Kingsford Construction Pte Ltd v A Deli Construction Pte Ltd [2017] SGHC 174

Introduction

Kingsford Construction Pte Ltd (“Kingsford”) had two applications, namely, Summons No 1738 of 2017 (“SUM 1738”) and Originating Summons No 460 of 2017 (“OS 460”), to set aside two separate adjudication determinations (“AD”) obtained by A Deli Construction Pte Ltd (“Deli”) against Kingsford. One AD was for the adjudicated sum of $251,455.41 and the other AD was for $219,929.72. It was not disputed that Kingsford did not file its payment responses in relation to both.

Thereafter, Kingsford sought to stay the execution of my order pending appeal. I also dismissed this application and ordered that the payment into court by Kingsford be released to Deli forthwith.

The period to appeal had lapsed and there was no appeal lodged.

Background

Kingsford was the main contractor appointed by Kingsford Development Pte Ltd for the construction works at Hillview Peak. Deli was a subcontractor appointed by Kingsford to supply labour, small tools and equipment for wet trades at Hillview Peak. There were two subcontracts between the parties. One subcontract was for Blocks 103 and 105 at Hillview Peak for the contract sum of $1,150,440 by way of a Letter of Acceptance dated 13 August 2015 (“the 13 August subcontract”). The other subcontract was for Block 101 also at Hillview Peak for the contract sum of $1,117,490 by way of a Letter of Acceptance dated 15 August 2015 (“the 15 August subcontract”).

On 20 January 2017, Deli served its Payment Claim No 15 under the 13 August subcontract and also its Payment Claim No 15 under the 15 August subcontract (collectively, “the two Payment Claims No 15”). Kingsford did not lodge payment responses for both claims. On 13 February 2017, Deli issued a Notice of Intention to Apply for Adjudication in respect of AA45 for the sum of $219,929.72 (excluding GST). On 15 February 2017, Deli issued a Notice of Intention to Apply for Adjudication in respect of Adjudication Application No 43 of 2017 (“AA43”) for the sum of $419,599.16 (also excluding GST).

The ADs were delivered by two different adjudicators on separate occasions. On 23 March 2017, the adjudicator in AA43, Mr Giam Chin Toon SC, delivered his AD and directed Kingsford to pay Deli the sum of $251,455.41 (inclusive of GST) plus other charges. On 31 March 2017, the adjudicator in AA45, Mr Christopher Chuah, delivered his AD and directed Kingsford to pay the sum of $219,929.72 (exclusive of GST) plus other charges.

Kingsford failed to pay the adjudicated amounts and Deli applied to the court to obtain leave to enforce both the ADs in Originating Summons No 362 of 2017 and DC/OSS 56 of 2017. In response, Kingsford filed SUM 1738 and OS 460 to set aside the two ADs in relation to the 13 August subcontract and 15 August subcontract respectively.

Parties’ submissions

Kingsford’s submissions

In the applications to set aside Deli’s two ADs, Kingsford made two main arguments. First, Kingsford submitted that the two Payment Claims No 15 were invalid as they were payment claims made after the finalisation of accounts. The two Payment Claims No 14 were the final claims. Further, the two Payment Claims No 15 did not fall within the ambit of allowable ‘repeat claims’, such claims could be allowed even after the finalisation of accounts, as they were materially distinct from the two Payment Claims No 14. As the two Payment Claims No 15 were invalid the adjudicators had no jurisdiction to determine the adjudication.

For OS 460, Kingsford similarly contended that the adjudicator breached natural justice by failing to consider Kingsford’s right to set-off Deli’s claims against its back charges, by failing to consider Kingsford’s claims for liquidated damages founded on Deli’s failure to furnish workers of sufficient skill and its lack of timely progress under the 15 August subcontract, and by arriving at an erroneous adjudicated sum by using wrong rates for certain items in Payment Claim No 15.

Kingsford additionally submitted that it was not precluded from challenging the ADs on the above two grounds although it did not file payment responses for both ADs. This was on the basis that the adjudicators did not consider patent errors arising on the face of the materials properly before them. Kingsford argued that it did not file payment responses for both ADs as it thought that the two Payment Claims No 14 were the final payment claims and hence Deli was precluded from filing further payment claims.

Deli’s submissions

Deli submitted that the two Payment Claims No 15 were valid and that Kingsford had waived its right to challenge the jurisdiction of the adjudicators. First, Deli contended that on the authority of the Court of Appeal case of Grouteam Pte Ltd v UES Holdings Pte Ltd [2016] 5 SLR 1011, parties should raise the issue of the adjudicator’s lack of jurisdiction at the “earliest possible opportunity” (at [64]) so as not to delay the proceedings. Otherwise, the party who failed to raise the objection would be taken to have waived it. In this case, Kingsford did not file the payment responses. Hence it was deemed to have waived its objection that the adjudicators did not have jurisdiction.

Secondly, even if Kingsford did not waive its right to challenge jurisdiction, the two Payment Claims No 15 were valid as they fulfilled the formal requirements set out in the SOPA and the Building and Construction Industry Security of Payment Regulations (Cap 30B, Rg 1, 2006 Rev Ed) (“the SOPA Regulations”).

The court’s decision

Kingsford challenged the two ADs of Deli basically on two grounds:

(a) The two Payment Claims No 15 were invalid and thus the adjudicators had no jurisdiction to adjudicate the payment claims.

(b) There was a breach of natural justice as the adjudicators failed to consider Kingsford’s set-off and counterclaim.

I rejected both submissions and I shall now explain each in turn.

Were the two Payment Claims No 15 valid?

A payment claim is valid as long as it fulfils the formal requirements set out in SOPA and the SOPA Regulations. This was expressed by the Court of Appeal in Lee Wee Lick Terence (alias Li Weili Terence) v Chua Say Eng (formerly trading as Weng Fatt Construction Engineering) and another appeal [2013] 1 SLR 401 (“Chua Say Eng”) at [78]:

The relevant requirements in the SOPA are contained in s 10, which reads:

Regulation 5 of the SOPA Regulations complements s 10 of the SOPA by prescribing the required form, manner and contents of a payment claim as follows:

Although Kingsford did not file its payment responses, both the adjudicators granted Kingsford the liberty to argue that the two Payment Claims No 15 were invalid. The two adjudicators then dealt with the validity of the two Payment Claims No 15 at great length. Both came to the conclusion that the respective Payment Claims No 15 were valid as these were in compliance with s 10 of the SOPA and reg 5 of the SOPA Regulations. In fact, both the adjudicators deliberated on this issue in their ADs very comprehensively: Mr Giam Chin Toon SC in paras 48 to 76 of his AD, and Mr Christopher Chuah in paras 41 to 47 of his AD.

Kingsford, being dissatisfied with the decisions of both adjudicators on this issue, then brought this action to the court to set aside the two ADs on the exact same grounds of invalidity.

I must first emphasise that the Court of Appeal in Chua Say Eng explicitly stated that the court should not review the merits of an adjudicator’s decision. This is a sound direction as otherwise, the adjudication process will be frustrated by actions of respondents who are dissatisfied with the adjudicator’s decision like in this case. The purpose of the SOPA, which is to allow the claimant to have an expedited process to his claim, will be defeated. This was succinctly explained by the Court of Appeal in Chua Say Eng in the following terms (at [66]):

Although ADs are only of temporary finality, the Court of Appeal in Vinod Kumar Ramgopal Didwania v Hauslab Design & Build Pte Ltd [2017] 1 SLR 890 reiterated that the AD binds the parties (at [30]–[31]):

Thus the basic premise is that Kingsford was bound by the two ADs unless it could show that the adjudicators had failed to comply with the mandatory provisions of SOPA that put their jurisdiction in doubt. One of Kingsford’s key challenges was that the two Payment Claims No 15 were invalid as the two Payment Claims No 14 for each subcontract were identified by Deli as the ‘final’ payment claims. Therefore Deli should not have made further payment claims thereafter and the adjudicators should have dismissed both Deli’s adjudication applications. However, I agreed with both the adjudicators that the two Payment Claims No 15 were valid notwithstanding the labelling of Payment Claims No 14 as final claims. This is because the two Payment Claims No 15 were in compliance with s 10 of the SOPA and reg 5 of the SOPA Regulations. I shall now delve deeper into this issue.

As mentioned, Kingsford submitted that the two Payment Claims No 15 were invalid because they were issued after the ‘final’ claims under both subcontracts. The completion date under both subcontracts was 30 April 2016. On 8 December 2016, about seven months after the completion date, Deli issued the two Payment Claims No 14. They were labelled as ‘final’ claims. But about one month after these ‘final’ claims, Deli issued two further payment claims – the two Payment Claims No 15.

Although Kingsford acknowledged that there was no mechanism in the subcontracts to determine which payment claims would be final, it submitted that it would be reasonable to treat the first payment claim following the completion date of the subcontracts as the ‘final’ one. These would be the two Payment Claims No 14.

Kingsford did acknowledge that the SOPA allows for ‘repeat claims’ (claims filed after the final payment claim) as long as the final claim was unpaid and had not yet been decided by the adjudicator. However Kingsford argued that the two Payment Claims No 15 were not repeat claims as the items and amount therein were materially different from the two Payment Claims No 14.

Kingsford cited Lau Fook Hoong Adam v GTH Engineering & Construction Pte Ltd [2015] 4 SLR 615 (“Lau Fook Hoong”) to support its argument that the two Payment Claims No 15 were invalid as the two Payment Claims No 14 were labelled as the final payments. This authority was also referred to by Kingsford to the two adjudicators who were not persuaded by Kingsford’s submissions. I was also not convinced by this argument as Lau Fook Hoong is distinguishable from the present case.

The relevant provision in the SIA Conditions that the court was referring to provided that the architect would issue a ‘Final Certificate’ within three months of certain documents being received. Therefore any payment claims issued after the ‘final’ claim (being the claim in relation to the Final Certificate) would be invalid.

The reasoning in Lau Fook Hoong was that the breach of the SIA Conditions could potentially be a breach of a mandatory provision, namely, s 10(2)(a) of the SOPA, since that provision explicitly provides that a payment claim shall be served “at such time as specified in or determined in accordance with the terms of the contract”. In other words, for a breach of a contractual provision to invalidate a payment claim, the SOPA provisions must make reference to the contractual provisions such that a breach of the latter can be said to be a breach of the former. This is also consistent with Chua Say Eng which stands for the proposition that the only requirements for the validity of payment claims are compliance with the SOPA mandatory provisions and the SOPA Regulations.

In this case, however, Kingsford informed the court that it was not arguing that the SIA Conditions were applicable to the parties in this case. This point was rightly acknowledged because cl 4 of each subcontract did not incorporate the SIA Conditions. That clause stated, “The conditions of this Sub-contract shall comply fully with all terms and conditions as set out in the Main Contract (Singapore Institute of Architect Nine Edition, August 2011)”. This means that Kingsford cannot argue that a breach of the SIA Conditions is also a breach of the SOPA mandatory provision.

Instead, Kingsford relied on the fact that the two Payment Claims No 14 were labelled as final payment claims by Deli to found its claim that the two Payment Claims No 15 were invalid. But nothing in the subcontracts provides for final payment claims. Indeed, cll 5.1 to 5.4 of each subcontract prescribes the procedure for making payment claims between the parties. But they did not provide for any mechanism for determining which payment claims were ‘final’, and the effect of deeming such payment claims ‘final’. As the two Payment Claims No 15 did not contravene these contractual terms, Kingsford’s argument could not stand. The contractual terms in this case were entirely unlike the SIA Conditions in Lau Fook Hoong, which specifically provided for the provision of a ‘Final Certificate’.

Accordingly, I dismissed Kingsford’s claim and found that the two Payment Claims No 15 were valid.

Breach of natural justice

Kingsford further submitted that there was a breach of natural justice as the adjudicators did not give it an adequate opportunity to be heard by disregarding its arguments that it had a valid set-off and counterclaim against Deli’s two Payment Claims No 15.

Kingsford relied on back charges to say that it had a right to set-off Deli’s claims. It submitted that these back charges were referred to in the two Payment Claims No 14, which were documents placed before the adjudicators. According to Kingsford, when the adjudicators considered the issue of the validity of the two Payment Claims No 15, they had made references to the two Payment Claims No 14 but they failed to consider the back charges referred to within. Kingsford submitted that the adjudicators should have taken these back charges into account even though Kingsford failed to file its payment responses. This is because natural justice requires the adjudicators to consider whether there were patent errors, which included the purported back charges. In support of this proposition, Kingsford cited W Y Steel Construction Pte Ltd v Osko Pte Ltd [2013] 3 SLR 380 (“W Y Steel”) at [51]. I set out this quote in its proper context (at [51]–[52]):

With due respect, Kingsford’s counsel had misunderstood W Y Steel. It is true that the Court of Appeal directed that the adjudicator should not approve the claimant’s payment claim as a mere formality or rubber stamp the claim in situations where there is no payment response. However, in doing so, the Court of Appeal did not say that the adjudicator had to act as though the payment response was present. Rather, the adjudicator was entitled to look only at the materials properly before him and make his determination based on such materials. This excludes the payment response, since it had not been filed by the respondent and therefore was not properly before the adjudicator. However, the respondent was still entitled to make arguments based on the materials which were before the adjudicator and point out “patent errors” on the face of the materials. For instance, if the documentary evidence submitted by the claimant plainly contradicted its claimed amount, the respondent would be entitled to point that out to the adjudicator. Indeed, this accords with the plain and simple meaning of “patent” under the Oxford Dictionary which refers to something that is “easily recognisable” or “obvious”. Hence, the adjudicators in this case had to spot obvious and clear cut errors in the payment claims.

While the adjudicators could consider “patent errors” relating to the payment claims, they could go no further lest they contravened s 15(3)(a) of the SOPA. Section 15(3)(a) of the SOPA reads:

The subcontracts in this case were construction contracts. Since Kingsford had failed to file its payment responses, pursuant to s 15(3)(a) of the SOPA, the adjudicators were precluded from considering Kingsford’s arguments on its purported set-off or counterclaim.

However, as mentioned above, the adjudicators could consider “patent errors” relating to the payment claims. They did indeed do so and varied the payment claims accordingly. This can be found in Mr Giam Chin Toon SC’s AD at paras 77 to 152 where he went through the items in the payment claim line by line and eventually reduced the payment claim amount drastically from $419,599.16 to $251,455.41. Mr Christopher Chuah also deliberated on the payment claim at paras 48 to 67 of his AD and concluded that Deli’s claims were all “sufficiently substantiated”. In fact, both adjudicators even went so far as to consider Kingsford’s claims relating to the back charges and set-off, but they rightfully precluded these claims as these were not in the payment responses and were therefore disallowed by s 15(3)(a) of the SOPA.

Accordingly, I found that the adjudicators did not breach natural justice in arriving at their conclusions in the ADs.

Conclusion on the challenge to the ADs

Kingsford had repeatedly tried to set off Deli’s legitimate claims. It did so twice before two separate adjudicators and once before this court. The arguments in all the three fora were the same.

Stay of execution pending appeal

When the applications were dismissed, Kingsford immediately applied for the order to be stayed pending its appeal. Kingsford further informed the court that it had taken arbitral proceedings against Deli.

Deli resisted this application. I agreed that there should not be any further delay of the payment claims. The Court of Appeal in W Y Steel held that a successful claimant was entitled to receive the adjudicated amount quickly and could not be denied payment without good reason. This was explained at [59]:

However, the Court of Appeal did explain that there could be instances where the claimant would not be allowed to receive payment (by staying the enforcement of an AD). First, if there is clear and objective evidence of the successful claimant’s actual insolvency. Secondly, if the court is satisfied on a balance of probabilities that if the stay were not granted, the money paid to the claimant would not ultimately be recovered when the dispute between the parties was finally resolved in the respondent’s favour. This was stated at [70]:

But in order to strike a balance between the two concerns set out above (namely, the claimant’s entitlement to receive quick payment, and the respondent’s entitlement to recover the money upon subsequent dispute resolution), the Court of Appeal in W Y Steel further emphasised at [71] that:

In other words, the overall objective of the SOPA, which is to ensure cash flow in the construction industry, should ultimately be given more weight.

It appears that Kingsford was unwilling to allow Deli to have the benefit of the money that was paid into court despite the ADs and the dismissal of the applications to set aside the ADs. It also commenced further arbitral proceedings against Deli. This is similar to the situation in Hyundai Engineering & Construction Co Ltd v International Elements Pte Ltd [2016] 4 SLR 626, where the court ordered that the money paid into court be released to the defendant even though the matter was pending appeal (at [45]). The court reasoned that there was no express provision in the SOPA governing the release of monies paid into court pending appeal, but that any such requirement would need to be consistent with the “overarching purpose of ensuring the flow of liquidity in the construction industry through the provision of an expeditious means of resolving payment disputes” (at [42]). In other words, the purpose of the SOPA militates in favour of releasing the monies paid into court pending appeal. I agreed and adopted the same reasoning.

Indeed, the court decried such an attempt to avoid payment in Lim Poh Yeoh (alias Aster Lim) v TS Ong Construction Pte Ltd [2017] SGHC 11. The issue there was not strictly a review of the AD but rather was about the non-payment of a judgment debt, although the judgment debt originated from an AD under the SOPA. Foo Chee Hock JC noted that the SOPA was premised on successful claimants being paid speedily, and concluded that such attempts to avoid payment of judgment debts were an abuse of the court process (at [20]):

Accordingly, I ordered that the sums paid into court be released to Deli forthwith.