10 February, 2016
The High Court clarified that it is not possible for a claimant contractor to assign its rights under the Building and Construction Industry Security of Payment Act (“SOP Act”) to a third party. However, if an adjudication determination were rendered in its favour, the claimant contractor would only be able to enforce it if the trade debt were re- assigned to it. Alternatively, the assignee could apply for leave to enforce the adjudication determination pursuant to section 27 of the SOP Act
— Thian Sung Construction Pte Ltd v International Elements Pte Ltd [2015] SGHC 319 (Singapore, High Court, 17 December 2015)
Facts
The Plaintiff, who was the main contractor for a construction project at Ardmore Park, engaged the Defendant as a sub-contractor for the supply and delivery of stone works for the project. The Defendant entered into a factoring arrangement (“Factoring Agreement”) with United Overseas Bank (“UOB”) by which the Defendant obtained credit facilities from UOB in exchange for allowing its debts, including its trade debts, to be assigned to UOB.
The Plaintiff was notified of the assignment and paid UOB under the Defendant’s invoices for progress claims on several occasions. As the Plaintiff failed to make payment for one of the Defendant’s progress claims, the Defendant commenced adjudication proceedings against the Plaintiff and obtained an adjudication determination in its favour.
The Plaintiff then sought to set aside the adjudication determination on the basis that the adjudicator had no jurisdiction to adjudicate the matter. The Plaintiff argued that the Defendant had lost its right to make a claim under the SOP Act the moment it assigned its trade debts and that since only UOB had the right to make a payment claim and adjudication application, the progress claim served by the Defendant was in breach of section 10(1) of the SOP Act.
The High Court’s Decision
The High Court accepted the Defendant’s argument that the right to avail oneself to the regime under the SOP Act was a personal one which was incapable of assignment for the following reasons (at [8] and [9]):
- On the proper construction of section 5 (read with sections 2 and 10(1)) of the SOP Act, which provides that “[a]ny person who has carried out any construction work, or supplied any goods or services under a contract, may serve a payment claim”, only a person who had actually carried out construction work or supplied goods or services may serve a payment claim;
- Such an interpretation would be in line with the underlying objective of the SOP Act of facilitating cash flow in the construction industry; and
- Aspects of the dispute resolution mechanism provided under the SOP Act did not allow for the participation of a third party assignee since such a person would not have provided any services nor supplied any goods for the purposes of the construction work.
The High Court then had to decide whether the Defendant had nevertheless, by way of the Factoring Agreement, divested itself of its rights under the SOP Act. In this respect, the High Court declined to follow the cases cited by the Plaintiff. Instead, the High Court held that whether the Defendant remained a claimant under section 5 of the SOP Act was a matter of statutory construction, with the objective of the SOP Act in mind. Given that the objective behind the SOP Act was to facilitate cash flow in the construction industry, the High Court held that allowing factoring agreements to disentitle a party from making payment claims would run counter to the legislative intent of the SOP Act (at [11]).
As for the enforcement of an adjudication determination, the High Court held that in situations like the present where the claimant assigned his debts under the Factoring Agreement, only the assignee would be entitled to apply for leave to enforce the adjudication determination under section 27(1) of the SOP Act which does not prescribe who may make such an application (at [13]). However, on the facts, as the trade debts had been re-assigned to the Defendant prior to the rendering of the adjudication determination, the High Court held that the Defendant had become entitled to enforce the adjudication determination (at [14]).
Our Comments / Analysis
Given that factoring agreements are common in the construction industry, claimant contractors would be relieved to know that when they assign their trade debts they would not lose their rights to submit a payment claim or commence adjudication proceedings under the SOP Act.
Nevertheless, claimant contractors should take note of the High Court’s observation that in such circumstances, the person seeking leave of court to enforce the adjudication determination as a judgment or order of court pursuant to section 27 of the SOP Act should be the assignee and not the claimant contractor. As explained by the High Court, due to the assignment the adjudicated amount would be payable to the assignee and not the claimant contractor so even if the claimant contractor obtained the leave of court to enforce the adjudication determination, the debtor would be entitled to set aside such leave on the grounds of the assignment.
For further information, please contact:
Christopher Chuah, Partner, WongParntership
christopher.chuah@wongpartnership.com