Shimizu Corporation v Stargood Construction Pte Ltd

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ
• Judgment Date: 21 April 2020
• Neutral Citation: [2020] SGCA 37
• Date: 21 April 2020
• Docket Number: Civil Appeal No 204 of 2019
• Published date: 29 April 2020
• Plaintiff Counsel: Yong Boon On, Amanda Koh Jia Yi and Lee Shu Qing (Eldan Law LLP)
• Defendant Counsel: Christopher Chong and Chen Zhihui (Drew & Napier LLC)
• Court: Court of Appeal (Singapore)
• Hearing Date: 02 March 2020
• Subject Matter: Statutes and regulations,Building and Construction Law,Building and Construction Industry Security of Payment Act,Termination,Consequences

Steven Chong JA (delivering the judgment of the court): Introduction

Can a payment claim be served after termination of the contract? The intuitive response would be – it depends on the terms of the contract. After all, in Far East Square Pte Ltd v Yau Lee Construction (Singapore) Pte Ltd [2019] 2 SLR 189 (“Far East Square”) at [31], this court emphasised that “in order to determine a contractor’s entitlement to submit payment claims under the [Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) (“SOPA”)], the court must necessarily have regard to the provisions of the underlying construction contract” [emphasis added].

The dispute which led to this appeal concerned the submission of payment claims by the respondent, Stargood Construction Pte Ltd (“Stargood”) following the termination of a subcontract by the appellant, Shimizu Corporation (“Shimizu”). In 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. Unfortunately, both parties did not pay sufficient attention to the terms of the subcontract dealing specifically with the consequences of a termination on account of a default by the subcontractor, Stargood. Reliance was instead placed on the recent amendment to s 2 of the SOPA in defining a contract to include “a construction contract … that has been terminated”. In the course of the hearing, the parties were directed to address this court on the effect of the termination provisions in relation to the right to submit payment claims post termination and how such provisions should operate in light of the recent SOPA amendment.

It was suggested that the SOPA was designed to provide a “dual railroad track system” such that the party seeking payment has the option to elect between the statutory and contractual entitlement to payment. Accordingly, a subcontractor can validly submit a payment claim under the SOPA notwithstanding the fact that such a payment claim would be contrary to the terms of the contract. In other words, the SOPA can override the express terms of the contract. However, in Far East Square, we held that the SOPA “was not meant to alter the substantive rights of the parties under the contract, neither was it intended to give rise to a payment regime independent of the contract”. This judgment will thus examine the interaction between the SOPA and the terms of any governing contract in order to put to rest the “dual railroad track system” argument as such an interpretation is at odds with this court’s decision in Far East Square.

The other intuitive response following the termination of a contract is that the person tasked with the certifying function might be rendered functus officio. Indeed, the parties’ principal arguments here and below were focused on the question whether the project director who was contractually tasked with the duty to certify payment claims had become functus officio following the termination of the subcontract and if so, what were the ensuing consequences. The adjudicator found the project director to be functus officio while the Judge below took the opposite view. While we recognise that some aspects of the functus officio point might not have been fully explored in Far East Square, for the purposes of the present appeal, we were ultimately able to dispose of it solely with reference to the termination provisions of the subcontract.

Given this background, there are two issues which we shall address in this Judgment: First, whether the SOPA provides an independent right to continue serving payment claims for works completed regardless of the provisions of the underlying contract (“Issue 1”). Second, if the first issue is answered in the negative, whether under the terms of the contract in question, Stargood was entitled to serve payment claims on the Project Director following its termination (“Issue 2”).

We begin by examining the facts of the case and the Judge’s reasoning.

Facts

Shimizu was engaged as the main contractor for a project located at 79 Robinson Road, Singapore. Stargood was engaged as one of Shimizu’s subcontractors for the project pursuant to a letter of acceptance dated 8 February 2018, which incorporated with amendments the Real Estate Developers’ Association of Singapore Design and Build Conditions of Contract (3rd Ed, 2013) (“the Subcontract”).

Under cl 6 of the Subcontract, Shimizu appointed a project director (“the Project Director”) to act on its behalf in respect of matters relating to the Subcontract, including the certification of progress payments. Clause 28 of the Subcontract provided for payment claims to be submitted by Stargood to the Project Director, who would in turn be responsible for issuing a payment response. The amount reflected in the payment response would be what was due from Shimizu to Stargood.

Following certain alleged breaches of the Subcontract on the part of Stargood, Shimizu issued a notice of default on 4 March 2019. This was followed on 22 March 2019 by an exercise of its termination rights under cl 33.2 of the Subcontract, which reads:

At any time after the Project Director is satisfied that the Sub-Contractor has defaulted in respect of any of the grounds set out under Clause 33.1, the Project Director shall issue a Notice of Default to the Sub-Contractor specifying the default, and stating the Contractor’s intention to terminate the Sub-Contract unless the default is rectified within 7 days from the date of the said notice. If the Sub-Contractor fails to rectify the specified default within 7 days from the receipt of the Notice of Default, the Contractor shall be entitled, without any further notice to the Sub-Contractor, to terminate the employment of the Sub-Contractor by issuing to the Sub-Contractor a Notice of Termination of [the] Sub-Contract.

On 30 April 2019, after termination of the Subcontract, Stargood served Payment Claim No 12 (“PC 12”) on Shimizu for the sum of $2,599,359.44 as payment for works done up till April 2019. Shimizu did not serve a payment response to PC 12. Stargood then proceeded to lodge Adjudication Determination No SOP/AA203/2019 (“AA 203”) on 4 June 2019. In its adjudication response, Shimizu claimed that: (a) PC 12 had not been properly served; and (b) PC 12 was outside the purview of the SOPA.

It appears that Stargood was alive to the possibility that PC 12 had been improperly served on Shimizu. It then elected to serve Payment Claim No 13 (“PC 13”) on 31 May 2019 prior to the commencement of AA 203, which was for all intents and purposes identical to PC 12, save that the claimed sum of $2,599,359.44 was stated to be for works done up till May 2019. Shimizu’s payment response to PC 13 served on 21 June 2019 stated the response amount as “nil”.

AA 203 was dismissed by the adjudicator on 27 June 2019 on two distinct grounds: first, PC 12 had not been properly served on Shimizu; and second, PC 12 was served after Shimizu had already terminated the Subcontract. This rendered the Project Director functus officio as regards his certifying function under the Subcontract. Since no post-termination payment certification regime existed under the Subcontract, Stargood could no longer serve a payment claim as the Project Director did not have power under the Subcontract to certify the same.

Stargood subsequently lodged Adjudication Determination No SOP/AA245/2019 (“AA 245”) on 5 July 2019 for the adjudication of PC 13. This was dismissed by the adjudicator on 6 August 2019 as he found that Stargood was bound by the determination in AA 203.

Following this, Stargood filed OS 1099 of 2019 (“OS 1099”) to set aside the adjudication determinations in AA 203 and AA 245. It also sought a declaration that it was entitled to serve a further payment claim on Shimizu.

Decision below

The Judge framed two issues for determination (see Stargood Construction Pte Ltd v Shimizu Corporation [2019] SGHC 261 (“the Judgment”) at [11]): Whether the Project Director was functus officio when Stargood served PC 12 on Shimizu; and Whether Stargood was entitled to serve PC 12 and PC 13 on Shimizu for works done prior to the termination of the Subcontract.

The Judge found that Shimizu had only terminated Stargood’s employment, rather than the entire Subcontract. He then found that the effect of the termination of Stargood’s employment meant that it could continue to avail itself of the payment certification process (Judgment at [13]–[16]). The Judge also found that the SOPA provided Stargood with an independent right to progress payments, even if the entire Subcontract had been terminated (Judgment at [18]–[21]). In doing so, the Judge reasoned that an interpretation holding that the SOPA did not apply to works done before termination of the Subcontract would place subcontractors and suppliers at the mercy of main contractors or employers, who could resist or delay payment by terminating the underlying contract on tenuous grounds. The Judge also thought it significant that the Building and Construction Industry Security of Payment (Amendment) Bill (No 38 of 2018) (“the 2018 Amendments”) amended the definition of a “contract” under the SOPA to include a “construction contract or a supply contract that has been terminated” (Judgment at [21]–[24]). The Judge thus set aside both adjudications and granted a declaration that Stargood was entitled to serve further payment claims on Shimizu for work done prior to termination of the subcontract (Judgment at [33]).

Parties’ cases Appellant’s case

Shimizu argued that this court’s decision in Far East Square stands for the proposition that once a certifier (ie, the Project Director in this case) is unable to certify further payment claims, any payment claims made would fall outside the ambit of the SOPA and be...