7 December 2023

"Upon Order Confirmation" And "Upon Materials Delivered To Site"

If your payment terms are to pay "upon order confirmation" and "upon materials delivered to site", you may think this is very clear.
Singapore Real Estate and Construction
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If your payment terms are to pay "upon order confirmation" and "upon materials delivered to site", you may think this is very clear. But Pure Group (Singapore) Pte Ltd v Siong Ann Engineering Pte Ltd [2023] SGHC 279 shows that even with such terms, you can end up in a dispute.

Background. This is a simple and straightforward dispute.

The appellant, Pure Group (Singapore) Pte Ltd, had asked the respondent, Siong Ann Engineering Pte Ltd, to design, supply and install a temporary ramp (the "ramp works") ([2]).

After the respondent had prepared the construction materials for the ramp and delivered them to the site, the appellant told the respondent to stop work, and a dispute arose over how the respondent was to be paid for the work done ([2]).

The respondent obtained an adjudication determination in its favour for $123,897.77, which the appellant paid ([2]).

The appellant then commenced a district court suit to recover the payment made to the respondent ([3]).

After the High Court found, on appeal, that there was a contract between the parties, the case was sent back to the district judge to determine whether the milestones of the contract had been met to justify payment ([3]).

The district judge found for the respondent, i.e., that the sum of $123,897.77 was due to the respondent.

Dissatisfied, the appellant appealed.

The milestones. The relevant terms and conditions for payment are as follows (see [4]):

"Terms and Conditions

  1. Amount quoted is subjected to 7% or prevailing GST.
  2. Payment Terms: 30% downpayment upon order confirmation, 50% upon materials delivered to site, 20% upon installation completed.
  3. Quotation Validity: 30 days from date hereof."

These terms appear to be relatively straightforward and common.

Once order is confirmed, 30% is due.

And when materials are delivered, the next 50% is due.

However, the appellant disputed that these milestones were achieved.

"order confirmation" The appellant argued that there was no "order confirmation" because it did not issue a purchase order, and "order confirmation" is not the same as forming the contract ([5]).

This argument was rejected by the High Court.

The High Court held that "... The terms and conditions of the agreement do not require a PO to be issued as proof of "order confirmation". It is only sensible that "order confirmation" can take any reasonable form, as long as both parties understand that the order has been confirmed." (at [6])

The High Court found that the messages sent by the appellant's project manager and former general manager to the respondent's business and development manager asking the respondent to proceed with the ramp works after receiving the respondent's quotation sufficed as order confirmation, which was buttressed by further communication between the parties which show that there was already an order confirmation by 19 February 2018 and that the purchase order was a "mere formality" ([6]).

We agree with the High Court.

Based on the terms and the facts in question, it would be strange if the appellant could unilaterally deny achievement of the milestone by refusing to issue a purchase order, despite the appellant having already asked the respondent to proceed with the works.

That is, of course, not to say that you can never have a situation where order confirmation is subject to a purchase order.

However, if this is necessary, such a condition clear should be made clear.

"materials delivered to site" The appellant also disputed that the second milestone was met, arguing that the respondent did not procure approval of Arup Singapore Pte Ltd ("Arup"), the structural engineer for the project, before fabrication of the ramp works ([8]).

This argument was rejected by the High Court.

The High Court found that the payment terms did not provide that Arup's approval was a pre-condition to completion of the milestone ([9]).

While the appellant pointed out that the quotation issued by the respondent referred to "submission of design shopdrawing with PE endorsement for approval" and "we shall be responsible for the stability and structural integrity of the temporary steel ramp and shall provide support as necessary to avoid over-loading...", the High Court found that these were not sufficient to show that Arup's approval was essential to meeting the milestone ([9]).

We note that the High Court found that at the material time the parties were not concerned with getting Arup's approval (see [10]) and that the parties agreed that the respondent should proceed with fabrication first while Arup's approval was pending (at [11]).

And we further note that the High Court found at [12] – [15] that the appellant's contention that the respondent's works "could not be used" was not borne out, and that at [16], the appellant had chosen to engage a lower-cost sub-contractor to complete the ramp works.

So, it does not appear to be a case where the respondent's works would not have met Arup's approval. Rather, it appeared that this may have been a case where the respondent was prevented from obtaining Arup's approval.

Conclusion. This case now provides guidance on how to interpret "upon order confirmation" and "upon materials delivered to site", which are common payment terms and milestones for payment used in the construction industry (though as with all contractual interpretation issues, context matters).

It is, perhaps, surprising that these simple payment terms resulted in a dispute that went up to the High Court.

However, as can be seen from the judgment, the High Court was able to address the dispute quickly given the clear payment terms.

In general, the simpler and clearer your contract terms are, the less likely you will end up in a dispute.

This is particularly important for payment terms like milestone payments.

From the supplier / contractor's perspective, a poorly defined milestone means that you are giving the employer room to argue that you have not met the milestone.

And from the employer's perspective, a poorly defined milestone may mean that your supplier / contractor now has room to argue that they have met the conditions for payment, even though certain important conditions (from your point of view, such as, e.g., obtaining approvals from a consultant) have not been met.

In short, while you can never guarantee that there will be no disputes, having clear contract terms is an important way of reducing the risk of disputes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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