21 March, 2018
The Singapore Court of Appeal's recent decision in Audi Construction Pte Ltd v Kian Hiap Construction Pte Ltd [2018] SGCA 4 has addressed two broad issues for Singapore companies on their service obligations and the protection of their rights under the Building and Construction Industry Security of Payment Act. This decision has a significant impact on how parties deal with the service of a payment claim, and more importantly, the preparation of a payment response.
In the recent decision of Audi Construction Pte Ltd v Kian Hiap Construction Ptd Ltd [2018] SGCA 4 ("AC v KHC"), the Singapore Court of Appeal ("SGCA") addressed two main issues:
- How a party may serve a payment claim under the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) (the "SOPA") if the contract provide for service on a date that falls either on a Sunday or public holiday; and
- Whether a failure to file a payment response can constitute a waiver of a party's right to raise an objection to the adjudicator's jurisdiction or breach of mandatory provision.
In summary, the Court of Appeal decided that:
- If an obligation is to be performed on Sunday or a public holiday, that obligation may be performed the next day pursuant to the Interpretation Act (Cap 1, 2002 Rev Ed) ("IA"). In other words, serve the payment claim on Monday (or the next day in the case of a public holiday); and
- A failure to raise an objection at the earliest possible opportunity may amount to waiver of the right to raise an objection. By failing to provide a payment response, the Respondent had waived its right and/or was estopped from raising its objections concerning the service of the payment claim.
Service of payment claims under the SOPA
Section 10(2)(a) of the SOPA provides that a payment claim shall be served "at such time as specified in or determined in accordance with the terms of the contract". In AC v KHC, the relevant clause provided for service on the 20th calendar day of each month, which in this instance fell on a Sunday.
Audi Construction decided to serve the payment claim on Friday 18 November 2016, and to date the payment claim on 20 November 2016. Before the adjudicator, Kian Hiap Construction challenged the validity of the payment claim on the basis that it had not been filed on the 20th day of the month as the contract required.
The adjudicator rejected the argument and issued an adjudication determination in favour of Audi Construction. Kian Hiap Construction then successfully applied to set aside the adjudication determination on the basis that the payment claim had not been served on 20th day of the month as contractually stipulated.
On appeal, the SGCA held that service in this manner was valid under section 10(2)(a) of SOPA for two reasons. First, there was a good reason for Audi Construction to serve the payment claim on Friday – Kian Hiap Construction's offices were closed on Sunday. Second, even though the payment claim was served on 18 November 2016, Audi Construction had dated it 20 November 2016. This evinced an intention to comply with the relevant clause in the contract, and for the payment claim to be treated as being served on and operative from 20 November 2016.
The SGCA also took the opportunity to provide guidance for future cases on how these service obligations were to be performed.
The SGCA held that the provisions of the IA could apply such that if a payment claim was to be served on a Sunday or a public holiday, service may be performed on the next day. In other words, Audi Construction would have effected valid service if it had served the payment claim on the following Monday, 21 November 2016, regardless of whether the claim was dated 20 or 21 November 2016.
The practical impact of AC v KHC decision
For potential claimants, AC v KHC addresses and clarifies a common issue where contracts stipulate a fixed date for the submission of payment claims. Claimants no longer need to agonise over the date of service of payment claims, where such dates fall on Sundays or public holidays.
For potential respondents however, the SGCA's ruling requires greater care (and potentially legal input) when preparing the payment response.
First, the consequence of a failure to submit a payment response is arguably more severe now to the respondent. Before AC v KHC, it was still possible for respondents who failed to submit a payment response to avoid the drastic consequences under the SOPA if there was a successful jurisdictional challenge based on the invalidity of the payment claims. Indeed, such arguments were frequently the last bastion of hope for lawyers representing respondents who failed to submit the payment response in time or at all. With the SGCA's decision in AC v KHC, that option no longer appears to be available. Respondents who fail to submit a payment response within the stipulated timeframe or at all can now be taken to have waived jurisdictional objections on a defective payment claim.
Second, respondents should scrutinise the payment claim to ensure that (1) it complies with the statutory requirements of the SOP Act and (2) provisions of the Contract. More often than not, respondents who prepare their own payment response without legal input focus on addressing the substantive issues of entitlement and quantum for the items claimed in the payment claim. Jurisdictional challenges – for example the claimant's failure to comply with the mandatory statutory requirements of a payment claim – are commonly omitted or neglected in the payment response. These arguments can sometimes provide an additional or alternative ground to reject the payment claim. A failure now to include such grounds in the payment response may bar respondents from relying on these additional grounds subsequently in adjudication and in Court.
For further information, please contact:
Eugene Tam, Partner, Clyde & Co
eugene.tan@clydeco.com
