Contract and Agency Law

A tender is also considered as an offer. Tenders refers to a process by which one can seek prices and terms for a particular project (such as a construction job in this case) to be carried out under a contract. The sealed offers themselves, including company information, a project outline, and a price quote, are known as tenders or bids. Since Beng Huay Construction Pte Ltd submitted the most competitive tender and was awarded the contract, there is acceptance on Beng Huay Construction Pte Ltd.

Whether or not BH can revoke their bid and withdraw from the project entirely depend on what was the terms and conditions stated in the contract. For a contract to be valid, there must be an offer initially by one of the parties. In this case here BH could argue that CPL had under-priced part of the job. It is not possible under these circumstances because the general rule is that an offer can be withdrawn at any time prior to acceptance. However in this case, the offer has already been accepted.

Firstly, CPL placed an advertisement for a tender to construct a warehouse cum factory complex somewhere in Boon Lay which is regarded to as an Invitation To Treat. Next, BH submitted the most competitive tender which in this case is considered as the offer. Following which, BH was awarded the contract which in this case is regarded as the acceptance by CPL of the offer by BH, and as a result, a legally binding contract has been formed. As such, it is not possible for BH to revoke their bid and withdraw from the project entirely in this case since the offer had already been accepted.

However since BH will be unable to revoke the bid and withdraw from the project entirely the parties can engage an independent third party mediator to hear their respective views. The mediator can then try to mediate the dispute and lead the parties into an acceptable settlement. Question 2 – Part A The guarantee is perhaps the most common form of security used in the commercial world today. It is not of recent origin though, and has been in use, in some form or other, since ancient times.

This is not surprising, because the idea of getting one person to answer for another is a logical and almost instinctive one. Since the use of guarantees is so common and widespread, one might assume that the parties to a guarantee arrangement, and perhaps even the public at large, are generally quite aware of the more important legal aspects of suretyship. The reality is that very often, the parties, or at least one of them, know very little about either suretyship law generally or the particular guarantee which they have signed.

The aim of a performance guarantee is to guarantee compensation for the recipient of the guarantee if the counterparty does not perform its contractual obligations (for example, delivery of goods, performance of work, provision of services, etc. ). The amount of a performance guarantee is agreed between the parties. Usually, a performance guarantee is 5-20% of the value of the agreement. The date of expiry of a guarantee is the due date of performance of contractual duties set forth in the agreement.

Primary liability: liability imposed directly on a person because of his or her own negligence, default, or legal undertaking Secondary liability: liability (as of a guarantor) that arises from a legal obligation owed to an injured party to pay damages for another’s failure to perform or negligent act The difference between primary liability and secondary liability: Primary liability is an obligation for which a person is directly responsible; it is distinguished from secondary liability which is the responsibility of another if the party directly responsible fails or refuses to satisfy his or her obligation.

A performance guarantee in this case is a bank guarantee agreement for the performance of the parties contractual obligations – so that if BH do not send the goods to CPL, the bank has to compensate for a certain share of the value of the goods not received, services not provided or otherwise insufficiently performed contract between the parties. If your purchase agreement involves expenses (for example, opening a letter of credit for the

benefit of the seller) or a risk (giving up other sales offers), it is wise to request a bank guarantee from the seller for the performance of their contractual obligations – so that if they do not send you the goods, the bank has to compensate for a certain share of (depending on the direct and indirect expenses incurred by you in connection with the violation of the contract) the value of the goods not received, services not provided or otherwise insufficiently performed contract.

Employers are under a duty to ensure that the contractors whom they employed are reasonably competent to carry out the specific tasks which they are employed. Beyond this the employer will normally not be liable for the wrongful acts of the contractors. However once an employer discovers and condones the tort of an independent contractor, he or she maybe liable for the tort. Such is an example of primary liability. Question 2 – Part B The “Assurance of liability” provided by LSC is not legally enforceable in court. In this case, the document entitled “Assurance of liability” by LSC is a letter of comfort.

Whether a comfort letter amounts to a moral obligation only on the part of the parent or a legally enforceable undertaking coming close to a guarantee or indemnity depends (as with all contracts) on whether there is intention to create legal relations and consideration, and on the interpretation of the clauses in the comfort letter. The relevant case is Kleinwort Benson V M’sian Mining Corp. The English Court of Appeal, reversing the decision of the lower court, held that the clause was merely a statement of present fact regarding the parent company’s present intentions and was not a contractual promise as to its future conduct.

The words ‘it is our policy’ successfully negated the contention that a legal commitment was assumed by the parent company. Therefore, the wording of a letter of comfort by LSC, issued in the context of a commercial loan to a subsidiary company BH, was held to be not sufficient to establish an intention to create legal relations. Reference 1. Low Kee Yang (1992), Nature of a guarantee, The Law of Guarantees in Malaysia and Singapore. 2. Hansabank, Guarantees, http://w. hansa. ee/eng/arikliendile_kaibekapitalijuhtimine_garantii. html 3. Find Law for legal professionals, Law dictionary, http://dictionary. lp. findlaw. com/scripts/results.

pl? co=dictionary. lp. findlaw. com&topic=b6/b6116d4a4a9f4bb35e5f9664a9575d49 4. Answer. Com, Law Encyclopedia: Liability, http://www. answers. com/topic/liability? cat=biz-fin Question 3 – Part A Liquidated damages refers to pre-estimated damages which have been agreed upon by the parties. The criteria that the law employs to allow enforcement of liquidated damages is that it is a genuine pre-estimate of loss. This clause will not be enforced, if it amounts to a penalty imposed in terrorem in the view of the court. Whether a liquidated damages clause is a genuine pre-estimate of loss or a penalty is largely a matter of construction.

Guidelines for construing liquidated damages clause include the following: ? If the liquidated damages are extravagant and unconscionable in comparison with the greatest conceivable loss, then it is likely to be penalty ? If a single lump sum is payable on the occurrence of one or more breaches, some of which are serious and others trifling, then it is likely to be a penalty ? The description of the clause as a “penalty” or “liquidated damages clause” is relevant but not conclusive. Such guidelines above can be found in the case “Dunlop Pneumatic Tyres Co Ltd v New Garage & Motor Co Ltd (1915)”.

However, where the liquidated damages clause is found in a standard form of contract prescribed by statute, there is an inference that such a clause will be valid and that in these circumstances, the legislature will include in the prescribed contract a liquidated damages clause which could be struck down as a penalty. If the liquidated damages clause is prescribed by statute, the injured party can only claim the amount stipulated in the clause , and he is not allowed to elect to claim damages at common law nor to recover more than what he is entitled to under the clause. An example of a case will be “Harris Hakim v

Allgreen Properties Ltd (2001)”. However, if the liquidated damages clause is construed as a penalty and the amount stipulated is higher than the actual loss suffered, at best the injured party could obtain damages for the actual loss suffered. But if the liquidated damages clause is construed as a penalty and the amount is in fact less than the actual loss suffered, then the injured party has a choice whether to sue on the clause and recover no more than the amount stipulated or he may sue for breach of contract, generally avoiding the clause, and seek to recover damages in full.

An example of a case is “Bulsing Ltd v Joon Seng & Co (1972)” In the case of Bulsing Ltd v Joon Seng & Co (1972), the defendant contracted buy from the plantiff a certain amount of urea at a certain cost. The defendant was to open letters of credit to pay for the shipment and the contract contained a liquidated damages clause. The defendant failed to open the L/Cs and the plantiff suffered losses. The Singapore High Court held that the clause was a penalty and becaue the penalty is lower than the actual loss, the plantiff can either claim under the penalty or sue for breach of contract and claim damages in full.

LIQUIDATED DAMAGES – When the parties to a contract agree to the payment of a certain sum as a fixed and agreed upon satisfaction for not doing certain things particularly mentioned in the agreement, the sum is called liquidated damages. The amount of money specified in a contract to be awarded in the event that the agreement is violated. The fixed amount which a party to an agreement promises to pay to the other, in case he shall not fulfill some primary or principal engagement into which he has entered by the same agreement.

The damages will be considered as liquidated in the following cases: When the damages are uncertain and not capable of being ascertained by any satisfactory or known rule – whether the uncertainty lies in the nature of the subject itself or in the particular circumstances of the case; When, from the nature of the case and the tenor of the agreement, it is clear that the damages have been the subject of actual and fair calculation and adjustment between the parties. It differ from a penalty which is a forfeiture from which the defaulting party can be relieved.

An agreement for liquidated damages can only be when there is an engagement for the performance of certain acts that if not done would injure one of the parties or to guard against the performance of acts that would be injurious if done. In such cases an estimate of the damages may be made by a jury, or by a previous agreement between the parties who foresaw the consequences of a breach of the engagement and stipulated accordingly. The civil law generally agrees with these principles. Generally the sum fixed upon will be considered either liquidated damages or a penalty according to the intent of the parties.

The use of the words ‘penalty,’ ‘forfeiture,’ or ‘liquidated damages,’ will not be decisive of the question if the instrument, taken as a whole, discloses a different intent. Rules have been adopted to ascertain whether the sum agreed upon is to be considered a penalty or liquidated damages. It Has Been Treated As Penalty: 1. Where the parties in the agreement have expressly declared the sum intended as a forfeiture or a penalty, and no other intent can be collected from the instrument; 2.

Where it is doubtful whether it was intended as a penalty or not, and a certain debt or damages less than the penalty is made payable on the face of the instrument; 3. Where the agreement was evidently made for the attainment of another object, to which the sum specified is wholly collateral; 4. Where the agreement contains several matters of different degrees of importance, and yet the sum named is payable for the breach of any, even the least; 5. Where the damages are capable of being certainly known and estimated. It Has Been Considered As Liquidated Damages: 1.

Where the damages are uncertain, and are not capable of being ascertained by any satisfactory and known rule; 2. Where, from the tenor of the agreement or the nature of the case, it appears that the parties have ascertained the amount of damages by fair calculation and adjustment. Question 3 – Part B The performance of an existing contractual duty owned to the promisor is not good consideration for a fresh promise given by the promisor. However, performance of an existing contractual duty owned to a third party can be good consideration.

For example in the case of Stilk v Myrick (1980), Stilk a seaman, agreed with Myrich to sail his boat to the Baltic Sea and back for ? 5 per month. During the voyage, two men deserted. Myrick promised he would increase Stilk’s wages if Stilk agreed to honour his contract in light of the desertions. Stilk agreed and on return to port, Myrick refused to pay him the extra wages. It was held that Myrick’s fresh promise was not enforceable as the consideration Stilk had provided for it, the performance of a duty he already owned to Myrick under contract, was not good consideration for Myrick’s promise to increase his wages.

Initially, there were only two exceptions to this rule: 1. The promisee has done, or has promised to do, more than he was obliged to do under his contract (please read the case of Hanson v Royden); 2. Before the fresh promise was made, circumstances had arisen which would have entitled the promisee to refuse to carry out his obligations under his contract (please read the case of Hartley v Ponsonby). The seminal case of Williams v Roffey Brothers & Nicholls (Contractors) Ltd (1991) added another exception to the rule.

In this case, it was held that performance of an existing contractual obligation will be good consideration if: 1. The original contract is one for goods and services; and 2. X doubted that Y would perform his obligations under the contract; so 3. X promised to pay Y an extra amount in return for a promise from Y that he would in fact fulfill his obligations under the contract; and 4. As a result, X received (or was set to receive) a practical benefit or obviated a disbenefit; but 5. X did not make the promise to pay more under duress from Y.

The following, as per the Court of Appeal in Williams v Roffey, is highly likely to constitute a practical benefit: 1. Avoiding the breach of a contract with a third party; 2. Avoiding the trouble and expense of engaging a third party to carry out the work; and/or 3. Avoiding a penalty clause incorporated into a contract with a third party. Applying the case of Williams v Roffey Brothers & Nicholls (Contractors) Ltd (1991) to our case, since the original contract is a construction contract, it is considered a contract for goods and services.

Next, due to manpower constraints and materials shortages, BH is afraid that the subcontractors may not meet their scheduled datelines and fearing the imposition of liquidated damages (LD) by CPL under the main contract, BH devised the incentive scheme on his own accord. Due to the fact that these subcontractors somehow managed to meet their schedule datelines on time and thus, BH obviated the imposition of liquidated damages by CPL. Based on the above discussion, the subcontractor’s claim to press for payment of the “incentives” provided by BH is legally enforceable.

Question 4 Question 5 – Part A It is said that BH has completed partial performance of the contract. The general rule at law states that if a contract is to be discharged by performance, the parties must perform their obligations fully and precisely. This is also known as the precise performance in which BH and CPL are bounded for in their contract. According to the principal where a promisor has substantially performed his obligations under a contract, he can claim the agreed payment less the amount necessary to make good the defect.

An example of a relevant case will be “Hoenig v Isaacs (1952) In this case, the interior designer was engaged to decorate a flat for GBP750 including the cost of certain items of furniture. 2 parts payment totally for GBP300 was paid in April. After completion of the job, the decorator requested for GBP450, however only GBP100 was paid and he sued for the balance of GBP350. It was said that only substantial performance even though there was defects. The decorator was eventually awarded only the amount he sued for minus the defects costs.

Based on this case, BH can claim payment on a quantum meruit basis minus the defects costs. Question 5 – Part B The position will be very different if the construction of these completed structure were made on a “lump sum” basis. BH will not be able to claim on quantum meruit basis. An example of the case law will be “Bolton v Mahadeva(1972)” Mahadeva engaged Bolton to install a central airconditioning system in his house for a lump sum of GBP560. When the job was completed, Bolton’s work was found to be deficient. Bolton was unable to claim on a quantum meruit basis as the court of appeal held that the use of a “lump sum” price suggested that the contract was an entire one.

Question 5 – Part C The alternative dispute resolution will be arbitration. The disputing parties can appoint a neutral third party to adjudicate the dispute and issue an arbitral award which is confidential, final and binding. The advantages of arbitration is faster cheaper and allows the selection of a suitably qualified expert to decide the issue in question. In this case, an expert from the construction industry can examine the cost of the defects and on the basis of awarding the quantum meruit. The hearings are less formal than court hearings and the arbitrator has greater flexibility on the admission of evidence.

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