Oral variations: "My word is my bond"?

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White & Case LLPVariation powers under construction contracts typically contemplate work being authorised as a variation where it is instructed in writing. This can give rise to disputes over whether work is a "variation" if it is instructed orally. A recent Singapore case involved such an issue.

In Vim Engineering Pte Ltd v Deluge Fire Protection (SEA) Pte Ltd [2021] SGHC 63, the High Court of Singapore took a strict approach and held that, where a subcontract expressly provided that a variation shall be carried out "only" pursuant to written instructions, the subcontractor could not make a claim for payment in respect of a variation that had been instructed orally.

Key Facts

Deluge Fire Protection (SEA) Pte Ltd ("Deluge") was a subcontractor for a building and construction project, and entered into a sub-subcontract with Vim Engineering Pte Ltd ("Vim") for certain works (the "Subcontract" for short). Importantly, the Subcontract provided that variation works shall be carried out "only" with written instructions from Deluge's project manager.

Vim left the site before the main works were completed, and subsequently brought claims against Deluge, including claims in respect of alleged variation works.

With respect to its variation claims, Vim, whilst admitting that no written instructions were given by Deluge's project manager to carry out the variation works, submitted that Deluge was estopped from denying its claims on the basis that, amongst other things, Deluge orally instructed Vim to carry out the variation works and thereby waived any requirement for written instructions.

Decision

The Singapore High Court dismissed Vim's variation claims on two bases:

First, the contractual conditions for a variation claim were not satisfied.

  • The Subcontract between the parties made express provision that variation works were to be carried out "only" pursuant to written instructions from Deluge's project manager.
  • The court found that, to the extent that no such written instructions were given, the contractual conditions for a variation claim were not satisfied and Vim's claims, therefore, failed.
  • The court also noted that the contractual requirement for written instructions serves a number of purposes, including providing a written record of the scope of any variations to avoid future disputes between the parties. The court indicated that these objectives would be defeated if the parties could dispense with the requirement for written instructions.

Secondly, there was no waiver or estoppel of the requirement for written instructions.

  • Vim's submission that it acted on Deluge's oral instructions, such that Deluge was estopped from relying on the requirement for written instructions, was rejected by the court on the basis that acting on oral instructions, in itself, could not amount to a waiver or estoppel in relation to an express contractual clause requiring otherwise.
  • The court also found no evidence that the alleged variation works had been accepted by either Deluge or the main contractor – Deluge simply informed Vim that it would submit Vim's variation works invoices to the main contractor for approval, which the court noted was substantially different from Deluge actually confirming any acceptance of such claims.
  • The court also dismissed Vim's argument that Deluge should compensate Vim for the variation works notwithstanding the lack of written instructions on the basis that "a gentleman's word is his bond". The court importantly noted that by agreeing to the provisions of the Subcontract, Vim had given its word that it would "only" carry out variation works in accordance with the provisions contained therein.

Commercial Implications

The decision in Vim v Deluge necessarily turned on the facts of the case and the terms of the particular contract. For example, the Subcontract between the parties was explicit in stipulating that "variation works shall be carried out only with written instructions". This is to be contrasted with many standard forms of construction contract, including Clause 13 of the FIDIC Contracts, which, whilst requiring instructions to be given in writing, are not drafted in such absolute terms.

This decision nevertheless serves as a reminder of the importance of observing the contractual mechanism for variations. Doing so preserves the validity of claims arising out of those variations, and avoids disputes regarding the existence and scope of varied work.

The decision also demonstrates the hurdles a contractor may face when making a claim on the basis of variations which have been instructed orally, including with respect to:

  • Evidence of a variation being instructed (informally). From a practical perspective, contractors faced with an oral instruction which constitutes a variation should consider confirming that instruction in writing.
  • Evidence of a waiver and/or estoppel in respect of any requirement for a written instruction. The type of evidence required will depend on the circumstances of the waiver and/or estoppel relied upon. On the facts of the Vim v Deluge case, for example, Deluge's indication that it would pass Vim's invoices on to the main contractor was not enough to establish a waiver of the contractual requirement for written instructions, nor did it constitute acceptance of the variation works. At most, the court found it amounted to a simple acknowledgement that works had been carried out.

Whilst Vim v Deluge highlights the potential difficulties in recovering on the basis of orally instructed variations, it is important to note that there may be situations where recovery is possible, such as where:

  • An employer has acted in a way which is at odds with the requirement for a written instruction by, for example, signing (and thereby approving) invoices clearly specified by the contractor as being in respect of variation works;
  • An employer has informally promised to pay the contractor for additional or different work, and then allowed the work to proceed; or
  • The employer has not expressly promised to pay the contractor for the additional or different work, yet it is clear from the circumstances that (i) the employer requested that the work be done as additional or different work; and (ii) the contractor carried out the work on the objectively reasonable premise that it was to be paid for that work.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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