LH Aluminium Industries Pte Ltd v Newcon Builders Pte Ltd

Lee Seiu Kin J:

[1] This is an appeal against the decision of the assistant registrar (“the AR”) dismissing the defendant’s application to set aside the adjudication determination dated 7 February 2014 under the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) (“the Act”).

[2] The defendant is the main contractor for the project described as “Additions and Alterations to Existing 3 Storey Commercial Development/Light Rapid Transit System Depot cum Station on Lot 3496C MK11 at Choa Chu Kang/Woodlands Road”. The plaintiff was appointed as the sub-contractor for the aluminium and glazing installation works for the project by virtue of the letter of award dated 21 January 2011 (“the Contract”). It is not disputed that the Contract incorporated the Singapore Institute of Architects Conditions of Sub-Contract (3rd Ed, 2005) (“the SIA Conditions”).

[3] On 22 June 2013, the plaintiff served on the defendant “Payment Claim No 24” for the sum of $631,683.71. The defendant responded by issuing a payment response for the sum of $0. On 22 July 2013, the plaintiff served on the defendant another payment claim also entitled “Payment Claim No 24” for the same sum. No new work had been carried out by the plaintiff since June 2013. Again, the defendant issued a payment response for the sum of $0. On 22 August 2013, the plaintiff served a similar payment claim for the third time, to which the defendant issued a similar payment response. This was repeated by the plaintiff on 22 September, and 22 November 2013 which elicited the same payment response of $0 from the defendant. And on 2 December 2013, the plaintiff again served on the defendant “Payment Claim No 24” for the sum of $631,683.71 for work done up to 22 November 2013 (“the Final Payment Claim”). The defendant issued a payment response for the sum of $0 on 20 December 2013 (“the Final Payment Response”). This time round, the plaintiff submitted an adjudication application (“the Adjudication Application”) on 3 January 2014, pursuant to which the defendant submitted an adjudication response (“the Adjudication Response”) on 13 January 2014. The adjudication determination (“the Adjudication Determination”) was made on 7 February 2014 in favour of the plaintiff.

[4] On 24 February 2014, the plaintiff applied ex parte in originating summons no 159 of 2014 for leave to enforce the Adjudication Determination pursuant to s 27 of the Act. Leave was granted on 25 February 2014. On 14 March 2014, the defendant applied in summons no 1385 of 2014 to set aside the Adjudication Determination. The AR dismissed the application and the defendant appealed. I heard submissions by counsel for both parties on 18 August 2014 and I now give my decision.

[5] The issues arising on appeal are:

(a) whether the Adjudication Application was premature because the “dispute settlement period” under s 12(2) of the Act had not ended;

(b) whether the Final Payment Claim was a “repeat claim” made in breach of s 10(1) of the Act; and

(c) whether the dispute between the parties had been substantially settled such that the plaintiff was not entitled to make the Adjudication Application.

[6] The defendant submits that pursuant to s 12(2) of the Act, the plaintiff is entitled to make an adjudication application only if the dispute is not settled or the payment response not provided by the end of the dispute settlement period. The dispute settlement period is defined under s 12(5) of the Act as the period of seven days after the date on which or the period within which the payment response is required to be provided under s 11(1) of the Act. The defendant contends that since the Adjudication Application was not made within the period of seven days after the expiry of the dispute settlement period, as required by s 13(3)(a) of the Act, the adjudicator ought to have rejected the Adjudication Application under s 16(2)(a) of the Act.

[7] The defendant’s case, therefore, turns on this question: what is the date on which or period within which the Final Payment Response is required to be provided under s 11(1) of the Act?

[8] I first consider the relevant terms in the Contract which relate to the service of payment claims and payment responses. Clauses 10.2 and 10.3 of the Contract provide as follows:

[9] In addition, cll 14.4 and 14.5 of the SIA Conditions, which are incorporated into the Contract, state that:

[10] It is not disputed that the Final Payment Claim was served on 2 December 2013. However, the defendant submits that the 21-day period under cl 10.3 of the Contract for the service of the payment response only started running from 22 December 2013. This is because cl 10.3 clearly contemplates that there is a “date stipulated for the service of a payment claim”, and that date is provided in cl 14.4 of the SIA Conditions as the last day of each month following the month in which the contract is made. Since the Contract was dated 21 January 2011 ([2] above), the date stipulated for service of a payment claim would be the 21st day of each month. Further, as the plaintiff had served the Final Payment Claim on 2 December 2013, earlier than the 21st day of the month, such “early” service of the payment claim would be deemed to be served on the 21st day of the month by virtue of cl 14.4(c) of the SIA Conditions. If this is correct, it follows that the Final Payment Response and the Adjudication Application were premature.

[11] I am unable to agree with the defendant. The defendant’s submission is premised upon a convoluted reading of cll 10.2 and 10.3 of the Contract and cl 14.4 of the SIA Conditions which presupposes that they are consistent with each other. However, I do not think that they are consistent with each other insofar as “effect cannot fairly be given to both clauses” (see Chitty on Contracts vol 1 (Sweet & Maxwell, 31st Ed, 2012) (“Chitty”) at para 12-078). In my view, cll 10.2 and 10.3 of the Contract and cll 14.4 and 14.5 of the SIA Conditions are two distinct and independent sets of rules governing the service of payment claims and payment responses. They have different dates for service of payment claims. It is also clear that cll 14.4 and 14.5 of the SIA Conditions were meant to be read as a whole. As such, it would be artificial to treat cll 10.2 and 10.3 of the Contract and cll 14.4 and 14.5 of the SIA Conditions as consistent and capable of being read harmoniously together.

[12] In Law Relating to Specific Contracts in Singapore (Michael Hwang SC, editor-in-chief) (Sweet & Maxwell Asia, 2008), it was observed at para 5.3.7 that:

[13] In the present case, cl 3 of the Contract provides for, inter alia, the order of precedence in the event of conflict or inconsistency:

[14] As I have found earlier ([11] above), cll 10.2 and 10.3 of the Contract and cll 14.4 and 14.5 of the SIA Conditions are clearly inconsistent with each other. Since cl 3 of the Contract provides that the terms in the Contract shall take precedence over the terms in the SIA Conditions, it follows that the service of the payment claims and payment responses would be governed by cll 10.2 and 10.3 of the Contract.

[15] In any event, I find that the terms of the SIA Conditions are incorporated by virtue of cl 3 of the Contract only insofar as they are not inconsistent with the express terms of the Contract. Since cll 14.4 and 14.5 of the SIA Conditions are inconsistent with cll 10.2 and 10.3 of the Contract, the latter would prevail. Such an approach has been accepted in Singapore: Aldabe Fermin v Standard Chartered Bank [2010] 3 SLR 722 at [108]; Kumagai-Zenecon Construction Pte Ltd (in liquidation) and another v Arab Bank plc (Low Hua Kin, third party) [1997] 1 SLR(R) 277 at [25]. According to Sir Kim Lewison, The Interpretation of Contracts (Sweet & Maxwell, 5th Ed, 2011) at p 114:

See also Sir Kim Lewison and David Hughes, The Interpretation of Contracts in Australia (Lawbook Co, 2012) at p 85; Chitty at para 12-079.

[16] I shall now proceed to consider the date for the service of the payment response under cl 10.3 of the Contract. To do so, I must first ascertain the “date stipulated for the service of a payment claim”. At first blush, the “date stipulated for the service” would be understood to mean the date on which such service is to be made. However, no such date is provided in the Contract. The only date linked to service of payment claim is in cl 10.2 which states that the payment claim shall be served “not later than 22 day of each month”. This is not the date on which a payment claim must be served, but the date on or before which it is to be served. However, the only sensible construction of cl 10.3 is that the “date stipulated for the service” is a reference to the date provided in cl 10.2 as this is the only provision in the Contract of a date linked to service of a payment claim. This is further supported by the fact that the words “whichever is later” in cl 10.3 contemplates that service of the payment claim may be made on a date earlier than the “date stipulated”. Therefore, the “date stipulated for the service of a payment claim” in cl 10.3 is the 22nd day of each month as provided in cl 10.2.

[17] I now consider the question that I have identified earlier (at [7]), ie, what was the date on which or period within which the Final Payment Response was required to be served under s 11(1) of the Act.

[18] Section 11(1) of the Act provides:

[19] Further, s 10(2)(a) of the Act states that:

[20] Section 11(1)(a) of the Act, when read together with s 10(2)(a), provides that the payment response should be served on the earlier of two possible dates:

(a) first, by the date specified in or determined in accordance with the terms of the construction contract, and

(b) second, 21 days after the payment claim was served under s 10.

[21] At this juncture, I pause to consider the effect of s 11(1)(a) of the Act. This is explained in Chow Kok Fong, Security of Payments and Construction Adjudication (LexisNexis, 2nd Ed, 2013) (“Security of Payments and Construction Adjudication”) at paras 6.9 and 6.10:

[22] Such an explanation is consistent with the speech by the Minister of State for National Development, Mr Cedric Foo Chee Keng, at the second reading of the Building and Construction Industry Security of Payment Bill, reproduced in Singapore Parliamentary Debates, Official Report (16 November 2004) vol 78 at cols 1115 (Cedric Foo Chee Keng, Minister of State for National Development):

[23] In other words, the date on which (or period within which) a payment response is to be served under s 11(1)(a) of the Act could depend on the terms of the contract. In the present case, cl 10.3 provides for the payment response to be served within the later of two dates: (a) 21 days after service of payment claim; or (b) 21 days after the date stipulated for service of payment claim. The Final Payment Claim was validly served on 2 December 2013. Pursuant to limb (a), the Final Payment Response was to be served on 23 December 2013 (21 days after service of payment claim) while under limb (b) it was to be served on 12 January 2014 (21 days after date stipulated for service, which was 22 December 2013 ([16] above)). Therefore, “the date determined in accordance with the terms of the construction contract” for the service of the Final Payment Response (ie, first limb of s 11(1)(a) of the Act ([20(a)] above)) is 12 January 2014, being the later of the two dates. However, the date determined under the second limb of s 11(1)(a) of the Act ([20(b)] above), ie, “within 21 days after the payment claim is served under section 10”, is 23 December 2013. This is the earlier date as between the two limbs under s 11(1) of the Act ([20] above). Therefore, in answer to the question posed in [7] above, the date on which the Final Payment Response is required to be provided under s 11(1) of the Act is 23 December 2013.

[24] The dispute settlement period is the period of seven days after the date which the payment response is required to be provided under s 11(1) of the Act. In this case, the dispute settlement period is from 24 to 31 December 2013. The Adjudication Application was made on 3 January 2014, not more than seven days after 31 December 2013 (see s 13(3)(a) of the Act). It was therefore not premature.

[25] For ease of reference, I will set out the relevant timelines in the table below:

[26] I now proceed to consider the defendant’s second submission.

[27] The defendant submits that the Adjudication Determination should have been set aside as the Final Payment Claim was a “repeat claim” made in breach of s 10(1) of the Act. This is because the Final Payment Claim merely “repeats an earlier claim without any additional item of claim”. As described in [3] above, the plaintiff had repeatedly served on the defendant “Payment Claim No 24” for the same amount between June and December 2013, and the defendant had consistently issued corresponding payment responses of $0. The defendant argues that s 10(1) of the Act, read together with s 10(4) of the Act, prohibits repeat claims. The plaintiff raises two arguments in response: first, the defendant is estopped from challenging the validity of the Final Payment Claim at the setting aside stage, and second, the Act does not prohibit repeat claims as long as they have not been adjudicated and dismissed on the merits. I will first address the issue of estoppel, followed by the issue of repeat claims.

[28] The plaintiff argues that the defendant is estopped from challenging the validity of the Final Payment Claim at the setting aside stage because the defendant had not raised any objection to the Final Payment Claim either in the Final Payment Response or the adjudication response. In support of this argument, the plaintiff cites RN & Associates Pte Ltd v TPX Builders Pte Ltd [2013] 1 SLR 848 (“TPX Builders”), where Andrew Ang J (“Ang J”) found that the plaintiff was estopped from arguing that the defendant’s payment claim was invalid because the plaintiff had raised no objection to the payment claim when it served its payment response (at [35]–[40]). In addition, the plaintiff points to 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 (“Terence Lee”) at [65], where the Court of Appeal stated that “[i]f the respondent's objection is that there is no valid payment claim, this should be raised as soon as possible in the payment response so as not to delay the adjudication process”, and argues that the Court of Appeal “adopted the same approach” as Ang J in TPX Builders.

[29] However, I note that there are other cases that were not cited by the plaintiff which took a different stance on this issue.

[30] In JFC Builders Pte Ltd v LionCity Construction Co Pte Ltd [2013] 1 SLR 1157 (“JFC Builders”) at [35], Woo Bih Li J (“Woo J”) disagreed with the approach in TPX Builders and took the view that a payment claim made in breach of the Act would undermine the jurisdiction of the adjudicator and thus the validity of the determination. As such, estoppel would not preclude a party from challenging the validity of the payment claim when seeking to set aside the adjudication determination. Woo J also stated at [38]–[39] that:

[31] Woo J acknowledged at [40] that the Court of Appeal in Terence Lee had suggested that the validity of a payment claim is to be determined by the court and not the adjudicator (see Terence Lee at [64]–[65]).

[32] Shortly thereafter, Woo J was asked to consider the same issue in Australian Timber Products Pte Ltd v A Pacific Construction & Development Pte Ltd [2013] 2 SLR 776 (“Australian Timber”). He considered that the estoppel argument was not persuasive for essentially the same reasons as he explained in JFC Builders (at [36]–[40]). However, Woo J gave an additional reason (at [41]–[46]):

[33] The estoppel argument was also raised in Admin Construction Pte Ltd v Vivaldi (S) Pte Ltd [2013] 3 SLR 609 (“Admin Construction”). Quentin Loh J (“Loh J”) considered, inter alia, the decisions by Ang J and Woo J and arrived at the conclusion that the estoppel argument must fail. He agreed that the Court of Appeal in Terence Lee had definitively clarified that a challenge to the validity of a payment claim amounts to a challenge to the validity of the appointment of the adjudicator, and that such challenges were not matters for the adjudicator to decide but for the court to decide (at [58]–[60]). Accordingly, Loh J held that the plaintiff is not estopped from challenging the validity of the payment claim at the setting aside stage. I should add that Loh J’s decision in Admin Construction on this issue had been cited with approval by Tan Siong Thye J in YTL Construction (S) Pte Ltd v Balanced Engineering & Construction Pte Ltd [2014] SGHC 142 at [31]–[32].

[34] I agree, for the reasons given by Woo J in JFC Builders and Australian Timber and Loh J in Admin Construction, that a party should not be estopped from challenging the validity of the payment claim when seeking to set aside the adjudication determination before the court. Accordingly, I find that the plaintiff’s estoppel argument must fail.

[35] The crux of the defendant’s next argument is that the Final Payment Claim is a claim that merely repeats earlier claims without any additional item of claim and this is prohibited under s 10(1) of the Act.

[36] Sections 10(1) and 10(4) of the Act provides as follows:

[37] The defendant argues that a literal reading of s 10(1), together with s 10(4), clearly shows that s 10(1) prohibits repeat claims. Specifically, the defendant highlights two points: first, s 10(1) states that a claimant may only serve “one payment claim” in respect of a progress payment, and second, s 10(4) uses the word “including” to indicate that the amount that was the subject of a previous payment claim should form part, and not the whole, of the subsequent payment claim.

[38] The defendant’s argument is supported by Doo Ree Engineering & Trading Pte Ltd v Taisei Corp [2009] SGHC 218 (“Doo Ree”). In that case, the assistant registrar was presented with the issue of whether the service of repeat claims is permitted under the Act. The assistant registrar held that, on a plain reading of ss 10(1) and 10(4) of the Act, the service of repeat claims is not permitted under the Act. The assistant registrar explained (at [16]) that:

The assistant registrar went on further to note that there is nothing in the records of parliamentary debates to indicate that the plain reading is erroneous (at [17]), and that cases from New South Wales and Queensland support the adoption of a plain reading of s 10 of the Act (at [18]–[27]).

[39] However, the Court of Appeal in Terence Lee did not agree with the view of the assistant registrar in Doo Ree (at [91]–[92]):

[40] Following the Court of Appeal decision in Terence Lee, there was a split in judicial opinion on whether repeat claims are allowed under the Act (see JFC Builders and Admin Construction). On the one hand, Woo J in JFC Builders considered that s 10(1) of the Act prohibits the making of a repeat claim (defined as “one which merely repeats an earlier claim without any additional item of claim, whether for additional or repair work or otherwise” (at [47])). Woo J stated (at [67], [68] and [76]) that:

[41] Woo J acknowledged that the Court of Appeal in Terence Lee at [92] did not agree with the assistant registrar’s view in Doo Ree that s 10(1) of the Act prohibits all repeat claims (at [77]). However, Woo J highlighted that it was obiter dicta and that (at [78]):

[42] Accordingly, Woo J took the view that s 10(1) of the Act prohibits the making of a repeat claim notwithstanding the obiter dicta of the Court of Appeal in Terence Lee.

[43] On the other hand, Loh J in Admin Construction opined that there was no prohibition against a repeat claim unless the payment claim or any part thereof had been validly brought to adjudication and dismissed on its merits. In this respect, Loh J explained that while he instinctively empathised with the view of Woo J in JFC Builders (see [40]–[41] above), he thought that the Court of Appeal decision in Terence Lee had “put the matter beyond doubt” (at [51]). Loh J stated that (at [52]–[53]):

[44] It appears that Terence Lee has been understood to stand for the proposition that the Act only prohibits a repeat claim that has been adjudicated and dismissed on its merits. In this respect, it is pertinent to note that Chan Sek Keong CJ, writing extra-judicially in the Foreword to Security of Payments and Construction Adjudication (at pp viii–ix) stated that:

[45] The split in judicial opinions was noted in Associate Dynamic Builder Pte Ltd v Tactic Foundation Pte Ltd [2013] SGHCR 16. The assistant registrar observed at [36] that:

[46] In my view, s 10 of the Act is equivocal as to whether a repeat claim is permitted and it is a matter of judicial policy in interpreting the Act so as to achieve its objectives. On the one hand, as Woo J pointed out in [68] of JFC Builders, permitting repeat claims opens the Act to abuse by rendering the deadline nugatory as a claimant could merely issue and serve a repeat claim. On my part, I do not think this is a real problem in view of the holding in Terence Lee at [94] that a payment claim served just after the deadline for that month could be construed as a payment claim within the deadline for the following month. In my view, the more serious concern is that this paves the way for a claimant to ambush the respondent by repeatedly serving the same payment claim month after month. The present case is a good example of sustained repeat claims. The first payment claim was served on 22 June 2013 and this was repeated four times over the next five months. The danger for a respondent is that the moment he slips up and fails to serve a payment response within the deadline, the claimant could file an adjudication application (although that is not a feature in the present case). Because s 15(3)(a) of the Act forbids consideration of a late payment response, the claimant would be virtually certain of obtaining an adjudication determination in his favour. JFC Builders is an example of such an ambush: a payment claim was submitted on 15 December 2010 for about $360,000 and the respondent made payment of $125,000. The following month, on 24 January 2011, the claimant submitted a payment claim for the balance of about $235,000 in respect of the same period in the December payment claim. The respondent failed to provide a payment response in time and the claimant successfully obtained an adjudication determination in its favour. Doo Ree is yet another example. The claimant had submitted a payment claim on 29 November 2008 for the sum of about $254,000. The respondent did not provide a payment response in time and an adjudication application was made. However, the adjudicator held that the claim was premature under s 13(3)(a) and dismissed it pursuant to s 16(2)(a) of the Act. On 30 January 2009, the claimant submitted a second payment claim for the reduced sum of $202,349.41 but in relation to the same works as the earlier claim. The respondent provided a payment response in which the claim was refuted on the basis that this was a repeat of the earlier payment claim. The claimant did not make an adjudication application in this instance, but two months later, on 31 March 2009, filed a payment claim for the same sum of $202,349.41. The respondent did not provide a payment response to this claim and the claimant filed an adjudication application.

[47] In the converse situation, there are also disadvantages in disallowing repeat claims. In this situation, when a payment claim is rejected in part or in full by a payment response, a claimant would be pressured to apply for adjudication or forever forgo recourse to adjudication in respect of the works under that payment claim. This would lead to many more applications for adjudications in cases where the payment response rejects a substantial portion of the payment claim. By permitting repeat claims, there is a cooling off period during which the claimant can assess his options or monitor developments and still have the option of resurrecting his right to adjudication by submitting a repeat claim.

[48] The benefits and pitfalls in the two approaches are finely balanced and it turns on which is more capable of being ameliorated by industry practice and judicial policy. In my view, permitting repeat claims is the lesser evil as, from the cases that have come before the courts, the industry appears to have developed the practice of volleying back zero payment responses to repeat payment claims. This would be preferable to prohibiting repeat claims which would induce more adjudication applications to be made. In any event, I believe that the observations in Terence Lee, notwithstanding that it is obiter dicta, is too deeply entrenched to be changed. On my part, therefore, I would prefer the approach in the manner set out in Terence Lee which permits repeat claims that have not been dismissed by an adjudicator on its merits.

[49] I should add that the conclusion I have reached is the result of a balancing exercise between two unsatisfactory situations. It is the consequence of the Act which, from the rich case law it has spawned in the decade of its existence, is sorely in need of review, not only in respect of this aspect, but also in relation to a number of other areas. In a piece of legislation that has such dire consequences for breaching short timelines, it is amazingly complicated and vague at the same time. For example, it has mysteriously omitted the requirement found in the New South Wales Building and Construction Industry Security of Payment Act 1999 (Act 46 of 1999) (upon which the Act was largely modelled) for a payment claim to contain a statement that it is a payment claim. This has resulted in the confusion that is described in [18]-[19] of Sungdo Engineering. It makes sense that where timelines are short and consequences severe, documents required of parties should be clearly defined, preferably in prescribed forms, in order to enable the respondents to focus on the substantive issues instead of wasting precious time prising through layers of ambiguity to decide on matters that could have been expressly stated at the outset. In Admin Construction at [63]-[65], Loh J had also called for a review of the Act and identified several areas for consideration. I wholeheartedly support his call.

[50] Returning to the issue at hand, for the reasons above, I find that the Final Payment Claim was not made in breach of s 10(1) of the Act. Hence, the Final Payment Claim is a valid claim for the purpose of the Act and the Adjudication Determination which was based on the Final Payment Claim is a valid determination.

[51] I will now consider the defendant’s third submission.

[52] The defendant claims that there was a settlement reached between the parties on or around 4 November 2013 in respect of the backcharges totalling $513,917.47 inclusive of GST (“Backcharges”) which formed part of the Final Payment Claim. As a result, the Backcharges should not have been included as part of the Adjudication Application. This gives rise to the question: was there a settlement agreement between the parties in respect of the Backcharges?

[53] According to the defendant, the settlement agreement between the parties is evidenced by a series of correspondence exchanged between the parties, and in particular, the letters dated 10 October 2013 and 4 November 2013.

[56] It appears to me that the defendant is also arguing, in the alternative, that the parties must have reached agreement by 7 November 2013 since the defendant did not object to the position outlined in the plaintiff’s email and there was no further correspondence on the issue. In this regard, the defendant cites Midlink Development Pte Ltd v The Stansfield Group Pte Ltd [2004] 4 SLR(R) 258 at [51]–[52] for the proposition that silence can constitute acceptance. I do not think that there is any merit in the argument. In my view, the facts clearly indicate that this is a case of inconclusive negotiations.

[57] Accordingly, I find that there is no settlement agreement concluded between the parties in respect of the Backcharges.

[58] For the reasons set out above, I would dismiss the appeal.