International Construction Law Review
DIFFERENT MODELS FOR SECURING PAYMENT IN CONSTRUCTION CONTRACTS: A SINGAPOREAN CASE STUDY
DR PHILIP CHAN CHUEN FYE
Associate Professor, Department of Building, School of Design and Environment, National University of Singapore
The issue of non- or delayed payment to contractors and subcontractors becomes a more critical problem when the funding of a project shifts from mere construction of affordable homes to large-scale commercial projects where the pursuit of a good return on investment drives developers and main contractors to optimise their financial position at every stage of the construction—even to the extent of delaying payment. Securing the cash-flow or lifeblood1of the contractor and subcontractor can thus become a challenge.
The due process of law can sometimes prove challenging and painful but is nevertheless, if ever described as such, a necessary temporary evil to achieve a greater good, that is, sound evidence of the existence of the rule of law. Accordingly, every respondent is entitled to set up any legal defence to support a withholding of payment when faced with a claim for money from the claimant, until the claim is proven on a balance of probability. Thus, the helplessness of the unpaid was observed by Lord Denning in Dawnays Ltd v. F G Minter,2 in that:
“It follows that, if Mr Knight’s contention is correct, it would mean that his clients could hold this money (which is the sub-contractor’s money) indefinitely. They could hold on to it until the end of the main contract, that is, until the whole work was completed. They could then hold on to it still longer whilst the dispute was referred to arbitration. They would not have to pay it over until the arbitration was concluded, maybe after a case stated to this court.”
Lord Denning’s solution was to treat an architect’s interim certificate as virtually cash, like a bill of exchange.3 His Lordship added: “Otherwise any
1 The terms “cash-?ow” and “lifeblood” were used in Modern Engineering (Bristol) Ltd v. Gilbert-Ash (Northern) Ltd (1973) 71 LGR 162, per Lord Denning at p. 167 where he noted that: “There must be a ‘cash ?ow’ in the building trade. It is the very lifeblood of the enterprise.”
2 [1971] 2 All ER 1389.
3 This idea was given a contractual reality in the standard form of building contract issued by the Singapore Institute of Architects (“SIA”) in 1979 (known as the First Publication) and drafted by the late Ian Duncan Wallace. By cl. 31, the Architect’s Interim Certi?cate for payment, was given the temporary ?nality status as interpreted by the Singapore High Court in the case of Tropicon Contractors Pte Ltd v. Lojan Properties Pte Ltd [1989] SGHC 51, [1989] 1 SLR(R) 591 and af?rmed by the Court of Appeal in Lojan Properties Pte Ltd v. Tropicon Contractors Pte Ltd [1991] SGCA 7, [1991] 1 SLR(R) 622.
Pt 3] Securing Payment in Singapore
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