Articles

30 June 2023

Introduction

The Building and Construction Industry Security of Payment Act ("SOPA") was introduced in 2004.  SOPA was modelled on the New South Wales Act, with particular emphasis on speed.  It was considered that a 14 day period from application to decision would offer a real lifeline to contractors facing severe cash-flow difficulties.  Crucially, SOPA also prohibited the operation of “pay-when-paid” provisions as an excuse for non-payment.

The Security of Payment (Amendment) Act 2018 came into force on 15 December 2019, providing for the exclusion of claims for damages, loss or expense by virtue of the amended sections 17(2A) and 19(5A) of the SOPA.  These sections specify that the adjudication / review adjudication(s) must disregard any part of a payment claim or a payment response related to damage, loss or expense that is not supported by –

1. any document showing agreement between the claimant and the respondent on the quantum of that part of the payment claim or payment response; or
2. any certificate or other document that is required to be issued under the contract.

To quote from the second reading of the SOPA amendment bill by Minister of State for National Development Mr Zaqy Mohamad on 2 October 2018, “… Parties that wish to dispute on complex claims should consider other avenues, such as arbitration or litigation.”

It is true that Singapore has a robust arbitral framework in place and all standard form contracts include comprehensive arbitration provisions.  However, the reality is that arbitration is inevitably slow, costly and logistically arduous.

The amendments to the SOPA have highlighted the gulf between the two formally sanctioned (by statute or contract) mechanisms for construction dispute resolution.  How can this gap be filled?

Statutory Adjudication in the UK

In contrast with SOPA, the UK Construction Act^[1] does not preclude any categories of claims from being adjudicated. Put succinctly, “tThe referring party is not limited to claims for money; they can claim for a mere declaration, an entitlement to an extension of time or seek guidance on contract interpretation.  In fact, the variety, extent and scope of disputes that can be adjudicated are infinite” (Julian Bailey, Construction Law [3rd edn, London Publishing Company 2011]) In 2022, a report by the Centre of Construction Law & Dispute Resolution, King’s College London, found that based on 246 received responses, “Claims for extension of time are the most common by a wide margin at 73%.  They are followed by final account claims at 51% and claims for interim payments at 49%.  The least common categories were non-monetary claims and quantum meruit at 2% each, followed by professional liability  at 5%. 12% of questionnaire respondents said that there were other more common categories of adjudicated claims.  These include, for example, termination and prolongation costs”^.[2]

Crucially, this King’s College report also studied the duration of adjudications under the Construction Act and the statistics are perhaps surprising, as follows:

The core duration is 28 days under the Act (to compare with 14 days under SOPA) and an extension of a further 14 days is allowed.  As the King’s College report observed “This means that, in most cases, the adjudicator requests and is granted an extension of time from the referring party, up to the limit of 14 days provided for by the Construction Act.  Equally, however, the default 28-day period appears too short for most cases save for some, probably the smallest and least complex, disputes at 16%”.^[3]

It can be seen that 72% of adjudications under the UK Act are completed within 42 days and 92% are completed within 75 days.  Granted, 42 days is 3 times longer than 14 days under SOPA but within that 42 day period, the adjudicator must assess all the categories of claims listed in Figure 13 above.

A Two-tier Statutory Adjudication System?

How then, can we adhere to the original intention of SOPA to ensure that parties carrying out construction work have a right to payment, even when the payment sought is additional to the original contract value as a result of delays and disruption?

Perhaps we can consider a two-tier statutory adjudication system in Singapore – let’s call it SOPA Part I and Part II.  Part I would be the current SOPA, and Part II would be similar to the UK, where the categories of claim are very broad.

For my theoretical “SOPA Part II”:

1. The adjudication period would need to be longer than the current 14 days to deal with complex disputes. Perhaps, learning from Figure 14 above, the base duration should be 42 days;
2. The adjudicator fees would need to be more than the current S$324 per hour up to a maximum of S$2,592 per day (median adjudicator fees in the UK range between £251 to £300 (S$420 to S$500);
3. As implied by my choice of “SOPA Parts I and II”, the two-tier system would be managed by SMC (as now) to minimize amendments to standard forms of contract so as to accommodate the change readily; and
4. SMC would decide and inform the parties whether Part I or Part II is appropriate (although this is likely to be obvious).

Other ways of bridging the gap between SOPA adjudication and arbitration?

Other initiatives are under consideration, as outlined by Chief Justice Sundaresh Menon in his 14 April 2023 speech, “Constructing Collaboration: Remoulding the Resolution of Construction Disputes”, at the 9^th Annual Conference of the International Academy of Construction Lawyers. 

In his speech, he touched on recent steps taken by the Singapore International Commercial Court (“SICC”).  In 2021, the SICC created a specialized Technology, Infrastructure and Construction List (“TIC List”) for complex construction and technology disputes, which includes:

1. Additional case management features such as, service of witness statements before the document production process, submission of a Scott Schedule summarizing each parties’ positions and evidence relied on instead of a list of issues or written submissions;
2. Voluntary Pre-Action Protocol which facilitates frank and early exchange of information between parties about their dispute and attendance at a pre-action meeting. At the meeting, parties discuss whether the dispute can be resolved without litigation. If litigation must proceed, they are to consider how the dispute can be narrowed, for example by appointing a common expert or by limiting the disclosure of documents; and
3. Voluntary Simplified Adjudication Process Protocol, which establishes a summary adjudication procedure for selected claims, where parties will not present any evidence, but will simply recover a percentage of these claims pegged to the percentage of recovery of the other claims.^[4]

However, we are not convinced that such initiatives, whilst well-intentioned, will address our concern with the now restricted scope of the amended SOPA.

Conclusion

We conclude with an extract from a Judgment by Coulson LJ, included as a preface to the aforementioned King’s College report:

“I rather cavil at the suggestion that construction adjudication is somehow ‘just a part of ADR’. In my view, that damns it with faint praise. In reality, it is the only system of compulsory dispute resolution of which I am aware which requires a decision by a specialist professional within 28 days, backed up by a specialist court enforcement scheme which (subject to jurisdiction and natural justice issues only) provides a judgment within weeks thereafter. It is not an alternative to anything; for most construction disputes, it is the only game in town” – Coulson LJ, John Doyle Construction Ltd (In Liquidation) v Erith Contractors Ltd [2021] EWCA Civ 1452, [2021] Bus LR 1837, [2021] WLR(D) 516

Contributed by:

Christopher Nunns - Managing Director, Kroll Expert Services, Construction Disputes; Huang Yi Jie - Senior Director, Kroll Expert Services, Construction Disputes

^[1] Housing Grants, Construction and Regeneration Act 1996, Part II

^[2] Professor Renato Nazzini and Aleksander Kalisz, 2022 Construction Adjudication in the United Kingdom: Tracing trends and guiding reform 27

^[3] Ibid.

^[4] Chief Justice Sundaresh Menon, “Constructing Collaboration: Remoulding the Resolution of Construction Disputes”, 9^th Annual Conference of the International Academy of Construction Lawyers, Paragraph 37