An Early Payment Response

Hiap Seng Building Construction Pte Ltd v Hock Heng Seng Contractor Pte Ltd [2024] SGHC 50 dealt with an unusual situation: what happens if a payment response is served before the payment claim was deemed to have been served?
Singapore Tax
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Hiap Seng Building Construction Pte Ltd v Hock Heng Seng Contractor Pte Ltd [2024] SGHC 50 dealt with an unusual situation: what happens if a payment response is served before the payment claim was deemed to have been served?

Background facts. The applicant engaged the respondent as its sub-contractor for a project to build a residential apartment ([3]).

On 5 July 2023, the respondent served its payment claim no. 15 (the "PC") ([4]).

On 27 July 2023, the applicant served a document labelled "Progress Payment certificate No.: 02 for claim no. 15" (the "PR") ([5]), certifying $15,758.51 (exclusive of GST), or $16,861.60 (inclusive of GST) ([4]).

On 1 August 2023, the respondent served a tax invoice for the sum of $16,861.61 (inclusive of GST) (at [4]).

On 7 August 2023, the applicant issued final accounts to the respondent confirming the total value of works carried out as $15,758.51 (exclusive of GST) ([5]).

On 8 September 2023, the respondent commenced adjudication under the Building and Construction Industry Security of Payment Act 2004 ("SOPA"), based on non-payment of the accepted response amount ([5]). In other words, the respondent commenced what is colloquially referred to as a "tax invoice" adjudication.

The adjudicator determined in favour of the respondent and awarded the sum of $17,019.19 (inclusive of GST) ([6]). This amount differed from the sum of $16,861.61 (inclusive of GST) sought by the respondent as the adjudicator noted that the GST was not computed based on 8% GST ([6]).

Application to set aside. The applicant then applied to set aside the adjudication determination ([7]). In summary, the applicant argued thus:

  1. The contract had no express provision on when a payment claim is to be served ([8]).
  2. As such, the PC was deemed served on 31 July 2023 pursuant to s. 10(3)(b) SOPA read with the relevant regulations ([8]).
  3. Therefore, the PR was not a valid payment response under s. 11(1)(b) SOPA was it was served before when the PC was deemed served ([9]).
  4. Hence, the respondent had no entitlement to commence an adjudication under s. 12(1) SOPA ([9]). As summarised at [9], "[i]n the absence of a valid payment response, the respondent's entitlement to lodge an adjudication application did not arise under s 12(1) of the SOPA. The Adjudication Application could not have been validly made, as required under s 13(3)(a) of the SOPA, within 7 days "after the entitlement ... to make an adjudication application [arose] under section 12"."
  5. The applicant was not estopped from arguing that the PR was defective, as it made no representation on its position on the defective PR ([10]).

Defective PR. The High Court agreed with the applicant that the PR was defective within the meaning of s. 11(1)(b) SOPA ([23]) as it pre-dated the deemed date of service of the PC. The key reasoning is set out in [19], which we duplicated below:

"19 The natural reading of s 11(1)(b) of the SOPA is that a payment response must be served starting from the date "after the payment claim is served under section 10" (which is deemed to be the last day of the calendar month pursuant to s 10(3)(b) of the SOPA) and before the end of 14 days from that deemed service date of a payment claim. The respondent's proposed interpretation – that s11(1)(b) of the SOPA only provides a deadline for the submission of a payment response as opposed to a period of time within which a payment response must be served (see above at [12]) – is inconsistent with the ordinary meaning of the word "within"."

So, what is the effect of the early payment response (if any)?

Effect of early (defective) PR. On the facts of the case, the High Court found that the applicant was estopped from challenging the invalid PR.

  1. The High Court held that the invalid PR only went towards the adjudicator's substantive jurisdiction, with his threshold jurisdiction remaining intact ([31]).
  2. The High Court then held that the applicant was estopped from challenging the adjudication determination in question based on the invalid PR ([33]).
  3. This is because there was a duty on the applicant to speak against the invalid PR (at [38] – [39]).
  4. In particular, when the respondent sent a tax invoice (which accepted the response amount) without any objection and the applicant kept quiet until the time for the applicant to issue a valid payment response lapse, the "silence and inaction amounted to an unequivocal representation by the applicant that it would not insist on its legal right to serve its payment response later (ie, within 14 days after the deemed date of service of the payment claim) and thus would not seek to invalidate any adjudication on the basis of an invalid payment response" (at [39]).
  5. And this representation was relied upon by the respondent to its detriment (at [40]), as the respondent then missed the deadline to "to file an adjudication application on the basis that the applicant "fail[ed] to provide a payment response" (s 12(2)(b) SOPA). Hence, the respondent could only submit its Adjudication Application on the basis of an accepted response amount that is not fully paid." (at [41]).

Reading this, it appeared to weigh on the High Court that the applicant had failed to object to the validity of its own PR before the end of the dispute settlement period, thereby "depriving" the claimant-respondent of the opportunity to commence an adjudication based on either a disputed payment response / no payment response.

This is because based on the timelines, if the PC was deemed to be served on 31 July 2023, then the payment response was due 14 days thereafter (as the contract did not provide for the date for service of the payment response; see [18]). If so, then the dispute settlement period would end on 15 August 2023 (factoring the public holiday on national day), and the entitlement to commence an adjudication would have expired on 23 August 2023.

However, what if the respondent took the position that the PR was invalid, and hence commenced an adjudication based on the applicant's failure to serve any valid payment response? Would the applicant be entitled to rely on an argument of estoppel and claim that, as the respondent had issued the tax invoice accepting the response amount, it was no longer open to the applicant to commence adjudication on the basis of no valid payment response, bearing in mind s. 12(3) SOPA? We leave our readers with this food for thought.

Conclusion. Nonetheless, when it comes to SOPA, one of the key things to take note is that if you are in the position of a respondent, it is crucial to ensure that a proper payment response is provided.

A failure to serve a proper payment response or a failure to adequately set out the reasons for withholding payment in the payment response often severely prejudices the respondent by limiting the range of possible arguments the respondent can make during an adjudication.

However, as this case demonstrates, an early payment response may also lead to issues. If you accidentally issue a payment response early, the prudent course of action would be to withdraw and supersede the payment response with a proper payment response in accordance with the mechanism under SOPA. A failure to withdraw the said early payment response may mean that you may be estopped from resiling from the position taken in that payment response to your detriment.

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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