Case Summaries

Far East Square Pte Ltd v Yau Lee Construction (Singapore) Pte Ltd [2019] SGCA 36

SUPREME COURT OF SINGAPORE

16 May 2019

Case summary

Far East Square Pte Ltd v Yau Lee Construction (Singapore) Pte Ltd [2019] SGCA 36
Civil Appeal 204 of 2018

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Decision of the Court of Appeal (delivered by Justice Steven Chong):

<CoA allows appeal to set aside an adjudication determination under the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed)>  

  1. This appeal concerns the limits of the duty to respond to payment claims submitted pursuant to the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) (the “SOPA”), by way of a corresponding payment response. In the Court of Appeal’s earlier decision in Audi Construction Pte Ltd v Kian Hiap Construction Pte Ltd [2018] 1 SLR 317 (“Audi Construction”), it was decided that the scheme of the SOPA imposes a duty on an employer to fully spell out its objections, jurisdictional or otherwise, in its payment response or be estopped from doing so at the adjudication proceedings or the setting-aside stage.

     

  2. The Court of Appeal clarified that this “duty to speak” by way of a payment response does not apply to payment claims which fall outside the ambit of the SOPA. In the present case, the underlying payment claim was submitted after the certifying authority under the contract had lost its ability to certify further payment claims, or in other words, had become functus officio. Therefore, the payment claim was outside the ambit of the SOPA from the outset and there was no corresponding obligation to raise the objection by way of a payment response.  

Background to the appeal

  1. The appellant, Far East Square Pte Ltd (“Far East”) engaged the respondent, Yau Lee Construction (Singapore) Pte Ltd (“Yau Lee”) as the main contractor for an integrated commercial and residential project. The contract between the parties incorporated, with amendments, the Singapore Institute of Architects Articles and Conditions of Building Contract (Measurement Contract) (7th Edition, April 2005) (the “SIA Form of Contract”) which is a commonly used standard form Building and Construction contract in Singapore (at [7]).

     

  2. The SIA Form of Contract required Yau Lee to submit its final payment claim before the end of the maintenance period. Despite this, Yau Lee submitted 18 payment claims after the end of the maintenance period, which were all duly certified by the architect. After the submission of the 18th payment claim, the architect issued a maintenance certificate certifying that all defects had been notified to Yau Lee and all outstanding works had either been made good or accounted for (at [8] and [9]).

     

  3. Subsequent to the issuance of the maintenance certificate, Yau Lee issued a further payment claim, payment claim number 73. 13 days later, the architect issued the final certificate, certifying the final balance payable from Far East to Yau Lee. Far East similarly issued its final payment response. Notwithstanding 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 (at [10] to [13]).

     

  4. The adjudicator found Far East liable to Yau Lee for payment on the basis of PC 75. In arriving at his decision, the adjudicator considered Far East’s objection that PC 75 was submitted after the issuance of the final certificate and was therefore invalid, but found that Far East was estopped from raising it because it had not raised this objection in a payment response (at [14]).

     

  5. Far East subsequently applied to the High Court to have the adjudication determination set aside, repeating its objection that PC 75 was submitted after the issuance of the final certificate and was therefore invalid under the SIA Form of Contract. The High Court judge (the “Judge”) dismissed Far East’s application, primarily on the basis that it was estopped from challenging the validity of PC 75 given that it had not raised this objection in a payment response. In any event, the Judge found PC 75 to be a valid payment claim, and held that Far East and the architect were not allowed to unilaterally issue a final certificate and prevent further payment claims from being submitted. Far East appealed against the Judge’s decision (at [16] to [18]).

Reasons for the court’s decision

  1. The Court of Appeal allowed the appeal and set aside the adjudication determination and the judgment below (at [78]). The Court of Appeal stated that the SOPA is merely a legislative framework to expedite the process by which a contractor may receive payment, but does not in and of itself grant the contractor a right to be paid. The right of a contractor to be paid ultimately stems from the construction contract pursuant to which the contractor carries out the works. Therefore, in order to determine a contractor’s entitlement to submit payment claims under the SOPA, the court must have regard to the provisions of the underlying contract (at [31] and [32]).

     

  2. The Court of Appeal emphasised that the architect plays a fundamental role under the SIA Form of Contract which governed the parties’ relationship in the present case. In particular, the architect plays an integral role in the payment certification process. The Court of Appeal cited its earlier decision in Chin Ivan v H P Construction & Engineering Pte Ltd [2015] 3 SLR 124, where it held that a properly-issued architect’s certificate functions as a condition precedent to the contractor’s right to receive payment. However, the payment certification process and the works under the contract come to an end once the architect issues the final certificate. Another important consequence of the issuance of the final certificate is that the architect’s duties under the contract are concluded and he becomes functus officio (at [33], [35], [36] and [37]).

     

  3. As the architect’s certificate is a “condition precedent” to the contractor’s right to receive payment, the contractor would no longer be able to receive progress payments once the architect loses his ability to issue such certificates. PC 75 was submitted by Yau Lee after the issuance of the final certificate, by which time the architect had become functus officio. PC 75 was thus outside the ambit of the SOPA from the outset and incapable of supporting an adjudication application. The Court of Appeal stressed that even if Yau Lee was precluded from bringing PC 75 to adjudication under the SOPA, it was not left without a remedy because it was still open to Yau Lee to take its claim to arbitration (at [40], [43] and [54]).

     

  4. The Court of Appeal clarified that the duty to speak was never intended to apply to a situation where the payment claim fell outside the purview of the SOPA from the outset. A crucial consideration that the Court of Appeal had in Audi Construction for holding that a respondent had a duty to speak at the earliest possible opportunity was to ensure that a claimant would have a chance to rectify any defect by submitting a new payment claim. However, that consideration would be inapplicable once the final certificate was issued and there was no possibility of submitting a fresh payment claim to replace or rectify PC 75 (at [57] and [60]).

     

  5. The Court of Appeal identified other examples of payment claims that would fall outside the ambit of the SOPA from the outset (at [61]):

     

    1. payment claims made pursuant to oral contracts;

    2. payment claims made pursuant to contracts for the carrying out of construction works or the supply of goods and services in relation to any residential properties;

    3. payment claims made pursuant to contracts which contain 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 of the goods and services supplied;

    4. payment claims made in respect of construction projects outside Singapore;

    5. payment claims made pursuant to non-construction contracts or contracts not for the supply of goods and services as defined in the SOPA; and

    6. payment claims submitted beyond the six-year limitation period as set out in the SOPA.

       

  6. In any event, it should have been clear from the material before the adjudicator that PC 75 was outside the ambit of the SOPA, given that it was clearly submitted after the architect had become functus officio. In any event, PC 75 constituted a patent error which could be raised by a respondent notwithstanding the lack of a payment response. The Court of Appeal added that the situations it identified involving payment claims which fall outside the ambit of the SOPA would likewise be regarded as patent errors (at [72] to [74]).

     

This summary is provided to assist in the understanding of the Court’s grounds of decision. It is not intended to be a substitute for the reasons of the Court. All numbers in bold font and square brackets refer to the corresponding paragraph numbers in the Court’s grounds of decision.

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