Building and Construction Law

Citation(2015) 16 SAL Ann Rev 168
AuthorCHOW Kok Fong LLB (Hons), BSc (Bldg) (Hons), MBA; FRICS; FCIArb; FCIS; FSIArb; Chartered Arbitrator, Chartered Quantity Surveyor. Philip CHAN Chuen Fye Dip Bldg, LLB (Hons), LLM, PhD, Dip Ed; FSIArb; Barrister-at-law (Middle Temple), Advocate and Solicitor (Singapore); Associate Professor, National University of Singapore. [NB: Part A was contributed by Chow Kok Fong; and Part B was contributed by Philip Chan.]
Publication Date01 December 2015
Date01 December 2015
PART A
Architect's certificates
The effect of fraud

7.1 Disputes arising from an architect's or a superintending officer's certificates frequently require a consideration of the concept of temporary finality. The purpose of according temporary finality to these certificates is to minimise undue cash flow problems that may affect contractors, typically when unverified counterclaims are raised by an employer to hold back payments which are due to a contractor.

7.2 In H P Construction & Engineering Pte Ltd v Chin Ivan[2014] 3 SLR 1318 (reviewed in (2014) SAL Ann Rev 102 at 105–109, paras 7.11–7.21), an employer resisted the enforcement of two architect's certificates on the ground that the certificates should not be accorded temporary finality because they had been procured by fraud. The High Court had held that a prima facie case of fraud had been made out but that since the alleged fraud affected only certain items, a stay against enforcement would only apply to the affected items. During the year under review, the case came before the Court of Appeal in Chin Ivan v H P Construction & Engineering Pte Ltd[2015] 3 SLR 124 (‘Ivan Chin’). The Court of Appeal decided that the proceedings should be stayed in their entirety because there was no basis under the contract for dissecting or severing the disputed certificates: Ivan Chin at [3]. In arriving at its decision, the Court of Appeal clarified a number of important points on the effect of architect's certificates which will be welcomed by the construction industry.

7.3 The facts relate to a building contract which incorporated the articles and conditions of the Singapore Institute of Architects' Articles and Conditions of Building Contract (Lump Sum Contract, 7th Ed, April 2005) (‘SIA Conditions 2005’). The architect issued a progress payment certificate which included a sum for certain ‘Disputed Items’. Subsequently, this certified sum was reflected in a payment certificate with respect to the final payment claim. The employer did not pay the amounts certified by the architect under the progress payment certificate and the final payment certificate. Before the High Court, the employer argued that the two architect's certificates had been procured by fraud and sought a stay of proceedings for the matter to be referred to arbitration as provided under the arbitration clause of the contract. The employer alleged that the architect was told by the contractor that the parties had agreed that the Disputed Items constituted variations when there was in fact no such agreement. Relying on this misrepresentation, the architect issued the respective architect's instructions and approved the variation claims.

7.4 In the High Court, the judicial commissioner found that a prima facie case of fraud had been made out but that the alleged fraud affected only the Disputed Items. He noted in particular, that apart from the disputed items, the other items in the certificates were not infected by fraud: Ivan Chin at [11]. In the light of this finding, he ordered a partial stay of proceedings and allowed the contractor to proceed with the portion of its claim which he considered was not affected by the alleged fraud. The employer appealed against the judicial commissioner's decision to grant only a partial stay of proceedings. The issue before the Court of Appeal in Ivan Chin was thus framed in the following terms (at [12]):

[C]ould the court enforce in part an Architect's certificate that had been tainted by fraud and/or that had not been issued in accordance with the conditions stipulated under cl 31(13) of the SIA Conditions by granting summary judgment in respect of only a part of the sum certified in such a certificate? [emphasis in original]

Operation of temporary finality

7.5 In delivering the judgment of the Court, Sundaresh Menon CJ noted that the concept of ‘temporary finality’ accorded to a valid architect's certificate has the effect of binding parties to the matters certified unless and until the certificates are opened up and reviewed in the course of proceedings typically brought at the end of the project when a final judgment or award as to the parties' substantive rights is rendered: Ivan Chin at [14]. However, he noted that in the case of an architect's certificate issued under the SIA Conditions 2005, the granting of such temporary finality is subject to certain conditions (Ivan Chin at [18]):

First, the certificate must be issued “in the absence of fraud or improper pressure or interference by either party”. Secondly, it must be issued “strictly in accordance with the terms of the Contract”… For example, it cannot be issued at a time when the contractor has yet to submit a payment claim. Thirdly, as can be seen from the need for the Architect to clarify, upon either party's request “[i]n any case of doubt”, what was or was not taken into account in his certificate, the Architect must have considered the matters which are said to have been dealt with in his certificate. [emphasis in original]

7.6 The judgment in Ivan Chin also referred to the decision of the same court in the classic case of Lojan Properties Pte Ltd v Tropicon Contractors Pte Ltd[1991] 1 SLR(R) 622 (‘Lojan Properties’) that a properly-issued architect's certificate functions as a condition precedent to the contractor's right to receive payment and the employer's right to deduct claims. Menon CJ elaborated on this point (Ivan Chin at [20]):

The “financial machinery” of a standard form SIA contract is “regulated by the certificates of the Architect”, which, if issued in accordance with cl 31(13), place the contractor or the employer (as the case may be) “in a position to enforce payment … [or] to deduct his legitimate claims” respectively. A contractor's right to receive payment and an employer's right to deduct claims would typically not even materialise if the particular Architect's certificate in question was not issued in accordance with the contract concerned. This much is also noted in Chow Kok Fong, Law and Practice of Construction Contracts (Sweet & Maxwell Asia, 4th Ed, 2012) …

7.7 He pointed out (at [21]) that in ‘enforcement proceedings’ the court is not concerned with the merits of architect's certificates, in the sense of whether the certificates are ultimately correct as to matters which they purport to deal with. He noted in the same passage:

The only question in this context will usually be whether the Architect's certificates concerned were validly issued in accordance with the terms of the contract. Because the certification process is concerned primarily with regulating the process and mechanism for payments (or, in the case of an employer, deductions) to be made, it will generally not affect either party's substantive rights, at the appropriate time and before the appropriate forum, to contend that the Architect's certificates concerned, even if validly issued in accordance with the terms of the contract, were not in fact correct as to the matters set out therein. This understanding of the true nature of Architect's certificates is also noted in Chow Kok Fong (at vol 1, paras 8.12–8.13):

8.12These certifications are never intended to be a precise or final determination of the value of the works. Thus,

Hobhouse J in Secretary of State for Transport v Birse-Farr Joint Venture [(1993) 62 BLR 45] noted:

At the interim stage, it cannot always be a wholly exact exercise. It must include an element of assessment and judgment. Its purpose is not to produce a final determination of the remuneration to which the contractor is entitled but is to provide a fair-system of monthly progress payments to be made to the contractor.

8.13 In the absence of any provision to the contrary, the sum certified in an interim certificate is thus taken to be an estimate of the value of the work done up to the date shown in the certificate. Thus, while the employer or owner is obliged to pay what is certified, the amount certified is not binding on the parties and may be adjusted upon completion of the works.… Since the assessment does not represent a final and binding determination of the price for the work done it could be corrected at a later date but the burden of proof falls on the party arguing for the amount assessed to be correct.

[emphasis added]

Severability of certificates in enforcement

7.8 The Court of Appeal upheld the learned judge's finding on the facts that a prima facie case of fraud had been made. However, the court considered that there was no basis under the parties' contract to warrant that the disputed certificates were divisible or severable in the manner as ruled by the judge. Menon CJ said (Ivan Chin at [27]):

As we have noted above, one of the fundamental objectives of the scheme established by the SIA Conditions is to have matters relating to payment and deduction regulated by way of Architect's certificates only. Once an Architect's certificate is found in any material way to have been issued not in accordance with the contract and/or as a result of fraud or improper pressure or interference, then it loses its claim to temporary finality. There is nothing in a standard form SIA contract that would permit a court, in such circumstances, to substitute its assessment for that of the Architect and, in effect, to conjure up a new certificate.

7.9 Finally, it was held that the court cannot go behind an architect's certificate and adjust the matters certified. The Court of Appeal disagreed with the views expressed in Lojan Properties on this point and considered the views to be in any case obiter. The present position arising from Ivan Chin is simply this (Ivan Chin at [29]):

If the certificate is impugned because it was, in some material part, not issued in accordance with the contract and/or was tainted by fraud or improper pressure or interference, then that certificate in its entirety ceases to attract any finality. [emphasis...

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