ORION-ONE V DONG CHENG: WHETHER PAYMENT CLAIM CAN BE VALIDLY SERVED AFTER TERMINATION
In the recent decision of Orion-One Residential Pte Ltd v Dong Cheng Construction Pte Ltd and another appeal [2020] SGCA 121 (“OR v DC”), the Court of Appeal re-iterated that whether a payment claim can be validly served after termination of contract under the Building and Construction Industry Security of Payment Act (“SOPA”) depends on the terms of the relevant contract. In doing so, the Court of Appeal also highlighted that parties should carefully consider whether there is utility in pursing adjudication for a payment claim served long after termination of the relevant contract.
Salient facts. In brief, Orion-One Residential Pte Ltd (“Orion”) engaged Dong Cheng Construction Pte Ltd (“Dong Cheng”) as the main contractor for the project known as “Residential Flat Development at Lot 06838M MK 17 at 6 Jalan Ampas” (the “Project”) ([6] – [7] OR v DC).
The contract between Orion and Dong Cheng (the “Contract”) incorporated the Real Estate Developers’ Association of Singapore Design and Build Conditions of Main Contract (3rd Ed, July 2013) (“REDAS Conditions”) and the Parties subsequently entered into an agreement to vary the terms of the Contract (the “Supplementary Agreement”) ([8] – [10] OR v DC).
On 2 March 2017, Orion terminated Dong Cheng’s employment as the main contractor pursuant to Cl. 2.5 of the Supplementary Agreement ([12] OR v DC).
More than two years later, Dong Cheng lodged a Payment Claim 25, and commenced adjudication based on the payment claim ([15] – [16] OR v DC). The adjudicator found that Dong Cheng was entitled to commence adjudication and awarded Dong Cheng the sum of $1,981,579.50 ([16] OR v DC).
Orion applied to set aside. Orion applied to set aside the adjudication determination. On appeal, Orion’s arguments were that ([21] OR v DC):
1. As Dong Cheng’s employment was terminated pursuant to Cl. 2.5 of the Supplementary Agreement, Cl. 30.3 of the REDAS Conditions (which was relied upon by Dong Cheng) did not apply, and hence Dong Cheng was not entitled to submit a payment claim.
2. Alternatively, Cl. 30.3 did not preserve the Employer’s Representative role in certifying payment claims.
Operative termination provision. The Court of Appeal found that as Orion had terminated Dong Cheng pursuant to Cl. 2.5 of the Supplementary Agreement, Cl. 30.3 of REDAS Conditions did not apply as it only applies “[i]n the event of the termination of the employment of [Dong Cheng] under clause 30.2” ([25] – [31] OR v DC).
This is significant as this led the Court of Appeal to find that “… Dong Cheng’s reliance on cl 30.3 as the basis of its entitlement to serve PC 25 was entirely misplaced” ([31] OR v DC).
The Court of Appeal emphasized at [48] OR v DC that the “… amendments made to ss 2 and 4(2)(c) of the SOPA simply mean that the SOPA can in principle apply to progress payment claims served post-termination… This is subject always to any terms of the contract which provide to the contrary. In this case, as we found above, the terms of the Contract did not entitle Dong Cheng to serve a payment claim after the termination of its employment.”
As such, OR v DC makes clear that whether a party is entitled to serve a payment claim post-termination depends on the contract itself. If the contract does not entitle a party to do so, SOPA does not create a separate right for the party to lodge a payment claim.
Cl. 30.3. The Court of Appeal stated that in any event, even if Cl. 30.3 of the REDAS Conditions was applicable, it would not have entitled Dong Cheng to serve PC25 ([32] OR v DC). This is because:
1. Firstly, Cl. 30.3 requires as a precondition for payment that all costs incurred by the employer as the result of the termination to be ascertained. This precondition was not met as, among others, there was (at the time of the appeal) ongoing arbitration proceedings in which Orion had counterclaimed against Dong Cheng for liquidated damages (see [32] – [37] OR v DC).
2. Secondly, and “more fundamentally, cl. 30.3 was not concerned with progress payments. Instead, it was intended to provide for the final settlement of accounts between the contractor and employer in the event that the contractor is terminated for breach.” Hence, as payments under Cl. 30.3 REDAS Conditions is not a progress payment, it would not fall within the ambit of SOPA. (see [32] read with [38] – [46] OR v DC).
Futility of applying for adjudication. It is noteworthy that the Court of Appeal emphasized in the judgment that “… irrespective of the legal position on the relevant issues … it made no commercial sense for Dong Cheng to serve PC 25 and then apply for adjudication of PC 25… In our view, Dong Cheng’s decision to serve PC 25 and to apply for adjudication of PC 25 only served to introduce a further layer of unnecessary legal costs, with no benefit whatsoever to either party.” ([52] OR v DC).
The Court of Appeal also pointed out at [53] OR v DC that as an adjudication determination only has temporary finality, “… the parties’ rights and obligations are conclusively and finally determined in substantive proceedings conducted after the project has been completed”, and that parties should therefore “… conduct a proper cost-benefit analysis before deciding to pursue adjudication under the SOPA regime…”
We agree with the Court of Appeal’s observations. While an adjudication of disputes under SOPA is a speedy and low-cost means of resolving differences between the parties, it does not always mean that proceeding to adjudication is the most appropriate means of dispute resolution in all circumstances.
Contract matters. As the Court of Appeal stated in the very first paragraph of OR v DC, the key issue in OR v DC has been dealt with previously in earlier decisions. It is clear from those earlier decisions, and from OR v DC itself, that the issue of whether a payment claim can be validly served after termination hinges on the terms of the particular contract.
We end off by noting that the Court of Appeal stated at [51] OR v DC that s. 10(2) of the current SOPA and s. 10(4) of the pre-2018 SOPA do not assist a contractor to serve any progress payment claims if there is no contractual entitlement to do so, before addressing the futility of Dong Cheng in applying for adjudication at [52] – [53] OR v DC.
We therefore pose the following question for readers to mull over. Does OR v DC suggest that if the contract clearly specifies that no payment claims are to be served after a “final payment claim”, then no further payment claims can be served under SOPA since the SOPA regime “ordinarily operates while a project is underway and the contractor requires payment on a more expedited basis”?
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