In brief
2024 saw a number of significant rulings in Singapore that have provided clarity on issues such as the definition of completion for construction works and the limitation period for latent defects, as well as issues surrounding the application and interpretation of the Building and Construction Industry Security of Payment Act 2004 (“SOP Act“). As readers may know, the SOP Act is fundamentally a statutory regime to facilitate cash flow in the construction industry. For contractors, it is important to understand how the SOP Act may apply to protect their cashflow. For employers, an understanding of the SOP Act ensures that they will be vigilant to provide timely payment responses that correspond to payment claims that are received.
This article seeks to clarify the key principles and guidance provided by the court in these cases.
Requisite scope for completion of works
Given the prevalence of home renovation disputes, it has become a growing practice for consumers to avoid large up-front prepayments in renovation contracts and make payments progressively as each stage of work is completed. In most well-drafted construction contracts (including all major standard forms), there will always be a clear definition of “completion” and/or a mechanism for the architect/employer to certify that works have been completed. However, what happens if there is no such definition or mechanism?
The employer-homeowner found themselves in this position in Tid Plus Design Pte Ltd v. Kwek Seng Wee John [2024] SGMC 22 (see also Tid Plus Design Pte Ltd v. Kwek Seng Wee John [2024] SGHC 187). There, the renovation contract in question provided for milestone payments. There was a dispute over whether a set of “wet works” (which would have triggered a milestone payment) was completed. The contractor claimed for the milestone payment due for the “wet works,” but the employer-homeowner refused to pay, claiming that there were outstanding rectification works (which were part of the “wet works”) due to be completed by the contractor. The contractor refused to perform any further work and purported to terminate the renovation contract.
Therefore, the question before the court was whether, notwithstanding the defects, the “wet works” could be said to have been completed by the contractor (thereby triggering the progress payment). If so, the progress payment claimed by the contractor would be due. Otherwise, the contractor would be in breach for terminating the contract. In holding that the “wet works” were not completed, the court held as follows:
- The court endorsed the definition of “completion” in Chow Kok Fong, Construction Contracts Dictionary (Sweet & Maxwell, 2nd Ed, 2006), i.e., whether the “works are ready for use or completion with the exception of minor defects or outstanding works that do not detract from the enjoyment or utility of the facility.”
- This definition focuses on the works and does not require that the property be ready for use or occupation.
- There were undisputed serious defects in the waterproofing works, which were undeniably part of the “wet works.”
- The rectification of these defects necessitated re-hacking the floor, reapplying the water membrane and cement, allowing the cement to dry, and retiling the floor.
- The defective works have substantially deprived the employer-homeowner of access to proper sanitation in their house, and a residence without proper sanitation is not objectively suitable for occupation.
This case provides valuable guidance for both employers and contractors alike.
- Clear contract-drafting is critical. Where payments are to be made by milestones, it is important to clearly stipulate objective factors by which “completion” is to be measured.
- Without a contractual definition/mechanism for “completion,” works may be considered to be completed despite minor defects or outstanding works, so long as they do not detract from the enjoyment and use of the facility.
- In determining whether these defects or outstanding works are “minor,” the court will likely still consider the extent of works to be done, as well as the practical consequences of the defective/outstanding works (e.g., lack of proper sanitation in a residence).
Limitation period for latent defects
What happens if the employer subsequently discovers that “completed” works are in fact defective (i.e., where there are latent defects)?
The time within which an employer must bring a claim pertaining to latent defects is governed by Section 24A of the Limitation Act 1959 (“Limitation Act“). For a claim regarding the recovery of damages other than for personal injuries, Section 24A(3) provides that the claim shall not be brought after either of the following periods expires: (a) six years from the date on which the cause of the action accrued; or (b) three years from the earliest date on which the claimant first had the knowledge required for bringing an action for damages and a right to bring such an action, if that period expires later than the period mentioned in (a).
A latent defect is generally one that is hidden and not easily detectable. If a defect is only detected after six years from the date that the works were completed (i.e., the expiry of the six-year period referred to in (a) above), it becomes critical to determine when the claimant first had the knowledge required for bringing the claim. In MCST Plan No. 4099 v. KTP Consultants Pte Ltd [2024] SGHC(A) 32, the court provided helpful guidance as to when this knowledge may be said to have arisen.
There, the MCST discovered defects in the development’s facade in or around June 2015. The MCST then visually inspected the development and engage a chartered building surveyor to produce a report (“First Report“). Based on the recommendations set out in the report, rectification works were carried out in or around March 2017. However, between March and September 2017, the MCST discovered that certain defects had recurred. The MCST and the contractor attempted to settle the dispute amicably between 2017 and 2020, but to no avail. The MCST commenced a court action against the contractor on 21 February 2022. Following the commencement of the court action, the MCST engaged another surveyor to investigate the defects (“Second Report“). This Second Report identified additional parties as responsible for the defects, including the structural engineer. Therefore, the MCST brought the structural engineer into the suit. One of the issues that arose was when the MCST could be said to have acquired the knowledge required for bringing the claim against the structural engineer.
The court held that, when the MCST received the First Report, it did not acquire the requisite knowledge to trigger the limitation period under Section 24A(3) of the Limitation Act for its claim against the structural engineer. This is because it is not sufficient for the MCST to acquire knowledge of the defects — the MCST must also know (or ought reasonably to have known) that the damage was attributable to the structural engineer. In this case, the First Report only pointed to the systemic issue of external quality that the system was not suited for outdoor use, and likely not to the wider structural issues that would be attributable to the structural engineer’s deficient design. Therefore, the MCST arguably did not acquire the requisite knowledge for its claim against the structural engineer until it received the Second Report.
The principles discussed in this case are particularly relevant to larger-scale projects where the employer often engages more than one party to carry out the works. It is important to remember that discovering the latent defect does not automatically start the clock on limitation — the claimant must first know whom to sue.
A contract “in writing” under the SOP Act
In keeping with the raison d’être of the SOP Act (i.e., to facilitate cash flow through a rough-and-ready adjudication regime where disputes arise), the SOP Act only applies to contracts made “in writing” (see sections 4(1), (4) and (5) of the SOP Act). Nevertheless, a contact not wholly made in writing will still be treated as a contract made in writing if “the matter in dispute between the parties to the contract is in writing” (Section 4(5) of the SOP Act). In CGS Construction Pte Ltd v. Quek & Quek Civil Engineering Pte Ltd [2024] SGHC 183, the court helpfully clarified when this would be the case.
There, the contractor was engaged by the National Environment Agency (NEA) to carry out certain works. The contractor subcontracted all the works to the subcontractor (“SMK3 Works“). The SMK3 Works were not subject to a written contract and were purely oral. However, the scope of work for the SMK3 Works was captured in the NEA tender documents. The issue was whether this was sufficient to render the contract for the SMK3 Works “not wholly made in writing” (i.e., partly in writing) and, if so, whether the “matter in dispute between the parties thereto is in writing.” The court answered both questions in the affirmative.
First, it is not disputed that the NEA tender documents (which are in writing) set out the scope of work for the SMK3 Works. Therefore, the contract for the SMK3 Works is at least partly in writing.
Second, and as regards the requirement for the “matter in dispute” to be in writing, the court held as follows:
- It will not suffice if there is only written correspondence setting out the positions of dispute between the parties, where contractual terms or agreements may be relevant to the dispute. The contractual term or agreement relied on should be in writing.
- Where a party does not rely on a contractual term or agreement but on an alleged fact, this alleged fact should be in writing.
- A broad approach should be taken in making this assessment, taking into account the commercial context.
In this case, the dispute concerned both contractual terms in writing (e.g., deduction for variations) and alleged facts in writing (e.g., retention of sums in satisfaction of the repair costs incurred). As such, the court held that the SOP Act applied.
This case demonstrates the importance of proper and comprehensive documentation in construction projects. In light of the inherent uncertainties surrounding oral contracts and the legislative concerns with applying the SOP Act to these contracts, contractors in particular should put in place proper project and claim management strategies ensure that they can benefit from the SOP Act
Timeline for filing an adjudication application
Since the SOP Act’s introduction into the Singapore construction legal landscape in 2005, numerous cases have sought to clarify the application of the timelines under the SOP Act. A robust understanding of these timelines is critical. A missed timeline could delay a contractor’s claim by one payment cycle or prejudice an employer’s defense to a claim.
H P Construction & Engineering Pte Ltd v. Mega Team Engineering Pte Ltd [2024] SGHC(A) 5 provides additional clarity as to when an adjudication application is required to be filed under Section 13(3)(a) of the SOP Act. Section 13(3)(a) of the SOP Act provides that an adjudication application “must be made within 7 days after the entitlement of the claimant to make an adjudication application first arises under section 12”. In this case, the employer argued that the seven-day period in Section 13(3)(a) of the SOP Act should include the day on which the entitlement arose.
The court disagreed with the employer. The court applied Section 50(a) of the Interpretation Act 1965, which provided as follows:
A period of days from the happening of an event or the doing of any act or thing is deemed to be exclusive of the day on which the event happens or the act or thing is done.
Applied to this case, this meant that the day on which the entitlement to make an adjudication application first arose is excluded, since the seven-day period should exclude the entirety of the day on which the subject event happened. Notably, the court also dismissed the employer’s argument that Section 13(3)(a) should be interpreted in favor of a shorter time limit so as to give effect to the statutory purpose of the SOP Act as an expeditious adjudicative system. The court was not persuaded that the “additional” day for filing an adjudication application would work to defeat the purpose of the SOP Act.
Given the importance of the timelines in the SOP Act, this case serves as a timely reminder for all employers and contractors to ensure that adjudication timelines are always properly worked out.
A respondent’s challenge to its payment response
In Hiap Seng Building Construction Pte Ltd v. Hock Heng Seng Contractor Pte Ltd [2024] SGHC 50, the court dealt with an unusual scenario in which a respondent to an adjudication challenged the validity of its own payment response.
There, the subcontractor served a payment claim on 5 July 2023, to which the contractor responded with a payment response on 27 July 2023. As the subcontract did not prescribe a date of service of a payment claim, Section 10(2)(a)(ii) of the SOP Act and regulations 5(1) and 5(3) of the Building and Construction Industry Security of Payment Regulations apply to deem the payment claim to have been served on the last day of the month following the month in which the contract was made or any subsequent month. For this payment claim, it was not disputed that it was deemed to have been served on 31 July 2023. Therefore, the payment response predated the deemed date of service of the payment claim. On this basis, the contractor sought to argue that its payment response was invalid, and because the adjudication application was brought on timelines calculated based on the purportedly invalid payment response, the adjudication determination ought to be set aside.
The court agreed that that the payment response was defective. In arriving at its conclusion, the court held that the natural reading of Section 11(1)(b) of the SOP Act is that a payment response must be served starting from the date “after the payment claim is served under Section 10” (i.e., the deemed service date as opposed to the actual service date in this case). This means that the payment response must be served after the deemed service date of the payment claim.
However, the court held that the defective payment response did not taint the entire adjudication as it only interfered with the adjudicator’s substantive jurisdiction and not their threshold jurisdiction (e.g., if the payment claim was defective). That being the case, the court held that the adjudicator was still entitled to consider whether the contractor was estopped from challenging the adjudication determination based on its invalid payment response. On the facts, the court found that the contractor was estopped from denying the validity of the invalid payment response due to its conduct (i.e., the contractor received the tax invoice without raising any objection and allowed the time within which it had to properly submit a payment response to lapse).
