Case Summaries

Shimizu Corporation v Stargood Construction Pte Ltd [2020] SGCA 37

SUPREME COURT OF SINGAPORE

21 April 2020

Case summary

Shimizu Corporation v Stargood Construction Pte Ltd [2020] SGCA 37

Civil Appeal 204 of 2019

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

Outcome: Court of Appeal allows the appeal against the decision of the High Court  judge (“the Judge”) in which he set aside the adjudications in Adjudication Determination No SOP/AA203/2019 (“AA 203”) and Adjudication Determination No SOP/AA245/2019 (“AA 245”) and granted a declaration that the respondent Stargood Construction Pte Ltd (“Stargood”) was entitled to serve further payment claims on the appellant Shimizu Corporation (“Shimizu”).

Background facts

1 Shimizu was engaged as the main contractor for a construction project. Stargood was engaged as one of Shimizu’s subcontractors under a subcontract which incorporated, with amendments, the Real Estate Developers’ Association of Singapore Design and Build Conditions of Contract (3rd Ed, 2013) (“the Subcontract”). Under the Subcontract, Shimizu appointed a project director (“the Project Director”) to act on its behalf in respect of matters including the certification of progress payments. Following certain alleged breaches of the Subcontract on the part of Stargood, Shimizu issued a notice of default on 4 March 2019 and followed up by terminating the Subcontract on 22 March 2019.

2 On 30 April 2019, after the termination of the Subcontract, Stargood served Payment Claim No 12 (“PC 12”) on Shimizu for works done up till April 2019. Shimizu did not serve a payment response to PC 12. Stargood then proceeded to lodge AA 203 on 4 June 2019. In its adjudication response, Shimizu claimed that: (a) PC 12 had not been properly served; and (b) PC 12 was outside the purview of the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) (“SOPA”).

3 Stargood also elected to serve Payment Claim No 13 (“PC 13”) on 31 May 2019 prior to the commencement of AA 203, which was essentially identical to PC 12 save that the claimed sum was stated to be for works done up till May 2019. Shimizu provided a payment response on 21 June 2019 stating the response amount to be “nil”.

4 AA 203 was dismissed on 27 June 2019 on two grounds: (a) PC 12 had not been properly served; and (b) second, PC 12 was served after Shimizu had terminated the Subcontract, which rendered the Project Director functus officio as regards his certifying functions under the Subcontract.

5 Stargood subsequently lodged AA 245 on 5 July 2019 for the adjudication of PC 13. This was dismissed by the adjudicator on 6 August 2019 as he found that Stargood was bound by the determination in AA 203.

6 Following this, Stargood filed OS 1099 of 2019 to set aside the adjudication determinations in AA 203 and AA 245. It also sought a declaration that it was entitled to serve a further payment claim on Shimizu.

Decision below

7 The Judge found that the termination pertained only to Stargood’s employment and not the entire Subcontract. This meant that Stargood could continue to avail itself of the payment certification process. The Judge also found that the SOPA provided Stargood with an independent right to progress payments, even if the entire Subcontract had been terminated. In doing so, the Judge reasoned that an interpretation holding that the SOPA did not apply to works done before termination of the Subcontract would place subcontractors and suppliers at the mercy of employers, who could resist or delay payment by terminating the underlying contract on tenuous grounds. The Judge also thought it significant that amendments to the SOPA enacted in 2018 (“the 2018 Amendments”) amended the definition of a “contract” under the SOPA to include a “construction contract or a supply contract that has been terminated”. The Judge thus set aside both adjudications and granted a declaration that Stargood was entitled to serve further payment claims on Shimizu for work done prior to termination of the Subcontract.

The appeal

8 Shimizu appealed against the whole of the Judge’s decision. Shimizu argued that the decision in Far East Square Pte Ltd v Yau Lee Construction (Singapore) Pte Ltd [2019] 2 SLR 189 (“Far East Square”) meant that any entitlement to submit a payment claim under the SOPA would have to stem from the underlying contract and that there was no separate and independent statutory entitlement to payment. Under the terms of the Subcontract, the Project Director was functus officio upon termination pursuant to cl 33.2 of the Subcontract. Any post-termination payment claim could not be certified so as to allow Stargood to submit progress claims under the SOPA.

The Court’s decision

9 The Court framed two issues for determination:

(a) First, whether the SOPA provides an independent right to continue serving payment claims for works completed regardless of the provisions of the underlying contract (“Issue 1”).

(b) Second, if the first issue is answered in the negative, whether under the terms of the contract in question, Stargood was entitled to serve payment claims on the Project Director following its termination (“Issue 2”).

Issue 1

10 The court observed that the decision in Far East Square held that the SOPA was merely a legislative framework to expedite the process by which a contractor may receive payment through the payment certification and adjudication process in lieu of commencing arbitral or legal proceedings. It did not grant the contractor a right to be paid independent of the terms of the contract. Before claiming for progress payments under the SOPA, a contractor would therefore have to establish a basis for payment under the contract.

11 In so far as Stargood relied on cases which suggested that the SOPA created a “dual railroad track system” where a party possesses a separate statutory entitlement to a progress payment distinct from its contractual entitlement, the Court found that such an interpretation would be inconsistent with its decision in Far East Square and the proper construction of the SOPA, bearing in mind its structure: at [21]–[26].

12 The provisions of the SOPA dealing with a party’s entitlement to progress payments are found in Part II, which is titled “Rights to Progress Payments”. The SOPA plainly pointed to a preference for the provisions of the contract between the parties in determining rights to payment, and expressly provided for specific situations where it applied to modify those rights. For instance, ss 6 and 7 of the SOPA operated as a “gap-filler” in situations where the contract was silent as to the amount of a progress payment which a party was entitled to, or did not provide any mechanism for the valuation of construction work carried out or goods or services supplied. In other situations where the SOPA limited the parties’ freedom to contract, the extent of such limitation was expressly set out. Section 8 of the SOPA limited the ability of the parties to set a payment date further than a specified point, while s 9 of the SOPA entirely prohibited parties from including “pay when paid provisions” in their contract. A holistic consideration of Part II of the SOPA thus led to the conclusion that there was no separate statutory entitlement to progress payments where a contract already made provisions for such payments (and did not otherwise violate the SOPA): at [27]–[31].

13 The court similarly concluded that there was no separate statutory entitlement to serve a payment claim under s 10 of the SOPA (as it then stood) where the underlying contract provided a mechanism for the service of payment claims. Since no separate statutory right to progress payments existed under s 5 of the SOPA where the contract provided for progress payments, there could not be a corresponding separate statutory entitlement to serve a payment claim under s 10 of the SOPA. This was made clear by s 10(2) the SOPA, which stipulated that the terms of a contract which provided for the service of payments claims would govern. In such situations, a party’s remedy would be to have any disputes fully and finally settled in arbitration or legal proceedings (in accordance with the dispute resolution provisions of the contract): at [32].

14 The 2018 Amendments had to be seen in the context of the overarching legislative scheme in the SOPA, in particular, the “gap-filling” role which the legislation fulfilled in relation to progress payments and payment certification. Seen in this light, the 2018 Amendments did not have any impact where the contract itself contained provisions relating to the amount and valuation of progress payments as well as payment certification. While the SOPA could in principle apply to progress payment claims after termination, it did not and was not intended to override the terms of the contract which provided to the contrary: at [35]–[36].

15 It followed from this that the first point of reference would be the terms of the Subcontract, particularly any provisions relating to the service of payment claims following its termination: at [37].

Issue 2

16 The court held that the Subcontract by its terms precluded the service of payment claims following termination under cl 33.2. This meant that both PC 12 and PC 13 were not valid payment claims under the SOPA and were incapable of supporting adjudication applications: at [38] and [49].

17 The distinction between a termination of a contractor’s employment on the one hand and the termination of a contract was well-entrenched in construction contracts. Where the employment of a contractor was terminated pursuant to an express clause in the contract, the parties would remain bound by any terms expressed to survive such termination: at [41]–[42].

18 The payment mechanism under the Subcontract was broadly similar to that of the contract considered in Far East Square. Payment claims were to be submitted to the Project Director, who would be obligated to issue a payment response to Stargood stating the amount he believed was due to the latter. Following this, Shimizu would only be obligated to pay Stargood the amount stated by the Project Director in the payment response. The Project Director’s payment response served as a condition precedent to Stargood’s right to receive progress payments at this point, and appeared to be accorded temporary finality under the terms of the Subcontract: at [43].

19 Crucially, cl 33.4 of the Subcontract, which was the provision governing the effects of a termination carried out pursuant to cll 33.2 or 33.3, provided that upon termination of the Subcontract, Shimizu would be entitled to damages as if Stargood had wrongfully repudiated the Subcontract. No provision was made for Stargood to make any payment claim in such a situation. This meant that Stargood had no contractual right to serve a payment claim for work done prior to termination if the Subcontract was terminated for its default, which was the case here. It followed that Stargood was not entitled to serve PC 12 and PC 13 under the terms of the Subcontract, and the appeal was accordingly allowed: at [45], [47], [48] and [53].

Observations

20 Based on the above analysis, it was not necessary for the court to decide on whether the Project Director became functus officio in relation to his payment certification functions upon the termination of the Subcontract and the consequences of his becoming so. The court, however, made two brief provisional observations on this point (at [50]–[52]):

a. First, the court did not think that a distinction could be drawn between a case where the payment certifier became functus officio as a result of the completion of the contract (as was the case in Far East Square), or the termination of a contract. In either case, he would no longer have the ability to certify payments under the contract in question unless it expressly provided so.

b Second, one of the points raised during the hearing was the effect of the Project Director becoming functus officio on Stargood’s right to serve a payment claim if the Subcontract provided for the certificate to function as a condition precedent to payment. The court was of the view that this issue did not arise as there was no question of the certificates being final and binding on the parties under the Contract. It would thus be preferable to explore this point in a subsequent case.

 

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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