CHL Construction Pte Ltd v Yangguang Group Pte Ltd

• Jurisdiction: Singapore
• Judge: Chan Seng Onn J
• Judgment Date: 08 March 2019
• Neutral Citation: [2019] SGHC 62
• Citation: [2019] SGHC 62
• Court: High Court (Singapore)
• Published date: 15 May 2019
• Docket Number: Originating Summons No 1465 of 2018
• Plaintiff Counsel: Ong Li Min Magdalene and Quek Li Ting (WongPartnership LLP)
• Defendant Counsel: Lim Kim Hong (Kim & Co)
• Subject Matter: Building and Construction Law,Statutes and regulations,Building and Construction Industry Security of Payment Act,Termination of contract
• Hearing Date: 16 January 2019,19 February 2019

Chan Seng Onn J: Introduction

The Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) (“SOPA”) seeks to provide a fast and low-cost system for contractors to receive payment for completed works.

Nonetheless, in certain cases, the construction contract may be terminated before the contractor has been fully paid for completed works. In such instances, SOPA is equivocal about the timeline for claiming for such works under the statutory regime.

In this case, I consider whether, with respect to SOPA claims, contractual provisions relating to SOPA timelines (eg, for the making of payment claims or payment responses) survive termination of the contract.

Facts

By a Sub-Contract dated 30 March 2017 (“the Contract”),¹ the plaintiff, CHL Construction Pte Ltd (“the Main Contractor”), engaged the defendant, Yangguang Group Pte Ltd (“the Sub-Contractor”) as the sub-contractor for an “Architectural Wet Trade Works” project (“the Project”)² for the sum of $443,921.87 (“the Contract sum”).³

On 9 July 2018, the Sub-Contractor completed the works for the Main Contractor, and a Certificate of Substantial Completion (“CSC”) was received the next day.⁴

Shortly after, on 20 July 2018, the Contract was terminated for reasons irrelevant to the present proceedings.⁵

On 30 August 2018, the Sub-Contractor served Progress Claim 10 (“PC10”), ⁶ claiming for works done until 30 August 2018 and for the release of half of the retention monies (being 2.5% of the Contract sum).⁷

The Main Contractor disputed the amount claimed under PC10, causing the Sub-Contractor to submit an Adjudication Application on 24 September 2018.⁸

On 22 October 2018, the Amended Adjudication Determination (“AD”)⁹ was released, and it was determined that the sum of $95,704.37 (including GST) was payable by the Main Contractor to the Sub-Contractor.¹⁰

Dissatisfied, the Main Contractor filed the present application, seeking to set aside the AD.

PC10 was served in contravention of s 10(2)(a) SOPA Summary of dispute

The dispute centred around PC10, and whether it was served in contravention of s 10(2)(a) SOPA.

If s 10(2)(a) SOPA had indeed been breached, given that it is “a mandatory provision, breach of which would render an adjudication determination invalid” (Grouteam Pte Ltd v UES Holdings Pte Ltd [2016] 5 SLR 1011 at [53]), the AD which was given in respect of PC10 would be rendered invalid, and the Main Contractor’s setting-aside application must be allowed.

Section 10(2) SOPA states that a payment claim must be served in accordance with the timelines in the contract between the parties unless the contract does not contain a provision to such effect: (2) A payment claim shall be served — (a) at such time as specified in or determined in accordance with the terms of the contract; or (b) where the contract does not contain such provision, at such time as may be prescribed.

Clause 37 of the Contract (“clause 37”) stipulated that the Sub-Contractor had to withhold its penultimate payment claim “until three months after the Certificate of Substantial Completion has been received by” the Main Contractor [emphasis added].¹¹ At the hearing before me, it was accepted that PC10, being a claim for work done until completion and for half of the retention monies (2.5% of the Contract sum), was the penultimate payment claim.¹²

Hence, if, notwithstanding the termination of the Contract, clause 37 remained applicable in stipulating the timeline for the service of the penultimate payment claim, PC10, having been served less than three months after the CSC was received (see [5] – [7] above), was served prematurely and in contravention of s 10(2)(a) SOPA.

The Adjudicator’s decision

The Adjudicator held that given the termination of the Contract, the parties no longer had to perform their remaining obligations therein.¹³ However, all accrued rights of the parties prior to the said termination had to be performed. Therefore, the Adjudicator held that clause 37 (a remaining obligation) no longer applied. Given that works had been completed, the Sub-Contractor was accordingly entitled to claim for the value of work done (an accrued right) as well as all the retention monies (5% of the Contract sum).¹⁴

Dual-track regime for construction claims

Before determining the effect of the contractual termination on clause 37, it is important to distinguish the two distinct modes of claims for contractors. As Lee Seiu Kin J explained in Tienrui Design & Construction Pte Ltd v G & Y Trading and Manufacturing Pte Ltd [2015] 5 SLR 852 at [30]:

… Under the SOP Act, a party who carries out any construction work or supplies any goods or services under a construction contract is entitled to progress payments (s 5). While that statutory entitlement to payment is founded on the underlying contract, it is separate and distinct from a party’s contractual entitlement to be paid. The result is a “dual railroad track system” consisting of the statutory regime under the [SOPA] which operates concurrently with, but is quite distinct from, the contractual regime. … [emphasis added]

If a contractor elects to rely on the statutory track, SOPA applies. Under SOPA, a contractor is entitled to payment upon the completion of works, as detailed in ss 2 and 5 SOPA: 2. …

“payment claim” means a claim made by a claimant for a progress payment under section 10; …

“progress payment” means a payment to which a person is entitled for the carrying out of construction work …

5. Any person who has carried out any construction work … under a contract is entitled to a progress payment.

[emphasis added]

SOPA timelines apply notwithstanding termination

If a contractor exercises its statutory entitlement to progress payment for the completion of construction work via a payment claim, s 10(2) SOPA provides that such “payment claim shall be served (a) … in accordance with the terms of the contract; or (b) where the contract does not contain such provision, at such time as may be prescribed” [emphasis added].

Consequently, a SOPA payment claim must be served in accordance with the timeline set out in s 10(2) SOPA, which expressly applies to “payment claim[s]” and does not alter the timeline simply because of a subsequent termination of the contract.

Therefore, contrary to the Adjudicator’s determination, termination of the contract subsequent to the point of time the statutory entitlement to payment had arisen and accrued does not alter the timeline for service of a SOPA payment claim that applies to that contractor’s accrued statutory entitlement to payment. Instead, the timeline for service is determined at the point the statutory entitlement to payment arises; if the contract stipulates such a timeline, the contractual timeline applies pursuant to s 10(2)(a) SOPA. Like the contractor’s statutory entitlement to payment, this timeline remains unchanged even if the contract is subsequently terminated.

This interpretation is consistent with prior decisions, which have held that contractual provisions relating to timelines survive termination for the purposes of claims under SOPA: AET Pte Ltd v AEU Pte Ltd [2010] SCAdjR 771 (“AET”) at [37]–[43]; Taisei Corp v Doo Ree Engineering & Trading Pte Ltd [2009] SGHC 156 (“Taisei”).

In Taisei, the main contractor, Taisei, had terminated the appointment of the subcontractor, Doo Ree. After the termination,...