Orion-One Residential Pte Ltd v Dong Cheng Construction Pte Ltd and another appeal

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ
• Judgment Date: 22 December 2020
• Neutral Citation: [2020] SGCA 121
• Citation: [2020] SGCA 121
• Court: Court of Appeal (Singapore)
• Published date: 25 December 2020
• Docket Number: Civil Appeals Nos 13 and 112 of 2020
• Plaintiff Counsel: Valliappan Subramaniam and Ng Hweelon (Veritas Law Corporation)
• Defendant Counsel: Ong Kok Seng, Ang Minghao and Tan Ting Ting (Patrick Ong Law LLC)
• Subject Matter: Building and Construction Law,Statutes and regulations,Building and Construction Industry Security of Payment Act,Termination,Consequences
• Hearing Date: 18 November 2020

Steven Chong JA (delivering the grounds of decision of the court): Introduction

The issue as to whether a payment claim can be validly served after termination of the contract has come before our courts in a number of cases. In the court below, the High Court judge (“the Judge”) held that “[t]he authorities are unanimous in their support for the proposition that payment claims made for work done prior to termination of employment are perfectly valid” – see CEQ v CER [2020] SGHC 70 (“the GD”) at [23].

One of the authorities relied on by the Judge was Stargood Construction Pte Ltd v Shimizu Corp [2019] SGHC 261, a decision which was reversed by this court in Shimizu Corp v Stargood Construction Pte Ltd [2020] 1 SLR 1338 (“Shimizu Corp”) subsequent to the release of the judgment below. In Shimizu Corp at [2], we observed that “[i]n determining the validity of the payment claims, the first port of call must necessarily be the terms of the contract, in particular the terms which governed the parties’ rights in the event of termination”.

To the extent that the Judge below appeared to have adopted the approach (in the GD at [23]) that “[a]s a matter of policy, the statutory entitlement to payment must survive termination”, without regard to the terms of the contract, we disagreed with him. In finding that the payment claim was validly served, the Judge omitted to consider the terms of the underlying contract and the specific ground under which the contract was terminated. In our view, based on the ground upon which the contract was terminated, it would have been apparent that the term of the contract which purportedly justified the service of the payment claim after termination was inapplicable both as a matter of construction and on the facts.

In the course of the oral arguments before us, we also remarked on the futility of applying for adjudication of a payment claim more than two years following the termination of the contract. As the adjudication determination, by its nature, is not final and was in fact subject to a pending arbitration, it made no commercial sense to apply for adjudication (see [52] below). We therefore encourage parties to conduct a cost-benefit analysis prior to pursuing the adjudication route. An omission to do so would only serve to introduce a further layer of costs with no apparent benefit.

We heard and allowed the appeal in CA/CA 13/2020 (“CA 13”) and dismissed the appeal in CA/CA 112/2020 (“CA 112”) on 18 November 2020 with brief oral grounds. These are our detailed grounds.

Background facts The parties

The appellant in CA 13 and the respondent in CA 112 is Orion-One Residential Pte Ltd (“Orion”). Orion was the owner and developer of a condominium project known as the “Residential Flat Development at Lot 06836M MK 17 at 6 Jalan Ampas” (“the Project”).

The respondent in CA 13 and the appellant in CA 112 is Dong Cheng Construction Pte Ltd (“Dong Cheng”). Dong Cheng was the main contractor of the Project between 1 February 2016 and 2 March 2017.

Dong Cheng’s employment as the main contractor of the Project

Prior to Dong Cheng’s employment by Orion, Orion had engaged another contractor, SingBuild Pte Ltd (“SingBuild”), as the main contractor of the Project. The contract between Orion and SingBuild dated 19 May 2015 (“the Contract”) incorporated the Real Estate Developers’ Association of Singapore Design and Build Conditions of Main Contract (3rd Ed, July 2013) (“REDAS Conditions”).

By way of a novation agreement dated 1 February 2016 entered into by Orion, Dong Cheng and SingBuild (“the Novation Agreement”), the Contract was novated by SingBuild to Dong Cheng.

On 29 August 2016, Orion and Dong Cheng entered into an agreement to vary the terms of the Contract (“the Supplementary Agreement”). Clause 2.5 of the Supplementary Agreement provided that Dong Cheng “shall … undertake to complete the works as set out in the annex”. Furthermore, if Dong Cheng failed to do so, “Orion may, if they deem fit, proceed to terminate [Dong Cheng] on account of a breach to the [Contract] and the Supplementa[ry] Agreement”.

Termination of Dong Cheng’s employment

Between 7 December 2016 and 16 January 2017, Orion sent Dong Cheng several solicitors’ letters and emails to remind Dong Cheng of its approaching deadlines and outstanding tasks. The solicitors’ letters also drew Dong Cheng’s attention to its obligations under the Supplementary Agreement. On 22 February 2017 and 23 February 2017, Orion’s solicitors exchanged emails with one Lim Kek Sok (“Mr Lim”), who purported to be Dong Cheng’s director. In the course of the correspondence, Orion’s solicitors specifically drew Mr Lim’s attention to cl 2.5 of the Supplementary Agreement.

On 2 March 2017, by way of a Notice of Termination, Orion terminated Dong Cheng’s employment as the main contractor of the Project. This termination was expressly stated by Orion to be “in accordance with” cl 2.5 of the Supplementary Agreement, on the basis that Dong Cheng had “failed to provide the requested documents” and “failed to complete the balance of works”, and that “the manpower deployed in the last few days were inadequate and there was never any work done at all”.

On 15 March 2017, Orion engaged another contractor to undertake the outstanding works under the Project. Around May 2017, the professional parties involved in the Project, including the Employer’s Representative (“the ER”), quantity surveyor, architect and professional engineers, concluded their employment. The Project was completed around August 2017.

PC 25 and the AD

About two years later, between 7 March 2019 and 3 September 2019, Dong Cheng served seven payment claims on Orion, namely Payment Claims 20 to 26. Dong Cheng also commenced three separate adjudication applications against Orion in respect of Payment Claims 21, 24 and 25.

For the purposes of the present appeals, only Payment Claim 25 (“PC 25”) and the adjudication application arising therefrom are relevant. PC 25 was served by Dong Cheng on Orion on 5 August 2019 for the sum of $3,262,740.23. In Orion’s payment response to PC 25 (“PR 25”) which was sent to Dong Cheng by way of a solicitor’s letter dated 22 August 2019, Orion denied Dong Cheng’s claim and instead asserted a claim against Dong Cheng in the sum of $21,792.27.

On 9 September 2019, Dong Cheng lodged Adjudication Application SOP/AA 318/2019 in respect of PC 25 pursuant to s 13(1) of the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) (“SOPA”). By way of an adjudication determination (“AD”) dated 18 October 2019, the adjudicator granted Dong Cheng’s application in part, awarding Dong Cheng the sum of $1,981,579.50 including goods and services tax but excluding interest and costs. The adjudicator found, inter alia, that Dong Cheng was entitled to serve PC 25 despite the fact that PC 25 was served after Dong Cheng’s employment had been terminated.

The decision below

On 12 November 2019, Orion applied in HC/OS 1412/2019 to, inter alia, set aside the AD. Although Orion raised three alternative grounds to set aside the AD, it suffices for present purposes to highlight only one. Relying on Far East Square Pte Ltd v Yau Lee Construction (Singapore) Pte Ltd [2019] 2 SLR 189 (“Yau Lee”), Orion submitted that PC 25 was invalid because the termination of the ER’s employment rendered the ER functus officio. As the ER’s certification was a condition precedent to the contractor’s right to receive payment, any payment claim submitted after the ER was functus officio was invalid.

In response, Dong Cheng submitted that the AD should not be set aside because a payment claim for works done prior to the termination of the contractor’s employment was valid. Dong Cheng further submitted that Yau Lee was distinguishable from the present case.

On 16 January 2020, the Judge dismissed Orion’s application to set aside the AD. The Judge found that a payment claim for works performed prior to the termination of a contractor’s employment and submitted after the termination of the ER’s employment was perfectly valid (see the GD at [23]). Furthermore, the Judge distinguished Yau Lee on the basis that the present case involved the REDAS Conditions while Yau Lee involved the Singapore Institute of Architects Articles and Conditions of Building Contract (Measurement Contract) (7th Ed, April 2005) (see the GD at [25]–[28]).

On Orion’s application, the Judge granted a stay of enforcement of the AD pending the appeal of the Judge’s decision and the disposal of arbitration proceedings (see CEQ v CER [2020] SGHC 192). This was on the condition that $500,000 from the sums held in court was to be released to Orion’s solicitors, to be utilised solely towards Dong Cheng’s legal fees and disbursements for the appeal of the Judge’s decision and the arbitration proceedings. This stay of enforcement was the subject of Dong Cheng’s appeal in CA 112. Given that our decision in CA 13 had rendered the appeal in CA 112 moot, it was not necessary for us to address the merits of CA 112. Instead, for the purposes of these grounds of decision, we shall focus on the parties’ arguments and our decision in respect of CA 13.

The parties’ arguments on appeal

On appeal, Orion maintained its submission that Dong Cheng was not entitled to serve PC 25. In support of this submission, it relied on a new argument that placed greater focus on the terms of the Contract, which had not been raised before the Judge in the proceedings below. Specifically, Orion submitted that as Dong Cheng’s employment was terminated pursuant to cl 2.5 of the Supplementary Agreement, cl 30.3 of the REDAS Conditions (which was relied upon by Dong Cheng as the basis for its entitlement to serve a payment claim post-termination) did not apply. Alternatively, Orion submitted that cl 30.3 did not preserve the ER’s role in certifying payment claims.

In response,...