Direct Payment Agreements: Tread Carefully

Ten-League Engineering & Technology Pte Ltd and another v Precise Development Pte Ltd and another [2022] SGHC 317 (“Ten League”)
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Direct Payment Agreements: Tread Carefully 
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Introduction

The main contractor engages a sub-contractor. The sub-contractor engages a sub-sub-contractor.
This is a typical contractual framework in construction projects. In this arrangement, there’s no privity of contract between the main contractor and the sub-sub-contractor.

The main contractor has a agreement (“the Sub-Contract”) with its sub-contractor, and the sub-contractor has a separate contract with its sub-sub-contractor. (“the Sub-Sub-Contract”).

Progress payments will flow from the main contractor to the sub-contractor under the Sub-Contract, and from the sub-contractor to its sub-sub-contractor under the Sub-Sub-Contract.  The sub-sub-contractor has no recourse against the main contractor if the sub-contractor fails to make payments under the Sub-Sub-Contract. 

In certain situations, such as when the sub-sub-contractor loses faith in the sub-contractor’s ability to make regular payments, the sub-sub-contractor may seek to get its payment directly from the main contractor. This can be achieved by the three parties entering into collateral tri-partite contract.
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The case of Ten League was premised on an alleged four-party agreement for direct payment which for reasons explained below was found not to exist.

The Parties in Ten League.

The main contractor was Precise Development Pte Ltd (“Precise”).

The sub-contractor was  G-Con Foundation Pte Ltd (“G-Con”).

G-Con rented machinery and equipment from Ten-League Engineering & Technology Pte Ltd (“TLET”)

TLET was a fully-owned subsidiary of Ten-League Corporations Pte Ltd (“TLC”)
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Choo Lye Weng (“Mr Choo”) was the sole Director and Shareholder of G-Con.

​The Claim in Ten League.]

The plaintiffs, TLET and TLC, alleged that there was a valid agreement for direct payment between and Precise (“Direct Payment Agreement”). The plaintiffs alleged that Precise had breached the Direct Payment Agreement by continuing the make payments to G-Con. In addition, they sued Mr Choo on the basis that Mr Choo had  unlawfully conspired with Precise to ensure that G-Con would accept Precise’s unjustified back charges and thereby depriving the plaintiff of direct payments.

The Plaintiff’s case rested on a series of meetings and correspondences between the parties which arose when TLET engaged Precise and G-Con in negotiations with the aim of getting direct payments from Precise. 
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The Court’s Decision
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After reviewing the documentary evidence comprising of e-mails and minutes of meetings and hearing the witnesses oral testimony,  the Court held that the evidence presented at the trial did not show that Precise had agreed to the terms of the direct payment proposed by the plaintiffs. As such, there was no agreement for direct payment between the parties.  The plaintiff’s claims against Precise and Mr Choo was therefore dismissed.

Commentary

Sub-sub-contractors understandably can be rather anxious about payment issues when they believe, whether rightly or not, that their upstream sub-contractor may be facing financial problems. This is because, the sub-sub contractor, who is a the end of the supply chain, is the party has to first fork out funds to procure materials and manpower to carry out the works. However, as shown in Ten League, one must tread carefully when attempting to arrange a direct payment agreement. If an agreement that has been reached verbally is not properly and formally documented or recorded, it may not stand up in Court or Arbitration.

I have advised clients on direct payment agreements. Do reach out to me  if you need assistance on preparing direct payment agreements or have any questions about Ten League, 

Tan Joo Seng
​August 2023