Shin Khai Construction Pte Ltd v FL Wong Construction Pte Ltd

Jordan Tan AR:

[1] This case raises the question of whether an adjudication determination may be set aside on the ground that the adjudication application was lodged later than the period of entitlement stipulated under s 13(3)(a) of the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) (“the Act”). This was a question considered but left open by the Court of Appeal in Lee Wee Lick Terence @ Li Weili Terence v Chua Say Eng (formerly trading as Weng Fatt Construction Engineering) [2012] SGCA 63 (“Chua Say Eng”) (at [61]) as it was not in issue.

[2] The plaintiff, Shin Khai Construction Pte Ltd (“SK”), filed this application to set aside an adjudication determination dated 15 November 2012 (“the Determination”) in respect of Adjudication Application No SOP AA0111 of 2012 (“the Adjudication Application”) on the grounds that the payment claim was formally defective and the Adjudication Application was lodged out of time.

[3] In February 2012, SK, a general contractor, appointed the defendant, FL Wong Construction Pte Ltd (“FL”), a renovation contractor, to carry out works for a project, which was described as the “Proposed Erection of a Single-Storey Single-User Light Industrial Development with a 4-Storey Ancillary Office Building on Lot 04167M MK 07 at Tuas Avenue 11”. FL was to be paid $768,768. Under cl 1 of the Letter of Award (“the Contract”), the works to be carried out are to be based on bills of quantities and are subject to re-measurement and re-calculation.

[4] On 25 September 2012, FL sent Payment Claim No 8 (“the Payment Claim”) to SK. That claim reads as follows:

[5] The attachment referred to under the heading “Accumulated Progress Interim Claim” contained a detailed breakdown of the work done in the month of September 2012 but only stated the sum claimed for each month from February to August 2012. FL received no response and on 18 October 2012, gave notice of its intention to adjudicate and proceeded to lodge the Adjudication Application. On the same day, SK sent FL an email alleging that it had faxed its payment response to FL on 15 October 2012. The Determination was issued on 15 November 2012.

[6] Dissatisfied with the Determination, SK sought to set it aside on the following grounds:

(a) The Payment Claim does not comply with the formal requirements under the Act and the relevant regulations; and

(b) Even if the Payment Claim is valid, FL had lodged its Adjudication Application out of time and that application should have been rejected by the adjudicator pursuant to s 16(2) read with s 13(3)(a) of the Act.

[7] With regard to the first ground, SK argued that the Payment Claim was defective because although it referred to the period “1.09.12 To 25.09.12”, it sought to claim payment for works done outside of that period, in particular, February to August 2012. SK also argued that the Payment Claim was defective because it only provided a detailed breakdown for September 2012 but not for February to August 2012. The Payment Claim therefore did not meet the requirements in s 10(3) of the Act and regulation 5(2) of the Building and Construction Industry Security of Payment Regulations (“the Regulations”) which read as follows:

[8] As for the argument that FL had lodged the Adjudication Application out of time, SK argued that under s 13(3)(a) of the Act, FL should have lodged the application sometime from 10 to 16 October 2012. SK’s argument was as follows. The Payment Claim was served on 25 September 2012. In the absence of a contractually agreed timeline for service of the payment response, s 11(1)(b) of the Act prescribed a default seven days and s 12(5) prescribed another additional seven days as the dispute settlement period. The combined fourteen day period after 25 September 2012 ended on 9 October 2012. Therefore, the seven day window to lodge the Adjudication Application which began immediately after that period was from 10 to 16 October 2012. FL lodged the Adjudication Application on 18 October 2012 and was thus out of time.

[9] In response, FL argued that it was clear that the Payment Claim was a monthly progress claim for September 2012 which also included a claim for work done for previous months which had not been paid. It argued that it was entitled to include the claim for the previous months under s 10(4) of the Act. It also pointed out that the claim for the previous months was the subject of previous payment claims. As for the argument that it had filed the Adjudication Application out of time, FL argued that there was a contractual clause in the form of cl 49 which provided that SK had ten days after receipt of a payment claim to evaluate and issue a payment certificate. FL argued that this payment certificate is intended to function also as a payment response and that instead of the default seven days under s 11(1)(b) of the Act, the ten day period applied. Taking into account the seven day additional dispute settlement period, the time for service of a payment response only ended on 12 October 2012. Accordingly, the window for FL to lodge the Adjudication Application was from 13 to 19 October 2012. By lodging the application on 18 October 2012, FL was not out of time.

[10] It is clear that the court has the power to set aside an adjudication determination under s 27(5) of the Act and O 95 of the Rules of Court (Cap 322, R 5, 2006 Rev Ed) and in deciding whether to do so, may review the validity of a payment claim (see JFC Builders Pte Ltd v Lioncity Construction Company Pte Ltd [2012] SGHC 243 at [23]-[25]; see also, Chua Say Eng at [28], [31] and [37]).

[11] On the first issue of whether the Payment Claim complied with the formal requirements, I disagree with SK that the Payment Claim was defective for not being in compliance with s 10(3) of the Act and regulation 5(2) of the Regulations. First, in my view, although the Payment Claim could have been better drafted, it met the requisite standard under s 10(3)(a) for the claimed amount to be calculated by reference to the period to which the payment claim relates. It was clear that the sum claimed was an accumulated sum as this was stated on the first page of the Payment Claim. This is allowed under s 10(4) of the Act (see Chua Say Eng at [92]). The attachment referred to then sets out those other months for which the claim was made in addition to the month of September 2012.

[12] In totality, the use of the words “accumulated” on the first page of the Payment Claim accompanied by the reference to the attachment make it clear that: (1) the Payment Claim was in respect of an accumulated sum which included a period prior to September 2012, namely, February to August 2012; and (2) FL had added the sum claimed for the month of September 2012 to the outstanding sums.

[13] As for providing a detailed breakdown as required under regulation 5(2) of the Regulations, I reject SK’s argument that FL needed to give a detailed breakdown for the other months in addition to the detailed breakdown for September 2012. As FL had rightly argued, those months were the subject of previous payment claims and there was no need to rehash the information previously provided to the same level of detail.

[14] I note that FL had also sought to argue that the way SK had responded, in seeking to reduce the amount claimed by setting it off against sums incurred in months other than September 2012, showed that SK also understood that the Payment Claim was not limited to work done in September 2012. But, having found that the Payment Claim had complied with the formal requirements, there was no need for me to rely on this argument. After all, whether or not the respondent properly understood the Payment Claim was irrelevant to the court’s objective assessment as to whether the Payment Claim met the formal requirements of the Act and the Regulations. That said, in a case where a payment claim is not in accordance with the formal requirements, it may well be that the respondent is estopped from arguing that the payment claim is formally defective because it understands and has shown that it understood the payment claim. But, having found that the Payment Claim is in accordance with the formal requirements, there was no need for me to consider this argument any further.

[15] With regard to the argument that the Adjudication Application was filed out of time, in order for SK to succeed, it needed to show that: (1) a violation of s 13(3)(a) was a basis for setting aside an adjudication determination; and (2) that the Adjudication Application was indeed lodged out of time.

[16] Concerning the effect of a breach of s 13(3)(a), the Court of Appeal in Chua Say Eng observed thus:

[17] The Court of Appeal observed that a failure to give notice of an intention to apply for adjudication as required under s 13(2) of the Act will render the adjudication application invalid. With regard to s 13(3)(a), the court considered some possible arguments for and against a finding that s 13(3)(a) is a mandatory requirement but left the question open. Subsequently, in RN & Associates Pte Ltd v TPX Builders Pte Ltd [2012] SGHC 225, although the issue of the nature of s 13(3)(a) was not raised, Andrew Ang J, made the following pertinent observations (at [54]):

[18] Section 16(2) reads as follows:

[19] In my view, reading s 13(3)(a) with s 16(2), a breach of s 13(3)(a) is a ground for the setting aside of a determination in a case where the adjudicator failed to reject the adjudication application despite the breach.

[20] I note the two points stated by way of preliminary analysis in Chua Say Seng (at [58]-[59]), namely, that: (1) the delay does not prejudice and in fact benefits the respondent in so far as a delay in making an application results in a corresponding delay in his having to pay a progress payment claim; and (2) the rebuttal that even if s 13(3)(a) was viewed as a mandatory requirement, no harm will be caused to the claimant because the claimant can still include the undetermined payment claim in a fresh payment claim.

[21] I would respectfully add that in certain circumstances, a claimant does risk considerable disadvantage if his adjudication application is rejected for breach of s 13(3)(a) even though his undetermined payment claim may be included in a subsequent fresh payment claim.

[22] Consider a situation where a payment claim has gone unanswered in that no payment response is given. If the matter proceeds for adjudication, the claimant will very likely succeed as s 15(3) proscribes the respondent from including in the adjudication response, and the adjudicator from considering, any ground for refusing payment which has not already been specified in the payment response. Section 15(3) reads as follows:

[23] The effect of s 15(3) is such that a respondent’s position is locked in if the matter proceeds for adjudication. Therefore, in a situation where a payment claim goes unanswered in that the respondent has not given a payment response, his position is locked in at the adjudication stage and the claimant will likely succeed. If, however, the adjudication application is rejected and the claimant tries to recover by making the undetermined payment claim a part of a fresh payment claim, the respondent will have another opportunity to issue a payment response. The claimant therefore risks a real disadvantage in such a situation.

[24] The claimant is also disadvantaged, although to a lesser extent, if his adjudication application is rejected even if the respondent had previously given a payment response because if he tries to recover by issuing a fresh payment claim, the respondent is given another opportunity to augment his payment response and to include whatever grounds he had not previously included.

[25] Hence, s 13(3)(a) has a real bite if it is mandatory. If a claimant lodges an adjudication application late and it is rejected for breach of s 13(3)(a), he risks the foregoing disadvantages.

[26] But, be that as it may, whether s 13(3)(a) should be read to be directory or mandatory ultimately turns, as the Court of Appeal in Chua Say Eng emphasises, on the legislative intent. In this regard, s 16(2) in stating that the adjudicator “shall reject” the adjudication application if there has been a breach of s 13(3)(a) uses clear language which demonstrates that the legislative intent is for s 13(3)(a) to be treated a mandatory.

[27] Furthermore, s 16(2) is directed at the adjudicator. If s 13(3)(a) was directory and not mandatory, an intolerable uncertainty which would considerably compromise the regime under the Act would be introduced. The adjudicator would be called upon to decide when an application is late but forgivable so as to accept the adjudication application, and late and unforgivable so as to reject it. In the continuum of time, apart from the extreme cases, there would be little predictability and considerable uncertainty as to where such a distinction will lie. In contrast, if s 13(3)(a) was mandatory, the certainty introduced by the bright line test in s 13(3)(a) which excludes any adjudication application outside of the seven day window period leaves no room for doubt and is more consistent with and emblematic of the regime.

[28] For these reasons, I conclude that an adjudication determination may be set aside if there has been a breach of s 13(3)(a), however slight the breach.

[29] It leaves me now to consider whether the Adjudication Application was indeed lodged out of time with the result that the Determination should be set aside. Whether the Adjudication Application was lodged out of time turns on an interpretation of the Contract. If cl 49 of the Contract is taken to cover payment responses as well as payment certificates, then the duration in which a response has to be provided will be the contractually stipulated period of ten days. Coupled with the seven day dispute settlement period, the Adjudication Application would have been lodged in time.

[30] Clause 49 reads as follows:

[31] SK argues that in the absence of an express clause which provides that a payment certificate is to be deemed as a payment response, cl 49 must be read to refer to a payment certificate and nothing more. SK refers to cl 32.2(2) of the Public Sector Standard Conditions of Contract for Construction Works 2008 as an example of such a deeming clause. That clause reads as follows:

[32] In my view, of course the inclusion of such a clause would make it clear that the contractual provision is not limited in its reference to a payment certificate but also refers to a payment response. However, the absence of such a clause does not lead to the conclusion that the contractual provision therefore does not refer as well to a payment response. Ultimately, it remains a matter of the construction of the contract.

[33] In this regard, the following observation by Chow Kok Fong in Security of Payments and Construction Adjudication (LexisNexis, 2005 Ed) at p 181 is apposite:

[34] In other words, where the terms of the contract attribute to the payment certificate characteristics of a payment response, this points, as a matter of construction, to the intention of the parties to treat the payment certificate as a payment response.

[35] In my view, cl 49 does not provide for certification by an architect or engineer as is usually the case. Instead, certification is made by the contractor, ie SK. In certifying the sums “as may be properly due and payable”, cl 49 contemplates allowing SK to include, inter alia, set-offs and cross-claims. On a construction of the Contract, although cl 49 ostensibly refers to a “Payment Certificate”, even in the absence of a deeming provision to equate such a payment certificate with a payment response, cl 49 does refer in substance to a payment certificate which may function as well as a payment response within the meaning of the Act.

[36] I appreciate the argument of FL that the certificates SK had issued in their course of dealing made it clear that the parties had intended the certification process to serve the same purpose as that of a payment response. In particular, SK had set off contra-charges in Interim Payment Certificates No 1 to 7 and had made deductions for liquidated damages for Certificates No 6 and 7. In so arguing, FL was relying on SK’s subsequent conduct in seeking to persuade the court that cl 49 had envisaged a payment certificate which was to also function as a payment response.

[37] I note that the Court of Appeal in Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] 3 SLR(R) 1029 had observed (at [132(d)]) that “there should be no absolute or rigid prohibition against evidence of previous negotiations or subsequent conduct, although, in the normal case, such evidence is likely to be inadmissible.” But, in this case, I found such subsequent conduct to be unhelpful in interpreting the Contract. This is so because SK could have simply been responding in a way which would satisfy the parallel requirements under the Contract and the Act.

[38] In any event, for the reasons I had already expressed (at [30]-[35]), I took the view that cl 49 referred both to a certificate as well as payment response within the meaning of the Act. In the circumstances, I found that the contractual period for the serving of the payment response under cl 49 applied with the result that FL had lodged the Adjudication Application within time.

[39] For the foregoing reasons, I dismiss this application to set aside the Determination.