31 January 2018

Audi Construction Pte Ltd v Kian Hiap Construction Pte Ltd [2018] SGCA 4

The Singapore Court of Appeal in Audi Construction Pte Ltd v Kian Hiap Construction Pte Ltd addressed a number of interesting issues and provided greater clarity and certainty to the adjudication process under the Building and Construction Industry Security of Payment Act.

In particular, the court explained how parties can perform their obligations when they fall due on a Sunday or a public holiday. The Court of Appeal also explained the circumstances in which a respondent may be taken to have waived or be estopped from raising an objection to breach of a mandatory provision and/or an adjudicator’s lack of jurisdiction.

Facts

The respondent engaged the appellant as a subcontractor to carry out structural works in a construction project.

Under section 10(2)(a) of the SOPA, a payment claim shall be served “at such time as specified in or determined in accordance with the terms of the contract”.

In the present case, the parties’ contract specified that payment claims were to be served on the 20th day of each calendar month. The 20th day of November 2016, however, fell on a Sunday. The appellant decided therefore to serve its payment claim for that month on 18 November 2016, a Friday, but dated it 20 November 2016. The respondent did not issue a payment response and there were no correspondence between the parties from the time the payment claim was submitted to the time the adjudication response was filed.

In the adjudication response, the respondent challenged the validity of the payment claim on the basis that it had not been served “on” 20 November 2016, as required by the contract, in breach of section 10(2) of the SOPA. This was the first time that this challenge had been raised. The adjudicator rejected this argument and issued the adjudication determination (“AD”) in favour of the appellant. On the respondent’s application, the judge in the High Court set aside the AD, ruling that the SOPA required the payment claim to be served on (and not by) 20 November 2016. The appellant then appealed to the Court of Appeal against that decision.

The issues before the Court of Appeal were as follows:

  • whether the payment claim was validly served; and
  • if the payment claim was not validly served, whether the respondent had waived its right to object to the invalid service or was estopped from raising such an objection.

Validity of service of payment claim

In the Court of Appeal’s judgment, the starting point was that where the parties’ contract provides for the service of payment claims on a stipulated date, this means service on that date and not service by that date. In this regard, the appellant argued that the court should take a “purposive interpretation” of the contractual date for service of a payment claim. However, the Court of Appeal disagreed that a purposive interpretation would have the effect contended by the appellant, and disagreed with any suggested departure from ordinary principles of contractual interpretation. The Court of Appeal reasoned that the appellant’s proposed approach would introduce an unacceptable degree of uncertainty into a regime which places great importance on timelines. The Court of Appeal also reaffirmed that certainty is vital in the context of the abbreviated process of dispute resolution established by the SOPA.

Nevertheless, the Court of Appeal was of the view that the payment claim, having been physically served two days before the specified day in the contract, was validly served. This was due to the combination of two facts. First, the appellant had a good reason for effecting service of the payment claim before 20 November 2016 as that fell on a Sunday, and the respondent’s office was closed on Sundays. Second, there could not have been any confusion as to the payment claim’s operative date as the payment claim was correctly dated 20 November 2016, the day on which the contract entitled the appellant to serve a payment claim. In this context, it was clear and obvious to the respondent that the payment claim was to be treated as served and operative only on 20 November 2016.

The Court of Appeal decided that on the facts, the appellant simply adopted a practical and sensible way of complying with the parties’ contract and did comply with section 10(2)(a) of the SOPA. The Court of Appeal emphasised that its decision turned on the combination of the two facts set out above. Therefore, if there is no good reason for serving a payment claim early, the court would not consider such service to be valid service.

Accordingly, the Court of Appeal found the payment claim to be validly served and, on this basis, allowed the appeal.

In the interest of providing guidance for future cases, the Court of Appeal also expressed its views on how the Interpretation Act assists parties in discerning how to perform their obligations when they fall due on a Sunday or public holiday under the SOPA.

The Court of Appeal observed that the Interpretation Act is applicable because what is ultimately being given effect to is the statutory obligation under section 10(2)(a) even though the modality of that obligation was the parties’ contract.

Pursuant to section 50(c) of the Interpretation Act, if an obligation is to be performed on an “excluded day” (i.e. a Sunday or a public holiday), that obligation may be performed the next day. The Court of Appeal said that parties facing a similar situation in the future should have regard to section 50(c) of the Interpretation Act. To illustrate this principle, hypothetically, if the appellant had served the payment claim on 21 November 2016, that is, on the following Monday, the Court of Appeal would have found that the payment claim had been validly served, irrespective of whether the payment claim was dated 20 or 21 November 2016.

Waiver by election or estoppel

The second issue was whether, if the payment claim had not been validly served, the respondent had waived its right to object to the payment claim’s invalid service or was estopped from raising such an objection. This issue did not strictly arise for consideration in the light of the Court of Appeal’s decision on the first issue. Nevertheless, the Court of Appeal took the opportunity to set out its views on the issue given the existing conflicting authorities on it.

Section 10(2) of the SOPA is a mandatory provision, breach of which would render an adjudication determination invalid. Specifically, such a breach would invalidate the substantive basis of an adjudicator’s jurisdiction. Hence, the second issue raised the question whether a party may waive his right to object to a breach which goes towards the substantive jurisdiction of the adjudicator.

The Court of Appeal confirmed that a party may in principle waive his right to object to a breach which goes towards the substive jurisdiction of the adjudicator.

The Court of Appeal proceeded to consider the second issue in two parts as follows:

  • whether an adjudicator has the power to decide matters which go towards his jurisdiction; and
  • when a party may be said to have forgone his right to raise a jurisdictional objection - by having waived that right or by being estopped from exercising it.

The Court of Appeal affirmed the view that an adjudicator has the power to decide matters which go towards his substantive jurisdiction. An adjudicator is entitled to rule on challenges to his jurisdiction based on (amongst other things) whether a payment claim has been validly served and whether an adjudication application has been made in accordance with section 13(3) of the SOPA.

The Court of Appeal examined the general requirements to establish waiver by election and estoppel and expressed that it is well established that mere silence or inaction will not normally amount to an unequivocal representation - however, in circumstances where there is a “duty to speak” mere silence may amount to an unequivocal representation.

The Court of Appeal elaborated on the circumstances in which a duty to speak arises: whether there is a duty to speak is a question which must be decided having regard to the facts of the case at hand and the legal context in which the case arises. It refers to circumstances in which a failure to speak would lead a reasonable party to think that the other party has elected between two inconsistent rights or will forbear to enforce a particular right in the future, as the case may be. This is an objective assessment made by reference to how a reasonable person would view the silence in the circumstances, though the parties’ relationship and the applicable law which governs it will be a critical focus of the court’s assessment of whether those circumstances exist.

In the context of adjudication under the SOPA, the SOPA and the contract define the rights that parties have in relation to one another, which can in principle be the subject matter of waiver by election or estoppel.

The Court of Appeal proceeded to illustrate the foregoing general principles using the example of an invalid payment claim or invalidly served payment claim.

When a claimant serves a payment claim, a respondent is entitled to raise an objection to that claim through a payment response. If the respondent communicates his election not to raise an objection to the payment claim’s validity, he may in principle be said to have waived his right to make that objection in an adjudication.

The respondent may also communicate his intention to forbear to exercise his right to object to the payment claim’s validity. The claimant, in turn, may in reliance on that communication omit to re-file a payment claim which rectifies the filed payment claim’s defect, if any. If the respondent later attempts to impugn the validity of the filed payment claim, the claimant may by then, to his detriment, have missed the opportunity to re-file a rectified payment claim. Indeed, the claimant may have decided not to re-file because the respondent had acted consistently with the position that the payment claim was valid. In such a case, the respondent may in principle be estopped from raising that objection.

The Court of Appeal turned to the specific question of whether a respondent’s failure to object to an adjudicator’s jurisdiction or on a breach of a mandatory provision may be regarded as an unequivocal representation for the purpose of waiver by election and equitable estoppel. This in turn raises the issue whether he has a duty to speak - i.e. to speak by raising such an objection - and, if so, by when that duty should be discharged, failing which he may be regarded as having waived his right to make that objection or as being estopped from doing so.

The Court of Appeal was of the view that both questions may be answered by reference to the legal context, in particular, to section 15(3)(a) of the SOPA by which the SOPA restricts the issues which can be raised before an adjudicator to the issues stated in the payment response provided by the respondent to the claimant. It follows that a respondent has a duty to speak by raising jurisdictional objections in a payment response and such duty has to be discharged by such time a claimant would reasonably expect a respondent to air its objection, which according to the Court of Appeal, is the deadline for the respondent to issue its payment response. The respondent’s failure to discharge this duty to speak would amount to an unequivocal representation which may constitute waiver by election or estoppel.

In the present case, the Court of Appeal held that the respondent’s failure to file a payment response constituted an unequivocal representation that he would not raise any objection to the validity of the payment claim. The respondent was estopped from subsequently raising that objection in adjudication and in the High Court and before the Court of Appeal. Accordingly, the Court of Appeal expressed that (hypothetically) if in this case the payment claim was not validly served, the respondent would have been found to be estopped from raising an objection to the invalid service of the payment claim.

Comment

The Court of Appeal has taken an affirmative view that a respondent may in principle waive its rights or be estopped from raising jurisdictional objections if the respondent has failed to raise such objections at the earliest opportunity. In particular, a respondent has to raise jurisdictional objections which are based on an invalid payment claim and/or invalid service of a payment claim by the deadline for issuing the payment response.

This case underlies the critical importance of a respondent issuing a valid payment response on time in accordance with the requirements of the SOPA. A respondent should issue its payment response setting out its jurisdictional objections, even if the respondent is of view that the payment claim is invalid and/or has not been validly served.

 

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