SCL(S) Annual Construction Law Update 2014 (15 Jan 2014)

The Society of Construction Law (Singapore) organised its Annual Construction Law Update at STI Auditorium, Capital Tower on 15 January 2014. SCL(S) invited two senior and distinguished lawyers, Mr. Christopher Chua of M/s Wong Partnership and Mr. Chia Ho Choon of M/s KhattarWong to address the audience of over 118 participants at the seminar chaired by Mr. Darren Benger.

Security of Payment Act

Christopher gave the audience an update on recent cases relating to the Building and Construction Industry Security of Payment Act (the “Act”). Since the Act was promulgated in 2004, the number of adjudications has generally been increasing. Christopher started the session by considering the landmark decision of Lee Wee Lick Terence V Chua Say Eng [2012] SGCA 63. The Court of Appeal in the Chua Say Eng case clarified that any jurisdictional issue should be raised immediately with the Courts and not the adjudicator.

In Chua Say Eng, one of the issues before the court was whether the payment claim (PC6) was served out of time. In the adjudication proceedings, the Adjudicator determined that PC6 was not served out of time and awarded a sum of money in favour of CSE (the claimant). TL appealed to the High Court, and the High Court Judge allowed TL’s appeal and held that s. 10(2) of the Act read with reg. 5(1) did create a limitation period and PC6 was served out of time. CSE then appealed to Court of Appeal, which allowed CSE’s appeal. The CA essentially disagreed with High Court Judge’s interpretation that s. 10(2) of the Act read with reg. 5(1) created a limitation period, i.e. PC6 was not served out of time. The Court of Appeal also clarified that repeat claims can be made

In JFC Builders v Lion City Construction, the High Court held that such repeat claims were prohibited, if they were identical and that the CA decision in Chua Say Eng is obiter dicta only and not binding.

Among the other cases that Christopher discussed was the High Court decision of Australian Timber Products Pte Ltd v A Pacific Construction & Development Pte Ltd [2013] SGHC 56, from which we can gather that insufficient details in payment claim does not necessarily invalidate the payment claim. The Courts will consider whether the legislative requirements for payment claims that were not complied with were so important that it was the legislative purpose that an act done in breach of the provision should be invalid.

The High Court in Australian Timber, whilst noting that the payment claim failed to comply with the legislative requirements under SOP Regulations (in that it did not contain the relevant quantities or quantum and calculations in respect of VOs for which payment was claimed), held that these statutory regulations were not so important in the Court’s view that acts done in breach of these provisions should be invalid and held the payment claim was valid.

Christopher ended his presentation by addressing on several areas for possible reform. The Singapore Mediation Centre is currently compiling feedback as part of periodic review of the Act and we all look forward to more positive changes to take us forward in this area.

Frustration, Force Majeure & Performance Bonds

Chia Ho Choon then addressed the audience on recent decisions involving issues of frustration, force majeure and injunctive relief on performance bonds and whether extrinsic evidence can be relied on to determine if the bond is conditional or unconditional.

Ho Choon referred the audience to the 2013 High Court decisions of Alliance Concrete Singapore Pte Ltd v Sato Kogyo (S) Pte. Ltd. [2013] SGHC 127 and also that of York International Pte. Ltd. V Voltas Limi [2013] SGHC 124.

In Alliance Concrete, the High Court held that the Indonesian sand ban of 2007 did not give rise to defence of frustration, neither was it an event of force majeure. As such, the supplier of ready mix concrete (RMC) was obliged to fulfil its contractual obligations to the main contractor and supply RMC at prices agreed earlier. The supplier having refused to do so, the main contractor was entitled to treat the agreements as repudiated and recover damages and costs.

Ho Choon referred to the earlier Court of Appeal decision in Glahe International Expo AG v ACS Computer Pte Ltd & anor appeal [1999] 1 SLR (R) 945, where the CA explained that a contract is (only) considered frustrated “when a supervening event (which has not been expressly provided for in the contract) takes place, the consequence of which is that the nature of the parties’ (or one party’s) obligations is so fundamentally or radically altered that the contract can no longer justly be said to be the same as that which was originally entered into by the parties.

Ho Choon explained why the High Court in Alliance Concrete held that the agreements were not frustrated on account of the Sand Ban.

The High Court took into account that on the facts there was no real shortfall of sand in the hands of Alliance. The Building and Construction Authority (BCA) announced measures to provide for release of sand from its stockpile. This would be released to main contractors with ongoing projects. Further, Alliance had been offered and sourced from Vietnam, but rejected the offer because of concerns that the price was not competitive.

On the facts, the High Court in Alliance Concrete held that none of the agreements incorporated a force majeure clause, as the main contractor did not sign and agree to documents containing these clauses. However, even if these force majeure clauses were incorporated, force majeure still did not apply, as Alliance had access to other sources of sand and Sato Kogyo was willing to procure sand from BCA for them.

Ho Choon referred to two earlier cases where different decisions were reached by the High Court and Court of Appeal. In Holcim (Singapore) Pte Ltd v Kwan Yong Construction Pte Ltd [2009] 2 SLR (R) 193, the High Court held that the contract between the Plaintiff RMC supplier and the Defendant contractor had been frustrated by the same Sand Ban. The contractor there had refused to assist the RMC manufacturer to apply for release of sand from BCA stockpile and RMC manufacturer had no sand to produce RMC for the contractor.

In yet another case of Holcim (Singapore) Pte Ltd v Precise Development Pte Ltd [2011] SGCA 1, the Appellant (supplier of RMC) argued that a force majeure clause in the contract applied.

The High Court in Precise Development had held that the word “disruption” excluded a rise in the price of raw materials and there was no force majeure. Frustration was not pleaded and argued. But on appeal, the Court of Appeal disagreed with the High Court and allowed the Appellant's appeal. The Court of Appeal held that this was a “disruption” within the meaning of the clause and this was a case of force majeure. In the context of the 2007 Sand Ban, the CA considered that the word “disrupt” was like the word “hinder”. And “disrupt” does not mean “prevent”. Also that frustration, if pleaded, would also have succeeded.

Ho Choon next considered York International, the Plaintiff had applied for injunctive relief to restrain the Defendant from receiving payment from Citibank on a performance bond until and unless the Plaintiff was adjudged to be liable in arbitration proceedings undertaken by the parties.

The underlying contract referred to the performance bond guarantees to be provided that were required to be “unconditional”. However such wording was not found in the performance guarantee itself. Ho Choon explained why the High Court in York International concluded that the performance guarantee was conditional upon a breach of the underlying contract leading to loss. For a performance bond to be construed as being on demand, it is necessary that clear and unequivocal language should be used, which had been lacking in the abovementioned case

The evening ended with a round of drinks at Amarone kindly sponsored by SCL(S).

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Contributed by

Dwayne Tan
L&S Contract Advisory & Dispute Management Services Pte Ltd