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Can you submit a Payment Claim after the issuance of a Final Certificate?

In Far East Square Pte Ltd v Yau Lee Construction (Singapore) Pte Ltd [2019] SGCA 36, the Singapore Court of Appeal (“CA”) clarified that the Security of Payment Act (“SOPA”) did not apply to payment claims submitted after the issuance of a valid final certificate under the Singapore Institute of Architects Articles and Conditions of Building Contract (Measurement Contract), (7th Edition, April 2005), (the “SIA Articles of Contract” and the “SIA Conditions of Contract” respectively, collectively the “SIA Form of Contract”); and that there is no waiver of a respondent’s right to object where no payment response is submitted if the payment claim is not a valid payment claim under SOPA.

The main contractor was engaged by the developer pursuant to a Letter of Award, which incorporated with amendments the SIA Form of Contract. Under the SIA Conditions of Contract, the main contractor was to submit its final claim to the architect before the end of the maintenance period, which lasted from 6 May 2014 to 5 August 2015. On 4 August 2017, the architect issued a maintenance certificate (the “Maintenance Certificate”). On 23 August 2017, the main contractor submitted payment claim number 73 (“PC 73”). The architect then issued a final certificate (the “Final Certificate”) on 5 September 2017, certifying the final balance payable from the developer to the main contractor. On 12 September 2017, the developer issued a payment response to PC 73, entitled “Payment Response Reference Number 73 (Final)”.

Notwithstanding the issuance of the Final Certificate, the main contractor submitted yet another payment claim; payment claim number 74 (“PC 74”) on 24 October 2017. The developer did not issue a payment response to PC 74. The architect instead wrote to inform the main contractor that since the final payment claim had to be submitted before the end of the maintenance period but the main contractor had failed to do so, the architect had proceeded to issue the Final Certificate in accordance with the SIA Conditions of Contract. Despite this letter, the main contractor submitted a further payment claim; payment claim 75 (“PC 75”) on 24 November 2017, which was exactly the same as PC 74 save for the difference in the dates. Again, the developer did not issue a payment response.

Thereafter, on 27 December 2017, the main contractor lodged an adjudication application in relation to PC 75. The developer then filed its adjudication response on 5 January 2018. Its main objection was that PC 75 was submitted after the issuance of the final payment claim and/or the Final Certificate and was therefore invalid for failing to comply with the SIA Conditions of Contract and s 10(2)(a) of the SOPA. However, the adjudicator agreed with the main contractor and decided that because the developer had not raised this objection in a payment response, he was “prohibited” from considering the objection pursuant to s 15(3) of the SOPA, following the CA’s decision in in Audi Construction Pte Ltd v Kian Hiap Construction Pte Ltd [2018] 1 SLR 317 (“Audi Construction”).

The developer then applied to the HC for the adjudication determination to be set aside. Relying on Audi Construction, the HC expressly rejected the developer’s argument that it was not obligated to file a payment response if the payment claim was invalid due to it falling outside the SOPA from the outset. The HC further held that to allow the architect to unilaterally treat PC 73 as the final payment claim and to issue a final certificate on that basis would result in injustice to the main contractor. On appeal, however, the CA disagreed with the HC and the adjudication determination was set aside.

In summary, the CA held, inter alia, that:

  1. When dealing with a construction contract that incorporates the SIA Form of Contract, any payment claim which is submitted after the architect has issued the final certificate is outside the ambit of the SOPA. This is because under s 2 of the SOPA, a progress payment is defined as “a payment to which a person is entitled for the carrying out of construction work, or the supply of goods or services, under a contract”. In other words, the entitlement to submit progress claims under the SOPA stems from the underlying contract itself. Given that it is mandatory for the architect to issue an interim certificate in response to a payment claim under the SIA Form of Contract, any such entitlement to submit payment claims under the SOPA is lost once the architect has issued the final certificate. This is because his role under the contract then comes to an end and he becomes functus officio. As such, he loses his capacity to issue certificates, a “condition precedent” to the contractor’s right to receive payment.
  2. The holding in Audi Construction with respect to the respondent’s duty to speak was never intended to apply to a situation where the payment claim fell outside the scope of the SOPA. Where the payment claim is one which did not entitle the contractor to commence adjudication under the SOPA in the first place, there would be no corresponding duty to speak.
  3. In any case, the developer will be entitled to set aside the adjudication determination notwithstanding its lack of a payment response because PC 75 constituted a patent error. It should have been patently clear to the adjudicator based on the contract, the Final Certificate and PC 75 itself, that by the time PC 75 was submitted, the architect had become functus officio and any payment claims submitted thereafter would fall outside the scope of the SOPA.

This case illustrates the importance of submitting all payment claims before the issuance of the final certificate, and the significance of the final certificate under the SIA Form of Contract and probably other similar standard forms, if it were properly issued (even if not signed off by the contractor). The payment claim and certification process for the purpose of SOPA comes to an end, and recourse for any further claims would have to be through the Courts or arbitration, as the case may be.

 

Disclaimer: This update is provided to you for general information and should not be relied upon as legal advice.