Maxx Engineering Works Pte Ltd v PQ Builders Pte Ltd [2023] SGHC 71

Introduction

In Originating Application No 621 of 2022 (“OA 621”), the applicant, Maxx Engineering Works Pte Ltd (“Maxx”), sought an order compelling the respondent, PQ Builders Pte Ltd (“PQ”), to refer their dispute to mediation under the Singapore Mediation Centre (“SMC”) Mediation Procedure Rules, pursuant to a contract between them.

The application raised two legal issues. First, whether the parties were under a legal obligation to refer their dispute to mediation. Second, in the event that there was such a legal obligation, whether Maxx should be granted an order for specific performance to compel PQ to perform its obligation to refer the dispute to mediation.

I found that the parties were under a legal obligation to refer their dispute to mediation and that pursuant to this obligation, Maxx should be granted an order for specific performance to compel PQ to refer the dispute to mediation. As there does not appear to be any caselaw in respect of the latter issue, I set out the reasons for my decision below.

Background to the dispute

The parties entered into a contract (the “Sub-Contract). Clauses 54 and 55 of the Sub-Contract were salient:

Without referring the dispute to mediation, PQ referred the dispute to arbitration pursuant to Clause 55 of the Sub-Contract (“Clause 55”). In response, Maxx commenced OA 621 for, amongst other things, an order to compel PQ to refer the dispute to mediation on the basis that the parties were legally obligated under Clause 54 of the Sub-Contract (“Clause 54”) to do so.

Issue 1: Whether there was a legal obligation to refer to mediation

PQ submitted that the parties were not under a contractual obligation to refer the dispute to mediation before resorting to arbitration. Indeed, Clause 54 stated that “[f]or the avoidance of doubt, prior reference of the dispute to mediation under this clause shall not be a condition precedent for its reference to arbitration …” [emphasis added].

Maxx accepted that Clause 54 did not oblige the parties to mediate before commencing arbitration. Maxx pointed out that notwithstanding, Clause 54 also stated that “… the parties shall refer the dispute for mediation at the Singapore Mediation Centre” [emphasis added]. In a similar vein, Clause 55 stated that “… the parties shall refer the dispute for arbitration…” [emphasis added]. Maxx hence submitted that “shall refer” should be interpreted such that the parties must attempt dispute resolution by referring the dispute to both mediation and arbitration, so long as arbitration of the dispute had not been concluded.

As PQ’s submissions were limited to mediation not being a condition precedent to referring the dispute to arbitration, PQ’s submissions did not meet Maxx’s submissions on this issue. I nevertheless considered PQ’s submissions where it related to the parties’ legal obligation to refer the dispute to mediation.

First, PQ highlighted that Clause 54 only stated that the parties “shall endeavor [sic]” to resolve disputes through negotiations. However, PQ failed to address the key portion of Clause 54 that Maxx relied on: “[i]f negotiations fail, the parties shall refer the dispute for mediation”. Moreover, the statement in Clause 54 that “prior reference of the dispute to mediation … shall not be a condition precedent for its reference to arbitration by either party” would not affect the parties’ obligation to refer the dispute to mediation. Maxx’s submission was not that parties must mediate before proceeding with arbitration but that the parties must refer the dispute to mediation even if parties had commenced arbitration (see [6] above).

PQ also did not dispute that the words “shall refer” in Clause 55, in respect of referring disputes to arbitration, imposed an obligation to refer the dispute to arbitration. Indeed, by commencing arbitration, PQ appeared to have accepted that its contractual obligation was to refer the dispute to arbitration under Clause 55. As a matter of consistency, and on the plain language of Clause 54, the phrase “shall refer” must have also imposed an obligation on the parties to refer the dispute to mediation.

Lastly, PQ argued that the parties were under a legal obligation only to consider referring the dispute to mediation, as opposed to being obligated to refer the dispute to mediation. In support of its argument, PQ cited the Court of Appeal decision of Cheung Teck Cheong Richard and others v LVND Investments Pte Ltd [2021] 2 SLR 890 (“Cheung Richard”).

In Cheung Richard, the Court of Appeal considered the content of a contractual clause, cl 20A.1:

The Court of Appeal held at [31] that cl 20A.1 imposed only an obligation to consider mediation and the obligation “did not rise to the level of an obligation to mediate”. Relying on this finding, PQ submitted that Clause 54 similarly did not impose an obligation on the parties to mediate.

However, in contrast to the wording of cl 20A.1 that the parties “shall consider … mediation”, the wording in Clause 54 was that the parties “shall refer the dispute … for mediation”. In other words, Clause 54 obliged the parties to “refer” the dispute to mediation and not merely consider such referral (as was the case in Cheung Richard). Accordingly, PQ’s analogisation of Clause 54 in the Sub-Contract to cl 20A.1 in Cheung Richard was unjustified.

Additionally, a further point of distinction was that, in Cheung Richard, cl 20A.1 was followed by a cl 20A.2 which stated: “[f]or the avoidance of doubt, [cl(l) 20A.1 and 20A.2] shall not amount to a legal obligation on the part of either [party] to attempt mediation as a means of resolving their dispute or difference”. Clause 20A.2 thus emphasised that cl 20A.1 was not intended to be a legal obligation. In comparison, there was no similar clause in the Sub-Contract that pointed to or suggested that Clause 54 was not intended to impose a legal obligation on the parties to refer their dispute to mediation.

I hence found that, by its plain wording, Clause 54 imposed a legal obligation on the parties to refer their dispute to mediation, if negotiations failed.

Issue 2: Whether it was just and equitable to order specific performance

The question that followed was whether Maxx should be granted an order for specific performance to compel PQ to perform its contractual obligation to refer the dispute to mediation. The principles and considerations in relation to specific performance were set out by the Court of Appeal in, inter alia, Lee Chee Wei v Tan Hor Peow Victor [2007] 3 SLR(R) 537 (“Lee Chee Wei”) at [53]:

In assessing whether an order of specific performance was just and equitable in the circumstances, I considered the following factors:

(a) whether damages would be an adequate remedy if the order was not made;

(b) whether PQ would suffer substantial hardship from the order;

(c) whether the order would be futile;

(d) whether the order would be impractical; and

(e) whether there were other factors that would render granting the order just and equitable in the circumstances of this case.

Adequacy of damages

As a matter of doctrine, the substitutability of a good or service is a relevant factor in the consideration of whether damages are adequate. For example, the Court of Appeal in Tay Ah Poon v Chionh Hai Guan [1997] 1 SLR(R) 596 (“Tay Ah Poon”) noted at [13] (quoting Sharpe on Injunctions and Specific Performance (2nd Ed, 1995) at paras 8.10-8.20 with approval):

In addition, the Court of Appeal in Lee Chee Wei observed at [54] that “[w]hile a contract to transfer shares in a publicly listed company will generally not be specifically enforced, a contract to transfer shares in an unlisted company on the other hand can be specifically enforced” [emphasis omitted].

In the present case, the parties had bargained for an obligation to refer their disputes to mediation. In a similar vein to the Court of Appeal’s observations in Tay Ah Poon and Lee Chee Wei, I was of the view that damages for PQ’s breach of this obligation would have been an inadequate and unsuitable substitute for this obligation. Thus, this factor leaned in favour ordering specific performance of what the parties bargained for, ie. an obligation to refer the dispute to mediation.

Substantial hardship

Futility

The third factor was whether the order for specific performance would be futile. This was PQ’s submission, on the basis that Maxx had not provided it with any proposal for the resolution of the dispute as at the hearing. PQ asserted that this showed that Maxx was insincere in seeking to mediate the dispute.

However, I found that the lack of a proposal from Maxx as at the date of the hearing did not necessitate that mediation of the dispute would be futile. Neither did it show that Maxx was insincere in seeking to resolve the dispute by mediation. Notably, PQ did not indicate that it was unamenable to mediation or that mediation would be rendered futile by its unwillingness to mediate. In the absence of evidence that either party was unamenable to mediation, there was no basis to find that an order of specific performance to mediate the dispute would be futile.

Practicability

The fourth factor was whether the order would be impractical. Relying on Lee Chee Wei at [56], PQ submitted that an order for specific performance would be impractical as the court would be unable to supervise the acts to be carried out by PQ pursuant to such order. In Lee Chee Wei, the Court of Appeal found it impractical to grant and supervise the acts under an order for specific performance since the relevant parties were in prison serving out sentences.

In the present case, the order sought required PQ to take specific and concrete steps to refer the dispute to mediation, including replying to the SMC to confirm its assent to mediation, providing dates for mediation, and providing its Case Summary to the mediator. These steps did not present impracticality of supervision as there would have been no serious difficulty in determining whether PQ had complied with such steps. Accordingly, I considered that an order of specific performance would not be impractical.

Other circumstances relating to the requirement of “just and equitable”

Lastly, I considered whether there were other circumstances relating to this case that weighed in favour of it being just and equitable to order specific performance. There were three such circumstances.

Second, as emphasised by the Court of Appeal in HSBC Institutional Trust Services (Singapore) Ltd v Toshin Development Singapore Pte Ltd [2012] 4 SLR 738 (“Toshin”) at [45], “[t]he choice made by contracting parties, especially when they are commercial entities, on how they want to resolve potential differences between them should be respected” [emphasis in original]. In the present case, the parties, in concluding the Sub-Contract containing Clause 54, agreed that they would resolve their disputes by mediation, should negotiations fail. Referencing Toshin as quoted above, I was of the view that the parties’ choice to refer their dispute to mediation should be respected.

Third, the trend towards the promotion of amicable dispute resolution. The observations of the Court of Appeal in Toshin in the context of a contractual agreement for parties to “negotiate in good faith” at [45] are apposite:

The values highlighted in Toshin found legislative grounding in the recently enacted Rules of Court 2021 (“the ROC”), which provides at O 5 r 1(1) that “[a] party to any proceedings has the duty to consider amicable resolution of the party’s dispute before the commencement and during the course of any action or appeal.” The ROC also empowers the court to order parties to attempt to resolve the dispute by amicable resolution and to consider any refusals to attempt amicable resolution in determining any issue of courts under O 5 r 3(1) and (3). An order of specific performance in the present case would have been consistent with this trend and preference for amicable dispute resolution.

Conclusion

Taking into consideration the factors highlighted above, I found that it was just and equitable in the circumstances to order for specific performance to compel PQ to perform its contractual obligation to refer the dispute to mediation. I hence granted order in terms of the prayers in 2.1 and 2.2 of OA 621.