Society of Construction Law (Singapore)

Far East Square v Yau Lee Construction (Singapore)

A.  Introduction

1. In the recent case of Far East Square v Yau Lee Construction (Singapore) [2019] SGCA 36 ("Far East"), the Singapore Court of Appeal ("SGCA") clarified the scope and limits of a respondent's obligation to raise all jurisdictional objections under the Building and Construction Industry (Security of Payment) Act (Cap 30B) ("SOPA").
2. Revisiting its earlier decision in Audi Construction v Kian Hiap Construction [2018] 1 SLR 317 ("Audi Construction"), the SGCA has now provided authoritative guidance that there is no duty to speak where the purported payment claim is one which does not entitle the contractor to commence adjudication proceedings under the SOPA in the first place.

B. The background facts

3. Far East was the developer of an integrated commercial and residential development in Yio Chu Kang / Seletar Road, and Yau Lee was the main contractor.
4. The governing contract was an amended form of the Articles and Conditions of Building Contract (Measurement Contract) (Seventh Edition, April 2005) published by the Singapore Institute of Architects (the "SIA Form of Contract"):
5. Clause 31(11) of the SIA Form of Contract required Yau Lee to submit its final payment claim before the end of the maintenance period. However, Yau Lee failed to comply with this, and served 2 further payment claims on Far East after the Architect's issuance of the Final Certificate on 5 September 2017 – PC 74 on 24 October 2017, and PC 75 on 24 November 2017.
6. Far East did not file payment responses to PC 74 and PC 75. Instead, the Architect responded by letter stating that since Yau Lee had failed to serve its final claim documents in accordance with Clause 31(11), and that the Final Certificate had been issued in accordance with Clause 31(12)(a), no further progress payments would be issued.
7. In response, Yau Lee commenced adjudication proceedings against Far East on the basis of PC 75.
8. In its adjudication response, Far East which raised the objection that PC 75 was invalid as it was submitted after the issuance of the Final Certificate. However, the adjudicator, on the basis of Audi Construction, agreed with Yau Lee that he was "prohibited" from considering Far East's objection as this was not raised in Far East's payment response.
9. Far East's setting aside application before the Singapore High Court was unsuccessful, as the court agreed with the adjudicator's finding that Far East was estopped from raising a jurisdictional objection to the validity of PC 75 on the basis that it had not done so in its payment response. Far East appealed.

C. The SGCA's decision

10. The SGCA allowed Far East's appeal, and set aside the adjudication determination.

11. The SGCA held that:-

1. Under the SIA Form of Contract, further payment claims cannot be submitted after the Final Certificate has been issued by the Architect. PC 75 was thus outside the ambit of SOPA, and incapable of supporting Yau Lee's adjudication application.
2. A respondent's duty to speak was never intended to apply to a situation where the payment fell outside the purview of the SOPA. Far East was thus not estopped from raising this jurisdictional objection before the adjudicator.
3. Further, the submission of PC 75 was a patent error as there was no longer a subsisting contract between the parties, and this brought PC 75 outside the ambit of the SOPA. This was an error that Far East was entitled to raise even if it had not filed a payment response.

The validity of PC 75

12. In reaching its conclusion that PC 75 was outside the ambit of the SOPA, the SGCA considered that the SOPA is a legislative framework meant to expedite the process by which a contractor may receive payment. It does not, in itself, grant the contractor a right to be paid. This right stems from the construction contract.
13. In the context of the SIA Form of Contract, the Architect becomes functus officio upon the issuance of the Final Certificate. Once this takes place, the entire certification process under the contract comes to an end, and with it the contractor's ability to submit payment claims and its entitlement to progress payments.
14. PC 75, being a payment claim submitted after the Architect issued the Final Certificate, was thus a claim outside the ambit of the SOPA. This brings it into the same category as:-
    1. payment claims made pursuant to oral contracts (s 4(1) of the SOPA);
    2. payment claims made pursuant to contracts for the carrying out of construction works, or the supply of good and services in relation to any residential properties (s 4(2)(a) of the SOPA);
    3. payment claims made pursuant to contracts which contains provisions under which a party undertakes to carry out construction works or supply goods and services, as an employee of the party for whom the construction work is to be carried out, or the goods and services supplied (s4(2)(b)(i) of the SOPA);
    4. payment claims made in respect of construction projects outside Singapore (s 4(2)(b)(ii) of the SOPA);
    5. payment claims made pursuant to non-construction contracts, or contracts for the supply of goods and services, within the meaning of s 3 of the SOPA; and
    6. payment claims submitted beyond the six-year limitation period as set out in s 10(4) of the SOPA.

A respondent's duty to speak

15. The SGCA has now provided clear and authoritative guidance that a respondent's duty to speak applies only to payment claims that are within the purview of the SOPA (i.e. payment claims made under s10 SOPA, whether validly or invalidly served).
16. Where the objection is founded on an absence of any valid contract between the parties, a respondent is not estopped from raising this objection at the setting aside stage notwithstanding its failure to raise it earlier.

PC 75 being outside the ambit of the SOPA is a patent error

17. The SGCA further considered that it ought to have been clear from the material before the adjudicator that PC 75 was submitted after the Architect was functus officio and was therefore outside the ambit of the SOPA. This was a patent error that Far East would have been entitled to raise in any event.
18. In its judgment, the SGCA reiterated that the power and duty of an adjudicator to consider the matters in the material before him is separate and distinct from the respondent's obligation to raise all reasons for withholding payment in its payment response. This would include the adjudicator's independent duty to consider whether a payment claim is within the ambit of the SOPA, having regard to the provisions of the SOPA and the provisions of the contract to which the adjudication application relates

D. Commentary

19. There are a number of key takeaways from the decision in Far East.
20. First, the SGCA's holding on the validity of payment claims submitted after the Architect's issuance of the Final Certificate is pertinent, given the prevalence of use of the SIA standard form of contract in the local construction industry. Contractors would do well to ensure familiarity with the terms of the contract, and to ensure that all payment claims do not fall afoul of the provisions of the contract, and the SOPA.
21. Furthermore, the decision of Far East may have broader implications beyond the SIA standard form of contract. The usage of a third party to certify the contractor's interim payment claims (such as the architect in the SIA form of contract) is not uncommon in the standard forms which are used in Singapore. Examples include:
    1. SIA Building Contract (1st edition) (latest version of the SIA suite of contracts) – see cl. 31;
    2. PSSCOC Standard Conditions of Contract for Construction Work – see cl. 32;
    3. REDAS Design and Build Conditions of Main Contract (Third Edition) – see cl. 22;
    4. FIDIC Conditions of Contract for Construction (Second Edition) – see cl. 14; and
    5. Asian International Arbitration Centre Standard Form of Building Contract (2019 Edition) – see cl. 30.
22. Second, it is unclear whether the SGCA's clarification as to a respondent's duty to speak will have any practical effect in alleviating the requirements on respondents.
23. At first blush, this decision provides welcome guidance to what was previously thought to be a blanket requirement for a respondent to raise all jurisdictional objections in its payment response. The holding in Audi Construction, taken to its logical conclusion, would require a respondent to file a payment response to a payment claim, even if it has no subsisting contract with the claimant. The decision in Far East now makes clear that there is no duty to speak in such circumstances.
24. However, as the factual matrix in Far East illustrates, the question is never as simple. The issues in Far East were grappled with by lawyers, an adjudicator and a judge of the Singapore High Court. It begs the question as to whether respondents, a vast majority of whom are not legally schooled, are able within the short timelines of the SOPA regime to accurately assess whether the payment claim received is one that falls within the purview of the SOPA. Respondents will most probably err on the side of caution and submit payment responses setting out all its jurisdictional objections in any event. In essence, the clarification of this duty to speak may have little practical effect in alleviating the difficulties faced by respondents in putting together a payment response.
25. Third, the certainty brought about by the holding in Audi Construction, where respondents who have failed to file a payment response are prohibited from raising jurisdictional objections, may also give way to more disputes as to whether the payment claim is, in fact, one that falls outside the purview of the SOPA.

Concluding Remarks

26. For now, the decision of Far East has clarified the scope of the "duty to speak" from Audi Construction. However, the decision of Far East may be an invitation for parties to engage in further disputes on the various circumstances which may (or may not) render a payment claim outside the purview of the SOPA.

Contributed by:

Joanna Seetoh –Pinsent Masons MPillay LLP; Jason Yong – MPillay