NO GENERAL RIGHT TO SUSPEND WORK FOR NON-PAYMENT
In the recent decision of LBE Engineering Pte Ltd v Double S Construction Pte Ltd [2022] SGHC 92, the Court re-iterated that in general, a contractor does not have the right to suspend work for non-payment unless this has been expressly provided for in the parties’ contract.
Brief facts. The plaintiff-respondent was engaged by the defendant-appellant to carry out some construction work ([2]). In gist, the dispute between the parties arose when the defendant did not certify the plaintiff’s fifth progress payment claim on the ground that it was submitted a day late. The plaintiff notified the defendant that they would stop work if the defendant did not certify their progress claim and pay them. As the defendant did not make payment, the plaintiff stopped work. ([5] – [6]).
Thereafter, the plaintiff sent a final progress claim, which the defendant refused to pay. The plaintiff then commenced a suit against the defendant claiming for alleged outstanding amounts. The defendant counterclaimed against the plaintiff for damages on the basis that the defendant had to engage a replacement contractor to complete the outstanding works due to the plaintiff’s wrongful termination of the contract ([7]).
At first instance, the district judge found that the plaintiff was entitled to hold the defendant in breach of contract and to stop work and allowed the plaintiff’s claim. The defendant appealed. ([8]).
The main issue on appeal. The main issue on appeal was whether the plaintiff was entitled to treat the defendant’s non-payment of sums owed under the progress claims as amounting to a repudiation of the contract, such that the plaintiff was entitled to stop work ([11]).
The law. Referring to the cases of Jia Min Building Cosntruction Pte Ltd v Ann Lee Pte Ltd [2004] SGHC 107 (“Jia Min”), Diamond Glass Enterprise Pte Ltd v Zhong Kai Construction Co Pte Ltd [2021] 2 SLR 510 and Republic Airconditioning (S) Pte Ltd v Shinsung Eng Co Ltd (Singapore Branch) [2012] 2 SLR 601, Justice Lee Seiu Kin held that in general, there is no right for a sub-contractor to suspend work for non-payment unless this has been expressly provided for in the parties’ contract ([12] – [21]).
Lee J, agreeing with VK Rajah JC (as he then was) in Jia Min, stated that this position in law serves a valuable purpose: if such a right is recognised, it could cause chaos in the construction industry as contractors may attempt to suspend, or in fact suspend, works instead of adjudicating their disputes, which would have severe consequences on the projects in question. We set out [55] – [57] Jia Min (as cited in Lee J’s judgment) below:
“55 It appears to be settled law that a contractor/sub-contractor has no general right at common law to suspend work unless this is expressly agreed upon. This is so even if payment is wrongly withheld: see Lubenham Fidelities and Investments Co Ltd v South Pembrokeshire District Council (1986) 33 BLR 46, per May LJ at 55:
Whatever be the cause of the under-valuation, the proper remedy available to the contractor is, in our opinion, to request the architect to make the appropriate adjustment in another certificate, or if he declines to do so, to take the dispute to arbitration … [emphasis added]
56 This view is echoed in Halsbury’s Laws of Singapore, vol 2, (LexisNexis Singapore, 2003 Reissue) at [30.321] (see also Keating on Building Contracts, (7th Ed, 2001) at para 6-96). Hudson’s Building and Engineering Contracts, vol 1, (11th Ed, 1995) at para 4-223 states:
[I]t seems clear that in England and the Commonwealth there is recognised right to suspend work, or indeed of payment otherwise due upon a breach by the other party (although in the case of payment, as has been seen … legitimate deduction for damage previously suffered or other valid set-offs will, in the absence of express provision, be permitted from sums otherwise due). [emphasis added]
This passage appears to support, at first blush, the contrary position. It is, however, amply evident that this passage has endured an editorial mishap, for at para 4-224, it is stated:
[I]t is no accident that the English and Commonwealth courts have consistently refused to imply a right to suspend work (or of non-payment by the owner) upon a breach of contract.
57 There appear to be strong grounds for denying such a right. The existence of such a right could create chaos within the building industry if contractors were to muscle their way through disputes with threats or actual acts of suspension instead of having their disputes adjudicated. Projects could be held to ransom with severe consequences. Furthermore, it would be incorrect in principle to imply in what is commonly viewed as “an entire contract for the sale of goods and work and labour for a lump sum payable by instalments”, a right to break up performance into segments in the absence of any specific and express contractual agreement.”
(emphasis in Jia Min in italics; emphasis added by Lee J in the judgment in bold)
While this is hornbook law, it is nonetheless important to bear this in mind. Suspension of work is a drastic step to take, and contractors would do well to carefully consider if there are other options / recourse available.
No persistent delays. In this regard, persistent delays in payment may possibly amount to a repudiation of contract. However, this ground is usually not so easy to establish. Lee J referred to the decision of Zhong Kai Construction Co Pte Ltd v Diamond Glass Enterprise Pte Ltd [2021] SGHC 277, where the court had found that there was no persistent course of payment delays justifying the defendant’s repudiation because:
The prior progress payment claims were not fully rejected, but only had been certified for lower sums; and
The plaintiff had in fact substantially paid the amounts that had been certified.
On the facts of the case, Lee J found that there was no persistent course of delays or protracted delays in payment of a substantial sum that could amount to a repudiation ([22]). Given this finding, Lee J found that the plaintiff did not have the right to stop work and had hence wrongfully terminated the contract ([23]). This also meant that the defendant’s counterclaim for damages arising from the plaintiff’s wrongful termination succeeded ([23]).
How to deal with non-payment of progress claims? What, then, is the solution to non-payment of progress claims? The answer is given by Lee J in His Honour’s decision at [21]: “… The proper thing to do, if there was a dispute between the main contractor and sub-contractor over payment, would be to have the disputed sums adjudicated under the SOPA which provides a legislative framework to expedite the process by which a contractor may receive payment, without altering the substantive rights of the parties under the contract”
We agree. When there are disputes over progress payments, going for adjudication under the Building and Construction Industry Security of Payment Act 2004 is a quick and low-cost method of resolving such disputes.
Once an adjudication determination has been issued in favour of the claimant, the claimant will have many ways to enforce the adjudication determination. This includes the statutory right to suspend work if payment of the adjudicated amount is not made. This is set out in s. 26 of the Building and Construction Industry Security of Payment Act 2004, though we highlight it is important to bear in mind the requirements set out therein.
Hence, if there are payment disputes over interim progress payments during the course of a construction project, contractors should consider resolving such disputes by having recourse to options such as statutory adjudication. Suspending works should not be a step that is lightly taken, especially if the contract in question contains no provisions that allow the contractor to suspend works for non-payment.
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