March 1, 2016
The issue was whether a sub-contractor, having assigned its debts under a factoring agreement, retained the right to make a payment claim and could seek to enforce an adjudication determination (the “Determination”) under the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) (the “Act”).
The court found that since the objective of the Act was to facilitate cash flow, it would run counter to the Act’s legislative intent to find that factoring agreements would disentitle the sub-contractor from making payment claims. The court held that this right was not assignable. However, when it came to enforcement of the Determination, the court held that if the sub-contractor had assigned all of its debts, it would not be entitled to enforce the Determination. Nevertheless, in the present case, as the trade debts had been re-assigned back to the sub-contractor, it could enforce the Determination.
On 8 November 2011, Thian Sung Construction Pte Ltd (“TS”) awarded International Elements Pte Ltd (“IE”) a sub-contract for the supply and delivery of stone works.
In May 2013, IE entered into a contract with United Overseas Bank (“UOB”), which allowed the debts owed to IE to be assigned to UOB in exchange for credit facilities (the “factoring agreement”). As a consequence, and after being notified of the assignment, TS made numerous progress payments owed to IE directly to UOB.
The dispute centred on the issuance of Progress Claim No 25 (“PC25”) by IE. Since no payment was received on PC25 IE commenced adjudication proceedings against TS. The Determination was subsequently issued in IE’s favour and TS applied to set it aside.
The primary issue before Justice Lee Sieu Kin was whether by entering into the factoring agreement, IE had divested its statutory right to make payment claims.
This presented a two-fold question:
Whether IE fell within the definition of a claimant under the Act; and
Whether IE was entitled to enforce the Determination against TS.
Whether IE was a “claimant” under the Act
TS argued that by assigning its trade debts to UOB, IE had lost its right to make a payment claim under section 10(1) of the Act. The court approached this issue as a matter of statutory interpretation.
The key question was whether IE was a “claimant” under the Act. Section 2 defined a “claimant” as any “person who is or claims to be entitled to a progress payment under section 5”. Section 5 states that “[a]ny person who has carried out any construction work, or supplied any goods or services, under a contract is entitled to a progress payment”. The court held that IE, having actually supplied the goods, was the only person that could serve a payment claim. More practically, the court also commented that an assignee like UOB, having not actually carried out the construction work, would not be in a position to dispute a payment response, which challenged the merits of the payment claim or avail itself of the right to suspend work under Section 26 of the Act.
Further, given that the legislative intent of the Act was to facilitate cash flow, it could not have been contemplated that factoring agreements would disentitle a party from making payment claims under the Act. Otherwise construction firms would find it more difficult to obtain financing from banks, if they were no longer able to file payment claims on account of the assignment they would be required by the banks to make. Therefore, the court held that IE had the right to make PC25.
Whether IE was entitled to enforce the Determination
The court held that where a creditor was attempting to enforce against his debtor, a debt that he had assigned to a third party, the debtor would have an absolute defence on the basis of assignment. Therefore, if the claimant were to obtain leave to enforce an adjudication determination, then the respondent would be entitled to set aside such leave. In that situation, only the assignee could successfully apply for leave under Section 27(1) to enforce an adjudication determination. This was not however applicable here. IE became entitled to enforce the Determination when the bank re-assigned the debts back to IE.
The decision provides clarity on whether factoring agreements will disentitle a party from making payment claims. It reaffirms the raison d’etre of the Act, which is to facilitate cash flow without at the same time hindering the ability of construction firms to obtain financing from banks.
The case demonstrates that Singapore courts will interpret the provisions of the Act within their broader statutory context to facilitate this purpose.