RHTLaw Taylor Wessing Building & Construction Law Update (Jan-Apr 2019)

No need to apply for one-time Certificate of Registration with Ministry of Manpower

With effect from 1 April 2019, pursuant to the amendment of Regulation 3(a) of the Workspace Safety and Health (Registration of Factories) Regulations 2008, construction companies no longer have to register their worksite with the Ministry of Manpower (“MOM”), as the information required for construction worksite registration will be integrated into the Building and Construction Authority’s (“BCA”) permit application. They now only need to apply to BCA for the permits, thereby saving on the worksite registration fees.

Contractors can start site preparation and building operations in the worksite without factory registration. However, BCA’s permit to carry out structural works as defined under the Building Control Act and its Regulations would still be required before commencement of building works.

Previously, construction companies were required to make separate applications to BCA for a permit to carry out structural works, and to MOM to register their construction worksite, before they could commence work.

Both government agencies announced that this is part of the Government’s efforts to streamline business processes and to enhance coordination between agencies as BCA and MOM will be using a common database of construction sites for inspections and other operations.

 

Application of SOPA timelines notwithstanding termination of contract

In CHL Construction Pte Ltd v Yangguang Group Pte Ltd [2019] SGHC 62, the Singapore High Court (“SGHC”) considered whether, with respect to SOPA claims, contractual provisions relating to SOPA timelines survive termination of the contract.

On 9 July 2018, the defendant subcontractor completed the works for the plaintiff main contractor, and a Certificate of Substantial Completion (“CSC”) was received the next day. Shortly after, the parties’ contract was terminated. The defendant then submitted its penultimate payment claim on 30 August 2018 for works done until completion and for half of the retention monies. However, it was stipulated in Clause 37 of the parties’ contract that the defendant had to withhold its penultimate claim “until three months after the CSC has been received by” the plaintiff. The dispute therefore centred around whether the penultimate payment claim was served prematurely, in contravention of s 10(2)(a) SOPA.

During adjudication, the adjudicator determined that given the termination of the contract, parties no longer had to perform their remaining obligations therein and as such, clause 37 (a remaining obligation on timeline for payment claim) was no longer applicable. Contrary to the adjudicator’s determination, the SGHC held that the “termination of contract subsequent to the point of time the statutory entitlement to payment had arisen and accrued does not alter the timeline for service of a SOPA payment claim that applies to that contractor’s accrued statutory entitlement to payment”. In other words, since the defendant was claiming for works done before the termination, its statutory entitlement to payment had already arisen and the contractual timeline would continue to apply pursuant to s 10(2)(a) SOPA. The adjudication determination was thus set aside.

This case makes clear that even if the contract has been terminated, contractual timelines must still be adhered to for payment claims under SOPA for work done prior to termination.

 

Entitlement to claim for materials which had not been delivered or installed

In Chuang Long Engineering Pte Ltd v Nan Huat Aluminium & Glass Pte Ltd [2019] SGHC 55, the issue of the proper interpretation of Section 7(2)(c) SOPA, i.e. whether one is entitled to claim for materials which had not been delivered or installed, was raised before the courts for the first time.

The respondent subcontractor filed a payment claim for unpaid works, including the value of materials which, while fabricated by the respondent for the purposes of the project, had not been delivered nor installed by the respondent (“the uninstalled materials”). During adjudication, it was determined that the respondent was entitled to the claim for the uninstalled materials. In arriving at the determination, the adjudicator relied on s7(2)(c) SOPA which provided for the valuation of “materials or components that are to form part of any building, structure or works arising from the construction work … that … on payment, will become the property of the party for whom the construction work is being carried out”.

The applicant argued that the value of the materials cannot be claimed unless property in the goods had passed, that is, only materials that had been incorporated in or affixed to a building. However, this runs contrary to s7(2)(c) SOPA which states that valuation of materials is possible as long as they are materials that will, “on payment, become the property” of the payor.

Notably, the SGHC held that under s7(2)(c) SOPA, “materials could be subject to valuation even if they have neither been delivered nor affixed to the building/structure, as long as they were fabricated for the construction contract”. That said, it ought to be noted that the principles of valuation under s7(2) SOPA only operate when the contract contains no terms that govern the valuation of materials.

 

Waiver of right to raise jurisdictional objections in the absence of a Payment Response 

It is now well-established that a failure to file a payment response prevents a respondent from raising any objections, including jurisdictional ones, during both the adjudication and setting aside applications, save for arguments on patent errors.

Indeed, this has recently been reiterated in Sito Construction Pte Ltd (trading as Afone International) v PBT Engineering Pte Ltd [2019] SGHC 7, where the SGHC cited two earlier Singapore Court of Appeal (“SGCA”) cases which held that:

  1. A respondent will be taken to have waived its right to raise jurisdictional objections if it failed to raise the objections at the earliest possible opportunity (i.e. in the payment response) (Audi Construction Pte Ltd v Kian Hiap Construction Pte Ltd [2018] 1 SLR 317); and
  2. A respondent, who is looking to apply to set aside an adjudication determination, is nonetheless entitled to highlight patent errors in the adjudication determination to the reviewing court, in the absence of a payment or adjudication response (Comfort Management Pte Ltd v OGSP Engineering Pte Ltd [2018] 1 SLR 979).

This principle that any objection, including jurisdictional objections, should be raised at the earliest opportunity in the payment response or adjudication response is now clearly spelt out in the BCI Security of Payment (Amendment) Act passed on 31 October 2018 unless

  • the circumstances of that objection only arose after the lodgement of the payment response or adjudication response, as the case may be, or
  • the respondent could not reasonably have known of those circumstances when lodging the payment response or adjudication response, or
  • the objection relates to a patent error.

 

No enforcement of a prior Adjudication Determination (“AD”) superseded by a subsequent AD

Can a prior AD still be enforced if it had effectively been superseded by a subsequent AD which took into account the prior AD? This was the question raised before the SGHC in United Integrated Services Pte Ltd v Civil Tech Pte Ltd and another [2019] SGHC 32.

On 23 October 2018, the respondent subcontractor obtained an AD in its favour (“AD1”), by which the applicant main contractor was to pay the respondent “$1,369,987.02 plus interests and costs”. The respondent was subsequently granted leave to enforce AD1. However, shortly thereafter, before the respondent could successfully enforce AD1, a second AD (“AD2”) determined that no amount was payable by the applicant to the respondent as the adjudicated amount was “a negative sum of $1,176,050.67”. In arriving at his determination, the adjudicator had not only adopted the valuation in AD1, but also considered the claims for work done, liquidated damages and back-charges which were not before the adjudicator in AD1.

In granting the applicant a stay of enforcement of AD1, the Court held that “each adjudicator would have considered the decision of the prior adjudicator, and hence the final AD would be the cumulative result of all prior ADs”. Furthermore, a situation where the subcontractor could enforce each AD independently at its choosing is likely unintended by the drafters of SOPA.

This case thus highlights the importance of enforcing an AD before making another adjudication application, especially where the payment response contains back-charges that could potentially be adjudicated in favour of the respondent. As the Court rightly articulated, “if the prior AD had been successfully enforced, there would simply be no enforcement of such prior AD to be stayed”.

 

Grant of injunction to restrain adjudication where the claim is made by an insolvent company

Earlier this year, in the case of Bresco Electrical Services Limited (in liquidation) v Michael J Lonsdale (Electrical) [2019] EWCA Civ 27 (“Bresco”), the UK Court of Appeal (“EWCA”) dealt with the issues of whether an adjudicator has the jurisdiction to deal with a claim by an insolvent company and whether such an adjudication could ever have any utility.

By a sub-sub-contract dated 21 August 2014, the appellant agreed to perform electrical installation works for the respondent. The appellant then became insolvent and entered into voluntary liquidation in 2015. In October 2017, the respondent intimated a claim against the appellant, on the basis that it was the appellant’s fault that had led to the termination of the sub-sub-contract. The appellant then served an adjudication notice on 18 June 2018, purporting to refer to adjudication a claim that the respondent had wrongfully repudiated the sub-sub-contract, together with claims for unpaid work and other sums. The respondent applied for and was subsequently granted an injunction to prevent the continuation of the adjudication. The appellant then sought to set aside the order granting the injunction.

Pertinently, the Court confirmed that whilst the right to adjudication is not automatically lost when a party goes into liquidation, in circumstances where there is a cross-claim, any decision made in favour of the insolvent company would be incapable of enforcement and therefore “an exercise in futility”. In finding that there is a basic incompatibility between the insolvency regime and adjudication, the Court observed that the rule on insolvency set-off envisages the taking of a detailed account and the careful calculation of a net balance, whereas adjudication is “a rough and ready process” which produces only a temporarily binding decision. Certainly, as the Court held, the temporary finality nature of an adjudicator’s decision is not a condition or status expressly envisaged by the insolvency set-off rules.

This is in fact consistent with the local position in ­­W Y Steel Construction Pte Ltd v Osko Pte Ltd [2013] 3 SLR 380 where the SGCA held that “a stay of enforcement of an adjudication determination may ordinarily be justified where there is clear and objective evidence of the successful claimant’s actual present insolvency”.

Bresco aptly illustrates why the SOPA adjudication process is incompatible with the insolvency regime, and that recourse to the SOPA regime would be unwise where the applicant is insolvent.

 

No calling on Performance Bonds unrelated to the contract which the dispute has arisen from

In Ryobi Tactics Pte Ltd v UES Holdings Pte Ltd and another and another matter [2019] SGHC 11, the Court considered whether a performance bond could extend to a contract or project other than the contract or project pursuant to which the performance bond was given.

The plaintiff subcontractor was engaged by the defendant main contractor for three different construction projects, for which a total of four subcontracts were entered into between the parties. Under each of the subcontracts, performance bonds had to be furnished. Although there was a dispute in only one of the subcontracts, the defendant sought to call on all four of the performance bonds. The plaintiff then applied for an injunction to restrain the calls on the grounds of fraud and unconscionability. The defendant, on the other hand, argued that it had a contractual right to call on the other performance bonds to set off against any moneys due to the plaintiff by relying extensively on Clause 17.1 of the underlying subcontracts, which provided as follows:

  1. Right of Set-off

17.1  The Main Contractor shall notwithstanding anything contained in this Sub-Contract Agreement be entitled to deduct from or set-off against any monies due or become due to the Sub-Contractor under the Sub-Contract (including without limitation any Retention Sum) or under any other contract whatsoever between the Main Contractor and the Sub-Contractor for any sum or damage…, charges, expense…, liability, debt or financial loss suffered by the Main Contractor due to or arising from the negligence, default, breach or omission of the Sub-Contractor arose [sic] under the Sub-Contract or any other contract whatsoever between the Main Contractor and the Sub-Contractor.

In granting the injunction, the SGHC held that “a prior crucial issue which had to be resolved before one even considered the question of unconscionability … was whether the performance bonds in question were engaged in the first place”. In this regard, it was held that “where a performance bond arises expressly out of a particular contractual relationship, calls made on the basis of other contractual relationships would clearly fall outside of the scope of the performance bond”, unless the terms specifically allowed for it. Turning its attention to the terms of the performance bonds in question, the Court concluded that it was clear from the terms that the performance bonds could only be called for matters arising out of the corresponding underlying contract.

The Court then proceeded to consider the defendant’s reliance on Clause 17.1 and held that “there was no room to expand the scope of those performance bonds by reference to cl 17.1 or other provisions in the underlying subcontracts” since the performance bonds were not ambiguous. Further, Clause 17.1 would not even be applicable as it is not a set-off of moneys due from defendant to the plaintiff. In fact, the defendant was the beneficiary of the performance bonds, and not the plaintiff.

The key takeaway from this case is therefore that a performance bond can only be called under the terms within the four corners of the performance bond. The terms in the underlying contracts will also have no effect on the scope and applicability of the performance bonds, unless parties have clearly and expressly included any such terms within the performance bond.

 

Meaning of practical completion

The UK Court of Appeal (“EWCA”) in Mears Limited v Costplan Services (South East) Limited, Plymouth (Notte Street) Limited, J.R. Pickstock Limited [2019] EWCA Civ 502 considered the meaning of practical completion and when a breach of contract can prevent practical completion.

Pursuant to an Agreement for Lease (“AFL”) dated 20 May 2016, Mears, which was in the business of providing managed student accommodation, contracted with Plymouth (“Developer”) to take a long lease of 2 blocks of student accommodation constructed by Pickstock after certification of practical completion. Under the JCT building contract, Pickstock was required to complete the construction of the works in conformity with the Developer’s obligations under the AFL. In this regard, the AFL did not contain a contractual definition of “Practical Completion” and Clause 6 of the AFL provided that the Developer shall not make any material variations to the size, layout or appearance, and a reduction of the size of any distinct area by more than 3% shall be deemed material. As it turned out, 56 of the rooms were more than 3% smaller than planned in the drawings. Mears thus sought, inter alia, a declaration that practical completion could not be achieved as there were known defects which were “material or substantial”. On 22 August 2018, Mears was granted an interlocutory injunction restraining the certification.

The UK High Court (“EWHC”) subsequently declined the declaration and adopted a more flexible approach: defects which were not “de minimis” (i.e. trifling) may or may not prevent practical completion “depending on the nature and extent of [them] and the intended purpose of the building”. Mears then appealed to the EWCA.

The EWCA upheld the decision at first instance and dismissed the appeal. In the judgment, the Court summarized the law on practical completion as follows:

  1. Practical completion is easier to recognise than define: Keating, 10th ed 20-169; There are no hard and fast rules with regards to practical completion: Bailey para 5.117 footnote 349.
  2. The existence of a latent defect cannot prevent practical completion: Jarvis & Sons Ltd v Westminster Corporation.
  3. In relation to patent defects, there is no difference between an item of work not yet completed and one that has been completed but is defective and requires remedy.
  4. The existence of patent defects will be sufficient to prevent practical completion, save where they are trifling in nature.
  5. Whether or not an item is trifling is a matter of fact and degree, to be measured against “the purpose of allowing the employers to take possession of the works and to use them as intended. However, such an ability does not necessarily mean that the works are practically complete.
  6. The mere fact that a defect is irremediable does not mean the works are not practically complete.

The Court held that while the failure to stay within the tolerance of 3% was a breach of contract, whether any particular departure from a contractual drawing was trifling was a matter of fact and degree. On the facts, as the contract did not define practical completion, it was left as a discretion for the certifier. Whether the certifier would be correct in certifying completion was not a question before the Court. Nonetheless, the mere fact that the property is habitable as student accommodation also does not, by itself, mean that the property is practically complete.

This case is useful in that it clarifies what amounts to practical completion. The EWCA however noted that there is no authority on the interplay between practical completion and irremediable nature of outstanding work items. What is clear is that trifling defects that are irremediable does not prevent practical completion.

 

No claim for Liquidated Damages in the absence of an Extension of Time (“EOT”) clause

In Crescendas Bionics Pte Ltd v Jurong Primewide Pte Ltd [2019] SGHC 4, the Singapore High Court (“SGHC”) dealt with the issue of delay caused by an employer’s act of prevention, particularly in the context of a construction contract that did not contain an extension of time (“EOT”) clause. In this case, the plaintiff property developer employed the defendant contractor for the construction of a business park. The signed Letter of Intent, which both parties agreed to be legally binding on them, contained a clause specifying the date of completion and a liquidated damages clause but did not include an EOT clause. When the project was certified to be completed after the specified completion date, the plaintiff sued the defendant for, inter alia, liquidated damages for the delay in completion. The defendant, in its defence, argued that since the plaintiff was responsible for the delays and there was no EOT clause, time was at-large and it only needed to complete its works within a reasonable time.

Pertinently, the Court held that where an EOT clause is absent, and the employer commits an act of prevention:

  1. The contractor is no longer bound by the original contractual completion date;
  2. Any liquidated damages clauses entered into between the parties is rendered inoperative; and
  3. The contractor is under an obligation to complete the project within reasonable time and failure to do so will render the contractor liable for general damages.

In deciding the reasonable time for completion by the contractor, the Court applied the following principles in Fongsoon Engineering (S) Pte Ltd v Kensteel Engineering Pte Ltd [2011] SGHC 82:

  1. What constitutes a reasonable time is a question of fact;
  2. When determining reasonable time, the court must strike an appropriate balance between not allowing the employer to take advantage of its own fault and not giving the contractor any other additional time other than that caused by the employer’s delay; and
  3. The method of determining reasonable time by simply adding the employer’s delay to the contractual completion time is merely a guide on calculating reasonable time which meets the above two considerations.

This case therefore elucidates the importance for EOT clauses to be properly drafted and included in construction contracts so as to ensure that, in the event an employer commits any act of prevention, (1) a new date may be set for completion and (2) the employer’s right to liquidated damages will be preserved. Otherwise, the employer will only be entitled to claim for general damages, and this is so only if the contractor fails to complete the project within reasonable time.

 

Liquidated Damages not recoverable where contract terminated prior to completion

In Triple Point Technology, Inc v PTT Public Company Ltd [2019] EWCA Civ 230, the UK Court of Appeal (“EWCA”) addressed the question of whether an employer was entitled to liquidated damages where the contract had been terminated prior to the contractor completing the work.

PTT had engaged Triple Point to supply a new commodity trading software system. Payment was by milestone or specified dates. The project was to be completed in stages with a completion date for each stage. Triple Point’s work progress was slow. The first two stages of phase 1 were to be completed by 31 October 2013 but were completed late on 19 March 2014. That only the first two stages of phase 1 were completed was not disputed by Triple Point. On 27 May 2014, Triple Point suspended work and left the site. The last stage completion date was 11 June 2014. On 15 February 2015, PTT terminated the contract.

On the question of liquidated damages (“LD”), the EWCA held that PTT was entitled to LD for late completion of stages 1 and 2 of phase 1, but not from the contract completion date of each uncompleted stage to date of termination on 15 February 2015.

The LD clause in question read: “If contractor fails to deliver work within the time specified and the delay has not been introduced by PTT, contractor shall be liable to pay the penalty at the rate of 0.1% of undelivered work per day from the due date for delivery up to the date PTT accepts such work…”

After reviewing the authorities, the EWCA observed that there have been 3 different approaches to liquidated damages clauses in prior case law where a contractor failed to complete and a second contractor stepped in:-

  1. The clause did not apply[1];
  2. The clause only applied up to termination of the contract[2]; and
  3. The clause continued to apply until completion was achieved by the replacement contractor[3].

Applying the principle in British Glanzstoff Manufacturing Co. Ltd v General Accident, Fire and Life Assurance Co Ltd 1912 SC 1913 (“Glanzstoff”), the EWCA held that whether an LD clause in a case (a) ceases to apply or (b) continues to apply up to termination/abandonment, or even conceivably beyond that date, must depend on the wording of the clause itself.

On the facts, the EWCA found that the LD clause did not make provision where the contractor never hands over completed work to the employer. The clause was focused on delay between the contractual completion date and the date when Triple Point achieved completion. The CA reasoned that it would be artificial and inconsistent with the parties’ agreement to categories the employer’s losses on a fixed sum per day up to a certain date and then general damages thereafter. It may be more logical and more consonant with the parties’ bargain to assess the employer’s total losses flowing from the abandonment or termination, applying the ordinary rules of assessment of damages.

The EWCA opined that there was no reason why a distinction should be made between a termination before the contract completion date and a termination after the contract completion date. The CA also doubted the correctness of allowing LD until actual completion by a replacement contractor as the employer and second contractor can control the period for which LD will run.

Interestingly, in its review of the authorities, the EWCA considered the Singapore High Court decision of LW Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd [2011] 4 SLR 477 (“LW Infrastructure”) where the Honourable Justice Judith Prakash distinguished Glanzstoff and allowed recovery of liquidated damages up to the termination of the contract. The EWCA observed from a reading of the report decision that Prakash J may not have had sight of the full decision of Glanzstoff.

What is noteworthy in LW Infrastructure, however, is that the Singapore Court opined in dicta that LD provisions in standard forms widely used in Singapore such as the PSSCOC and SIA Contract survive termination because there is express contractual provision to that effect.[4] Essentially, where the contract expressly provides for it, there seems to be no reason why such LD provisions will not survive termination. This is in fact consistent with the decision in Triple Point which is to the effect that whether or not a LD provision survives termination turns on the proper interpretation of the provision itself.

The question that remains is, in the absence of such an express clause, will the entitlement to LD still exist where the contract has been terminated without practical completion by the contractor? In this regard, it remains to be seen whether the Singapore Courts will follow the EWCA’s lead, notwithstanding the decision in LW Infrastructure.

Moving forward, employers should weigh both the legal and commercial considerations before deciding whether to terminate a contract, and whether termination would prevent it from claiming LD, if that is its preferred course. In some instances, employer’s may in fact want to terminate the contract and claim general damages as the damages that it suffers from non-performance of the contractor may outweigh what it may recover under the LD clause.

-End-

 

[1] British Glanzstoff Manufacturing Co. Ltd v General Accident, Fire and Life Assurance Co Ltd 1912 SC 1913; Chanthall Investments Ltd v F.G. Minter Ltd 1976 SC 73; and Gibbs v Tomlinson (1992) 35 Con LR 86.

[2] Greenore Port Ltd v Technical & General Guarantee Company Ltd [2006] EWHC 3119; Shaw v MFP Foundations and Pilings Ltd [2010] EWHC 1839; LW Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd [2011] 4 SLR 477; and Bluewater Energy Services BV v Mercon Steel Structures BV [2014] EWHC 2132.

[3] Hall v Van Der Heiden (No 2) [2010] EWHC 586; Crestdream v Potter Interior Design (2013) HCCT 32/2013; and GPP Big Field LLP v Solar EPC Solutions SL [2018] EWHC 2866.

[4] See Clause 31.3(a) of the PSSCOC and Clause 32(8)(g)(i) of the SIA Contract.

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