March 1, 2016
Two High Court cases have further confirmed the position on timelines under the Building and Construction Industry Security of Payment Act (“SOP Act”).
First, file an Adjudication Application (“AA”) after the expiry of the Dispute Settlement Period (“DSP”), not before!
Second, the contract should clearly provide for payment claims and required responses for the purposes of the SOP Act. This will ensure that the contractual timelines for submission of payment responses will apply and not the default 7-day period under the SOP Act!
The relevant cases are:
- Tienrui Design & Construction Pte Ltd v G & Y Trading and Manufacturing Pte Ltd  SGHC 243 (“Tienrui”); and
- Newcon Builders Pte Ltd v Sino New Steel Pte Ltd  SGHC 226 (“Newcon”).
Don’t jump the gun – file adjudication applications after expiry of the dispute settlement period
Tienrui and Newcon are the clearest pronouncements yet that the DSP cannot be shortened. Pertinently, the High Court Assistant Registrar (“AR”) hearing the Newcon case at first instance reasoned that a claimant need not wait out the full DSP before lodging an AA with the Singapore Mediation Centre (“SMC”). This is incorrect and was corrected by the High Court judge in Newcon on appeal.
The facts are unremarkable. A dispute arose on what is due to the sub-contractor (by the main-contractor) for its work done under a construction contract and the subcontractor applied for relief under the SOP Act.
The adjudicator held that certain sums were payable to the subcontractor. Dissatisfied, the main-contractor applied to the court to set aside the adjudication determination. One of the grounds was that the AA was lodged pre-maturely with the SMC. The law in respect of a late lodgement of an AA is fairly settled – the adjudication determination can be set aside. Less settled is where the AA was lodged pre-maturely – it appears that there was only one reported decision in Taisei Corp v Doo Ree Engineering & Trading Pte Ltd  SGHC 156 (“Taisei Corp”) and decided by an AR who held that a premature AA is a ground for setting aside an adjudication determination which seemed to be logically the case.
In Newcon before the AR, he addressed the reasoning in Taisei Corp and disagreed with it. In his view, there is a distinction between a premature AA and one which is filed late. Citing the rationale underpinning the SOP Act as a fast and low costs adjudication system, he reasoned that the seven days provided in section 13(3)(a) of the SOP Act sets the latest date by which an AA can be made and does not provide the time before which an AA ought not be made. The result was that the claimant need not wait out the DSP before issuing a notice of intention to apply for adjudication and then lodge the AA.
The High Court judge disagreed with the AR’s reasoning in Newcon:
“The dispute settlement period is an important step and part of this scheme under the Act. It allows either party to seek clarification from the other and more importantly, allows the respondent to first provide a payment response where he has failed to do so under s 11(1) or secondly vary his payment response under s 11(4) if he has done so. Allowing the lodgement of an adjudication application during the dispute settlement takes away these statutorily-provided rights of the respondent, viz, to settle the matter, to ask for clarification and/or to provide or vary a payment response. Therefore, when the dispute settlement period has not run its course, the claimant simply does not have the right to or is not entitled to make an adjudication application. This is, in my view, phrased in as mandatory terms as a provision which states that the claimant “shall not make an adjudication application” until the entitlement arises.”
Further, the High Court judge did not lose sight of the respondent’s right to put in a payment response during the DSP if he had failed to do so earlier or to amend the payment response if he had put up a hastily assembled one:
“Having had the benefit of this untoward experience in countries which enacted similar legislation before we did, our provision of a dispute settlement period ameliorates this possible exploitation by affording a little more time to the respondent, who can put in a payment response if he has failed to do so within the time provided for under s 11(1) of the Act or amend his payment response if his hastily-put-up payment response did not set out all the reasons for resisting the payment claim. By this time the respondent knows it is facing an adjudication claim and is given a final opportunity to put his payment response in order.”
The High Court judge also discussed why the AR was incorrect in support of his finding that an AA can only be lodged after the expiry of the DSP. The result is undoubtedly a correct one and provides clarity as to when an AA can be made.
In Tienrui, the High Court judge had a similar observation on this issue of timelines.
One of the issues in Tienrui was whether the AA was filed prematurely and if so, whether the adjudication determination should be set aside. In the adjudication proceedings, the adjudicator had found that the DSP started to run from the date of actual service of the payment response as opposed to the date by which it was required to be served. The upshot of this is that if the payment response was submitted earlier, the time had started running for the DSP and consequentially, for the lodging of the AA.
In coming to its decision, the judge confirmed that the DSP had to be waited out before the AA can be lodged and more importantly, that the DSP was only set in motion after the due date of the payment response and not the date when the payment response was submitted.
Getting your money for work done – be sure of the adjudication track
On a separate issue, the High Court in Tienrui also confirmed that contractors can make claims under the SOP Act or under the contract or both, i.e. the dual railroad track system, and the statutory regime under the SOP Act operates concurrently with, but is quite distinct from the contractual regime.
Indeed, it is not uncommon for contracts to state that there would be interim certificates issued responsive to a payment or progress claim, and to stand as the statutory payment response if no further or other statutory payment response was issued.
In Tienrui, the Court examined the relevant clauses and found that the parties had envisaged the contractual and statutory tracks to operate separately, i.e. the contractual timeline did not apply to supplant the default statutory timeline. In coming to his view, the Court found that there were notable linguistic variations between clause 14 of the contract terms and the SOP Act. The former used the terms “request for payment” and “interim certificate” whereas the latter used the terms “payment claim” and “payment response”.
The Court also found that:
(1) it was unlikely that the reference to an “interim certificate” imported with it a reference to a statutory payment response;
(2) in the context of the building industry, a payment certificate (or interim certificate) is often understood to have a complexion slightly different from that of a statutory payment response. Interim certificates are usually independent valuations of work done that are issued by architects or engineers; persons separate from the owner or the principal; and
(3) on the other hand, a statutory payment response serves to state the respondent’s position in relation to a statutory payment claim and has to satisfy the requirements of the SOP Act.
Beyond the linguistic variations, the contract did not appear to pay heed to the statutory requirements of payment claims and payment responses. In this regard, the SOP Act and the Building and Construction Industry Security of Payment Regulations 2005 (the “SOP Regulations”) provide for what a statutory payment claim and payment response should contain and the Court highlighted the different requirements under the contract and the SOP Act and SOP Regulations in respect of interim certificates and payment responses.
It also did not escape the Court’s attention that parties restarted the numbering for the payment claim and response that were the subject of the adjudication proceedings. The payment claim and payment response that were the subject of the adjudication proceedings were titled Payment Claim No 1 and Payment Response No 1 respectively, although numerous requests for payment and interim certificates had been issued previously.
As such, the reference to “Interim Certificate” in clause 14 of the contract did not extend to statutory payment responses and as such, the timelines contractually prescribed did not apply to statutory payment responses. Accordingly, the default statutory timeline of seven days under the SOP Act applied.
However, as alluded to above, it is open to parties to provide that interim certificates serve to operate as payment responses for the purposes of the SOP Act and to confirm that this is and will be the case. See the observations of the High Court Judge in Newcon where he, citing the common standard form contracts in Singapore, i.e. the Public Sector Standard Conditions of Contract for Construction Works and the Singapore Institute of Architects standard form, stated:
“Interim certificates can and do function as payment responses in the building and construction industry. The common standard form contracts in use were amended to cater for the grafting of the adjudication regime under the Act onto their standard form conditions of contract.”
Take-aways from these cases
Firstly, don’t jump the gun. You can only file an AA after the expiry of the DSP.
Secondly, ensure that your contract clearly provides for provision of payment claims and payment responses for the purposes of the SOP Act. This will go a long way towards ensuring that the contractual timelines for submission of payment responses apply and not the default 7-day period under the SOP Act!