Security of Payments and Construction

Adjudication

As those involved in the Singapore construction industry are aware, there have been a number of seminars and workshops in the past couple of years to introduce, instruct and discuss the new regime for security of payments and adjudication under the Building and Construction Industry Security of Payment Act 2004 (‘BCISP Act’) which came into operation on 1 April 2005.

Yet, in spite of the many workshops and seminars, there are still numerous issues and questions in the minds of construction industry practitioners. These can be answered partly by a thorough study of the BCISP Act and Regulations, partly by a review of similar experience in the precedent jurisdictions (namely the United Kingdom and Australia) where similar regimes were introduced earlier, and then again only conclusively in the future by a consideration of some of the provisions by the Singapore courts, if and when any disputes are brought to the courts in connection with the Act.

As we await pronouncements by the courts, and even thereafter I should add, there is a need for a comprehensive textbook and guide on the subject. This book, by a foremost construction industry writer, serves such a purpose. Indeed, there is no one more qualified to write on this subject than Chow Kok Fong, who has not only been involved in day-to-day construction management in the private and public sectors in Singapore, but has also been deeply involved in regulation and dispute resolution. He has also written extensively on the subject, including the Third Edition of the Law and Practice of Construction Contracts published in 2004.

Due to the relative infancy of the BCISP Act in Singapore, a comprehensive commentary on the Act is no easy task. However, the author has dealt with this ambitious project systematically and thoroughly. The book is a good ‘one-stop shop’, as it deals with history and solutions, includes copies of the Act and sample forms and precedents, and also contains a useful index of subjects and authorities. Within its 14 chapters in 600 pages, the book deals with law, principles, policies, and procedures and solutions in relation to payments and adjudication of payments clearly and concisely, making it a valuable aid to both practitioners and non-practitioners alike. The use of templates and flowcharts also aids readers new to the subject.

Importantly, the author contributes to our understanding of the BCISP Act by grounding this new piece of legislation in its policy initiatives and objectives. These, together with the background and historical problems concerning payments in the industry, are covered in chapters 1, 3 and 13. As stated in chapter 3 at page 58, at the policy level, the BCISP Act seeks to improve payment behaviour in the building and construction industry, and to produce a more balanced payment regime. The BCISP Act puts in place and enforces statutory rights to timely progress payments to parties who undertake work or supply goods and services. This first pillar of the Act is supplemented by the second pillar, which is the adjudication machinery. A crucial part of the Act is its anti-avoidance provisions – namely, it does not allow any ‘contracting out’ of these two pillars. Yet, within its purposeful and robust pillars, there are still some practical and technical questions and issues concerning the ambit and application of the Act.

Another significant feature of this study on the BCISP Act is the author’s review of areas of law where the Act is silent or where there are perceived ambiguities. Practitioners who attended the many seminars and workshops in 2005 are aware of these problems. Mr Chow suggests solutions and interpretations for some of these legal posers. For instance, ss 36(1) and (2) of the Act prohibit any ‘contracting out’ of the provisions of the Act and void contractual provisions which purport to ‘prejudice’, ‘exclude’, ‘modify’ or ‘restrict’ the operation of the Act. At the same time, s 36(3) preserves the other rights of the parties to the contract. Problems with the interpretation of s 36 seem inevitable and the author suggests that the Singapore courts will take a purposive approach to its construction. He justifies his conclusion by looking at the general approach of the Singapore courts when it comes to the interpretation of statutes and recent pronouncements on the equivalent legislation by Australian and English courts.

The author also discusses matters such as the ambit of ‘claims’ under the BCISP Act. The big question is: does the Act deal only with ‘basic’ progress payments, or do the claims and adjudication procedures also include a consideration of damages for extension of time and loss and expense claims? The matter of whether the Act only deals with progress payments, and not final payments is also an important issue. In New South Wales (‘NSW’), it was ruled by a NSW court in 2002 that the original 1999 Act dealt only with progress payments. Subsequent to that case, the NSW Act was amended to include ‘final payment’. It is suggested by Mr Chow, at page 73 of his book, that the language of the Singapore Act envisages that the Act covers claims for final payments as well. He reasons from a policy perspective that if the objective of the Act is to encourage good payment behaviour, there is little reason why the payment discipline intended by the BCISP Act should not be allowed to visit final payments as well.

From chapter 7 onwards, the author expounds on the adjudication regime. This is useful as adjudication is not a process that is currently used frequently, unlike its better-known cousins, mediation and arbitration. Sections 10–12 of the Act are elaborated on in chapter 7 and the grounds for adjudication in both construction and supply contracts are explained. This chapter deals with, amongst other things, the question as to whether an adjudication application can be made where the underlying contract has been terminated. After a review of recent English cases, the author offers his opinion as to what the Singapore perspective might be. His opinion, at page 277, is that as long as the subject payment claim to which the adjudication application relates arises from a subsisting contract falling within the province of the Act and complies with the requirements of s 10, it is irrelevant whether the contract has been terminated by the time the adjudication application has been made.

Another pertinent question that is bound to arise in practice is the role of the courts in the context of this new regime. In chapter 12, at page 500, Mr Chow points out that the courts exercise a supervisory function when an application is made to the court to enforce an adjudication determination. In this respect, the court has to ensure that the adjudicator is acting within the jurisdiction conferred on him by the Act. Other issues that may be faced by the courts in the context of the Act may include issues of jurisdictional errors of law made by the adjudicator and the denial of natural justice, and the author helpfully canvasses the relevant English and Australian case law on this subject.

Prompt payment, coupled with quick and effective adjudication of payment disputes, is a matter close to the heart for those involved in the construction industry. As such, the BCISP Act will certainly have an effect on the most important players in the industry, the contractors and subcontractors. This is not an exaggeration; to put it simply, without the cooks, there is no dinner. The industry has been plagued during the past 20 years or so by disruptions caused to subcontractors by delayed payments arising from impediments such as ruthlessly enforced ‘pay when paid’ clauses in subcontracts. The BCISP Act is thus a milestone legislation. Chow Kok Fong’s book goes a long way in helping us come to terms with the Act, to assist in applying its provisions and the ancillary regulations, and to understand and deal with any attendant questions, issues and controversies.

Naresh Mahtani

Alban Tay Mahtani & de Silva

The author acknowledges with gratitude the assistance of Ms Dhanya John in the review of the book.

SLG readers will be entitled to a 20% discount on the book from 6 April to 5 May 2006.  For more information, please call Angie Ong at 6349 187.