Court of Appeal clarifies scope and application of earlier decisions regarding building and construction industry's statutory adjudication scheme

This article is produced by CMS Holborn Asia, a Formal Law Alliance between CMS Singapore and Holborn Law LLC.

A Court of Appeal decision earlier this month has provided authoritative guidance as to the scope and application of its earlier decision in Audi Construction Pte Ltd v Kian Hiap Construction Pte Ltd [2018] 1 SLR 317 (“Audi Construction”) regarding a respondent’s duty to raise jurisdictional objections under the Building and Construction Industry Security of Payment Act (Cap. 30B) (“Act”), and “patent errors” that are properly before the adjudicator (most recently defined in Comfort Management Pte Ltd v OGSP Engineering Pte Ltd [2018] 1 SLR 979 (“Comfort Management”)).

In particular, Far East Square Pte Ltd v Yau Lee Construction (Singapore) Pte Ltd [2019] SGCA 36 highlights the importance to respondents of differentiating between invalid and/or invalidly served payment claims within the purview of the Act, and payment claims that fall outside the purview of the Act from the outset. The former category of payment claim would engage the respondent’s duty to speak and raise objections to the payment claim at the earliest opportunity. In the event such objections are not raised, the respondent may be regarded as having waived its right to make that objection or as being estopped from doing so. The latter category of payment claim does not give rise to a duty to speak, and therefore no corresponding waiver or estoppel operates on a respondent’s lack of objection at the earliest opportunity.

Facts

The appellant, Far East Square Pte Ltd (“Far East”) engaged the respondent main contractor, Yau Lee Construction (Singapore) Pte Ltd (“Yau Lee”) for an integrated commercial and residential project. The contract between the parties (Contract) incorporated an amended form of the Singapore Institute of Architects’ Articles and Conditions of Building Contract (Measurement Contract) (7th Edition, April 2005) (SIA Form of Contract).

The Contract required Yau Lee to submit its final payment claim before the end of the maintenance period. No final payment claim was submitted by Yau Lee before or after the end of the maintenance period.

Subsequently, the architect issued a maintenance certificate and a final certificate to Yau Lee. The final certificate certified the final balance payable from Far East to Yau Lee. Far East similarly issued its final payment response.

After the issuance of the final certificate, Yau Lee issued two further payment claims: payment claims number 74 and 75 (“PC 75”). The architect responded with a letter stating that no further progress payments will be made after the issuance of the final certificate. No payment responses were issued in respect of payment claims 74 and 75. Yau Lee subsequently lodged an adjudication application in relation to PC 75.

The adjudicator found Far East liable to Yau Lee for payment on the basis of PC 75. Far East’s subsequent application to set aside the adjudication determination in the High Court was dismissed.

At both the adjudication and before the High Court, and among other issues in dispute, Far East objected that PC 75 was submitted after the issuance of the final certificate and was therefore invalid under the Contract, and argued that it was not obligated to file a payment response if the payment claim is invalid because it falls outside the Act from the outset.

In both instances, the adjudicator and the High Court judge ( “Judge”) held that Far East was estopped from challenging the validity of PC 75 given that it had not raised this objection in a payment response. The Judge relied on the decision in Audi Construction for the proposition that a respondent’s duty to speak arises in relation to any jurisdictional objections to a payment claim.

The Court of Appeal

The Court of Appeal upheld Far East’s appeal on these points. The Court of Appeal reasoned that the Act was not meant to alter the substantive rights of the parties under the contract nor give rise to a payment regime independent of the contract. Thus a claimant who is not entitled to payment under the contract is not entitled to submit payment claims under the Act – such claims fall outside the purview of the Act.

The Court of Appeal also found that a respondent’s duty to speak at the earliest opportunity is not engaged in respect of payment claims that fall outside the purview of the Act. There is therefore no corresponding waiver of objection or estoppal in respect thereof arising from such omission of objection.

The Court of Appeal noted that a payment claim submitted outside the purview of the Act is a “patent error”, most recently defined in Comfort Management as “an error that is obvious, manifest or otherwise easily recognisable…that is in the material that is properly before an adjudicator”, such that it can be considered by an adjudicator even if such error was not raised by a respondent in its payment response.

Key Takeaways

A claimant’s entitlement to payment under the contract must be with regard to the provisions of the particular underlying construction contract.

With regard to the Contract, the Court of Appeal held that:

• When a construction contract incorporates the SIA Form of Contract, any payment claim which is submitted after the architect has issued the final certificate is outside the ambit of the Act, provided that the final certificate must prima facie comply with the requirements in the SIA Form of Contract.
• Under the SIA Form of Contract, the payment certification mechanism ends with the Architect’s issuance of the final certificate.
• As the issuance of the final certificate typically signifies that the works under the contract have come to an end, this contractual scheme does not offend against the legislative purpose of facilitating cash flow during the course of project works or the anti-avoidance provisions in the Act.
• PC75 was a patent error as, after the issuance of the final certificate, the Contract in support of PC 75 was in effect no longer a subsisting contract between the parties permitting the submission of any further payment claims under the Act.

In addition, the Court of Appeal considered non-exhaustive examples of payment claims that would fall outside the ambit of the Act from the outset, and would likewise be regarded as “patent errors”:

• payment claims made pursuant to oral contracts;
• payment claims made pursuant to contracts for the carrying out of construction works, or the supply of good and services in relation to any residential properties;
• payment claims made pursuant to contracts which contains provisions under which a party undertakes to carry out construction works or supply goods and services, as an employee of the party for whom the construction work is to be carried out, or the goods and services supplied;
• payment claims made in respect of construction projects outside Singapore;
• payment claims made pursuant to non-construction contracts, or contracts for the supply of goods and services, within the meaning of section 3 of the Act; and
• payment claims submitted beyond the six-year limitation period as set out in section 10(4) of the Act.

This publication is not intended to be nor should it be taken as legal advice. If you would like to better understand the implications of this decision for specific circumstances, please do not hesitate to approach the key contacts listed for this article.