CAN YOU SUBMIT AN ADJUDICATION APPLICATION ON A PAYMENT CLAIM THAT WAS PRESENTED JUST BEFORE THE CONTRACT WAS TERMINATED?
In Builders Hub Pte Ltd v JP Nelson Equipment Pte Ltd [2023] SGHC 120, the adjudicator dismissed an adjudication application on the basis that there was no jurisdiction to hear the dispute as the contract was terminated. Dissatisfied, the claimant applied to set aside the adjudication determination. Teh Hwee Hwee JC set aside the Adjudication Determination and remitted it back to the adjudicator.
Key facts. The claimant is Builders Hub Pte Ltd (“BH”), and the defendant is JP Nelson Equipment Pte Ltd (“JP”) (at [2]). BH was awarded a contract (“Contract”) by JP which incorporated the REDAS Design and Build Conditions of Contract (3rd Ed, October 2010) (the “REDAS Conditions”) (at [3]).
The salient events are as follows (at [5] – [9]):
On 18 August 2022, BH served Payment Claim 40 (“PC 40”) on JP.
On 22 August 2022, BH sent a letter to JP alleging various repudiatory breaches of the Contract by JP.
On 25 August 2022, JP replied to BH’s letter, rebutting the allegations and accusing BH of committing several acts of repudiation in relation to the Contract.
On 26 August 2022, BH replied to say that it was accepting the alleged repudiatory breach of contract by JP.
On the same day, JP responded and purported to terminate BH’s employment for the Project under cl 30.2.2 of the REDAS Conditions by issuing a notice of termination under that clause.
BH sent a further letter stating that JP’s purported termination was “too late” as JP “cannot terminate a contract in the afternoon that has already come to an end in the morning” and “cannot rely on clauses in a contract that has already been repudiated”.
On 15 September 2022, JP served Payment Response (“PR 40”) in response to BH’s PC 40, asserting that BH owed JP a sum.
On 22 September 2022, BH made an adjudication application (“SOP/AA 164 of 2022”) in respect of PC 40 under s 13(1) of the Building and Construction Industry Security of Payment Act 2004 (2020 Rev Ed) (“SOPA”).
So, was BH precluded from applying for adjudication of PC 40 after 26 August 2022 (the “Date of Termination”), although PC 40 itself was validly served prior to the contractual termination event (at [27(a)])?
The effect of subsequent termination on the payment claim. Teh JC considered Far East Square Pte Ltd v Yau Lee Construction (Singapore) Pte Ltd [2019] 2 SLR 189, Shimizu Corp v Stargood Construction Pte Ltd [2020] 1 SLR 1338 (“Shimizu”) and Orion-One Residential Pte Ltd v Dong Cheng Construction Pte Ltd and another appeal [2021] 1 SLR 791 (at [39] – [42]), and distinguished them on the basis that “… these cases [do not] support a finding that an entitlement arising from a validly served pre-termination payment claim will be “lost”, negated or suspended upon the termination of the contract or the contractor’s employment, if the contract does not expressly provide for the contractor to be paid post-termination.” (at [42] - [43]; emphasis in original)
Instead, Teh JC cited Choi Peng Kum and another v Tan Poh Eng Construction Pte Ltd [2014] 1 SLR 1210, as referred to with approval by Shimizu, and was satisfied that “subsequent termination does not negate, suspend or otherwise affect a contractor’s right to apply for adjudication under the SOPA on the basis of a payment claim that has been validly served before that termination.” (at [45] – [49]; emphasis in original)
Teh JC found this consistent with the general principle that termination of a contract does not affect rights which have accrued before that termination (at [51]).
On the facts, it was not disputed that BH was entitled to serve PC 40, and that PC 40 was validly served (at [52]).
Therefore, Teh JC found that “the rights of BH which accrued from the valid service of PC 40 prior to the termination event will give rise to an entitlement to a progress payment that remains amenable to adjudication, unless the contract provides otherwise.” (at [52])
In other words, if you had validly served a payment claim before termination, termination in and of itself does not mean that you cannot serve a payment claim.
So, does it mean that you can always serve a payment claim after termination? No.
Basis of termination. As Teh JC stated, this depends on “whether the Contract provides for the negation or suspension of BH’s entitlement to the progress payment under PC 40 upon the occurrence of a termination event under the Contract.” (at [53])
In other words, it depends on the contract and the termination.
The parties differed on who terminated the Contract on 26 August 2022, and the nature of the termination (at [55]): BH took the position that BH terminated the contract at common law, while JP took the position that JP terminated BH’s employment under the REDAS Conditions.
Teh JC found that it was important what was the basis of termination (at [55]).
This is because Teh JC held that if cl 30.2 of the REDAS Conditions was engaged, then cl 30.3 would apply to suspend further payments; but if cl 30.2 was not engaged, then cl 30.3 would similarly not be engaged, and there was “no other provision in the Contract that would disentitle BH to the adjudication of, or the receipt of payment under, PC 40.” (at [57])
Clause 30 of the REDAS Conditions. Given its importance, we set out the key portions of cl 30 of the REDAS Conditions below (at [56]):
“30. TERMINATION BY EMPLOYER
…
30.2. Termination For Default
30.2.1. In the event that the Contractor
30.2.1.1. has wholly suspended the carrying out of the design or construction of the Works without justification, or
30.2.1.2. has failed to proceed with due diligence and expedition in the Works,
the Employer’s Representative may give Written notice to the Contractor requiring him to recommence the design or the construction of the Works or to proceed with due diligence and expedition in the Works.
30.2.2. If the Contractor commits any of the following:
30.2.2.1. fails to comply with the Employer’s Representative’s Written Notice under clause 30.2 within 28 days from the date of receipt of the same, or
30.2.2.2. abandons the Works, or
…
then, the Employer, may without prejudice to any other rights and remedies under the Contract (including the right to treat the Contract as repudiated under general law), give a Notice of Termination of the employment of the Contractor. Upon receipt of such Notice, the Contractor’s employment shall immediately terminate.
…
30.3. Effects of Termination for Default
In the event of the termination of the employment of the Contractor under clause 30.2,
30.3.1. the Employer shall not be liable to make any further payments to the Contractor until such time when the costs of the design, execution and completion of the incomplete Works, rectification costs for remedying any defects, liquidated damages for delay and all other costs incurred by the Employer as a result of the termination has been ascertained.”
As can be seen, it is a provision regulating termination for default. And cl 30.3.1 suspends payment upon termination under cl 30.2 until the occurrence of certain events.
Could BH terminate under cl 30.2? Therefore, given the facts of the case, Teh JC found that it was necessary to first decide if BH had validly terminated the contract at common law, because if it was valid, then the contract would have been terminated before JP terminated BH under cl 30.2 (at [58]).
So, the issue became whether BH was legally justified in terminating the Contract pursuant to one or more of the situations set out in RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd and another appeal [2007] 4 SLR(R) 413 (“RDC Concrete”) (at [54]; [59]).
Importantly, if BH’s purported termination was unjustified, then not only would BH itself be likely in breach of contract, but JP would be entitled to terminate BH’s employment under cl 30.2, which would have the effect of disentitling BH from making an adjudication application under cl 30.3.1 of the REDAS Conditions (see [61]).
So, the question is who “terminated” first? BH in accepting JP’s repudiatory breach? Or JP in terminating under cl 30.2?
Result. As alluded to earlier, Teh JC set aside the Adjudication Determination and remitted it back to the adjudicator to determine if BH could apply for adjudication: see [86].
“86 For the above reasons, I exercise my powers under ss 27(8)(a) and 27(8)(b) of the SOPA to set aside the Adjudication Determination and to remit it to the learned Adjudicator for his determination on whether cl 30.3 of the REDAS Conditions, which suspends further payments to BH, has any application in this case. If cl 30.3 applies, PC 40 would fall outside the ambit of the SOPA and SOP/AA 164 of 2022 should be dismissed on the basis that the learned Adjudicator has no jurisdiction. If, however, cl 30.3 is not engaged because the Contract had already been terminated by BH pursuant to its general contractual right to terminate the Contract for JP’s alleged repudiatory breaches, before JP futilely purported to terminate BH’s employment under cl 30.2.2 of the Contract, then PC 40 should be assessed on the merits.”
(emphasis in original)
Significance. Where does this leave us? It is clear that termination of a contract does not, in and of itself, necessarily mean that a claimant is disentitled from going for adjudication. It is also clear that whether a claimant is disentitled from going for adjudication turns on the terms of the contract itself.
What is important to note, however, is that this case stands for the proposition that a termination at common law may have the effect of falling outside the “contractual scheme” for termination, such that if a contractor’s employment is validly terminated at common law, it will not stop the contractor from proceeding to adjudication as the “contractual scheme” may not apply.
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