BREACHES OF NATURAL JUSTICE IN SOP ADJUDICATION
In the recent Court of Appeal decision of Glaziers Engineering Pte Ltd v WCS Engineering Construction Pte Ltd [2018] 2 SLR 1311, the Court of Appeal made clear that the threshold to set aside an adjudication determination rendered under the Building and Construction Industry Security of Payment Act (“SOP Act”) is a high one.
Brief facts. This dispute arose from the construction of a residential development. The respondent, WCS Engineering Construction Pte Ltd, was the main contractor. The appellant, Glaziers Engineering Pte Ltd, was the sub-contractor.
The appellant commenced an adjudication. The salient fact is that the adjudicator allowed the appellant’s claim and rejected the respondent’s set-off claim, on the basis that the respondent had not shown “beyond reasonable doubt” that the appellant was responsible for the shattering shower screens.
The respondent applied to set aside the adjudication determination on the basis of, inter alia, breach of natural justice.
At first instance. At first instance, the High Court set aside the adjudication determination. The Judge accepted that (1) the adjudicator had breached the rules of natural justice in applying the standard of beyond reasonable doubt, because the applicable standard of persuasion was never a live issue in the adjudication and neither party was afforded any opportunity to address the adjudicator on the same, (2) found that the breach was material, as there was a clear causal connection between the breach and the outcome, and (3) found that the breach caused the respondent prejudice.
Dissatisfied, the appellant appealed.
Test for breach of natural justice. For practitioners, it is commonly known that in the arbitration context, a party seeking to challenge an arbitral award on the basis of a breach of the rules of natural justice must show (1) which rule of natural justice was breached, (2) how it was breached, (3) in what way the breach was connected to the making of the award and (4) how the breach prejudiced its rights (as per the Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR(R) 86).
In Glaziers Engineering, the Court of Appeal held at [32] that the principles are equally applicable to challenges to an adjudication determination on the basis of non-compliance with the rules of natural justice.
While this is highly persuasive, we pause to observe whether the above test must always apply. We observe that Quentin Loh J in UES Holdings Pte Ltd v KH Foges Pte Ltd [2018] 3 SLR 648 expressly left open the issue of whether the material breach requirement applies in cases of apparent bias under the SOP Act.
Given the temporary finality of SOP adjudications, it remains to be seen if an argument can be made that unlike arbitrations (which are final), the material breach requirement should not apply in adjudications when it comes to cases of apparent bias.
Standard to be met – AKN v ACL clarified. The Court of Appeal then clarified its remarks in AKN and another v ACL and others and other appeals [2015] 3 SLR 488 (“AKN v ACL”) that a breach of natural justice should only inferred if such an inference was “clear and virtually inescapable”.
The Court of Appeal stressed that AKN v ACL should not be read as modifying “in any way” the standard of proof in a setting aside application. As stated at [35] “… Such an applicant is required to show, on a balance of probabilities, that there has been a material breach of natural justice which has caused it to suffer prejudice.”
The Court of Appeal highlighted that in AKN v ACL, the court was concerned with a specific type of breach of the fair hearing rule whereby the arbitrator is alleged to have wholly failed to consider a pleaded issue. This allegation may be more difficult to verify than other breaches of natural justice. A decision-maker’s silence, for instance, may not lead to the conclusion that he had failed to consider the submission entirely. It was in this context that the court in AKN v ALC stated that it should only be inferred that the decision-maker had wholly failed to consider an issue if such inference was “clear and virtually inescapable”.
Leeway for expression. Layman adjudicators will no doubt be comforted by the Court of Appeal’s finding at [59] – [60] Glaziers Engineering that the Court will give due weight to the fact that they are not legally trained, making clear that while it is dependent on the facts, “it was doubtful that [the adjudicator] intended to use those words [“beyond reasonable doubt”] with all the import they would carry if they were used by a lawyer or a judge.”
No breach of fair hearing rule. The Court of Appeal then proceeded to hold that at [63] Glaziers Engineering that “… the standard of persuasion was so integral and crucial to the adjudicator’s very task of determining the dispute that there was no way he could have decided the dispute without coming to a position on the standard to be applied. In an adversarial decision-making process, it is inherently the remit of the decision-maker to assess the evidence against some standard of proof or persuasion…”. As such, the Court of Appeal held at [64] that “[i]f the parties decided not to address it, knowingly or otherwise, they cannot complain that they had no fair or reasonable opportunity to be heard.”
Indeed, the Court of Appeal found at [66] – [67] that on the facts, the parties did in fact engage each other on the sufficiency of evidence, and that “it should have been obvious to the parties that they had diametrically opposing positions regarding the sufficiency of the evidence, and that the standard of persuasion to be met was thus an issue of decisive importance… [if the] parties nevertheless chose not to address the adjudicator on the applicable standard, either because it never crossed their minds or they assumed that the answer was clear and obvious… the parties could not then complain…”
No material breach. The Court of Appeal proceeded to find that even if there had been a breach of the fair hearing rule, they would have allowed the appeal on the basis of no prejudice ([68] Glaziers Engineering).
This is because the Court of Appeal found that if the parties had addressed the adjudicator on the point, they would have submitted that the applicable standard was that of a prima facie case ([69] Glaziers Engineering).
Even then, the Court of Appeal found that on the facts of Glaziers Engineering, the adjudicator would have still dismissed the claim because “adjudicator saw no evidential basis for the respondent’s backcharge whatsoever” ([71] Glaziers Engineering).
High threshold for breaches of natural justice. With the adoption of the material prejudice test, parties would do well to note that it is very difficult to set aside adjudication determinations.
While this has always been the case, Glaziers Engineering is a useful illustration of just how difficult it can be. Even a “fundamental” error (as to the standard of proof) would not suffice to set aside the adjudication determination.
The Court of Appeal was careful to note at [67] Glaziers Engineering that the error made by the adjudicator “may amount to an error of law.”
We highlight the above passage, as there appears to be room for fertile (though perhaps academic) discussion on when would an error of law be so serious as to render the adjudication determination liable to be set aside, and whether the nomenclature of jurisdictional versus non-jurisdictional error of law should be applied in the context of the SOP Act in light of the “legislatively important” test.
Comprehensive submissions. Glaziers Engineering also stands for the proposition that parties should make clear submissions on all points of controversy, regardless of whether such submissions have been invited by the adjudicator and even if the issue appears seemingly clear and obvious, lest parties be taken to have chosen not to address the adjudicator on any issue of decisive importance.
We pause here to observe that Glaziers Engineering could invite a discussion of whether the proper recourse in such instances should be to remit the determination back to the adjudicator. However, that discussion is quite beyond the scope of this blog, involving an analysis of, inter alia, when is an adjudicator functus and whether there is inconsistency (if any) in undertaking a merits review when exercising a supervisory jurisdiction.
This publication is not intended to be, nor should it be taken as, legal advice; it is not a substitute for specific legal advice for specific circumstances. You should not take, nor refrain from taking, actions based on this publication. Chancery Law Corporation is not responsible for, and does not accept any responsibility for, any loss or damage that may arise from any reliance based on this publication.