The burning question – the effect of Far East Square Pte Ltd v Yau Lee Construction (Singapore) Pte Ltd on non-SIA contracts and terminated contracts

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This article is co-written by Ms. Danna Er and Ms. Nur Liyana Kamaludin.

I. Introduction

In Far East Square Pte Ltd v Yau Lee Construction (Singapore) Pte Ltd [2019] SGCA 36 (“Far East Square”), the Court of Appeal held that a payment claim submitted after the issuance of the architect’s Final Certificate would be invalid regardless of whether the employer submitted a payment response. This was due to the fact that it fell outside the ambit of the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) (“SOPA”).

While the case dealt with the Singapore Institute of Architects (“SIA”) Form of Contract, this decision raises issues as to its applicability to situations involving non-SIA contracts and terminated contracts in cases which fall under the old SOPA (prior to the latest round of amendments which came into effect on 15 December 2019).

II. Background

The appellant, Far East Square Pte Ltd (“Far East”), is a property developer. Far East engaged the respondent, Yau Lee Construction (Singapore) Pte Ltd (“Yau Lee”), to be the main contractor for a development project (“Project”). This was governed by a letter of award, which incorporated with amendments the SIA Form of Contract.

After the completion of the Project and the end of the maintenance period, on 5 September 2017, the architect of the Project (“Architect”) issued a letter described as the final certificate (“Final Certificate”) to Yau Lee. This Final Certificate, stating the balance payable from Far East to Yau Lee, had been issued by the Architect in accordance with Clause 31(12)(a) of the SIA Conditions of Contract.

Despite the Final Certificate, Yau Lee later submitted further payment claims numbers 74 and 75 (“PC 74” and “PC 75”) in October and November 2017. In response, the Architect issued a letter stating that no further progress payments would be accepted after the issuance of the Final Certificate. Far East did not issue payment responses to neither PC 74 nor PC 75.

In December 2017, Yau Lee lodged an adjudication application in relation to PC 75. Adjudicator Mr Tai Chean Ming (“Adjudicator”) determined that Far East was liable to pay Yau Lee for additional preliminaries arising out of prolongations to the works. The Adjudicator rejected Far East’s contention that PC 75 was invalid for failing to comply with the SIA Conditions of Contract and Section 10(2)(a) of the SOPA on the basis that it was submitted after the issuance of the final payment claim and/or the Final Certificate. Instead, it held that, pursuant to s 15(3) of the SOPA, Far East was prohibited from raising the objection then since it had failed to do so earlier in a payment response.

Before the High Court, Yau Lee succeeded in its enforcement of the adjudication determination for the same reasons as was given by the adjudicator.

III. The Court of Appeal’s Decision

Overturning the decision below, the Court of Appeal held that PC 75 was in fact invalid, accepting Far East’s arguments and clarifying that payment claims submitted after the issuance of a Final Certificate fell outside the ambit of the SOPA.

The Court of Appeal clarified how the SOPA did not grant a contractor a right to be paid. Instead, it was merely a statutory framework to hasten a payment process where the contractor in question already had a pre-existing legal right to be paid.

The Court also observed how the role of the architect was integral in the payment certification process under the SIA Form of Contract, as could be seen from Article 3 of the SIA Articles of Contract and the SIA’s Guidance Notes on Articles and Conditions of Building Contract (Singapore Institute of Architects, 3^rd Ed, 2011). Once the Architect issued the Final Certificate, and became functus officio, the entire certification process under the contract came to an end. In other words, the Architect’s interim certificate is a condition precedent to the contractor’s right to receive payments. Thus, any payment claims submitted thereafter would be untenable and rendered invalid for falling outside the ambit of the SOPA.

IV. Application to Other Scenarios?

The decision of the Court of Appeal to render payment claims submitted after the issuance of an architect’s final certificate invalid was largely premised on the importance of the architect’s role in the payment process under the SIA Form of Contract, as underscored in Chin Ivan v H P Construction & Engineering Pte Ltd [2015] 3 SLR 124. While this decision has significant implications in construction contracts with issuance of a final certificate, the applicability of the SOPA to payment claims in other scenarios remains to be seen.

A. Non-SIA contracts

By logical extension of the Far East Square case, it is likely to apply in relation to bespoke contracts, i.e. non-SIA contracts with final certificate provisions.

However, in relation to non-SIA contracts with no final certificate provisions, the Far East Square decision may not be readily applied. This is because the role of an architect may not be integral and the contractor’s right to receive payments in the non-SIA contract may not be subject to a condition precedent of receiving the architect’s certificate.

Ultimately, as the SOPA does not alter parties’ substantive rights under a contract, it would be important to refer back to the terms of the contract between the parties. As long as the contractor is still able to submit a payment claim pursuant to the relevant contractual terms, the claim is likely to be within the ambit of the SOPA.

B. Terminated contracts

The latest round of amendments to the SOPA has put to rest the troubling issue of whether a claimant can pursue claims under a terminated construction contract for work performed prior to termination. Section 2(b) of the Building and Construction Industry Security of Payment (Amendment) Act 2018 (Act 47 of 2018) (“SOPA Amendment Act”) provides that such claims can be made under the new SOPA.

As for the position in relation to contracts terminated prior to the commencement of the SOPA Amendment Act, i.e. under the old SOPA, the position is less clear. With regard to payment claims arising before termination, the High Court held in Choi Peng Kum v Tan Poh Eng Construction Pte Ltd [2014] 1 SLR 1210 (“Choi Peng Kum”) and CHL Construction Pte Ltd v Yangguang Group Pte Ltd [2019] SGHC 62 (“CHL Construction”) that the SOPA would still apply to such payment claims even if submitted post-termination. This reasoning has been reaffirmed in the recent case of Stargood Construction Pte Ltd v Shimizu Corporation [2019] SGHC 261 (“Stargood”). Specifically, such payment claims are valid as the contractor has an accrued statutory entitlement to payment which survives termination. In Stargood, a payment claim was submitted after the termination of a sub-contract. The respondent relied on the decision in Far East Square and argued that the payment claim was invalid as the project director in charge of certifying payments was functus officio under the sub-contract. Rejecting that argument, the court limited the holding in Far East Square to situations where a final certificate had been issued following the successful completion of a project.

However, the functus officio holding in Far East Square has not been conclusively held to apply to terminated contracts by the Court of Appeal. There are seemingly attractive counter-arguments to extend the Far East Square reasoning to situations of terminated contracts under the old SOPA. First, once a contract has terminated, it would follow that the role of the personnel in charge of certifying payment claims would also have ended and there would be no basis for him or her to entertain a payment claim post-termination for work done prior to the termination. Second, one may argue that there would have been no need to amend the old SOPA to clarify that work done before termination may be the subject of a claim under the SOPA if that was indeed the position at law prior to the commencement of the SOPA Amendment Act. Third, even if the claimant could no longer adjudicate under the SOPA once the contract is terminated, it is open for the claimant to pursue other proceedings such as arbitration (if there is an arbitration clause in the contract) or litigation.

It remains to be seen if the High Court decision in Stargood would be upheld on appeal and whether past cases which were wrongly decided by adjudicators (depending on the outcome of the Court of Appeal decision) would be revisited.

This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.

Danna Er

Danna is recognised as one of the leading commercial and construction disputes lawyers in Singapore. She is recognised by Junior Chamber International as an outstanding lawyer for the legal category, by Singapore Business Review as one of the 20 most influential lawyers under the age of 40 and was awarded the Lawyer Monthly Women in Law Award for her outstanding legal expertise and contributions in the practice area of Dispute Resolution. She is admitted to practise law in New York and Singapore and specialises in disputes prevention and dispute resolution, with a particular emphasis on international and domestic commercial and construction disputes. Prior to joining Eldan Law as a Partner, Danna practised in the projects and construction and international arbitration practices of two international law firms. Danna has represented clients in high value, complex international arbitrations under major institutional rules (SIAC, ICC, LCIA, ICDR etc) and ad hoc proceedings, court proceedings, mediations and adjudications under the Building and Construction Industry Security of Payment Act. Her non-contentious work experience includes drafting, reviewing and advising on contract documentation for large-scale infrastructure projects and arbitration agreements for international transactions to eliminate disputes risks for clients. Her clients include Fortune 500 companies, international and Singapore based developers, contractors, suppliers, professionals and Singapore listed companies. Danna received her Master of Laws from Columbia Law School in New York, U.S.A. She was a Harlan Fiske Stone Scholar for her superior academic performance and was recipient of the Parker School Award for her achievement in international and comparative law. She graduated from the National University of Singapore with a Bachelor of Laws and was placed on the Dean’s List for her outstanding academic performance. Passionate about the development of law in the international dispute resolution and construction law space, she has published extensively on issues in those areas.