IMPORTANT RECENT DECISION ON SOPA: LJH CONSTRUCTION & ENGINEERING CO PTE LTD V CHAN BEE CHENG GRACIE [2022] SGHC 230
In this week’s blog, we take a quick look at some of the key points raised in LJH Construction & Engineering Co Pte Ltd v Chan Bee Cheng Gracie [2022] SGHC 230, where the High Court covered a variety of important issues relating to adjudication under the Building and Construction Industry Security of Payment Act 2004.
In the interests of brevity, we will focus only on some of the key points, and will not cover all the facts and arguments. However, we urge interested readers to read LJH Construction & Engineering Co Pte Ltd v Chan Bee Cheng Gracie [2022] SGHC 230 (“LJH v CBC”) in full.
Service of payment claim via email. Ang Cheng Hock J first addressed what is required of a party who wishes to effect service of a payment claim via email under s. 37 of the Building and Construction Industry Security of Payment Act 2004 (“SOPA”).
Ang J held that for a payment claim to be validly served via email under s. 37 SOPA, it must be “likely to be effective in bringing the claim to the attention of the addressee in a reasonably prompt manner, and the sender has the onus of proving this.” ([47] LJH v CBC). We set out [47] LJH v CBC below:
“47 Accordingly, in my judgment, service of a payment claim by email would only be valid if it is likely to be effective in bringing the claim to the attention of the addressee in a reasonably prompt manner, and the sender has the onus of proving this. To that end, where a sender wishes to serve a payment claim on a recipient via the last email address of the addressee known to the sender under s 37(3)(b) of the SOPA, the sender must have some basis, which is objectively ascertainable, to believe that the last known email address is one which the addressee currently uses, or at least checks, regularly. It is insufficient that the sender has some subjective belief, without any proper basis, that the last known email address would be one that the addressee would check regularly. While I do not propose to exhaustively define what would amount to such an objectively ascertainable basis, an example would be where the sender has, in the recent past, sent emails to the addressee via a particular email address, and the addressee has replied using that email address.”
While this requirement would generally not be an issue for most construction projects as, in our experience, most payment claims would have been served regularly via email to either the respondent’s project staff or to a project email, this issue is extremely important if the respondent is a natural person, as in the case of LJH v CBC.
As Ang J observed at [49] LJH v CBC, “… In this day and age, it is commonplace for individuals to have multiple email accounts, some of which may have been created some time ago and may no longer be in use. Senders may learn of these unused email addresses with relative ease, for instance, by searching the internet for the contact information or the social media profile(s) of the intended recipient... It would be grossly unfair if a claimant were allowed to serve payment claims via email addresses which are no longer in regular use…”
On the facts of LJH v CBC, Ang J found that the payment claim in question was not validly served. Among others, Ang J found it significant that:
Prior to the payment claim in question, the claimant had never served any payment claims on the respondent via email.
There was no evidence of the respondent using the Hotmail account regularly after 2016, let alone in 2021 when the payment claim in question was served.
While this is a fact-sensitive question in each case, LJH v CBC makes clear that a claimant bears the onus of proving good service, if challenged. This is a welcomed decision as it should deter claimants from attempting to commence smash-and-grab adjudications by claiming to have validly served their payment claims on the respondents by effecting service on some “defunct” email address.
Fraud. Ang J also found that the adjudication determination in question was affected by fraud. Among others, Ang J found that the claimant knew, or ought reasonably to have known, that the facts relied upon by the adjudicator in making the adjudication determination were false as the claimant “could not have genuinely believed that it was under any actual or potential liability to Yong Chow [a sub-contractor] for [certain] sums, or that it was entitled to claim these sums from [the respondent]” ([83] – [84] LJH v CBC).
While the case law on setting aside adjudication determinations for fraud is clear (see Façade Solution Pte Ltd v Mero Asia Pacific Pte Ltd [2020] 2 SLR 1125 (“Façade Solution”)), and issues of fraud are inevitably highly fact-specific, we highlight the above instance as in arriving at the above conclusion, Ang J made clear that the claimant bears the burden of proving the basis of its claim ([78] LJH v CBC).
In LJH v CBC, the claimant tried to argue (among others) that it was entitled to payment because it thought that it was “at risk of being held liable for quotations and/or invoices issued by Yong Chow, especially if Mdm Wee failed to make payment to Yong Chow” ([80(a)] LJH v CBC). This argument was given short shrift by Ang J who held at [82] LJH v CBC that “I find the position taken by LJH in respect of Yong Chow’s invoices to be completely untenable. In my judgment, LJH would surely know whether it had any contract with Yong Chow, and thus whether Yong Chow would have any claim against LJH for unpaid work. It is absurd for LJH to take the position that it might be liable to Yong Chow just because the latter sent invoices to LJH, especially when LJH’s own evidence is that it had no dealings with Yong Chow whatsoever. …”
This is a solemn reminder to claimant that they need to prove the basis of their claim. This is especially important because, as Ang J proceeded to find in LJH v CBC, as per the approach in Façade Solution, a court would not lightly disregard the conduct of a claimant and the court would not likely sever an adjudication determination that has been affected by fraud. See [175] LJH v CBC excerpted below:
“175 Following the approach taken in Façade Solution, I am of the view that the court should not lightly disregard the conduct of LJH in this case. It is clear that LJH has abused the SOPA regime by fraudulently obtaining a determination in its favour of over $270,000 on claims which it knew, or at least ought to have known, had no factual or legal basis. In fact, when one views LJH’s conduct as a whole, in particular the way it attempted to serve PC 21 on Mdm Wee by email when it had never done so in the past, this is quite likely a case where LJH was attempting to claim as much money from Mdm Wee as possible, with the hope that she would be taken by surprise and would have no time to react. I do not find that this is a case where cashflow is crucial to LJH, given that LJH waited for almost two years after it last did any work on the Project in 2019 (at least according to its case) before attempting to serve PC 21 on Mdm Wee on 30 April 2021. LJH has given no explanation whatsoever in its affidavits (affirmed by Mr Li) to account for this delay. I find that this would not be the exceptional type of case where the court should allow the portions of the Adjudication Determination affected by fraud to be severed – the policy consideration of facilitating cash flow does not outweigh the need to uphold public confidence in the administration of justice in this case (see Façade Solution at [61]). As such, putting aside the question of whether the tainted parts are substantially and textually severable, I decline to exercise my discretion to sever the Adjudication Determination, which should therefore be set aside in its entirety.”
Patent error and duty to adjudicate. Ang J also found that the adjudication determination should be set aside for patent errors. In doing so, Ang J referred to Comfort Management Pte Ltd v OGSP Engineering Pte Ltd [2018] 1 SLR 979 on how “patent errors” are the “decisive test” for determining whether an adjudicator has breached his duty, which we set out below:
“134 The decisive test for whether the adjudicator has breached his duty under s 17(4) of the SOPA is whether there are patent errors which the Adjudicator has failed to recognise. Where a court sees that a payment claim which has been allowed, and/or its supporting materials, contain patent errors, the inexorable inference to be drawn is that the adjudicator failed to have regard to the matters under s 17(4) of the SOPA since he did not recognise these errors (Comfort Management at [71] and [81]). Similarly, the central analytical tool for ascertaining whether the adjudicator has breached his duty under s 17(2) of the SOPA is the question of whether there are patent errors (Comfort Management at [82]). In summary, the Adjudicator’s failure to recognise patent errors when making his determination will lead to the conclusion that the adjudicator has breached his duty to adjudicate, ie, his duty to be satisfied on a prima facie basis of the completion and proper value of the construction work which forms the subject of the payment claim (Comfort Management at [83]).”
While the above excerpt may seem trite, the application of the above excerpt in LJH v CBC is important.
In the adjudication determination, Ang J accepted that the adjudicator in question had “applied his mind to each of the claims made by LJH in respect of the Variation Works and determined their value based on quotations from other contractors”.
However, Ang J held that the adjudicator nonetheless committed a patent error. This is because Ang J found that the sole basis for the adjudicator to find that the variation works in question was completed was the quotations, without any photographs, plans, or other documentary proof of completion.
“142 I accept that the Adjudicator had applied his mind to each of the claims made by LJH in respect of the Variation Works and determined their value based on quotations from other contractors. However, I agree with Mdm Wee that the fact that LJH has failed to produce any evidence that the works were completed constitutes a patent error in the sense contemplated in Comfort Management. It is evident from para 88 of the Adjudication Determination that, save for one item of Variation Works claimed for in PC 21, the sole basis for concluding that the Variation Works were completed (and their value) were various quotations or letters containing price quotes submitted by other contractors, which the Adjudicator considered to be “prima facie evidence of work done”.
143 Mere quotations unsubstantiated by any photos, plans, or other documentary proof of completion of work cannot possibly constitute satisfactory evidence of completion of the Variation Works which LJH claims payment for; the absence of any such evidence of completion amounts to a patent error in LJH’s claim for the Variation Works. Leaving that aside, I also agree with Mdm Wee that there is no evidence that the quotations from the contractors relied upon by the Adjudicator were even accepted by LJH.”
(emphasis in original in italics)
Ang J made clear that each case had to be decided on its own facts. Nonetheless, “… adjudicators cannot possibly be satisfied as to the completion of construction works, and the value of such works, by relying only on unaccepted and unsubstantiated quotations or progress claims from contractors or subcontractors” ([148] LJH v CBC).
This is extremely important to note for claimants, or professionals assisting claimants. Sometimes, given the short timelines, claimants may be tempted to take “short cuts” by not presenting a complete set of supporting documents in adjudication, thinking that a “prima facie” standard can be met by presenting minimal supporting documents.
LJH v CBC is a stern warning that there is a difference between insufficient documentation and no documentation, and if the line is crossed, the adjudication determination may be susceptible to being challenged on the basis of a patent error.
What, then, would be sufficient?
The clue can be found in [147] LJH v CBC, which we duplicate below:
“147 Indeed, in Comfort Management, the court found that the adjudicator in that case had a “positive reason for accepting” a claim because he had applied his mind to the supporting documents for that claim and was satisfied that they were sufficient (at [91]). However, the situation in this case may be distinguished from Comfort Management. There, the adjudicator took note of a table setting out the location, quantities and prices of the works. There were also appendices containing a breakdown of the works with reference to relevant drawings, and those drawings were marked as “as built” and bore handwritten quantities and locations of work sketched in colour. It was against those facts, among others, that the court observed at [94] that the true substance of the appellant’s argument was that there was insufficient (as opposed to no) documentation to support the respondent’s claim, and thus declined to set aside the adjudicator’s decision on the basis of a failure to recognise any patent error. In the present case, however, there was no such evidence that would permit the conclusion, even on a prima facie standard, that the Variation Works which LJH claimed for were actually carried out and completed.”
(emphasis in original in italics)
So, this suggests that if a claimant supports its claim with tables / appendices setting out the quantities of claim, and reference those tables / appendices to sketches / drawings / plans, that may be sufficient.
Breach of natural justice: fair hearing rule. Ang J also found that there was a breach of natural justice, and specifically, a breach of the fair hearing rule. We set out [189] LJH v CBC below:
“189 In particular, I am of the view that Mdm Wee was deprived of a fair opportunity to be heard by reason of (i) the Adjudicator’s failure to ask Mdm Wee and her solicitors whether Mdm Wee wished to respond to the new material adduced by LJH; and (ii) relatedly, the Adjudicator’s failure to request for an extension of time to render his determination in order to receive further submissions from Mdm Wee or to convene an adjudication conference to hear the parties.”
On the first point, what is relevant to note is the timeline as set out in [190] LJH v CBC. The adjudicator received new material and submissions from the claimant on 16 June 2021, but did not ask the respondent’s solicitors on whether the respondent intended to rely or respond. Instead, the adjudicator simply proceeded to render his determination on 18 June 2021.
Ang J found that this was a breach of the fair hearing rule as the respondent had been deprived of an opportunity to respond ([190] LJH v CBC), and referred to L W Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd and another appeal [2013] 1 SLR 125, finding that the adjudicator ought to have contacted the respondent and/or her solicitors to ascertain whether the respondent intended to address the new material and, if so, to seek an extension of time.
Turning to the second point, Ang J found that the “… Adjudicator’s decision not to request for an extension of time to issue his determination in order to receive further arguments from Mdm Wee or to convene an adjudication conference had resulted in a breach of the fair hearing rule” ([193] LJH v CBC).
As set out in [195] LJH v CBC, Ang J found that the adjudicator may have been operating under a misapprehension that he could not request for an extension of time if there had been no payment response or adjudication response from the respondent, which would be an erroneous reading of SOPA.
What is perhaps more important is that on the facts of the case, the adjudicator had previously asked for an adjudication conference to be held on 16 June 2021. The claimant had indicated that it was unable to attend. This led Ang J to find at [197] LJH v CBC that “… [g]iven that LJH itself, the claimant … had indicated that it was unavailable to attend an adjudication conference on 16 June 2021, I am of the view that there was no good reason for the Adjudicator not to have requested for an extension of time to issue his determination in order to hold an adjudication conference on a later alternative date, when both LJH and Mdm Wee would be available to attend. Had the Adjudicator requested for an extension of time, and the parties had agreed to his request, the Adjudicator might have been able to convene an adjudication conference during which Mdm Wee could have been given a fair and reasonable opportunity to be heard. …”
Conclusion. There are other important points addressed in LJH v CBC, but in the interests of brevity, we have only highlighted some of them.
For claimants, LJH v CBC is a reminder that while it may be easier for a claimant to succeed in an adjudication than in litigation / arbitration, a lower standard of proof does not mean that a claimant can simply stroll into an adjudication and expect to succeed. You need to ensure that you have served your documents properly, that you have supported your claims correctly, and that there is a proper basis for the claims presented. A failure to do so may result you failing to prove your claim in adjudication, or, even if the claim succeeds in adjudication, result in the adjudication determination being set aside.
As for adjudicators, LJH v CBC is a reminder that the duty to adjudicate is an important duty. An adjudicator needs to examine the documents properly before him and make a finding. In this regard, Ang J’s decision in LJH v CBC makes clear that just because a claimant may present documents to evidence work done, it does not mean that the claimant has proven work done. It all depends on what the documents actually show. The line between little documentation and no documentation may, on occasions, be a fine one, but it is an important distinction.
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.