CHUANG LONG ENGINEERING PTE LTD V NAN HUAT ALUMINIUM & GLASS PTE LTD  SGHC 55
In Chuang Long Engineering Pte Ltd v Nan Huat Aluminium & Glass Pte Ltd  SGHC 55, the Singapore High Court held that materials which had been fabricated for the project, but had not been delivered nor installed, could be valued and claimed under the Building and Construction Industry Security of Payment Act pursuant to section 7(2)(c).
Background. Nan Huat Aluminium & Glass Pte Ltd (“Nan Huat”) was Chuang Long Engineering Pte Ltd’s (“Chuang Long”) sub-contractor for the erection of a 2-storey dwelling house. Nan Huat had succeeded in an adjudication against Chuang Long claiming for unpaid works after Chuang Long had terminated the sub-contract.
Almost half of the sum awarded by the adjudicator was for materials which Nan Huat had fabricated for the Project, but had not been delivered nor installed by Nan Huat.
Chuang Long applied to set aside the adjudication determination, arguing that the adjudicator wrongly included the value of the uninstalled materials under section 7(2)(c) of the Building and Construction Industry Security of Payment Act (“SOP Act”).
Valuation of materials under SOP Act. Section 7(2)(c) provides that “in the case of materials or components that are to form part of any building, structure or works arising from the construction work, … the only materials or components to be included in the valuation are those that have become or, on payment, will become the property of the party for whom the construction work is being carried out”.
It was agreed between the parties that as the contract does not contain provisions dealing with valuation of work done or goods and services supplied, section 7(2) SOP Act applied.
Uninstalled materials can be included in valuation if materials fabricated for the contract. The key dispute was over whether the phrase, “on payment, will become the property”, encompassed uninstalled materials.
Chuang Long argued that under the common law, the sub-contractor’s materials become the property of the other party upon their affixation or installation. Chuang Long therefore argued that on a plain reading of the section, only materials that had been installed could be valued.
However, the High Court agreed with the adjudicator’s interpretation (which was supported by Nan Huat) that section 7(2)(c) went beyond the common law, in that the materials could be valued even though they had not been delivered or installed (so property had not passed under common law), as long as the materials were fabricated for the contract.
The High Court was of the view that this interpretation better accorded with the legislative intent of the SOP Act to facilitate cash flow and preserve the right to payment for works done and goods supplied, as it would mean that main contractors could not avoid payment for the materials by simply refusing to take delivery or refusing to allow affixation of the materials.
Significance. This case highlights the importance of the contract having provisions to deal with valuation of work done or goods and services supplied.
Specifically, it may be prudent to either set out a separate valuation mechanism for fabrication, delivery and installation, or to make clear how would such matters be dealt with.
This is especially so as the scope of the SOP Act will be expanded to cover contracts for supply of prefabricated components for construction work in Singapore even if the prefabrication is carried out outside Singapore, as well as contracts for prefabrication in Singapore of components for construction work outside Singapore.
While section 7(2)(c) has not been amended together with these changes, and this case (and any appeal) would be relevant in respect of such contracts.
Tags: Building and Construction Industry Security of Payment Act; section 7(2); valuation
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