Frontbuild Engineering & Construction Pte Ltd v JHJ Construction Pte Ltd

• Jurisdiction: Singapore
• Judge: S Mohan JC
• Judgment Date: 31 March 2021
• Docket Number: Originating Summons No 1129 of 2020
• Year: 2021
• Court: High Court (Singapore)

Frontbuild Engineering & Construction Pte Ltd

and

JHJ Construction Pte Ltd

[2021] SGHC 72

S Mohan JC

Originating Summons No 1129 of 2020

General Division of the High Court

Building and Construction Law — Dispute resolution — Adjudication — Whether adjudicator failed to recognise patent errors in material properly before him — Interplay between ss 4(2)(c) and 9 Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) — Sections 4(2)(c) and 9 Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed)

Building and Construction Law — Statutes and regulations — Construction contract terminated pursuant to clause in contract — Whether Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) applicable to terminated construction contract — Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed)

Building and Construction Law — Subcontracts — Termination — “Pay when paid” provisions — Clause in subcontract purporting to suspend further payments upon contract termination until main contract works were completed — Whether clause was rendered unenforceable — Sections 4(2)(c) and 9 Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed)

Civil Procedure — Service — Leave order served on defendant being defective — Whether service was valid — Order 2 and O 95 Rules of Court (Cap 322, R 5, 2014 Rev Ed)

Held, dismissing the application:

(1) The plaintiff contended that it was “unaware” of the service of the Leave Order on 29 July 2020. A lack of awareness did not necessarily support the plaintiff's allegation that the service itself was improper or invalid. On the contrary, the Leave Order was validly served on the plaintiff at its registered address: at [24].

(2) It was common ground between the parties that the Leave Order did not contain the requisite notice required under O 95 r 2(4)–O 95 r 2(5) of the ROC. Such a defect was an “irregularity” falling within O 2 r 2(1) of the ROC which could be cured under O 2 r 2(2). It was appropriate in the circumstances of the case to exercise the court's curative power to cure the defect in the Leave Order, particularly where no prejudice was caused to the plaintiff as a result of the irregularity: at [25] and [27].

(3) Where no payment response was served by the adjudication respondent, the responses that an adjudication respondent could raise in the adjudication proceedings were limited to highlighting patent errors in the material properly before the Adjudicator. A patent error referred to an error that was obvious, manifest or otherwise easily recognisable: at [31] and [32].

(4) In an application to set aside an AD, the court's task was to assess whether any mandatory provision under the Act had been breached. In the present application, that provision would be s 17(3)(a) read with ss 4(2)(c) and 9 of the Act. In making such an assessment, the court did not consider the merits of the underlying dispute dealt with in the AD. The Adjudicator's finding on the validity of the termination of the Subcontract by the plaintiff on 12 March 2020 went to the merits and was to be taken at face value. It was not for the court to revisit the issue in a setting-aside application: at [31] and [33].

(5) A valid termination of the Subcontract by the plaintiff did not ipso facto mean that the defendant was not entitled to submit any payment claims thereafter. The defendant's entitlement to submit payment claims after the termination of the Subcontract by the plaintiff ultimately depended on the terms of the Subcontract which governed the parties' rights. While the Act generally served to fill in gaps where the parties' contract was silent, s 9 of the Act served to limit parties' freedom to contract by prohibiting “pay when paid” provisions entirely: at [34] and [35].

(6) The Act did not confer upon a contractor the right to be paid; it only facilitated the enforcement of such a right by, for example, providing for the process of making and receiving progress payment claims and responses in the manner stipulated when the underlying contract was silent on such matters. The right upon which a contractor made a claim for a progress payment remained a purely contractual right as opposed to a statutory one. In that sense, a contractor making a claim for progress payments under the Act had to nevertheless show that there was a basis for claiming such payment under the terms of the contract in question: at [45].

(7) The central issue to be considered was whether s 4(2)(c) of the Act took primacy over s 9 of the Act, and in that regard, there were two possible interpretations. The first possible interpretation, as submitted by the plaintiff, was that s 4(2)(c) of the Act took primacy over s 9 of the Act such that “pay when paid provisions” in terminated construction contracts remained enforceable as the Act would not apply at all to the terminated contract until the conditions in s 4(2)(c) of the Act had been met. The second possible interpretation, as submitted by the defendant, was that s 4(2)(c) of the Act was to be interpreted in light of s 9 of the Act such that “pay when paid provisions” in construction contracts, including a terminated contract, were strictly unenforceable: at [36], [37], and [39].

(8) Section 4(2)(c) of the Act should be construed in context, having regard to the entire piece of legislation and not in isolation. In doing so, the court should strive to achieve a harmonious construction of provisions within the same statute, particularly where that construction would promote the purpose of the legislation. Section 4(2)(c) of the Act did not take primacy over s 9 of the Act. Such a construction was consistent with and gave effect to the raison d'être of the statutory framework. In contrast, if the plaintiff's interpretation was accepted, s 9 of the Act could easily be circumvented by dint of contract drafting, thereby rendering it otiose in many cases: at [42] and [47].

(9) When s 4(2)(c) of the Act was construed to determine if the Act applied to a particular terminated construction contract, any termination and suspension of payment provisions in that contract were to be given effect only if they did not fall foul of s 9 of the Act. Such an interpretation would not only allow a harmonious construction of ss 4(2)(c) and 9 of the Act to be achieved in circumstances where those provisions intersected, but would also be consistent with the purpose of the Act: at [47].

(10) When an adjudicator construed a termination clause in a construction contract that also contained a provision on the suspension of further payments to the counterparty following termination of that contract, the adjudicator was required to consider if that provision on suspension of payments also fell within the ambit of a “pay when paid provision” as defined in s 9 of the Act. If it did, the adjudicator was obliged to disregard it as unenforceable under s 9 of the Act: at [48].

(11) The Adjudicator did not fail to consider s 4(2)(c) of the Act. It was not seriously contested that cl 9(b) of the Subcontract operated as a “pay when paid” provision within the meaning of s 9 of the Act as it purported to make the plaintiff's liability to pay money owing to the defendant contingent or conditional on the completion of the Main Contract Works. A close reading of the AD as a whole demonstrated that the Adjudicator did consider the interplay between ss 4(2)(c) and 9 of the Act when he determined if the Payment Claim fell within the ambit of the Act. The Adjudicator had also considered whether there were any patent errors in the material properly before him and did not merely rubber stamp the Payment Claim. There was thus no failure by the Adjudicator to recognise any patent errors in the material properly before him: at [51], [52], [54], [56], [57].

Case(s) referred to

AMJ Pte Ltd v AMK Pte Ltd [2012] SCAdjR 581 (refd)

Baek Jae Pte Ltd v K-Inc Konstruct Pte Ltd [2018] SGDC 11 (refd)

Comfort Management Pte Ltd v OGSP Engineering Pte Ltd [2018] 1 SLR 979 (folld)

Far East Square Pte Ltd v Yau Lee Construction (Singapore) Pte Ltd [2019] 2 SLR 189 (refd)

Grouteam Pte Ltd v UES Holdings Pte Ltd [2016] 5 SLR 1011 (refd)

Orion-One Residential Pte Ltd v Dong Cheng Construction Pte Ltd [2021] 1 SLR 791 (refd)

SEF Construction Pte Ltd v Skoy Connected Pte Ltd [2010] 1 SLR 733 (distd)

Shimizu Corp v Stargood Construction Pte Ltd [2020] 1 SLR 1338 (folld)

Tan Cheng Bock v AG [2017] 2 SLR 850 (refd)

Woon Brothers Investments Pte Ltd v MCST Plan No 461 [2011] 4 SLR 777 (refd)

Facts

The plaintiff was the main contractor for certain construction works (the “Main Contract Works”) at Fengshan Community Club (the “Worksite”). The plaintiff appointed the defendant on 27 March 2019 as a subcontractor for the supply of labour to carry out reinforcement concrete works at the Worksite (the “Subcontract”). In February 2020, the plaintiff complained that the defendant failed to deploy manpower to the Worksite. The defendant on the other hand complained that the plaintiff had prevented it from accessing the Worksite. On 12 March 2020, the plaintiff issued the defendant a notice of termination under cl 9 of the Subcontract. Clause 9(b) of the Subcontract provided that one consequence of the plaintiff terminating the Subcontract under cl 9 was that payments due to the defendant would be suspended until the Main Contract Works had been completed.

On 31 March 2020, the defendant issued and served on the plaintiff Payment Claim No PC 9 (the “Payment Claim”). The Payment Claim was in respect of work done by the defendant for the period ending 31 March 2020. Having received no payment response from the plaintiff, the defendant issued its Notice of Intention to apply for adjudication on 27 April 2020. The Payment Claim was referred to adjudication and under an adjudication determination rendered on 27 May 2020...