Aik Heng Contracts and Services Pte Ltd v Deshin Engineering & Construction Pte Ltd

Lee Seiu Kin J:

[1] This is one of the many applications that come before the court seeking to set aside an adjudication determination made under the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) (“the Act”) for the adjudicator’s purported breach of natural justice. This case nonetheless involves a somewhat novel application of well-established principles of judicial review in the sphere of adjudication determinations – to what extent can the refusal of an adjudicator to hear a respondent on matters which should have been addressed in a payment response (but were not) constitute a breach of natural justice?

[2] The respondent was the main contractor for a project titled “Proposed Erection of Condominium Development Comprising a Block of 5 Storey Residential Building with Attics (Total: 131 Units), Basement Carparks & Recreational Facilities on Lots 01732V 704778X MK 03 at West Coast Road (Clementi Planning Area)” (“the Project”). By a letter of award dated 12 February 2014 (“the Letter of Award”), the respondent appointed the applicant as a subcontractor for the “installation of aluminium, steel & glazing works” relating to the Project. The Letter of Award was signed and accepted by the applicant on 10 October 2014.

[3] On 11 March 2015, the applicant served on the respondent a payment claim for the amount of $85,974.19, being the value of work done for which it had yet to be paid. However, no payment response was filed by the respondent, which was not legally represented at that stage. As a consequence, the applicant lodged Adjudication Application No 124 of 2015 on 1 April 2015. The adjudicator determined in favour of the applicant, stating at para 37 of the adjudication determination (“the Determination”):

[4] The applicant then applied for leave to enforce the Determination pursuant to s 27 of the Act and O 95 r 2 of the Rules of Court (Cap 322, R 5, 2014 Rev Ed), which was granted by way of an order of court dated 14 May 2015 (“the Order”). In response, the respondent filed summons no 2720 of 2015 (“SUM 2720/2015”), seeking an order to set aside the Determination and in the alternative, that the enforcement of the Order be stayed pending the outcome of a concurrent claim by the respondent against the applicant in the District Court. The respondent’s application in SUM 2720/2015 was dismissed by the assistant registrar (“the AR”), and it appealed against his decision on the following grounds:

(a) The AR had erred by not finding that the notice of intention (“NOI”) was invalid and irregular, which would have meant that the adjudicator had no jurisdiction to adjudicate the claim.

(b) The AR had erred by not finding that the adjudicator had breached the principles of natural justice.

[5] The respondent also applied before me, as it had done in SUM 2720/2015, for the enforcement of the Order to be stayed pending the resolution of its claim against the applicant in the State Courts. I dismissed the appeal and the respondent’s application to stay the enforcement of the Order. These are the grounds of my decision.

[6] The respondent submitted that the adjudicator had no jurisdiction to adjudicate the dispute as there had been no valid service of an NOI, as required under s 13(2) of the Act. Section 13(2) states:

[7] The “prescribed particulars” are set out at reg 7(1) of the Building and Construction Industry Security of Payment Regulations 2005 (Cap 30B, Reg 1, 2006 Rev Ed) (“the Regulations”), which is as follows:

[8] The respondent argued that the NOI served by the applicant on it did not comply with regs 7(1)(a) and 7(1)(c)(iii), and there had therefore been no valid notification under s 13(2) of the Act. This, it argued, was because the NOI did not set out the date on which the subcontract was made or the service address of the respondent. The respondent, rightfully in my opinion, did not pursue the latter point in its written submissions beyond a passing mention, nor did it actively argue the point during oral submissions. As the applicant had pointed out, the address of the respondent was clearly set out above the subject heading in the NOI. There is nothing in the Regulations that requires that an address for correspondence must be explicitly stated to be a “service address”.

[9] As for the purported failure to set out the date on which the subcontract was made, the applicant disputed that there had been any breach of reg 7(1)(a). It emphasised that that while the NOI did not state the date the contract was made, that date being the date on which the Letter of Award was accepted, the NOI did state the date of the Letter of Award. In any case, it submitted that regs 7(1)(a) and 7(1)(c)(iii) are not “so important that it is the legislative purpose that an act done in breach of the provision should be invalid” (emphasis in original): see Lee Wee Lick Terence (alias Li Weili Terence) v Chua Say Eng (formerly trading as Weng Fatt Construction Engineering) and another appeal [2013] 1 SLR 401 (“Chua Say Eng”) at [67].

[10] The respondent did not dispute that Chua Say Eng applied, merely contending that regs 7(1)(a) and 7(1)(c)(iii) were sufficiently important to warrant the setting aside of an adjudication determination whenever they were breached. It pointed to four reasons in support of its submission:

(a) Regulation 7(1) of the Regulations is prefaced with the word “shall”, suggesting that the legislative intention must have been that all the requirements prescribed therein are essential requirements.

(b) The NOI is expressed in the Act to be a pre-requisite to an applicant’s entitlement to submit an adjudication application.

(c) It had been determined in previous adjudication proceedings that a failure to comply with reg 7(1) will render an NOI invalid.

(d) The “date of the contract” is one of the prescribed particulars that must be included in an adjudication application, further underlining the importance with which it was viewed by the legislature.

[11] In this regard, the applicant submitted that even if reg 7(1)(a) had been breached, no prejudice was caused to the respondent and it could not have been the legislative purpose to invalidate the NOI on this basis. It directed my attention to the decision of Australian Timber Products Pte Ltd v A Pacific Construction & Development Pte Ltd [2013] 2 SLR 776 (“Australian Timber”), in which Woo Bih Li J held that a payment claim found wanting in detail with respect to regs 5(2)(c)(iii) and 5(2)(c)(iv) of the Regulations was nonetheless valid. He stated at [78] and [80]:

[12] I considered Australian Timber in Progressive Builders Pte Ltd v Long Rise Pte Ltd [2015] 5 SLR 689 (“Progressive Builders”), in which I held at [58] that a payment claim would only be invalidated for failure to comply with s 10(3)(a) of the Act where that failure impeded the adjudication process. While Australian Timber and Progressive Builders related to the validity of a payment claim and not a notice of intention under s 13(2) of the Act, in my view, that reasoning was equally applicable. It is one thing to suggest that a failure to notify a respondent under s 13(2) of the Act deprives an adjudicator of any jurisdiction to adjudicate the matter; it is another thing altogether to say that any deficiency whatsoever in that notice would render it invalid. There is no doubt that the service of a notice of intention under s 13(2) of the Act is a jurisdictional requirement. What founds the jurisdictional nature of the requirement under s 13(2), in the sense that the condition is essential to the existence of an adjudicator’s determination, is that a respondent must know of the case he has to meet and be allowed to prepare his response. As pointed out in Chow Kok Fong, Security of Payments and Construction Adjudication (LexisNexis, 2nd Ed, 2013) at para 8.16:

[13] Analogous to what Woo J had held in respect of reg 5(2)(c) of the Regulations and what I had held in respect of s 10(3)(a) of the Act, I was of the view that the breach of reg 7(1)(a) in the present case (ie, stating the date of the Letter of Award and not the date of the acceptance) was a technical breach which was insufficient to invalidate the notification. The formal requirements in reg 7(1) were clearly intended to ensure that a respondent has sufficient notice under s 13(2) of the Act. As I had stated in Progressive Builders at [58], the Act, characterised by speed and informality, should not be countenanced by an excessively technical approach.

[14] In the present case, counsel for the respondent conceded that the respondent was able to identify the subcontract in dispute, despite the fact that the date of the Letter of Award (and not the date the subcontract was made) was stated in the NOI. There was no doubt that it had, by way of the NOI, been notified of the applicant’s intention to apply for adjudication of the payment claim dispute, and that it was able to prepare its substantive response accordingly. This reinforced my finding that breaches of this nature do not render a notice of intention invalid. I therefore rejected the respondent’s submission on this ground.

[15] The respondent alleged two instances where natural justice was breached. First, it argued that the adjudicator had failed to properly adjudicate the claim by blindly endorsing the applicant’s variation claims despite the absence of evidence of instructions from itself, and despite obvious errors in the supporting documents. These supporting documents referred to were copies of “timecards” signed by the respondent’s representatives, the validity and authenticity of which were disputed by the respondent. Second, it submitted that it had not been given “the opportunity to raise its contentions” as the adjudicator had declined to hear from it during the adjudication conference.

[16] I first deal with the respondent’s allegation that the adjudicator had “not made a fair and genuine consideration of the evidence presented by [the applicant]”. The respondent highlighted some major problems with some of the “timecards” which it said were apparent on the face of it but did not appear to have been considered:

(a) The “timecards” did not reflect the number of hours worked at the site by each worker, but merely contained a description of the variation works carried out and the total number of man-hours required to carry out the work.

(b) The dates on the “timecards” were either inconsistent or erroneous. For example, some of the dates stated on these “timecards” were either after the date on which the applicant claimed to have completed the work contracted for, or before the date of the subcontract in dispute.

[17] The respondent’s submission in this regard appeared to have been premised on a breach of s 16(3)(a) of the Act and not a breach of natural justice under s 16(3)(c). There is no difference as far as the consequences are concerned; a breach of s 16(3), be it s 16(3)(a) or s 16(3)(c), is sufficient basis for the setting aside of an adjudication determination: see SEF Construction Pte Ltd v Skoy Connected Pte Ltd [2010] 1 SLR 733 (“SEF Construction”) at [45]. Section 16(3) of the Act reads:

[18] The respondent referred me to W Y Steel Construction Pte Ltd v Osko Pte Ltd [2013] 3 SLR 380 (“W Y Steel”), in which the Court of Appeal held at [52]–[54]:

[19] The applicant contended that the respondent had given instructions for the work done and that the errors in the “timecards” were not patent errors on the face of the material. In any case, it submitted that this amounted to an application to review the merits of the Determination which the court had no power to grant: see Chua Say Eng at [66]. That may have well been the respondent’s motives, but its submissions did not go so far. As I understood it, the respondent was inviting the court to infer that the adjudicator had merely rubber-stamped the applicant’s claim based on the fact that he would have detected the errors highlighted above and come to a different conclusion had he considered the material properly.

[20] In this regard, I was not persuaded that the purported errors in the “timecards” came anywhere near to establishing that the adjudicator had applied “a blank or unthinking mind to the issues before him”. W Y Steel at [54] appears to suggest that it is only patent errors which are obvious on the face of the material which may establish the absence of genuine consideration; as discussed below, I did not think that the errors highlighted were such errors. Significantly, as was also the case in W Y Steel, it was expressly stated in the Determination at [35] that the adjudicator had “reviewed and found that the [applicant had] substantiated all its claims under different heads with drawings, documents and information available to [him]”.

[21] In respect of the respondent not being given “the opportunity to raise its contentions”, the respondent’s representative stated that he had been informed by the adjudicator at the adjudication conference that the adjudicator “did not need to hear from the [respondent] at all … in relation to the merits of the claim”. This was because no valid payment response had been filed, and the adjudicator had felt that he could not consider any reason advanced by the respondent for withholding payment in view of s 15(3) of the Act, which reads:

[22] It was not disputed by the respondent that s 15(3) of the Act compels an adjudicator to reject any submissions made in the course of the proceedings which serve to rectify a party’s failure to have made a payment response. Instead, counsel for the respondent appeared to advance two propositions. First, he said that s 15(3)(a) merely precluded an adjudicator from considering the respondent’s substantive response, and not hearing the response. Therefore, the respondent should in any case have been allowed to put forward its case during the adjudication conference, regardless of whether the adjudicator would be allowed to take the respondent’s arguments into consideration.

[23] To the extent that the respondent was referring to reasons which it could, and indeed should, have raised in a payment response, I was unable to agree with this proposition. Although the ordinary literal construction of the phrase “shall not consider” says nothing as to the respondent’s right to address the adjudicator, the respondent did not put forward any reason why an adjudicator would have to hear from a respondent on matters which he was expressly prohibited from considering. The Court of Appeal did not make this distinction in W Y Steel, holding at [34]:

[24] Even if I were wrong and the respondent’s interpretation of s 15(3)(a) of the Act were to be adopted, I did not think that that would have been sufficient for the setting aside of the Determination. This was because the adjudicator could not have taken the respondent’s arguments into account for the purpose of the Determination. That is, there had been no material breach of natural justice.

[25] The requirement for breaches of natural justice in building and construction adjudication proceedings to be material finds support in decisions of the courts in the United Kingdom and New South Wales. In Balfour Beatty Construction Limited v The Mayor and Burgesses of the London Borough of Lambeth [2002] BLR 288 (“Balfour”), which was subsequently endorsed in Cantillon Ltd v Urvasco Ltd [2008] BLR 250 (TCC), the court stated:

[27] I agreed with both Balfour and Watpac. The provisional nature of adjudication determinations and the need for a speedy resolution mean that the consequences of a denial of natural justice must be assessed in that context. My finding was further reinforced by the decision of the Court of Appeal in Management Corporation Strata Title Plan No 301 v Lee Tat Development Pte Ltd [2011] 1 SLR 998, which related not to adjudication proceedings under the Act but a purported breach of the hearing rule in the context of court proceedings. The Court of Appeal held at [59]:

[28] The second proposition, made by counsel for the respondent in his oral submissions, was that a respondent being prevented from bringing patent errors to an adjudicator’s attention, notwithstanding its failure to have filed a payment response, is a breach of natural justice. The respondent sought to rely on W Y Steel at [51], in which the Court of Appeal held:

[29] What constitutes a patent or manifest error was considered in The Oriental Insurance Co Ltd v Reliance National Asia Re Pte Ltd [2009] 2 SLR(R) 385 (“Oriental Insurance”) at [90]:

[30] I was of the opinion that there was greater merit to the second proposition. Following W Y Steel at [51], a respondent has a right to be heard on patent errors in the applicant’s claim even where no payment response was filed, and an adjudicator’s refusal to hear the respondent on this matter was a material breach of natural justice. There is no dissonance with the Parliamentary intent underlying s 15(3)(c) of the Act; there is no expansion of issues in contention or the scope for ambush by the respondent. All that the respondent is allowed to do is comment on the veracity of the evidence adduced by the applicant on the face of that material. Further, unlike other material that should have been included in the payment response, patent errors are by definition necessarily capable of affecting the determination. I nonetheless found against the respondent on two grounds.

[31] First, it was not affirmatively stated in any of the affidavits filed in support of the respondent’s application to set aside the Determination that the respondent would have pointed out the patent errors had it had the chance. The only evidence addressing the respondent’s failure to be given a chance to put forward its case was the affidavit of Mr Tan Soon Gee, the General Manager of the respondent, dated 26 May 2015. Paragraph 22 of the affidavit read:

[32] There was therefore nothing to suggest that the respondent wanted to and would have raised any alleged patent errors had it had the chance. Its complaint appeared to be that it was prevented from addressing the merits of its case as a whole, which I have already dismissed above. The onus lay on the respondent to prove that he was not given an opportunity to be heard on matters on which he has a right to be heard. While oral evidence could suffice, the respondent cannot rely on a mere allusion – he must make a positive assertion that this was the case. Documentary evidence, such as written submissions which a respondent had tendered to the adjudicator that the latter had refused to consider, would constitute strong evidence in the respondent’s favour.

[33] Second, I did not think that the errors alleged were patent errors as defined in Oriental Insurance. Counsel for the respondent did not articulate what these patent errors were. Taking the respondent’s case at the highest, it seemed to me that of the errors pointed out at [16] above, only the errors in the dates of the “timecards” could possibly have qualified as patent errors. Even if I were able to look beyond the face of the award or decision to establish manifest error (see Oriental Insurance at [89]) and found that these errors were obvious, I did not think they were “obviously capable of affecting the determination as to admit of no difference of opinion”. It was perfectly open to the adjudicator to have found, as the applicant contended, that the “timecards” accurately reflected the work done by the applicant notwithstanding the errors in the dates stamped, particularly since the respondent’s employees had signed off on them. Indeed, as I have held above at [20], that seemed to be precisely what the adjudicator did. I therefore held that there had been no material breach of natural justice on this ground.

[34] The conclusion from the foregoing is that adjudicators do not need to hear a respondent in an adjudication application on any matter that the respondent ought to have put in a valid payment response but had failed to do so. Indeed, in view of s 16(3)(b) of the Act which requires an adjudicator to “avoid incurring unnecessary expense”, an adjudicator should not condescend to hear the respondent at all on those matters as this would cause unnecessary expense to be incurred. What the adjudicator must hear a respondent on, apart from issues raised in a valid payment response, is any submission relating to patent errors on the documents or calculations or submissions of the claimant.

[35] Finally, having found that there were no grounds for the setting aside of the Determination, I was urged by the respondent to order a stay of the enforcement of the Order pending the final determination of the respondent’s claim against the applicant in the District Court. The principles governing the exercise of the court’s discretion to do so are uncontroversial, and are set out in W Y Steel at [70]:

[36] The respondent did not adduce evidence of the applicant’s actual present insolvency, but sought to persuade me on the basis of the second limb. That is, that the respondent would not be able to recover the money paid to the applicant if the dispute were finally resolved in its favour. It highlighted the following in support of its submission:

(a) The applicant’s workers had not received any salary in the three months prior to February 2015.

(b) The applicant was unable to provide sufficient manpower in fulfilling its obligations under the subcontract in dispute, which was indicative of the financial difficulty it was experiencing.

(c) The respondent had been told by the applicant at the time of the subcontract that it did not have any other jobs then.

(d) The applicant had failed and/or refused to carry out rectification works, which suggested that it was going to be wound up.

(e) The applicant’s directors and shareholders had incorporated a new company (“YSR”) on 29 April 2015, and it was suspected that they intended to channel or had already channelled all new projects and funds to this new company to allow the applicant to avoid its liabilities under the subcontract.

[37] I noted that all the listed evidence was given by way of affidavit without supporting documents. In contrast, the applicant was able to provide the following documentary evidence:

(a) Payment vouchers evidencing that the applicant had continued to pay for its workers’ meals and accommodation and part of their salary during the period referred to, and that it was now paying its employees their full salaries.

(b) A letter of award dated 25 May 2015 evidencing that the applicant had secured a new project with YSR for the sum of $550,708.10 (“the YSR Project”).

[38] Ultimately, I agreed with the applicant that an assessment of its financial standing under the second limb of W Y Steel should be conducted as at the time of the application. The financial difficulties experienced earlier in the year, as alleged at [36(a)]–[36(c)] above, were of little relevance to the applicant’s state of solvency at the time of the respondent’s application. In this regard, the evidence adduced by the applicant, which was not refuted by the respondent, showed that it was engaged in an ongoing project and was able to pay its employees in full. The respondent sought to characterise the YSR Project as further evidence of an intention to strip the applicant of its assets to avoid liability but there was little, beyond its bare assertion, to support this allegation. I therefore found that the respondent had failed to establish, on a balance of probabilities, that it would not be able to recover the money paid to the claimant if the dispute were finally resolved in its favour. I thus declined to order a stay of execution of the Order.