Case Summaries

Orion-One Residential Pte Ltd v Dong Cheng Construction Pte Ltd and another appeal [2020] SGCA 121

SUPREME COURT OF SINGAPORE

22 December 2020

Case summary

Orion-One Residential Pte Ltd v Dong Cheng Construction Pte Ltd and another appeal [2020] SGCA 121
Civil Appeals Nos 13 and 112 of 2020

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

Outcome: CoA allows an employer’s appeal against the decision of the High Court judge (“the Judge”) in which the Judge declined to set aside an adjudication determination (“AD”) in respect of a payment claim served by a contractor on the employer after the contractor’s employment had been terminated. CoA also dismisses the contractor’s appeal against the decision of the Judge to grant a stay of enforcement of the AD. 

Pertinent and significant points of the judgment

  • The Court of Appeal affirms its observations in Shimizu Corp v Stargood Construction Pte Ltd [2020] 1 SLR 1338 (“Shimizu Corp”), explaining that in order to determine whether a contractor is entitled to serve a payment claim after the termination of its employment, the court must have regard to the terms of the contract, with particular reference to the rights that were exercised by the parties leading up to the termination of the contractor’s employment (at [23]).

  • Given that an adjudication determination has only temporary finality, parties should conduct a cost-benefit analysis before deciding to pursue adjudication under the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) (“the SOPA”), so as to avoid incurring a further layer of costs with no apparent benefit (at [4] and [53]). 

Background facts

  1. Orion-One Residential Pte Ltd (“Orion”) was the owner and developer of a condominium project (“the Project”). Dong Cheng Construction Pte Ltd was the main contractor of the Project between 1 February 2016 and 2 March 2017. 

  2. The contract between Orion and Dong Cheng (“the Contract”) incorporated the Real Estate Developers’ Association of Singapore Design and Build Conditions of Main Contract (3rd Ed, July 2013) (“REDAS Conditions”), as varied by a supplementary agreement dated 29 August 2016 (“the Supplementary Agreement”). 

  3. On 2 March 2017, by way of a Notice of Termination, Orion terminated Dong Cheng’s employment as the main contractor of the Project. Around May 2017, the professional parties involved in the Project, including the Employer’s Representative, concluded their employment. The Project was completed by another contractor around August 2017.

  4. About two years later, on 5 August 2019, Dong Cheng served Payment Claim 25 (“PC 25”) on Orion for the sum of $3,262,740.23. In Orion’s payment response, Orion denied Dong Cheng’s claim and instead asserted a claim against Dong Cheng in the sum of $21,792.27. Dong Cheng proceeded to lodge Adjudication Application SOP/AA 318/2019 in respect of PC 25. By way of an AD dated 18 October 2019, the adjudicator granted Dong Cheng’s application in part, awarding Dong Cheng the sum of $1,981,579.50. The adjudicator found, inter alia, that Dong Cheng was entitled to serve PC 25 despite the fact that PC 25 was served after Dong Cheng’s employment had been terminated. 

Decision below

  1. Following the AD, Orion applied in HC/OS 1412/2019 to, inter alia, set aside the AD. One of the grounds relied upon by Orion to set aside the AD was that PC 25 was invalid because the termination of the ER’s employment rendered the ER functus officio. As the ER’s certification was a condition precedent to the contractor’s right to receive payment, any payment claim submitted after the ER was functus officio was invalid. 

  2. On 16 January 2020, the Judge dismissed Orion’s application to set aside the AD. The Judge found that a payment claim for works performed prior to the termination of a contractor’s employment and submitted after the termination of the ER’s employment was valid. On Orion’s application, the Judge granted a stay of enforcement of the AD pending the appeal of the Judge’s decision and the disposal of arbitration proceedings.

The appeals

  1. In CA/CA 13/2020 (“CA 13”), Orion appealed against the Judge’s dismissal of its application to set aside the AD. Orion submitted that Dong Cheng was not entitled under the terms of the Contract to serve PC 25 because Dong Cheng’s employment had been terminated pursuant to cl 2.5 of the Supplementary Agreement. Therefore, cl 30.3 of the REDAS Conditions (which was relied upon by Dong Cheng as the basis for its entitlement to serve a payment claim post-termination) did not apply. Alternatively, Orion submitted that cl 30.3 did not preserve the ER’s role in certifying payment claims. 

  2. In response, Dong Cheng submitted, inter alia, that its right to serve a payment claim post-termination was preserved by way of cl 30.3.1 of the REDAS Conditions. Dong Cheng also appealed in CA/CA 112/2020 (“CA 112”) against the stay of enforcement granted by the Judge.

The Court of Appeal’s decision in respect of CA 13

  1. The Court of Appeal (“the Court”) reaffirmed its observations in Far East Square Pte Ltd v Yau Lee Construction (Singapore) Pte Ltd [2019] 2 SLR 189 and Shimizu Corp that the starting point of the analysis must always be the terms of the contract. Thus, in determining a contractor’s entitlement to serve a payment claim post-termination, the court must have regard to the terms of the contract, with particular reference to the rights exercised by the parties leading up to the termination of the contractor’s employment: at [23]

  2. Applying this principle to the facts, the Court found that Dong Cheng’s employment had been terminated pursuant to cl 2.5 of the Supplementary Agreement. The basis for the issuance of the Notice of Termination was expressly stated to be cl 2.5 of the Supplementary Agreement. In the parties’ correspondence, Orion consistently referred to the Supplementary Agreement whereas there had been no mention whatsoever of the REDAS Conditions. Further, none of the reasons for Orion’s termination of Dong Cheng’s employment fell within cl 30.2 of the REDAS Conditions, the relevant provision setting out several situations in which the employer could terminate the contractor’s employment for breach: at [29].

  3. By invoking cl 2.5 to terminate Dong Cheng’s employment, ipso facto, Dong Cheng’s employment under both the Supplementary Agreement and the Contract was terminated. Given that cl 30.3 of the REDAS Conditions only applied if the contractor’s employment was terminated under cl 30.2, cl 30.3 did not come into play at all. Therefore, Dong Cheng’s reliance on cl 30.3 as the basis of its entitlement to serve PC 25 was entirely misplaced: at [30] and [31].

  4. Moreover, the Court found that even if cl 30.3 of the REDAS Conditions were applicable, it would not have entitled Dong Cheng to serve PC 25. This was for two reasons. 

    1. First, any payment payable by the employer under cl 30.3 was conditioned upon the ascertainment of all costs incurred by the employer as a result of the termination (“the Termination Costs”). This included the costs required to bring the project to completion as well as any sums that the contractor was legally liable to pay to the employer as a result of its breach of contract. On the facts, however, the Termination Costs had not been ascertained – the merits of PC 25 were, at the time of the appeal, the subject of ongoing arbitration proceedings between the parties. Since the precondition in cl 30.3.1 had not been met, cl 30.3 could not be used by Dong Cheng as the basis of its entitlement to serve PC 25: at [33]–[37].

    2. Second, cl 30.3 of the REDAS Conditions did not concern progress payments. Rather, it provided a mechanism for the final settlement of accounts between the parties upon the employer’s termination of the contractor’s employment for breach. This was evident from how the payment mechanism under cl 30.3 was structured in a significantly different manner from the progress payment regime set out in the amended cl 22 of the REDAS Conditions. This finding was reinforced by the fact that the scope of the Termination Costs includes damages suffered by the employer as a result of the termination, however, the SOPA was never intended to deal with damages claims: at [44]–[46].

  5. The Court reiterated its observation in Shimizu Corp that the amendments made to the SOPA in 2018 must be seen in context of the “gap-filling” role which the SOPA fulfils. Thus, the amendments made to ss 2 and 4(2)(c) of the SOPA simply meant that the SOPA could in principle apply to progress payment claims served post-termination as well as payment claims made after the lifting of a contractual suspension of payment, subject to any terms of the contract which provided to the contrary: at [48]

  6. The Court further explained that where the contractor’s employment was terminated and there was no contractual entitlement to serve progress payment claims post-termination, provisions in the SOPA stipulating a “long-stop” date for the service of progress payment claims would not assist to enable the contractor to serve any progress payment claim: at [51].

  7. Finally, the Court observed that it made no commercial sense for Dong Cheng to serve and apply for adjudication of PC 25 more than two years following the termination of its employment, and about two years after the Project itself was completed given that the adjudication determination has only temporary finality and was subject to a pending arbitration. This only introduced a further layer of unnecessary legal costs, with no benefit whatsoever to either party. The Court encouraged parties to conduct a proper cost-benefit analysis before deciding to pursue adjudication under the SOPA regime, so that parties may avoid being saddled with unnecessary legal costs: at [4], [52] and [53]

The Court of Appeal’s decision in respect of CA 112

  1. Given that the AD was set aside, the stay of enforcement of the AD granted by the Judge fell away. Accordingly, the Court dismissed Dong Cheng’s appeal in CA 112 against the Judge’s decision to grant the stay of enforcement: at [20] and [54].  

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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