April 26, 2016
The issue before the Court of Appeal was whether an employer could establish any exceptions in clause 31(13) of the Singapore Institute of Architects Articles and Conditions of Building Contract (“SIA Conditions”) to challenge the temporary finality of two interim payment certificates issued by the architect.
Clause 31(13) states that “no certificate of the Architect under this Contract shall be final and binding in any dispute between the Employer and the Contractor ... save only that, in the absence of fraud or improper pressure or interference by either party, full effect by way of Summary Judgment or Interim Award ... shall, in the absence of express provision, be given to all decisions and certificates of the Architect ... The Architect shall in all matters certify strictly in accordance with the terms of the Contract ...”
Clause 37(3)(h) states that “pursuant to clause 31(13) of these Conditions, temporary effect shall be given to all certificates ... whether or payment or otherwise, granted (or refused) by the Architect ...”
The court held that recklessness in certification could amount to fraud within the meaning of clause 31(13) which would deprive the certificates of temporary finality. Fraud would be established if the architect had issued certificates without belief in its truth and/or issued the certificates recklessly without caring whether it was true or false. As the architect in this case had issued the completion and two interim payment certificates contrary to the terms of the contract and chose not to offer any explanations for the non-compliance with the contract, the employer had established a prima case that the architect had recklessly issued the certificates, and failed to certify strictly in accordance with the contract. Consequently, there was no temporary finality to the interim certificates.
Mr Ser Kim Koi (“Employer”) entered into a construction contract (“Contract”) on the SIA Conditions with GTMS Construction Pte Ltd (“Contractor”) to build three buildings on his property.
On 30 April 2013, the buildings failed an inspection by the Building and Construction Authority (“BCA”) for the issue of the Temporary Occupation Permit (“TOP”). On 15 May 2013, Mr Chan Sau Yan (“Architect”) issued the Completion Certificate (“Completion Certificate”) despite the fact that TOP was not obtained.
The Architect subsequently issued two interim payment certificates on 3 September 2013 and 6 November 2013 (“Disputed Certificates”). The Employer refused to make payment on the Disputed Certificates, alleging extensive defects in the buildings. Relying on the principle of temporary finality of interim certificates in SIA clauses 31(13) and 37(3)(h), the Contractor applied for summary judgment for payments due under the Disputed Certificates. The summary judgment was granted by the assistant registrar, and affirmed by the High Court on appeal. The Employer appealed.
The primary issue before the Court of Appeal was whether the Employer had made out any exceptions in clause 31(13) of the Contract to deprive the Disputed Certificates of temporary finality and thus entitle the Employer leave to resist summary judgment.
Fraud exception to temporary finality
The Employer argued that the Architect had recklessly issued the Completion Certificate and the Disputed Certificates and hence committed fraud.
The Court of Appeal agreed with the Employer that recklessness in certification can amount to fraud. In construing the word “fraud” in clause 31(13), the court accepted the classic exposition of fraud in Lord Herschell’s judgment in Derry v Peek (1889) 14 App Cas 337, that “fraud is proved when it is shewn that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false.”
Therefore, temporary finality can be denied to certificates issued by the Architect which are, to the knowledge of the Architect false, or issued by the Architect without any belief in its truth, or recklessly, without caring whether the certificate is true or false.
The court found that a prima facie case of fraud was established. Item 72 of the preliminaries stated that a Completion Certificate will not be issued until all parts of the works are “ready for occupation and for use”, and “all services are tested, commissioned and operating satisfactorily”. In the Completion Certificate, the Architect certified that “the Works appear to have been completed and to comply with the Contract in all respects (save and except for the minor outstanding works listed in Part 1 of the schedule to this certificate)”. Since TOP was not obtained prior to the issue of the Completion Certificate, the Architect clearly had no grounds to certify that the buildings were “ready for occupation”.
Furthermore, the fact that the buildings failed the BCA inspection for the issue of TOP showed that the defects in the building were significant, hence the Architect also had no grounds to certify that “the Works appear ... to comply with the Contract in all respects…”. Moreover, the evidence showed that works were not completed when the Completion Certificate was issued. Therefore, the Architect also had no grounds to certify that “all” services were tested, commissioned and operating satisfactorily.
Strict compliance to terms of contract exception to temporary finality
In addition to fraud, the court found that the Architect had not issued the Completion Certificate and Disputed Certificates strictly in accordance with the terms of the Contract, which is another exception in clause 31(13) to deprive the certificates of temporary finality.
On the facts, in addition to the non-compliance stated above, the Architect had failed to certify the release of retention sums upon the issue of the Completion Certificate, as required under clause 31(9) of the SIA Conditions. The retention sums were released under the Disputed Certificates instead, which were issued more than three months after the Completion Certificate. The Architect also failed to certify liquidated damages for delay in completion, which would entitle the Employer to set off against the Contractor’s claims. These non-compliances thus deprived the Disputed Certificates of its temporary finality.
Architect’s role in proceedings to enforce interim payment certificates
The court held that in enforcement proceedings where the temporary finality of the Architect’s certificates is in question, it is important for the court to hear from the architect himself. It is not for interested parties such as the contractors to explain the certification process on behalf of the architect. On the facts, the Architect was made a third party to the action but chose not to give evidence to explain the non-compliance of the certificates with the Contract. Despite the Contractor’s attempts to speak for the Architect, the court held these explanations of “very little weight”.
Merits of the Architect’s certificates
The court reiterated that it was not concerned with the merits of the Architect’s certificate in enforcement proceedings, as to do otherwise would drive unwarranted inroads into the principle of temporary finality. The “opening up” of the Architect’s certificates must be left to substantive final determination by arbitration or court action.
Since payment certificates generally do not contain details on the face of the certificate itself, the court has to look at the immediate underlying or supporting documents (such as interim valuation) to determine whether the figures tally. The court stressed that this does not amount to “opening up” the payment certificate. The court will merely look at what is written on the face of the underlying documents and will not examine the reasons behind any statements in the underlying documents.
The Court of Appeal’s decision provides clarity on the application of the fraud exception in clause 31(13) of the SIA conditions and the architect’s role in proceedings to enforce interim payments. While the principle of temporary finality is important in facilitating cash flow in the building and construction industry, this decision shows that the Singapore courts will not rubber-stamp an application to enforce interim certificates. A balance has to be struck between the contractor’s interests in having cash flow and the employer’s legitimate expectation that the architect will certify payments strictly in accordance with the contract.