E-briefing: Are Claims Made After Termination Allowed under the SOP Act?

Reviewing Stargood Construction Pte Ltd v Shimizu Corp [2019] SGHC 261 (“Stargood”)

Introduction

1. The High Court’s decision in Stargood Construction Pte Ltd v Shimizu Corp [2019] SGHC 261 (“Stargood”) has clarified the difference between a contract which has ended and a contract which has been terminated.
2. This distinction has brought more certainty for contractors seeking payment for works done before termination under the Building and Construction Industry Security of Payment Act (the “SOP Act”).
3. The present case was distinguished from the Court of Appeal’s decision in Far East Square Pte Ltd v Yau Lee Construction (Singapore) Pte Ltd [2019] 2 SLR 189 (“Far East Square”), in which the Court of Appeal held that a contractor could not issue a payment claim and submit the said payment claim for adjudication after the contract was completed (once the architect issued the final certificate under the SIA Form of Contract).

Key Takeaways 

4. Key takeaways include the following:​​

• ​A contractor can submit a payment claim and apply for adjudication for works done prior to termination regardless as to whether (a) the contractor’s employment under the contract has been terminated; or (b) the entire contract has been terminated.
• There is a difference between a contract which has been completed (eg. in situations like that of Far East Square where the architect has issued the final certificate for the project) and a contract which has been terminated. A contractor would not be entitled to submit further payment claims (or apply for adjudication) in the former situation while it retains its statutory rights to submit further payment claims in the latter.

Background

5.    In Stargood, the plaintiff-subcontractor’s employment was terminated by the defendant-main contractor under the Sub-Contract. Thereafter, the plaintiff served payment claims for works done under the Sub-Contract and applied for adjudication for the said claim.
6. At the adjudication, the adjudicator relied on the Court of Appeal’s decision in Far East Square and found that the plaintiff was not entitled to issue a further payment claim against the defendant, after the plaintiff’s employment under the Sub-Contract was terminated.
7. This was because the plaintiff no longer had an entitlement to serve a payment claim as the defendant’s project director (as in Far East Square) became functus officio as regards his certifying function under the Sub-Contract after the plaintiff was terminated. Furthermore, there was no post-termination payment certification regime under the Sub-Contract.

The High Court’s Decision

8. Ruling in favour of the plaintiff, the High Court found that the plaintiff was entitled to file a payment claim as the defendant’s project director was not functus officio when the plaintiff’s employment was terminated.
9. The High Court found that Far East Square was not applicable to Stargood, as Far East Square was dealing with a situation where the contractor was completed. In contrast, Stargood was dealing with a situation where the plaintiff’s employment under the contract was terminated.
10. Further, the defendant’s notice of termination did not have the effect of terminating the entire Sub-Contract. There was also no provisions in the Sub-Contract that prohibited the plaintiff from serving claims after the plaintiff’s employment under the Sub-Contract had been terminated.
11. More importantly, the High Court stated that a contractor’s entitlement to progress payment for work done before termination was set out in s 5 of the SOP Act and supported by caselaw. As such, the entitlement under the SOP Act to progress payment for work done would survive the termination of the contract, regardless of whether the entire contract was terminated or where the contractor’s employment under the contract was terminated.
12. Consequently, the Plaintiff was entitled to serve its payment claims for work done before the termination of the contract, in accordance with the SOP Act.

Conclusion

13. The High Court’s decision is welcome for clarifying when a contractor is entitled to file a payment claim and seek adjudication. Moreover, the ruling would be a relief to contractors which have been terminated and seek adjudication for unpaid works prior to termination.
14. However, contractors that have been terminated must take note of the recent amendments to the SOP Act, and particularly to s 4 (2)(c)(i) of the SOP Act, where the SOP Act expressly does not apply to terminated contracts which contain provisions allowing a respondent to suspend progress payments to the claimant until a date or the occurrence of an event specified in the contract.
15. Lastly, as of the date of this article, Stargood is pending an appeal before the Court of Appeal. It remains to be seen as to whether the Court of Appeal will affirm the High Court’s decision. 

For further information, contact:

Tan Chau Yee

Partner, Eversheds Harry Elias

Head, Construction and Engineering

chauyeetan@eversheds-harryelias.com

+65 6361 9850

Justin Tan

Senior Associate, Eversheds Harry Elias

Construction and Engineering

justintan@eversheds-harryelias.com

+65 6361 9877