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Singapore Statutory Adjudication - An Update1

The Singapore Building and Construction Industry Security of Payment Act bears the same name as the New South Wales Act on which it was modelled before the latest amendments were made to the New South Wales Act. Some of the differences are highlighted in this article. In particular, the details regulating adjudicators are written into the statute and subsidiary legislation. Also discussed is the first case to be brought to the Courts where the judge refused to follow the decision of the New South Wales Court. The case was on final payment and the court decided that the claimant was entitled to have the claim which was essentially final payment although the Act refers to only progress payment.

The Building and Construction Industry Security of Payment Act ('SOP Act') came into operation in 2005. There are now more than 100 cases that have gone for adjudication. In particular, the first case to go to the High Court has now been reported. This presents a good opportunity to revisit the SOP Act with regard to its stated intention, and its operational performance in a comparative analysis with the Act of the same name in New South Wales ('NSW Act') on which the SOP Act was modelled.

This article examines three aspects of the SOP Act. First, the reader is taken through an analysis of the two Acts in order to appreciate the main differences in approach to resolving payment disputes in an industry plagued with payment disputes and poor cash flow. Second, the reader is shown how the SOP Act has provided for an explicit mechanism to regulate the statutory adjudicator, a creature of statute. These provisions are found in the SOP Act but not the NSW Act. Third, the first SOP Act case is examined to see how the Singapore court interpreted the scope of the SOP Act in the light of a case authority that interpreted the NSW Act.

Main Differences between the NSW Act and the Singapore SOP Act
There is a tendency to look for guidance in interpretation of the SOP Act from case authorities that interpret the Act on which the SOP Act is modelled. Accordingly, it would be a useful exercise to see whether the two Acts are similar enough to justify this reliance. There are two levels of comparison. First, the two Acts are not alike word for word, ie they are not in pari materia. Second, as the analysis below shows, the two Acts may be further apart than they are similar.

For convenience of analysis, this section is divided into two parts, namely, the pre-adjudication stage and the post-commencement of adjudication stage.

Pre-adjudication stage
Three areas in the NSW Act are highlighted to show the differences between the NSW Act and the SOP Act.
(1) Pre-adjudication stages
Whilst both the NSW Act and the SOP Act appear to provide for three pre-adjudication stages, they differ in that the three stages are explicitly linked to each other in the NSW Act while the SOP Act appears to have three mutually independent stages.

In the first stage, a claimant is entitled to progress payment on what is known as a reference date.2 Under the first limb of s 8(2), the claim entitled refers to progress payment in relation to 'work carried out or undertaken to be carried out'. It would appear that the entitlement to progress payment is not limited to payment of work carried out only as the alternative formula suggests that work of the status 'undertaken to be carried out' could also be paid if so agreed. This reference date is important as it represents the date of entitlement to progress payment which triggers off the claimant's right to serve a payment claim under s 11(1).

In the second stage, the claimant is entitled to serve the payment claim when a person 'who is or who claims to be entitled to a progress payment'. In addition, the payment claim may be served within the period prescribed by s 13(4), that is, as agreed by the parties or within the period of 12 months after the construction work to which the claim relates was last carried out, whichever is the later. What is worthy of note is that reference is made to work actually carried out and not work 'undertaken to be carried out'.

In the third stage, a due date for payment may be fixed by the parties or on default, it would be a date occurring 10 days after the payment claim is made.3 There are two consequences. The first consequence is that a respondent is liable to pay the claimed amount on the due date of the progress payment.4 The second consequence is that a claimant is entitled to interest on the unpaid amount of progress payment that has become due and payable under s 11(2).

In contrast, the SOP Act provides, by s 5, an entitlement to progress payment without giving a date to indicate when the entitlement crystallises. There is no reference date as in the NSW Act or an equivalent date. Further, it appears that entitlement, unlike the NSW Act, is only on the basis that work must have been carried out. If there were no date of entitlement, it would not be possible to ascertain the value of the work carried out to which the claimant is entitled as all valuation can only be done as at a particular date.
The entitlement to serve a payment claim under the SOP Act is provided by s 10. By s 10(2), parties may agree to such a service date or the default prescribed date becomes applicable. Unlike the NSW Act where the claimant is entitled to serve a payment claim only when the claimant is entitled, which would mean the earliest date would be the reference date, the SOP Act is not linked directly to the date of entitlement of progress payment. However, there is an indirect link suggested by the definition of the claimed amount as defined by s 2. Every claimant is to claim the unpaid progress payment and interest owed. This would appear to suggest that a payment claim could only be served after the accrual of interest and would therefore mean that it has to be after the due date of the progress payment. This would be the opposite of the provision in the NSW Act where the due date of payment is after the service of the payment claim.

In the SOP Act, the due date for progress payment under s 8 may be agreed by the parties or by the default dates prescribed. Only one option links this due date to the payment response. By s 8(1)(b)(ii), the due date is 'the date on which or the period within which the payment response is required to be provided under section 11(1) (whether or not a payment response is served)'. This would suggest that the due date of progress payment must be after the service of the payment claim. This would be inconsistent with the definition of the claimed amount stated in every payment claim that entitles a claimant to claim interest in respect of amounts that remained unpaid after the due date thereby suggesting that payment claim is to be served after the due date and not before.

(2) Claimed amount
There is a distinct difference in the meaning of the claimed amount between the two Acts. Consequently, the date of entitlement to serve the payment claim appears to be different.

It would appear that by s 13 of the NSW Act, the claimant might choose to serve a payment claim when he is entitled to a progress payment presumably on or after the reference date. The claimant must state the amount of the progress payment claimed5 and, in addition, may include in the claimed amount, two other amounts, one being pursuant to s 27(2A) of the Act and the other is a contractual amount pursuant to s 13(3)(a). This contractual amount would, presumably, allow the claimant to seek a payment of retention monies due for release under the contract as against a claim for work carried out. This would clearly avoid any dispute about the status of retention monies as regards whether they could be ordered to be paid in an adjudication determination.

On the other hand, by virtue of the definition of the claimed amount in s 2 of the SOP Act, it would necessarily mean that the payment claim could be served in respect of the whole or part of the progress payment that is unpaid on the due date for progress payment thereby accruing interest under s 8(5). Hence, service of the payment claim appears to be after the due date of the progress payment and not after the date of entitlement of progress payment as in the NSW Act. Further, as highlighted above, the absence of an express provision for the claimant to claim monies retained pursuant to a contract in the SOP Act could lead to a dispute as regards whether the adjudicator would have the necessary jurisdiction to decide on it as an adjudicated amount.

(3) Remedies
The three remedies of lien, court action and suspension are prescribed in the NSW Act as pre-adjudication remedies for the claimants to use against the respondents, presumably with the intention to induce payment and avoid adjudication if possible. These are not found in the SOP Act as pre-adjudication remedies but rather limited to post-adjudication remedies.

The said remedies available are:

1 at due date of progress payment if it is not paid, lien over unfixed plant or materials under ss 11(3), (4) and (5);

2 at due date of progress payment and the respondent is liable to pay the claimed amount because of failure to provide a payment schedule if there is a failure to pay the whole or any part of the claimed amount:
(a) to recover as a debt in court - s 15(2)(a)(i);

(b) to serve a notice of suspension - s 15(2)(b) followed by suspension under s 27;

3 at due date of progress payment and the respondent has provided a payment schedule if there is a failure to pay the whole or any part of the scheduled amount:
(a) to recover as a debt in court - s 16(2)(a)(i);

(b) to serve a notice of suspension - s 16(2)(b) followed by suspension under s 27.

Post-commencement of adjudication stage
There are several provisions that the SOP Act has provided which the NSW Act has not. These are set out below.
(1) Adjudication process
There are four areas selected for discussion here. They are set out below.
1 By s 16(5), legal representation is allowed at the conference called by the adjudicator, if any.

2 By ss 18 and 19, an adjudication review process is made available but only to the respondent.

3 By s 33, there is an express provision for confidentiality of adjudication.

4 By s 34, the SOP Act expanded on the similar provision in the NSW Act to provide for the relationship between the conduct of statutory adjudication vis-à-vis the conduct of dispute resolution methods agreed by parties.
(2) Remedies
The SOP Act has an additional remedy of direct payment to be made by a principal under s 24. Thus, in a sub-contract situation where the claimant is the sub-contractor, the respondent is the main contractor and the principal is the proprietor, the proprietor, in order to avoid a suspension of the works by the sub-contractor that may possibly delay the completion of the contract, may choose to make a direct payment to the sub-contractor of the unpaid adjudicated amount thereby terminating the sub-contractor's right to suspend works.
(3) Regulation of adjudicators
Three areas of interest are examined here, namely, the criteria for eligibility for registration as an adjudicator, the conduct of adjudicators in the adjudication process, and their entitlement to fees.
(a) Criteria for eligibility
The details are to be found in the regulations rather than in the Act. These are set out below.

Building and Construction Industry Security of Payment Regulations 2005

Eligibility criteria for adjudicators
Section 11.-
(1) A person is eligible to be on the register of adjudicators established under section 28(4)(a) of the Act if -
(a) the person possesses such degree or diploma in architecture, building studies, engineering, environmental studies, law, planning, real estate or urban design, or such other qualification, as may be recognised by the authorised nominating body; and

(b) the person has working experience of at least 10 years in, or relating to, the building and construction industry in Singapore, and has successfully completed the pre-qualification assessment and training course conducted by the authorised nominating body.

(2) For the purposes of section 29 (2) of the Act, a person is not eligible to be an adjudicator in relation to a contract if the person is related to a party to the contract in the following manner:
(a) the person is an employee or a partner of the party, or where the party is a corporation, the person is a director or a shareholder of the corporation;

(b) the person is an employee, a director, a partner or a shareholder of any corporation which owns or is owned by the party;

(d) the person has assisted the party to prepare any document for, or has provided any advice to, the party in relation to the contract.

(3) In paragraph (2) -
"corporation" has the same meaning as in section 4 (1) of the Companies Act (Cap. 50);
"parent" includes a step-parent or an adoptive parent;
"sibling" means a brother or sister, and includes a step-brother or step-sister or an adopted brother or sister.
(b) Conduct of adjudication
The regulation of the adjudicator's conduct is by both the SOP Act and the rules of the authorised nominating body. Singapore's sole authorised nominating body, the Singapore Mediation Centre, has published the Adjudicator Code of Conduct.
Section 16(3)

An adjudicator shall -
(a) act independently, impartially and in a timely manner;

(b) avoid incurring unnecessary expense; and

Building and Construction Industry Security of Payment Regulations 2005

Costs of adjudication proceedings
12. For the purposes of section 30 (1) of the Act -
(a) the fee payable to an authorised nominating body shall not exceed -
(i) $500 for each adjudication application; and

(ii) $1,000 for each adjudication review application; and

(b) the fee payable to an adjudicator (including a review adjudicator or a panel of review adjudicators) shall be computed on the basis of a rate not exceeding $2,000 per day or $250 per hour, subject to -
(i) where the claimed amount exceeds $20,000, a maximum of 10% of the claimed amount; or

(ii) in any other case, a maximum of $2,000.

Tiong Seng's Case - A Case of Adjudicating Final Payment
In Tiong Seng Contractors (Pte) Ltd v Chuan Lim Construction Pte Ltd [2007] SGHC 142, [2007] 4 SLR 364, the High Court was asked to determine whether the adjudicator appointed under the SOP Act had jurisdiction to determine a payment claim dispute based on a final claim. It being the first case under the Act, the learned Judge highlighted the fact in her judgment:

1 These proceedings raised an important and unprecedented point of law, viz, does a final progress claim come under the purview of the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) for purposes of adjudication?

In her judgment, the learned Judge had to consider the position in New South Wales as the Singapore Act was modelled after the NSW Act of the same name. She was asked to consider the decision of Jemzone. Having examined the differences above between the two Acts, it is not difficult to appreciate why the learned Judge did not adopt the decision of the NSW case.

20 Indeed, the above extract appears to be in alignment with the holding in Jemzone Pty Ltd v Trytan Pty Ltd [2002] NSWSC 395 ('Jemzone') which the plaintiff relied heavily on, in which Austin J held (at [37]) that the NSW Act (as it applied then) did not extend to claims for final payment:

'The definition of "progress payment" is unhelpful, because s 8 confers an entitlement to payment only for a "progress payment", without further defining or explaining those words. In my opinion the words "progress payment" when used in s 8 and other parts of the Act should therefore be given the meaning that they have under the construction contract. That accords with the structure of the Act itself, which generally leaves it to the construction contract to define the rights of the parties but makes "default provisions" to fill in the contractual gaps (see Second Reading Speech, at 1013). It also accords with the stated object of the Act. If the Act was intended to apply in the case of the final payment on practical completion, it would have been a simple matter for the drafter of the statement of the object of the Act in s 3(1) to refer to the entitlement to receive all payments due under the construction contract, rather than only "specified progress payment". The Minister's concern with the cash-flow of subcontractors (Second Reading Speech, at 1012 and 1013) also suggests that attention was focused on progress payments rather than the final balancing of account between the contracting parties.'

The learned Judge responded in paragraphs 44 and 45 of her judgment. These are set out below.

44 I am of the view that Austin J's holding in Jemzone ([20] supra) loses its significance once we appreciate that s 8 of the NSW Act (as it then was) did not define or explain the term 'progress payment'. Amidst such a statutory 'clean slate', it made eminent sense for Austin J not to pre-empt the legislature by judicially defining 'progress payments', but to simply attribute to the term the meaning that the words had under each individual construction contract. In contrast to the NSW Act (as it then was), s 2 of our current version of the Act unambiguously defines 'progress payments' 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' - a definition which leans towards the adjudicatory ambit of the Act.
45 Moreover, the NSW legislature's response to Jemzone constituted by its subsequent amendment of the definition of 'progress payment' to specifically include 'final payments', 'a single or one-off payment' or 'a payment that is based on an event or date' unequivocally suggests that the NSW Act (our primary predecessor) was intended to extend to the adjudication of 'final' payments, which lends further credence to my preferred broader interpretation.

However, the learned Judge had also considered the literal and purposive interpretation of the Act as well as policy implications.

Literal interpretation

27 Looking at the structure and wording of the provision, it appears that an exclusion of 'final payments' from the ambit of the Act can only be justified by express wording to that effect. It would not suffice to infer a legislative intention to exclude simply on the basis that 'final payments' were not included in a non-exhaustive supplementary definition, ostensibly provided for clarification. If the Legislature had intended to exclude final claims from the adjudicatory ambit of the Act, it could have clearly included a proviso or provision to that effect. In the absence of such express exclusion, the primary broad-ranging definition in the main limb must be determinative.

28 In addition, a plain reading of 'a payment that is based on an event or a date' or a 'single or one-off payment' clearly encompasses final payments. Such a conclusion is vindicated by the fact that the Act at no time makes any distinction between 'final claims' and 'non-final claims'. Implying such a distinction from the supplementary limb would severely impair the protection afforded by the Act, as it would create a carte blanche for contractors to renege on the final stages of payment, which would have an equally deleterious effect on cash flow affecting other ongoing construction projects.

Purposive construction

33 … it appears that the Act is primarily directed at safeguarding the continued financial viability of contractors who are victims of payment delays or disputes made in bad faith perpetuated by upstream contracting parties. From this perspective, it makes no sense to draw an artificial distinction between allegedly 'final' and 'non-final' payments, as the withholding of either would create the exact same downstream ripple effect intended to be 'deterred and weeded out' by the Act.

36 These compelling considerations make eminent sense in view of the legislative intent and the structure of the Act as a whole. Final payments triggered by the issue of a completion certificate undeniably fall within the definition of 'a payment that is based on an event or a date'. To exclude such 'final' payments on the sole basis of their 'finality' would be to infer an illusory distinction unjustified by the clear and unambiguous wording of the Act.

Policy implications

43 Whilst a 'final' payment claim is arguably subject to less pressing timelines than interim 'progress payments', such a perspective appears to be premised on the assumption of discrete and independent stand-alone construction projects, which hardly reflects commercial reality these days. The truth is that contractors undertake a multitude of construction projects for which a stoppage of cash flow on one will undoubtedly have an adverse effect on another. Because of the interwoven nature of construction contracts (and not discrete construction projects), the distinction between the repercussions of delays in payment claims, whether final or non-final, is irrelevant. The construction industry cannot allow a semantic narrow definition of 'progress payments' to impair the financial protection afforded by the Act.

46 Third, the lack of any corresponding inclusion of 'final payments' within the supplementary limb definition of 'progress payments' is outweighed by a whole host of literal, purposive and policy considerations already discussed above. A comparative review of predecessor legislation is merely a factor to take into account and should not be allowed to hamper the overriding task of the court which is to adopt an interpretation consistent with the spirit and intent of the Act. As previously discussed, policy objectives are overwhelmingly in favour of bringing "final" payments within the ambit of the Act and are more than justified by literal and purposive interpretations of the clear and unambiguous statutory wording within the broader framework of the Act. Nor do parliamentary debates suggest otherwise.

In conclusion, the plaintiff's application was dismissed. Accordingly, the SOP Act extends to final claims and this was achieved not by way of an amendment of the Act but by way of judicial interpretation.

Conclusion

52 Having regard to the clear and unambiguous definition of 'progress payments' read in the context of the objectives sought to be achieved by the Act, I am of the view that the ambit of adjudication under the Act should extend to both 'final' and 'non-final' payments.

Observations
The significant parts of the judgment of Tiong Seng have been reproduced to show clearly the approach taken by the Courts to implement the declared purpose of the SOP Act that is gathered from the speeches in Parliament. It has also set the direction in not adopting cases from NSW that interpreted the Act of the same name with the SOP Act even though it is known and accepted that the SOP Act was modelled after the NSW Act. For the reason given by the learned Judge and the analysis given in this article, it is not difficult to understand and accept why the Singapore Courts could not and should not adopt the NSW cases that have interpreted the NSW Act.

Dr Philip Chan
National University of Singapore
E-mail: bdgccf@nus.edu.sg

Notes
1 This paper was first presented at the Institute of Arbitrators and Mediators of Australia (IAMA) on 2 July 2008 in Sydney with modifications for publication here. The presented paper also bore a different title.

2 See s 8 of the NSW Act.

3 See s 11(1) of the NSW Act.

4 See s 14(4) of the NSW Act.

5 See s 13(2)(b) of the NSW Act.