Hyundai Engineering & Construction Co Ltd v International Elements Pte Ltd

• Jurisdiction: Singapore
• Judge: Kannan Ramesh JC
• Judgment Date: 08 July 2016
• Neutral Citation: [2016] SGHC 132
• Plaintiff Counsel: Christopher Wong and Chew Wei Jie (cLegal LLC)
• Docket Number: Originating Summons No 204 of 2016
• Date: 08 July 2016
• Hearing Date: 25 May 2016,14 April 2016,05 April 2016
• Subject Matter: Statutes and regulations,Building and Construction Law
• Year: 2016
• Citation: [2016] SGHC 132
• Defendant Counsel: Raymond Chan (Chan Neo LLP)
• Court: High Court (Singapore)
• Published date: 14 July 2016

Kannan Ramesh JC: Introduction

Modelled after similar legislation in other Commonwealth jurisdictions, the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) (“the Act”) came into effect in 2005 with the primary purpose of maintaining liquidity in the construction industry, facilitated by a “fast and low cost adjudication system to resolve payment disputes” (see Singapore Parliamentary Debates, Official Report (16 November 2004) vol 78 at col 1113). While the Act has gone some way towards achieving its goal, it has also spurred ingenuity in the legal profession in the formulation of means to set aside an adjudication determination. The present application, Originating Summons No 204 of 2016 (“OS 204”), involving the interpretation of s 15(3)(b) of the Act (“s 15(3)(b)) in the context of a “cumulative” payment claim (in essence, a claim that includes unpaid amounts that were the subject of previous payment claims served in relation to the same contract, under s 10(4) of the Act), was one such example. The principal question that the application framed for decision was: as regards a supply contract, did s 15(3)(b) require that the reasons for non-payment be given after the issuance of and in relation to a payment claim. It would appear that this is the first time this issue has arisen for consideration by our courts.

Background

The plaintiff, a Singapore-registered foreign company in the business of building construction, was engaged as the main contractor for a project known as “Proposed Conservation & Additions and Alterations to Existing Blocks 1, 9, 14 and NCO Club, and New Erection of 2 Tower Blocks of 34 & 45 Storey, 4 Podium Blocks and 3 Basement Levels, Comprising of Hotels, Offices, Retail Units and Residential Dwelling Units (Total 190 Units) on Lot 858K TS11 at Beach Road (Downtown Core Planning Area)” (“the Project”).

The defendant was a Singapore-incorporated company in the business of the manufacture, production and fabrication of building materials. By a Letter of Award dated 7 August 2013 (“the Letter of Award”) and a Letter of Acceptance dated 11 October 2013 (“the Letter of Acceptance”), the defendant was engaged by the plaintiff as a subcontractor for the “supply, delivery and unloading of stone” to the Project. It was common ground that the agreement evidenced by the Letter of Award and the Letter of Acceptance (“the Subcontract”) fell within the definition of a “supply contract” in s 2 of the Act.

Clause 18 of the terms and conditions in the Letter of Acceptance (“Clause 18”) established a mechanism for the making of periodic payments to the defendant under the Subcontract. It read: 18. Payment Terms 18.1 The Supplier shall submit your monthly interim payment claim by the 20th of each calendar month to ensure prompt payment. Any payment claim submitted later than the 20th of each calendar month shall be treated as a payment claim for the following month, without exception or waiver. Refer to Appendix K. 18.2 Within 21 days from receipt of the application for interim payment from the Supplier, the Main Contractor shall evaluate and certify an amount due to the Supplier fairly representing the value of the Sub-Contract Works plus any authorized variations properly executed. 18.3 The Main Contractor shall pay the Supplier such amount as certified in the Payment Certificate, less all proper and lawful deductions which may arise under the terms of this Agreement against any and all sums which may be due to the Supplier, on or before the expiry of 35 days from the date the tax invoice has been submitted to the Main Contractor. Similar terms for payment were also set out in cl 5 of the General Conditions in the Letter of Award. The collective effect of these clauses was that the plaintiff would evaluate and certify the amount due to the defendant within 21 days from the receipt of the payment claim, which had to be submitted by the defendant by the 20th of each calendar month. Upon certification by the plaintiff of the amount due, the defendant would submit a tax invoice to the plaintiff, based on the amount certified, for payment by the plaintiff within 35 days from submission of the tax invoice.

The payment claim that was the subject of the dispute was Progress Claim No 24 (“PC24”), which was served by the defendant on the plaintiff on 20 November 2015. The sum of $1,188,087.59 was claimed under PC24, and it was said to be the cumulative value of the unpaid amounts under the preceding 23 payment claims (“PC1 to 23”) served pursuant to the Subcontract. No new claims were thus made in PC24.

The defendant received no payment or any response providing reasons for non-payment from the plaintiff as regards PC24. As a result, on 22 January 2016, 63 days after the service of PC24, the defendant served a Notice of Intention to Apply for Adjudication of PC24 on the plaintiff and thereafter lodged Adjudication Application No 30 of 2015 (“AA30”) with the Singapore Mediation Centre on the same day. The plaintiff filed its adjudication response on 1 February 2016 relying on reasons that had allegedly been given in the past in relation to PC1 to 23.

The adjudicator found in the defendant’s favour, determining that the defendant was entitled to its revised claim of $974,823.95 and the costs of the adjudication (“the Determination”). The plaintiff, dissatisfied with the Determination, filed OS 204, seeking that it be set aside. There were two grounds which formed the basis for OS 204. The first was that the Determination was made in breach of natural justice as a result of the adjudicator’s refusal to consider reasons for withholding payment that had been provided by the plaintiff prior to the issuance of but not in relation to PC24. The second was that AA30 had been filed out of time or that there was no entitlement to lodge the same. It was therefore argued that AA30 was improperly filed.

I dismissed OS 204, and the plaintiff has appealed my decision. I set out the grounds of my decision below.

There was no breach of natural justice

Section 16(3)(c) of the Act provides that an adjudicator shall comply with the principles of natural justice, and it is well established that a breach of s 16(3)(c) is a ground for setting aside an adjudication determination: Citiwall Safety Glass Pte Ltd v Mansource Interior Pte Ltd [2015] 1 SLR 797 at [47]. The purported breach in OS 204 was the adjudicator’s refusal to have regard to the reasons given by the plaintiff in respect of PC1 to 23 in the adjudication of PC24. If this alleged breach was sustained, it would afford a basis for setting aside the Determination, The adjudicator took the view that he was not permitted to do so by reason of s 15(3)(b) of the Act. Section 15(3) reads: (3) The respondent shall not include in the adjudication response, and the adjudicator shall not consider, any reason for withholding any amount, including but not limited to any cross-claim, counterclaim and set-off, unless — (a) where the adjudication relates to a construction contract, the reason was included in the relevant payment response provided by the respondent to the claimant; or (b) where the adjudication relates to a supply contract, the reason was provided by the respondent to the claimant on or before the relevant due date. The adjudicator held that as reasons had not been given in relation to PC24, the plaintiff was not entitled to include in its adjudication response reasons for resisting AA30. The adjudicator took this view notwithstanding that reasons had allegedly been proffered in the past in relation to PC1 to 23, which cumulatively made up PC24.

What constitutes a “relevant due date” in s 15(3)(b) is discussed in respect of the second issue but the parties’ respective positions on that issue had no bearing on the purported breach of natural justice. It was nevertheless accepted that for the purpose of the issues before me, the “relevant due date” was that for PC24. On the assumption that PC24 was an amalgamation of PC1 to 23 and the plaintiff had in fact offered reasons in the past for not making payment of PC1 to 23, it would be factually accurate to say that reasons had been provided by the plaintiff before the “relevant due date” for PC24 as regards PC 1 to 23 thereby complying with s 15(3)(b). However, accepting this argument would gloss over the fact that those reasons were provided in relation to PC 1 to 23 and not PC24. While PC24 did not comprise any new claims, it nonetheless was a fresh payment claim with a new “relevant due date” that resuscitated the claims in PC1 to 23 by amalgamating them through the avenue of s 10(4) of the Act. Therefore, the pertinent question before me was whether, for the purpose of s 15(3)(b), the reasons which the plaintiff sought to rely on to challenge AA30 had to be given before the “relevant due date” in relation to PC24. In other words, could the reasons for non-payment of PC24 have preceded its issuance? I should point out that this issue only arises in respect of cumulative payment claims. It is only in that limited context would one see a situation where reasons given in relation to past payment claims might be resuscitated for a future payment claim that subsumes them. This is an important point to bear in mind when examining Parliament’s intention in enacting s 15(3)(b).

The plaintiff adopted a literal approach to the interpretation of s 15(3)(b), pointing to the fact that there was no express stipulation therein that the reasons had to be provided in relation to a payment claim; all that was required was for the reasons to be provided before the “relevant due date” for the payment claim. The plaintiff juxtaposed the difference in statutory language between supply contracts and construction contracts to augment its argument. It was pointed out that unlike construction contracts, there was no requirement that a...