Finally, finality in Final Payment under the Building and Construction Industry
Security of Payment Act.
The Singapore High Court in the case of Tiong Seng Contractors (Pte) Ltd v Chuan Lim Construction
Pte Ltd [2007] SGHC 142, has finally laid to rest the ambiguity surrounding the issue of whether “final
payment” claims comes under the purview of the Building and Construction Industry Security of
Payment Act (“SOP Act”). After a comprehensive review of the SOP Act including the New South
Wales SOP Act (“NSW Act”), policy considerations and parliamentary debates, it decided that the
definition of “progress payments” under the SOP Act encompasses both “final” and “non-final”
payment claims.
In this case, Chuan Lim, the defendant, was engaged to provide earthworks to Tiong Seng, the
plaintiff. After earthworks had commenced, the defendant issued a Final Claim on 25 January 2007
and subsequently a Progress Claim No. 10 on 26 February 2007 for the unpaid balance of
S$270,602.09. The defendant submitted Progress Claim no. 10 for adjudication under the SOP Act.
The Adjudicator found that the defendant was entitled to S$182,542.44 inclusive of GST, 60% of the
adjudicator’s fee and the adjudication fee. On 8 May 2007, the defendant served a statutory demand
under the Companies Act on the plaintiff. The plaintiff responded by filing an Originating Summons to
set aside the adjudication determination on the ground that SOP Act does not apply to “final claims”.
As required under the Rules of Court, the plaintiff had to make payment of S$182,542.44 to the
Accountant-General as security.
The only issue which the Court was asked to decide was whether the SOP Act extends to “final
claims”. The starting point was the definition of “progress payment” found in the SOP Act which states
“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, and includes - (a) a single or one-off payment; or (b) a payment
that is based on an event or a date.”
The Court noted that there were differing interpretations of “final payments” in two adjudication
determinations: AU v AV [2006] SGSOP 9 determined that final payments were included under the
SOP Act, whereas the other case of BC v BD [2006] SGSOP 10 in the very same year excluded “final
payments” under the SOP Act. Interestingly, the “Information Kit” of the Building and Construction
Authority (“BCA”) stated that progress payment claims under the SOP Act includes “final payment”.
In resolving the conflicting position, the Court preferred the broader interpretation, in favour of the
defendant. In deciding that progress payment includes “final claims” the Court justified its decision by
adopting the literal interpretation and purposive construction, while considering the policy implications
of these interpretations.
On a literal interpretation of the definition of ‘progress payment”, the Court held that the main limb
i.e. “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,…” was the operative definition and the rest of the definition i.e.
”…and includes - (a) a single or one-off payment; or (b) a payment that is based on an event or a
date.” were merely non exhaustive supplemental limbs supported by the word “includes”. Therefore,
the Court ruled that any exclusion of “final payment” can only be justified by express wording to that
effect. The Court added that the supplemental limb encompasses final payments on a plain reading.
To construe otherwise would “… create a carte blanche for contractors to renege on the final stages of
payment …”.
36 Carpenter Street, Singapore 059915
Tel: (65) 6323-8383 • Fax: (65) 6323-8282 • Website: http://www.cnplaw.com
We do not accept service of court documents by fax
Singapore •
Beijing
•
Hong Kong
Turning to the purposive construction, the Court noted the raison d’etre of the SOP Act i.e.
safeguarding the continued financial viability of contractors who are victims of payment delays or
disputes made in bad faith perpetuated by upstream contracting parties. Excluding “final payments”
from the Act would defeat the legislative purpose of preventing unfair delays in payment. It makes no
sense to draw an artificial distinction between “final” and “non-final” payment as withholding payment
would create the same downstream ripple effect.
For completeness, the Court examined the policy implications or risks of such an interpretation.
Firstly, the availability of other proper modes of dispute resolution such as arbitration or courts which is
incidentally preempted by section 34 of the SOP Act is not determinative of the adjudicatory scope or
ambit of the SOP Act. If the Court adopts the plaintiff’s position, it would undermine the legislative
intent of protecting subcontractors from unfair delays in payment, resulting in potentially adverse
downstream effects on other projects. The Court also dismissed the concern that delay in final
payment are less likely to threaten the delivery and completion of the work and does not have the
same pressure of timelines as with progress payments on the ground that delay in payment in one
project would adversely affect another project given the multiple construction projects undertaken by
contractors these days. Another concern dismissed by the Court was that final accounts encompass
substantial disputes of fact not suitable for adjudication on the ground that substantial disputes of fact
are already prevalent and inherent in progress payment claims.
This decision brings the law in line with the NSW Act amended in November 2003 which reversed the
decision of Austin J in the case of Jemzone Pty v. Trytan Pty Ltd [2002] NSWSC 395 deciding that
“final payment” was excluded from the NSW Act. In dismissing the plaintiff’s reliance on the Jemzone’s
case, the Court highlighted the difference in the definition of “progress payment” between the preamended NSW Act and the SOP Act, that section 8 of the NSW Act did not define or explain the term
“progress payment” unlike the SOP Act which provides an explanatory main limb followed by a nonexhaustive supplemental limb.
Main and subcontractors will certainly welcome this landmark decision which has given rise to a fair
amount of arguments and uncertainty in the construction industry for several years on whether to seek
adjudication on “final payment” claims.
Jimmy Yap Tuck Kong (Adjudicator) & Luo Ling Ling
Colin Ng & Partners.
36 Carpenter Street, Singapore 059915
Tel: (65) 6323-8383 • Fax: (65) 6323-8282 • Website: http://www.cnplaw.com
We do not accept service of court documents by fax
Singapore •
Beijing
•
Hong Kong