Construction Law Update – Clarification Of The Duty To Speak In Adjudication Proceedings In Singapore.

Legal News & Analysis - Asia Pacific - Singapore - Construction & Real Estate

19 August, 2019

 

In Far East Square Pte Ltd v Yau Lee Construction (Singapore) Pte Ltd [2019] SGCA 36 ("Far East v Yau Lee"), the Singapore Court of Appeal ("CA") clarified its earlier decision of Audi Construction Pte Ltd v Kian Hiap Construction Pte Ltd [2018] 1 SLR 317 ("Audi Construction").# It narrowed the duty imposed on employers served with payment claims under the Building and Construction Industry Security of Payment Act ("SOP Act") to list all objections and reasons for withholding payment ("Duty to Speak") in a payment response. Amongst other things, the CA decided that a respondent has no obligation to respond to a payment claim which falls outside the application of the SOP Act.

 

Facts of the case

 

  • Far East engaged Yau Lee as the main contractor for a development under a contract incorporating the SIA Form of Contract ("SIA Contract"), with amendments. On 4 August 2017, the architect issued the maintenance certificate. Yau Lee then issued a payment claim to Far East. In response, the architect issued a "final certificate" certifying the balance payment due to Yau Lee. Far East followed up with a "final" payment response which Yau Lee disagreed with.
  • Despite this, Yau Lee continued submitting payment claims to Far East (including the payment claim that is the subject of the present case, "PC75"). Far East did not submit any payment response to these payment claims. The architect also informed Yau Lee that:
    • it failed to submit its final payment claim before the end of the maintenance period, and that the final certificate had already been issued; and
    • there would be no further progress payments after the issuance of the final certificate.
  • On 27 December 2017, Yau Lee lodged an adjudication application in relation to PC75. An adjudication determination was given in favour of Yau Lee, which it subsequently applied to enforce. Concurrently Far East applied to set it aside. The High Court decided in favour of Yau Lee and refused to set aside the adjudication determination.
  • On appeal, Far East reiterated the arguments it made before the adjudicator and the High Court – that PC75 was invalid because Yau Lee was not entitled to file further payment claims under the SOP Act after the final certificate was issued. Far East also argued that it was permitted to raise this argument although it did not file a payment response as the Duty to Speak did not extend to invalid payment claims such as PC75. Lastly, PC75 was, in any case, a patent error which Far East was entitled to highlight to the adjudicator although no payment response was filed, which the adjudicator failed to consider.
  • Yau Lee in turn argued that the SIA Contract did not prohibit the filing of payment claims after the final certificate was issued. Even if the SIA Contract did, such a provision would be inoperative as "excluding, modifying, restricting or prejudicing the operation" of the SOP Act pursuant to sections 36(1) and (2) of the SOP Act ("Anti-Avoidance Provisions"). PC75 was also a permissible repeat claim under section 10(4) of the SOP Act. Yau Lee also argued, relying on Audi Construction, that Far East ought to have raised this objection in a payment response and was now precluded from raising these arguments by its failure to do so.  Lastly, Yau Lee argued that the question of the validity of PC75 was an issue of considerable legal complexity and was therefore not a patent error.

 

Court of Appeal's decision

 

The CA set aside the adjudication determination for the following reasons:

 

  1. Essentially, the CA decided that PC75 fell outside the application of the SOP Act and could not support an adjudication application. Under the SIA Contract, the architect plays a fundamental role in the administration of the contract. The architect is integral to the payment mechanism under the contract; he is obliged to issue an interim certificate in response to a payment claim from a contractor. This payment certification process comes to an end once the architect issues the final certificate. Upon the issuance of properly issued final certificate which is in compliance with the contract, the architect’s duties under the SIA Contract comes to end and he becomes functus officio. Accordingly, he has no power thereafter to amongst other things, to issue any payment certificate in response to subsequent payment claims. It followed that the architect’s inability to issue any payment certificate after he became functus officio meant that payment claims subsequent to the final certificate could not be addressed through the payment mechanism in the SIA Contract. There was therefore no contractual basis under the SIA Contract for the submission of further payment claims after the final certificate. Accordingly, any payment claims (including PC75) submitted after a properly issued final certificate fell outside the SIA Contract and by extension, the regime under the SOP Act.
  2. For the same reason, PC75 was also not a permissible repeat claim under section 10(4) of the SOP Act. Repeat claims under the SIA Contract were still required to be predicated on a contractor's right to receive payment under the contract – which no longer existed. Further, the Anti-Avoidance Provisions did not operate to invalidate the payment certification mechanism of the SIA Contract as it does not offend the purpose and operation of the SOP Act – which is to facilitate cash flow during the course of the project works.
  3. The CA also clarified that Audi Construction was never intended to apply to a situation where a payment claim fell outside the ambit of the SOP Act from the outset. The concepts of "waiver" and "estoppel" which imposed the Duty to Speak are based on the rights the parties have in relation to each other under the contract and the SOP Act. If Yau Lee was never entitled to issue a SOP Act progress claim to begin with, Far East would have no Duty to Speak. Far East was therefore not precluded from arguing that PC75 was an invalid payment claim even in the absence of a payment response.
  4. Finally, the CA found that PC75's invalidity was a patent error. It should have been clear from the material before the adjudicator that PC75 was outside the ambit of the SOP Act as it was submitted after the architect had issued the final certificate.

 

Consequence of decision

 

  • This decision is welcomed in the sense that Employers now do not need to continually respond to payment claims submitted after a final certificate has been issued in accordance with the terms of the SIA Contract. Contractors who are dissatisfied with an architect’s final certificate or tardy with the resolution of their final claims, now do not have recourse under the SIA Contract to repeat progress claims after a final certificate has been issued to ambush or harass Employers.
  • More important however, is the CA's clarification of the scope and application of Audi Construction – that the Duty to Speak does not extend to situations where the payment claim falls outside the ambit of the SOP Act. The CA also usefully provided a non-exhaustive list of other types of payment claims to which there would be no Duty to Speak:
    • payment claims made pursuant to oral contracts / contracts for construction works or supply of goods and services for residential properties / contracts which contain provisions under which a party carries out construction work or supplies goods and services as an employee / contracts for construction works outside of Singapore / non-construction contracts; or
    • payment claims submitted beyond the 6 year limitation period in section 10(4) of the SOP Act.
  • That being said, it remains to be seen if the Singapore Courts will consider themselves bound by Far East v Yau Lee after the recent amendments to the SOP Act come into effect.^ The amendments to section 15(3) of the SOP Act now prohibits objections of any nature from being included in an adjudication response if they were not raised in a payment response. It remains to be seen if an objection – that a payment claim falls outside the ambit of the SOP Act – will fall under the definition of an "objection of any nature” in the latest amendments to the SOP Act.

 

# Our Construction Law Update on Audi Construction can be accessed here.

^ Our Construction Law Update on Key Amendments to the SOP Act (Cap. 30B) can be accessed here.

 

Clyde & Co

 

For further information, please contact:

 

Eugene Tam, Partner, Clyde & Co

eugene.tan@clydeco.com