FAR EAST SQUARE PTE LTD V YAU LEE CONSTRUCTION (SINGAPORE) PTE LTD [2019] SGCA 36

In Chaung Long Engineering Pte Ltd v Nan Huat Aluminium & Glass Pte Ltd [2019] 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

 

This publication is not intended to be, nor should it be taken as, legal advice; it is not a substitute for specific legal advice for specific circumstances. You should not take, nor refrain from taking, actions based on this publication. Chancery Law Corporation is not responsible for, and does not accept any responsibility for, any loss or damage that may arise from any reliance based on this publication. In the important recent decision of Far East Square Pte Ltd v Yau Lee Construction (Singapore) Pte Ltd [2019] SGCA 36 (“Far East”), the Singapore Court of Appeal (“SGCA”) decided that under the SIA Form of Contract, no further payment claims may be made under the Building and Construction Industry Security of Payment Act (“SOPA”) after a valid final certificate has been issued. The SGCA also held that where the payment claim falls outside the ambit of SOPA, the respondent cannot be estopped from raising a jurisdictional objection even if no payment response was filed.

 

Final certificate under the SIA Form of Contract. The first key issue was whether a claimant could submit a valid payment claim under SOPA after the final payment claim and/or final payment certificate had been issued by the architect under the SIA Standard Form.

 

Stating at [31] Far East that as “… the SOPA was not meant to alter the substantive rights of the parties under the contract, [and] neither was it intended to give rise to a payment regime independent of the contract”, and that the architect becomes functus officio under the SIA Standard Form once he issues the final certificate ([38] Far East), the SGCA held at [39] Far East that once the architect becomes functus officio, the certification process under the contract comes to an end. As such, there is no basis to submit any further payment claims: “… any payment claim that is issued after the architect is functus officio would be incapable of being certified by the architect so as to entitle the contractor to progress claims under the SOPA”.

 

There are also two important observations that bears highlighting.

 

(1)   At [40] – [42] Far East, the SGCA distinguished between situations where the architect improperly withheld a payment certificate, versus a situation where the architect is unable to issue a further certificate because he is functus officio.

 

(2)   The SGCA also held at [52] Far East that even though the payment certification mechanism under the SIA Standard Form ends with the issuance of the final certificate, it is not contrary to SOPA as the issuance of final certificate typically signifies that the works under the contract have come to an end: as such, the rationale for expedited payment under SOPA ceases to apply, and “given that no further works will be carried out after the final certificate is issued, there ceases to be any basis for the contractor to make further progress claims”.  

 

Where payment claim falls outside the ambit of SOPA. The second key issue dealt with by the SGCA was whether a respondent, who failed to file a payment response, could be estopped from challenging the validity of a payment claim issued after a final certificate has been issued under the SIA Standard Form, in light of the earlier SGCA decision in Audi Construction Pte Ltd v Kian Hiap Construction Pte Ltd [2018] 1 SLR 317 (“Audi”).

 

Holding that the respondent would not be so estopped, the SGCA clarified that the “duty to speak” in Audi was never intended to apply in a situation where the payment claim fell outside the ambit of SOPA ([56] Far East). This is because if the payment claim falls outside the ambit of SOPA, there would be no corresponding duty to speak: the duty to raise jurisdiction objections only applies to payment claims that are within the ambit of SOPA.

 

The SGCA then gave some examples (though non-exhaustive) of payment claims that fall outside the ambit of SOPA at [60] Far East, and also held at [69] Far East that the adjudicator had an independent duty to consider “based on the material that is properly before him, whether the payment claim is within the ambit of SOPA to begin with”.

 

Important decisions. Far East is an extremely important decision. Not only does Far East shed light on how SOPA interacts with a commonly used standard form contract, it also clarifies the limits of Audi.

 

In addition, we observe that the SGCA’s observations on the SIA Standard Form may potentially apply to contracts that have a clear final account provision. Prudent employers and main contractors would do well to study the wording of the SIA Standard Form in Far East, and consider if they would want to re-word their contract to address the issue of sub-contractors persistently submitting payment claims long after works had been completed.

 

Tags: Building and Construction Industry Security of Payment Act; Far East v Yau Lee; SIA Standard Form of Contract; Final payment claim; Final payment certificate; Audi; Duty to speak; Jurisdictional objection

 

This publication is not intended to be, nor should it be taken as, legal advice; it is not a substitute for specific legal advice for specific circumstances. You should not take, nor refrain from taking, actions based on this publication. Chancery Law Corporation is not responsible for, and does not accept any responsibility for, any loss or damage that may arise from any reliance based on this publication.

Crystl Hsu