according to
the agreed specifications for a fixed price";
(b) Clause 3.1 of the SOW specified the total area of the Data
Centre (20,300 sq ft initially, later enlarged by consent to 20,500
sq ft);
(c) The Data Centre space was to be provided in four modules
– i.e., Modules A to D – of 5000 sq ft each;
(d) The Contract Pricing set out the MRC on a year-on-year basis
across the five-year term of the SSA. The MRC was not based on the
individual modules, but on a monthly subscription based on each
square foot used or occupied by the Data Centre;
(e) Clause 14 of the Contract Pricing and Clause 5.6 of the SSA
provided that in the event of suspension or termination of the SSA
prior to the end of the term, DXC had to pay Keppel a "Minimum
Charge" – equivalent to 100% of the total charges which
would have been payable to Keppel for the remainder of the initial
five-year term, and, if the SSA was renewed, 50% of the total
charges which would have been payable for the remainder of the
renewed term.
Whether DXC was entitled to vary the fixed contract unilaterally
Since the SSA was found to be for a fixed term and an entire fixed space, the further question was whether DXC was entitled to unilaterally amend the SSA to reduce the size of the Data Centre. DXC argued that this was permitted, since Clause 2.3 of the SSA expressly defined a CO as a document that was to be signed by a DXC representative, without any requirement for Keppel to acknowledge the change.
The Court however rejected such an interpretation. This was because the power to unilaterally re-write terms of a contract was extraordinary and must have been expressed in the clearest of terms in order to be included in a contract. Since there was no clear expression allowing DXC to unilaterally change the services, this suggested that such a power did not exist. Importantly, while the SSA stated that DXC may request changes in the services, it did not state that Keppel was obliged to agree to the requested changes.
Further, DXC's ability to unilaterally vary the area of the Data Centre would be inconsistent with the Minimum Charge provision in the SSA. If DXC's interpretation was correct, it could simply avoid paying the Minimum Charge by reducing the Data Centre to only 1 sq ft of space instead of suspending or terminating the SSA. The parties clearly could not have intended such an outcome. Such an interpretation would also lead to a commercially absurd situation where Keppel was obliged to make the full space available but DXC could reduce the space at any point in time by any amount.
For similar reasons, the use of a PO to amend the scope of the services was rejected since such an interpretation did not cohere with the structure of the SSA as a fixed-term contract with services and fees that were agreed upon upfront. Further, there was nothing in the contract to suggest the PO had the function of varying the services to be provided under the SSA. The fact that works were only to commence following the issuance of a PO did not change this in any way.
DXC was accordingly not permitted under the SSA to unilaterally revise the services to be provided by Keppel to exclude the use of Modules C and D. The 2021 CO was therefore invalid and DXC's subsequent refusal to pay for Modules C and D amounted to a breach of the SSA.
Concluding remarks
The case of Keppel v DXC provides clarity for service providers who are often subject to requests for changes to contracted services which are often at variance with the originally agreed-upon services. The case makes clear that a unilateral right to vary the scope of a contract can only be read into a contract where this has been expressly provided in the clearest of terms, and accordingly that changes to the scope of a contract should always be subject to agreement (whether by means of a change order procedure in the contract or by other mutual agreement). This case underscores the importance of proper drafting in commercial agreements and serves as a reminder that the specific choice of words, phrases and organisation of a contract ultimately determines the rights and obligations parties thereunder enjoy and are subject to.
Our team at Covenant Chambers has experience in advising on contract drafting and contractual disputes and is available for consultation and engagement on such matters. If you would like to speak to a lawyer on similar or related matters, please feel free to reach out to usat info@covenantchambers.com.
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