No 'independent' statutory right to progress payments under Singapore SOPA

Out-Law News | 01 May 2020 | 9:38 am | 2 min. read

The Singapore Security of Payment Act (the SOPA) does not provide a 'system' where parties can 'choose' between a statutory and contractual entitlement to payment when issuing payment claims under the SOPA, the Singapore Court of Appeal has ruled.

Dispute resolution specialist Jason Yong of Pinsent Masons MPillay, the Singapore joint venture of Pinsent Masons, the law firm behind Out-Law, said the ruling in the case of Shimizu Corporation v Stargood Construction makes clear that the concept of the 'dual railroad track system' in SOPA does not exist. This should provide some certainty for commercial parties when using the SOPA in the future, said Yong.

The case concerned Stargood's entitlement to submit payment claims after its employment was terminated. Shimizu was the main contractor on a project, and Stargood was its subcontractor. Shimizu terminated the subcontract alleging that Stargood had defaulted on its obligations sometime during the project.

After its termination, Stargood submitted two payment claims, but both were met with unfavourable responses from its perspective. When Stargood commenced adjudication for both payment claims, the adjudicators in both instances dismissed Stargood's adjudication applications on the basis that Stargood had no contractual right to serve payment claims after its contract was terminated.

These setbacks prompted Stargood to apply to the Singapore High Court to have the adjudication determinations set aside. The High Court held that since Shimizu had only terminated Stargood's employment, and not the subcontract itself, Stargood had a right to raise a payment claim post-termination. Further, and notwithstanding the above, the 2018 SOPA amendments provided Stargood with an "independent right to progress payments, even if the entire subcontract had been terminated".

The High Court's ruling has now been overturned.

No "dual railroad track system" under SOPA

When addressing whether the SOPA afforded parties an "independent right to progress payments, even if the entire subcontract had been terminated", the Court of Appeal stated that the SOPA is merely a legislative framework to expedite the process by which a contractor may receive payment. The legislation does not, in and of itself, grant the contractor a right to be paid, it said.

Therefore, a contractor must establish that he is entitled to such payment under the contract before he can submit a payment claim under SOPA.

Parties can only benefit from the 'default' progress payment regime under SOPA when they do not contractually stipulate for progress payments. In such situations, the SOPA operates as a "gap-filler", the Court of Appeal said.

The 2018 SOPA amendments do not change that position. They make clear that the SOPA can in principle apply to payment claims after termination, but the SOPA is not intended to override the terms of a contract that provides for the contrary.

The Court of Appeal found that Stargood could not benefit from the 'default' progress payment regime under SOPA in its case against Shimizu. This was because their subcontract did provide for a progress payment mechanism, even though it was not applicable to Stargood post-termination.

Termination of employment does not guarantee entitlement to submit progress payments post-termination

As Stargood's employment was terminated, and not the entire subcontract, both Shimizu and Stargood remained bound by the terms which were expressed to survive such termination, the Court of Appeal held. In contrast, if Shimizu had terminated the entire subcontract, all arrangements under the subcontract come to an end.

However, this did not guarantee Stargood an entitlement to serve payment claims post-termination. In particular, the Court of Appeal found that Stargood did not have any contractual right to serve payment claims post-termination when the subcontract was terminated for Stargood's defaults.

The High Court's orders were therefore overturned.

An inevitable consequence arising from the decision is that parties without a contractual entitlement to raise payment claims, like Stargood in this instance, will have one less dispute resolution option. In response, the Court of Appeal commented that "this does not deprive [these parties] of the right to have any disputes fully and finally settled in arbitration or legal proceedings (in accordance with the dispute resolution provisions of the contract)".

Yong said: "This may prove problematic for contractors with contracts where arbitration or legal proceedings may only commence after completion of the works, such as the Singapore Public Sector Standard Conditions of Contract. These contractors may experience difficult cash-flow issues before they are able to ventilate their payment disputes in court or arbitration."