Singapore - High Court Clarifies Repeat Claim Which Has Been Adjudicated Upon On Its Merits Does Not Form The Basis For A Valid Payment Claim Under SOPA.

Legal News & Analysis - Asia Pacific - Singapore - Regulatory & Compliance - Dispute Resolution

8 July, 2016

 

Asplenium Land Pte Ltd v CKR Contract Services Pte Ltd [2016] SGHC 85 (Singapore, High Court, 10 March 2016)

Under section 10(4) of the Building and Construction Industry Security of Payment Act (“SOPA”), a claimant is entitled to include a sum which has been subject to a previous unpaid payment claim in a subsequent payment claim. In Asplenium Land Pte Ltd v CKR Contract Services Pte Ltd [2016] SGHC 85, the High Court had to consider whether the claimant’s payment claims (which included claims that were previously adjudicated upon in prior adjudication proceedings, and post-termination claims) were valid under the SOPA and if so, whether these issues affected the jurisdiction of the adjudicator.

 

The High Court held that as the relevant payment claim was invalid, the adjudicator did not have jurisdiction to adjudicate upon the Defendant’s claims. This was because the bulk of the payment claims by the Defendant were repeat claims which had previously been adjudicated upon on their merits and did not form the basis of a valid payment claim. Similarly, the post- termination claims did not give rise to a valid payment claim because such claims could not be the subject of a payment claim under SOPA.

 

WongPartnership acted for the successful Plaintiff. This Update takes a look at the decision.

 

Facts

 

The Defendant was awarded a contract by the Plaintiff for the construction of a residential condominium development, based on the amended Singapore Institute of Architects Articles and Conditions of Building Contract (“Conditions of Contract”). The contract was terminated by the Plaintiff on 24 October 2014 and 2 months later, the Defendant issued a payment claim (“PC 21”). The Defendant applied for adjudication based on PC 21 by way of SOP AA/27 of 2015 (“AA 27”). The Plaintiff then lodged an adjudication review with respect to AA 27 in SOP ARA 003 of 2015 (“ARA 003”), which resulted in a reduced adjudication amount. 

 

On 7 October 2015, the Defendant served a new payment claim (“PC 22”) on the Plaintiff. PC 22 contained the same claims as PC 21, plus a claim for work purportedly done after the termination of the Defendant’s contract. The Plaintiff provided its payment response (“PR 22”). However, as the Defendant was not satisfied with PR 22, it lodged SOP AA/432 of 2015 (“AA 423”) pursuant to the SOPA with the Singapore Mediation Centre.

 

The Plaintiff applied to the High Court for, inter alia, an order for the Defendant to withdraw AA 423, a declaration that PC 22 was invalid and a declaration that the adjudicator nominated or appointed in AA 423 had no jurisdiction to conduct the adjudication or determine AA 423. The Plaintiff also sought for the Defendant to be permanently restrained from taking any steps to prosecute on the claims in PC 22 and/or AA 423, on the basis that PC 22 constituted a repeat claim and/or that the claims were outside the scope of the SOPA.

 

In formulating its case in AA 423, the Defendant had categorised its claims into four main heads of claim, and for each head, the Defendant had set out various reasons and arguments for saying that those claims were not prohibited repeat claims. The four heads of claims were as follows:

 

  • Reassessment in PR 22 more than adjudicated amount in AA 27 and payments made so far;
  • Reassessment in PR 22 at less than adjudicated amount in AA 27;
  • Reassessment in PR 22 at more than adjudicated amount (materials on
  • site); and
  • Reassessment in PR 22 more than adjudicated amount
  • (tools and equipment withheld at site); and post-termination claims.

 

Decision

 

The two issues before the Court were (i) whether PC 22 contained prohibited repeat claims; and (ii) whether the post-termination claims under the fourth head of claim were prohibited under SOPA.

 

Prohibited repeat claims

 

This portion of the decision relates to the claims under the four head of claims which had previously been adjudicated upon in AA 27, less the post- termination claims under the fourth head of claim.

 

As a starting point, the Court referred to the Court of Appeal’s decision in Lee Wee Lick Terence (alias Li Weili Terence v Chua Say Eng (formerly trading as Weng Fatt Construction Engineering and another appeal [2013] 1 SLR 

 

401 (“Chua Say Eng”) where the Court of Appeal had opined that a claimant may “roll up” any payment claim which was not paid or paid in full pursuant to section 10(4) of the SOPA, except for claims which had previously been adjudicated on the merits.

 

The High Court also referred to the High Court’s decision in Admin Construction Pte Ltd v Vivaldi (S) Pte Ltd [2013] 3 SLR 309 (“Admin Construction”), in particular where the Court held that a payment claim or any part thereof which had been validly brought to adjudication and dismissed on its merits could not be the subject of a subsequent payment claim or subsequent adjudication.

 

Having regard to the cases cited above, the Court in the present case emphasised that a prohibited repeat claim under SOPA refers to a payment claim which had been adjudicated upon on its merits.

 

The Defendant also raised an argument that there was no adjudication on the merits for claims under the third head since the adjudicator in AA 27 had dismissed this head of claim for insufficiency of evidence. The Defendant thus reasoned that the claims under the third head were not prohibited repeat claims.

 

In answering the question of what constituted adjudication on the merits, the Court referred to the position reached in other jurisdictions, such as Queensland, Australia and held that a dismissal of claims based on absence of legal or factual basis; or acceptance or rejection of evidence; or insufficiency or lack of evidence would constitute adjudication on the merits.

 

The Court further observed that section 10(1) of the SOPA provided the legal basis for the prohibition against repeat claims. In particular, section 10(1) afforded a claimant one opportunity to make a claim in respect of any progress payment claim. In relation to this, the Court expressed its disagreement to the decision in JFC Builders Pte Ltd v LionCity Construction Co Pte Ltd [2013] 1 SLR 1157 where it was held that the payment claim was invalid as it merely repeated an earlier claim without an additional item of claim, but the claim had not been adjudicated on its merits. The Court in the present case opined that, in light of the decisions in Chua Say Eng and Admin Construction, the correct position was that a repeat claim was prohibited only if it had previously been adjudicated on the merits.

 

In the present case, another argument that the Defendant had raised was that the grounds of invalidity was limited to breaches of section 10(3)(a) of the SOPA and regulation 5(2) of the Building and Construction Industry Security of Payment Regulations (“SOP Regulations”). The Court disagreed with the Defendant’s argument and further opined that the invalidity of a repeat claim was a matter that went to the jurisdiction of the adjudicator.

 

Adjudicator’s jurisdiction

 

On this note, the Court again referred to the decision of Chua Say Eng and opined that taking the context of the issue under discussion, what the Court of Appeal must have meant was that the adjudication should proceed only on the non-jurisdictional issues, and that the jurisdictional issues should be raised immediately with the court and not before the adjudicator. On the facts of the present case, the Court found that there was no reason for AA 423 to proceed as he was of the view that PC 22 was invalid.

 

However, by strictly following the Court of Appeal’s decision on this issue in Chua Say Eng, the Court observed that this could potentially lead to an unsatisfactory state of affairs wherein the adjudication determination is issued before the decision in the court proceedings. In addition, the adjudicator would also be prohibited from considering as a threshold question the jurisdictional issue of prohibited repeat claims before proceeding with his assessment.

 

In relation to the Defendant’s public policy argument that jurisdictional challenges may be employed as a dilatory tactic by a respondent, the Court opined that, in the present case, the Plaintiff had been entitled to take the point on jurisdiction and was supported by Chua Say Eng.

 

Relevance of payment response in determining whether a payment claim is a prohibited repeat claim

 

The Court also dealt with the Defendant’s argument that since the Plaintiff had changed its valuation of the works in various instances in PR 22, the issues in question had changed and made PC 22 a different claim from PC 21. Accordingly, the Defendant argued that PC 22 was not a prohibited repeat claim.

 

The Court dismissed the Defendant’s argument on various grounds. First, the Court noted that the Defendant had cherry-picked the portions of PR 22 where the Plaintiff had increased the valuations above the adjudicated amounts, and neglected the portions where these valuations had decreased. The Defendant did not proffer any satisfactory basis for adopting this approach. The Court also noted that the Plaintiff had clearly stated in PR 22 that its primary position was that PC 22 was a repeat claim, and that the revaluations were made strictly on a “without prejudice” basis. Further, the Plaintiff had submitted that the purpose of the revaluations in PR 22 was to take into consideration the latest position for consistency with the ongoing arbitration proceedings. On this basis, the Court held that the revalutions in PR 22 were irrelevant to the prohibited repeat claims issue.

 

In addition, the Court opined that in deciding whether PC 22 was a prohibited repeat claim, the relevant documents to consider would be PC 21 and PC 22. On the facts of the present case, references to and analysis of PC 21 and PC 22 would establish the Plaintiff’s case that PC 22 was a prohibited repeat claim.

 

Section 17(5) of the SOPA

 

Another issue which was considered by the Court was the effect of section 17(5) of SOPA, which reads as follows:

“17(5) If, in determining an adjudication application, an adjudicator has determined in accordance with section 7 —

 

(a) the value of any construction work carried out under a construction contract; or

 

(b) the value of goods or services supplied under a contract,

 

the adjudicator (or any other adjudicator) shall, in any subsequent adjudication application that involves the determination of the value of that work or of those goods or services, give the construction work or the goods or services, as the case may be, the same value as that previously determined unless the claimant or respondent satisfies the adjudicator concerned that the value thereof has changed since the previous determination.”

 

The Defendant had relied on section 17(5) to argue that the changes in PR 22 meant that the Plaintiff had changed its position, and therefore, the “facts surrounding the premise of the adjudicator’s decision” had changed.

 

The Court disagreed with the Defendant’s argument and opined that section 17(5) would apply to situations where there were variations in or additions to the construction work of the goods or services supplied. Further, the exceptions must be specifically raised and required compelling evidence of the change in facts. Based on the facts of the present case, the Court was of the view that the Defendant had failed to show that the facts surrounding the premise of the valuation in PC 21 had changed. The Court also disagreed with the Defendant’s argument, which was tantamount to saying that section 

 

17(5) permitted repeat claims, as this was in clear contravention of section 10(1) of the SOPA.

 

An additional argument raised by the Plaintiff was that section 17(5) operated where there was ongoing work. The Court agreed with the Plaintiff’s contention and held that this was reinforced by the indisputable fact that the claims made under the four heads (excluding the post-termination claims) had been adjudicated upon their merits in AA 27.

 

Post-termination claims

 

In relation to the post-termination claims, the Plaintiff argued that this category of claim did not fall within the SOPA. This was a novel issue which had not been previously dealt with in any local cases.

 

Amongst other things, the Plaintiff relied on clause 32(8)(b) of the Conditions of Contract, which entitled the Plaintiff to “make use of all temporary buildings, plant, tools, equipment, goods or unfixed materials upon the Site, all of which shall vest in and be deemed to be the property of the Employer”. Accordingly, the Plaintiff argued that if the Defendant wished to challenge this, it was open for the Defendant to claim against the Plaintiff for damages at general law, for example, in relation to breach of contract or the tort of conversion.

 

In dealing with this issue, the Court referred to section 5 of the SOPA which reads as follows:

 

“5. Any person who has carried out any construction work, or supplied any goods or services, under a contract is entitled to a progress payment.”

 

The Court noted that, in the present case, the contract had been terminated. Accordingly, it was not possible for the Claimant’s post-termination claims to come under section 5 of the SOPA for the carrying out of construction work or supply of goods and services under the contract. As the Defendant’s post- termination claims could not be the subject of a payment claim, the adjudicator did not have jurisdiction to adjudicate them. The Court also referred to the Queensland decision of McConnell Dowell Constructors (Aust) Pty Ltd v Heavy Plant Leasing Pty Ltd [2013] QSC 269 (“McConnell”). The subject contract in McConnell contained a similar clause to clause 32(8)(b) of the Conditions of Contract. With reference to the subject clause, the Court in McConnell found that the plant, equipment and materials were taken over, rather than being supplied. On that basis, the Court found that such an arrangement did not amount to a hire agreement.

 

The Court in the present case also referred to clause 32(5) of the Conditions of Contract, which provides as follows:

 

“DAMAGES CONTRACTOR’S ONLY REMEDY

 

32(5) Upon receipt of any notice rescinding the Contract or a Notice of Termination under Sub-Clause (1) or (2) hereof and whether or not such notice or Notice of Termination is supported by a Termination Certificate or is based upon any alleged default or repudiation by the Contractor, the Contractor shall be bound to yield up possession and to remove his personnel and labour force from the Site, and irrespective of the validity of the rescission or Notice shall be limited to his remedy by way of compensation as set out in Sub-Clause (1) hereof (if applicable) or, if not, in damages.”

 

The Court found that, properly construed, the parties had agreed that the relief available to the Defendant upon a wrongful termination of the contract by the Plaintiff would be limited to compensation in the nature of damages.

 

Our Comments / Analysis

 

Following the Court of Appeal’s decision in Chua Say Eng, the courts have begun to recognise that a distinction ought to be drawn between irregularities which would affect the validity of determinations, which can be heard before the adjudicators, and jurisdictional objections, which should be heard by the courts. This decision clarifies that jurisdictional issues should be raised immediately with the court. In the meantime, the adjudication proceedings in relation to non-jurisdictional issues should proceed before the adjudicator. In this case, the Court clarified that the issue of whether a payment claim constitutes a prohibited payment claim is an issue to be dealt with by the courts.

 

This decision also makes clear that repeat claims which are prohibited are claims which have previously been adjudicated upon on the merits. Adjudication on the merits would largely include adjudication determinations which go beyond jurisdictional objections. For example, as with the present case, an adjudicator’s determination that there is a lack of evidence to support the claimant’s claim would constitute an adjudication on the merits. Accordingly, claimants should be slow to submit claims which have previously been adjudicated on their merits to a subsequent adjudication, as it would likely render the subsequent payment claim invalid. 

 

In determining whether a payment claim constitutes a prohibited payment claim, it must be correct that the documents to be scrutinised would be the relevant payment claims. Otherwise, a respondent would effectively be caught in a tricky situation, like in the present situation where there are arbitration proceedings ongoing. If the Defendant’s position is accepted, that is, the payment response is relevant in determining the issue of a prohibited repeat claim, the respondent would be constrained to reflect outdated figures for the purposes of adjudication (notwithstanding that they may have taken a different position in the arbitration) to prevent being caught in a situation where their revaluation is taken to be an admission by the claimant. Even if such an approach was taken, there is no stopping a claimant from highlighting this inconsistency and basing its claim in adjudication on the higher set of figures. Such a situation is certainly undesirable and cannot be the correct approach.

 

Another situation which causes some concern as highlighted by the Court in this case is where there is an ongoing court proceeding in relation to jurisdictional issues, and where the adjudicator has to continue with hearing the adjudication proceedings on the merits in the meantime. In the event that the adjudication determination is rendered before the decision of the court, and assuming that the court finds that the payment claim is invalid, it would appear that there would be wasted costs which could have been obviated. In this regard, perhaps it is timely for the legislation to come under scrutiny in regards to this aspect.

 

In relation to post-termination claims, this decision also clarifies that this category of claims will not be subject to determination under the SOPA. Potential claimants should keep this in mind before submitting their claims for adjudication under the SOPA. 

 

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For further information, please contact:

 

Christopher Chuah, Partner, WongParntership
christopher.chuah@wongpartnership.com