CONSTRUCTION LAW UPDATE

Audi Construction Pte Ltd v Kian Hiap Construction Pte Ltd 
[2018] SGCA 4

Introduction
 
In an earlier post on my personal website entitled “Of Sundays and Public Holidays”; I had covered the High Court’s decision of Audi Construction Pte Ltd v Kian Hiap Construction Pte Ltd [2017] SGHC 165 where the High Court decided that a payment claim can only be served on the date specified for service of a payment claim in the construction contract. This is so even if the specified date fell on a Sunday or Public Holiday.
 
The matter went before the Court of Appeal (“CA”) whose decision is reported in Audi Construction Pte Ltd v Kian Hiap Construction Pte Ltd [2018] SGCA 4. (“Audi CA”)
 
In this post I will discuss two important aspects of Audi CA which has an impact on the management of progress payments in construction contracts. Firstly, the CA’s decision on when payment claims can and should be served if the contractually specified date for service of payment claims falls on Sundays and Public Holidays. Secondly, the CA’s opinion on the consequences of a failure to provide a proper and valid payment response.

The Facts
 
The facts of this matter are straightforward. The construction contract stated that payment claims must be served on the “20th day of each calendar month”. However, 20th November 2016 fell on a Sunday and so the claimant decided to serve its payment claim (PC) earlier, on Friday 18th November 2016. Nevertheless, the claimant dated it’s the PC 20th November 2016.
 
The respondent did not provide a payment response (PR) and the claimant succeeded in obtaining an adjudication determination (AD) against the respondent. Subsequently, the respondent applied to the High Court to set aside the AD. One of the grounds relied on by the respondent was that the PC was invalid because it was not served on 20th November 2016.
 
As mentioned above, the High Court held that the PC was served on the wrong date and thus invalid. The AD was set aside. The claimant appealed to the CA. The CA reversed the High Court’s decision and upheld the AD.
 
Service of Payment Claim On Sundays & Public Holidays
 
The CA agreed with the High Court that contract required the payment claim to be served on 20th November 2016.  
 
However, the CA disagreed with the High Court’s conclusion that the PC was invalid.
 
The CA held that the PC was properly served for two reasons (i) the claimant had a good reason for serving the payment claim before 20th November 2016 as the respondent’s office was closed on Sunday, 20th November 2016; and (ii) there could not have been any confusion as to the PC’s operative date as it was dated 20th November 2016.  By serving the PC on 18th November 2016 but dating it 20th November 2016 the claimant had adopted a practical and sensible approach for complying with the parties’ contract.
 
Although it was not necessary to do so, the CA went on to provide its views on how parties should perform their obligations when faced with a similar predicament.
 
In this respect, the CA held that Section 50 (c) and Section 50 (b) of the Interpretation Act (IA) was applicable since “what is ultimately being given effect to” is a statutory obligation arising in Section 10 (2) (a) of the SOP Act requiring a payment claim to be served on the contractually stipulated date.  On this view, a payment claim could be validly served on the next working day if the contractually stipulated date for service of a payment claim fell on a Sunday or Public Holiday.
 
Applying this to the facts of this case, the PC would have been properly served if it had been served on Monday, 21 November 2016.
 
Effect Of Failure To Provide A Valid Payment Response
 
The effect of a failure to provide a valid payment response has been considered in the seminal CA decision in WY Steel Construction Pte Ltd v Osko Pte Ltd [2013] 3 SLR 380, (“WY Steel”). In WY Steel, the CA held that section 15(3) of the SOP Act operated to curtail the jurisdiction of the adjudicator and disallows the adjudicator from considering reasons for non-payment that were not raised or included in a payment response. A respondent who had failed to provide a payment response would be constrained to raising jurisdictional issues (including breaches of mandatory provisions of the SOP Act on the part of the claimant) and patent errors on the payment claim, which were the only matters the adjudicator could consider.
 
In Audi CA, the CA has further whittled away the defences available to a respondent who has failed to provide a payment response.
 
Applying the principles of waiver by election and equitable estoppel and taking into consideration the effect of section 15(3) of the SOP Act, the CA held that a respondent had a duty to raise all its objections to the payment claim, including objections as to the validity of the payment claim in its payment response.
 
A failure to raise such objections or to provide a payment response would be an “an unequivocal representation” by the respondent that it intended to forgo its’ objections.
 
Comments
 
From a holistic perspective, the decision in Audi CA is consonant with the objective of the SOP Act which is to promote cash flow in the construction industry. This is achieved by adopting a less dogmatic approach on the time for service of payment claim. At the same time, the respondent is placed with the burden of raising all of its objections in its payment response so as not to delay the process. It appears now that a respondent who has failed to issue a payment response is left with very limited options to defend an adjudication application
 
Practical lessons from the Audi CA decision: -
 
1. If the contractual date for service of a payment claim falls on a Sunday or a Public Holiday, the payment claim may be served on the next working day.
 
2. The provision of a valid payment response containing reasons for non-payment is imperative for a respondent. A respondent will be deemed to have unequivocally waived its rights to raise any objections that are not contained in the payment response. As such, the respondent must not only address the merits of the claim in the payment response, it must also include all other objections it may have to the payment claim, such as, an invalid service of the payment claim or a breach of the mandatory provisions of the SOP Act. Failure to provide a proper payment response will be costly to the respondent. It would be left with essentially one ground to defend an adjudication application namely that there are patent errors in the claim.
 
 
Tan Joo Seng
Director
Tyto LLC