INTRODUCTION
The Court of Appeal in
In this commentary, we also briefly discuss on several other cases decided by
The Adjudication Proceedings
IRDK refuted the payment claims on the grounds that
In support of its setting aside application, IRDK, inter alia, contended that it should not be bound to make any further payment to
- Section 27(3) of the CIPAA allows the adjudicator to proceed and complete the adjudication proceedings, notwithstanding a jurisdictional challenge by the parties. As such, an adjudicator is entitled to decide on a jurisdictionally challenged issue if he finds such issue pertinent to be considered for the adjudication decision to be made;
- The purposes of the CIPAA as set out in its long title include to facilitate regular and timely payment in the construction industry, to provide a mechanism for speedy dispute resolution through adjudication, to provide remedies for the recovery of payment in the construction industry and to provide for connected and incidental matters. If the CIPAA's application is being excluded once the construction contract has been terminated, then the CIPAA's intention to alleviate cash flow problems in the construction industry for the unpaid party would be defeated because it would allow unscrupulous employers or main contractors to terminate the construction contract to avoid paying the contractors for work done.2 Since Clause 25.4(d) has the effect, upon the termination of the contract, of postponing payment until the final accounts are concluded and the works completed, it would be defeating the purposes of the CIPAA. In this regard, Clause 25.4(d), being a conditional payment term that inhibits cash flow, is void and unenforceable pursuant to Section 35 of the CIPAA; and
- Even if the contract had been terminated, the matters referred to the adjudicator remain disputes under the contract. Where there is a contract to which the CIPAA applies, and there are disputes arising out of the contract to be adjudicated, the adjudication provisions clearly remain operative just as much as an arbitration clause would remain operative.3
IRDK's Appeal to the
Dissatisfied with the
The Court of Appeal however did not concur with IRDK and agreed with the
OTHER HIGH COURT CASES
In dealing with the issue of whether an adjudicator has the jurisdiction to decide on a payment claim when the contract has been terminated where Clause 25.4(d) applies to the parties,
In
THE RATIONALE OF CLAUSE 25.4(d)
Notwithstanding the Courts' position that Clause 25.4(d) is a conditional payment term which is prohibited by Section 35 of the CIPAA, it is imperative that one appreciates the rationale behind the application of Clause 25.4(d). Clause 25.4(d) is a mechanism worked into a construction contract with a view to relieve the employer from making further payments and the provision acts as a security for the employer to set off any amounts due to the contractor in the final account. This is a measure which operates until all claims by the employer are set off after which any amount still due and owing to the contractor is reflected in the final certificate. In that sense, there exists a school of thought which takes the view that the approach taken by the Courts, in interpreting Clause 25.4(d) as having the effect of making the employer's payment obligation conditional, is a departure from the description of a conditional payment provision under Section 35(2) of the CIPAA .
CONCLUSION
Given the reasoning of the decisions of the abovementioned cases, it appears that the Courts may still not prepared to favour the employer's financial interests over the need to uphold the purpose of the CIPAA to alleviate the cash flow problem that might be faced by the unpaid party. Therefore, the application of Clause 25.4(d) at it stands (which is also in the PAM Conditions of Contract 2018) is redundant in principle in adjudication proceedings under the CIPAA.
It is interesting to note that the ratio in
Further to the above, the Courts' reasoning for the decisions of the abovementioned cases has essentially opened the door for judges to go beyond the realm of pay-when-paid clauses to void payment-related clauses in adjudication proceedings under the guise of conditional payment terms. In this respect, it is important for the Courts to interpret Section 35 of the CIPAA bearing in mind that there is an obligation to weigh between the entrenched substantive rights of the parties in a standard form contract and the objectives of the CIPAA as mentioned above.
At the time of writing this commentary, the writers understand that there is a pending application for leave to appeal to the Federal Court.
Case commentary by
Footnotes
1. The part of Clause 25.4(d) of the PAM Conditions of Contract 2006 which is in contention is as follows: "...Until after the completion of the Works under Clause 25.4(a), the Employer shall not be bound by any provision in the Contract to make any further payment to the Contractor, including payments which have been certified but not yet paid when the employment of the Contractor was determined."
2. AU v AV [2006] SGSOP 9, at [13], Philip Jeyaretnam SC.
3.
4. This is in consistent with the requirement of Section 17A of the Interpretation Acts 1948 and 1967.
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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