IS AN ADJUDICATOR'S FINDING THAT A PAYMENT CLAIM WAS VALIDLY SERVED A DETERMINATION ON THE MERITS?
In Emergent Engineering Pte Ltd v China Construction Realty Co Pte Ltd [2022] SGHC 276, Justice Tan Siong Thye dismissed the Respondent’s application to set aside the Adjudication Determination and the consequent Order of Court which enforced the Adjudication Determination. Among others, Tan J held that the Adjudicator’s finding that the payment claim in question was validly served was a determination on the merits which the Court was not entitled to review.
Facts. Emergent Engineering Pte Ltd v China Construction Realty Co Pte Ltd [2022] SGHC 276 (“Emergent Engineering”) arose from an Adjudication Determination rendered in Adjudication Application No. SOP/AA 093 of 2022 (“AA 93”) (at [1] Emergent Engineering).
The Adjudication Determination was made in respect of a Payment Claim No 25 (“PC 25”) served on 6 May 2022 (at [7] Emergent Engineering).
PC 25: Post-termination payment claim. However, PC 25 was served after the Respondent issued a Notice of Termination on 22 April 2022 seeking to terminate the Sub-Contract (at [5] Emergent Engineering), and after the Applicant responded with its notice on 30 April 2022 stating that the Respondent had wrongfully terminated the Sub-Contract and was therefore in repudiatory breach (at [6] Emergent Engineering).
In its Notice of Termination, the Respondent purportedly relied on, amongst others, clause 5.10.1 of the Letter of Acceptance (“Clause 5.10.1”) as the basis for terminating the Sub-Contract (at [5] Emergent Engineering). The relevant portion of Clause 5.10.1, termed by Tan J as the “Termination Provision” (at [5] Emergent Engineering), entitled the Respondent to terminate the employment of the Applicant by written notice with immediate effect, if the specified scenario(s) under the clause was met.
Payment Suspension Provision. Clause 5.10.1 also contained a portion termed by Tan J as the “Payment Suspension Provision” (at [32] Emergent Engineering), which provided (among others) that:
“…
Upon the termination of [the Applicant’s] employment under this Clause, [the Respondent] is not obliged to certify any further payment under the [SOPA]. Further, [the Respondent] is entitled to retain any payment which would otherwise be due and owing to [the Applicant] under the [SOPA].”
Tan J noted that s 4(2)(c) of the Building and Construction Industry Security of Payment Act 2004 (2020 Rev Ed) (“SOPA”) excluded the application of the SOPA to any terminated contract which permitted “the respondent to suspend progress payments to the claimant” until the specified date or event was met (at [33] Emergent Engineering)
Issue before the Adjudicator. Therefore, the issue that arose before the Adjudicator, was, as summarised by Tan J at [34] Emergent Engineering:
“34 If the Payment Suspension Provision was invoked, the effect would be to suspend the Applicant’s entitlement to issue the Respondent a payment claim. This would have rendered the Applicant’s service of PC 25 invalid under s 4(2)(c) of the SOPA. The invocation of the Payment Suspension Provision is dependent on the Respondent’s termination of the Sub-Contract “for default and/or repudiatory breach under general law”. In other words, from the moment the Respondent terminates the Sub-Contract under either the Termination Provision “for default” or under common law for “repudiatory breach”, the Applicant would not be entitled to serve any payment claim on the Respondent.”
And in this regard, the Adjudicator had found that (at [32] Emergent Engineering):
The “Payment Suspension Provision” was not invoked on the facts to invalidate the Applicant’s payment claim;
As such, PC 25 was a valid payment claim under the SOPA; and
The Adjudicator therefore had the jurisdiction to adjudicate AA 93.
The Respondent’s arguments. The Respondent raised three arguments in support of its application to set aside the Adjudication Determination (at [13] Emergent Engineering):
“(a) The Adjudicator failed to comply with the principles of natural justice set out in s 16(5)(c) of the SOPA.
(b) PC 25 was not served in accordance with s 10 of the SOPA.
(c) PC 25 involves a claim for the final settlement of accounts and is therefore not a progress payment within the ambit of the SOPA.”
In addressing the Respondent’s allegations, Tan J held that (at [15] Emergent Engineering):
In an application to set aside an adjudication determination or an order of court enforcing the adjudication determination, the court is exercising its supervisory jurisdiction;
The court cannot review the merits of the adjudicator’s decision; and
Citing Citiwall Safety Glass Pte Ltd v Mansource Interior Pte Ltd [2015] 1 SLR 797, “… any setting aside must be premised on issues relating to the jurisdiction of the adjudicator, a breach of natural justice or non-compliance with the SOPA”.
It suffices to say that Tan J ultimately found that the Respondent had not made out any ground for its application to set aside (at [68] Emergent Engineering).
The High Court’s findings. However, what is interesting to note is that in Tan J’s summary at [68], Tan J stated that the issue of whether PC 25 was validly served – which turned on the issue of whether the Sub-Contract was validly terminated – was a determination on the merits which the Court was not entitled to review (at [68(b)]).
The relevant sub-paragraph is reproduced below.
“(b) I also find that the Applicant has validly served PC 25 on the Respondent. Whether the Applicant was entitled to serve PC 25 turned on whether the Sub-Contract was validly terminated, such that the Payment Suspension Provision and s 4(2)(c) of the SOPA precluded the Applicant from serving any payment claim. The Adjudicator has found that PC 25 was validly served. This determination on the merits is one which the Court is not entitled to review. Accordingly, the Respondent’s submission on this ground amounts to an impermissible backdoor attempt to review the merits of the underlying dispute, ie, whether the Respondent had validly terminated the Sub-Contract.”
(emphasis added)
What can the Court review? So, in Emergent Engineering, the issue of the validity of PC 25, which turned on the question of whether the Sub-Contract was validly terminated, was found by Tan J to be a determination on the merits which the Court cannot review. Tan J stated at [53] Emergent Engineering that “… the Respondent’s submissions … clearly amount to a backdoor attempt to review the merits of the underlying dispute; it sought to invite this Court to consider whether it would have reached the same decision as the Adjudicator on the issue regarding the validity of the Respondent’s termination of the Sub-Contract.”
Yet in the earlier decision of Progressive Builders Pte Ltd v Long Rise Pte Ltd [2015] SGHC 223 (“Progressive Builders”), Justice Lee Seiu Kin, citing Lee Wee Lick Terence v Chua Say Eng [2013] 1 SLR 401 at [66], took the view that an issue concerning the validity of service of the payment claim in question directly affected the jurisdiction of the adjudicator, as without a valid payment claim, “… the purported appointment of the adjudicator will be invalid and the resulting adjudication determination will be null and void” ([15] Progressive Builders).
Jurisdictional error vs. error in exercise of jurisdiction. It is relevant to note Colin Seow AR in Mataban Development Pte Ltd v Black Knight Warrior Pte Ltd [2017] SGHCR 12 explained at [41] – [42] that:
If an adjudicator decides to proceed with an adjudication where no payment claim existed, the court in a setting aside application can review the correctness of the adjudicator in proceeding with the adjudication as it would amount to a “jurisdictional error”; but
If the adjudicator decided to proceed with an adjudication with a formally defective payment claim, the court cannot review the finding of the adjudicator on the validity of the payment claim, as it would amount to a “mere error in the exercise of jurisdiction”.
This is an important distinction to bear in mind.
As set out by the Court of Appeal in Far East Square Pte Ltd v Yau Lee Construction (Singapore) Pte Ltd [2019] 2 SLR 189 (“Far East Square”) at [65], “… where the jurisdictional objection is that there is no contract between the parties, the respondent [cannot] be taken to have waived its right to raise this objection if it did not raise it at the earliest possible opportunity… the duty to speak does not extend to payment claims that are outside the ambit of the SOPA…”
If so, if an adjudicator wrongly determines that a respondent had wrongly terminated the contract and was hence not entitled to rely on s 4(2)(c) SOPA, why is this a determination on the merits that the Court is not entitled to review? After all, the effect of such a wrong determination would be to allow a claimant to commence an adjudication for a payment claim that would otherwise have been barred under s 4(2)(c) SOPA.
Food for thought. Nonetheless, it must be borne in mind that Emergent Engineering is an ex tempore judgment and Tan J did not set out his full grounds of reasoning. As such, we will respectfully suggest that caution should be exercised when reading the judgment.
Nonetheless, the following questions spring to mind:
Is Tan J’s comment in relation to the Court not reviewing the merits of the adjudicator’s determination on the validity of termination obiter, bearing in mind that earlier (at [37] Emergent Engineering), Tan J had already found that the Payment Suspension Provision would not be enforceable as it is a pay when paid provision? If so, where does this bring us?
Should Emergent Engineering be read in light of the Respondent’s concession (for the issue of whether PC 25 was validly served on the Respondent) that PC 25 was compliant with s 10 of the SOPA (at [48] Emergent Engineering)? In other words, what is the impact of the Respondent accepting that PC 25 was a payment claim served on time under the Sub-Contract, when the Respondent is arguing that s 4(2)(c) SOPA would apply to render the payment claim “invalid”?
Does Emergent Engineering stand for the proposition that, for the purposes of s 4(2)(c) SOPA, an adjudicator’s determination on whether there was wrongful termination or not is a determination on the merits that cannot be reviewed by the Court? And if so, is it because in such cases, the issue is not whether the payment claim is outside the ambit of the SOPA, but rather a question of whether the application of SOPA should be “temporarily suspended“? After all, when s 4(2)(c) SOPA applies, it contemplates a claimant being able to lodge a payment claim after the period of suspension (subject to the contract).
We leave our readers with these questions as food for thought.
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