CONTRACTUAL DISCRETION AND SOME OBSERVATIONS ON CLAIMS FOR LABOUR
In Shipworks Engineering Pte Ltd and another v Sembcorp Marine Integrated Yard Pte Ltd and another and other suits [2024] SGHC 325, the High Court dealt with a claim for provision of work and services. In the course of the judgment, there are some interesting points to note.
Brief facts. In brief, the dispute related to a claim by the plaintiffs for $26,048,727.76 for 203 unpaid invoices for works and services and $541,152.19 on quantum meruit for 12 completed works for which invoices were not rendered (Judgment [1]).
These claims were disputed by the defendants on various grounds (Judgment [1]). In this short blog, we just address some of the grounds raised.
Contractual discretion. In the contracts between the parties, there was a Clause 9(a) which provided that the defendants had reserved (Judgment [15]):
“the absolute right and discretion to decide on the value of the Works carried out by the [plaintiff] regardless of any quotation, price or other quote or agreement deemed to have been or entered into, accepted by or given to the [plaintiff], its employees and representatives by the [defendant]. The [plaintiff] agrees not to challenge the [defendant’s] right or discretion unless and only if the same is fraudulently given or taken by the Company.”
This was supplemented with a Clause 17, which further provided that the defendants had reserved and retained “the absolute right and discretion to decide the extent of the works completed and the commercial value of the Works completed by the [Plaintiffs]” (Judgment [15]).
Was this discretion absolute?
The answer is no. The High Court, referring to the cases of Carlsberg South Asia Pte Ltd v Pawan Kumar Jagetia [2022] SGHC 74 at [124] and MGA International Pte Ltd v Waijilam Exports (Singapore) Pte Ltd at [102]–[103], held that this contractual discretion must be exercised “rationally” (Judgment [17]).
Can this obligation be excluded?
The answer is perhaps yes. However, the High Court commented that to do so, then the exclusion must be “extremely clear”, such as, for example, having a clause which provided that “the defendant is entitled to exercise its discretion even irrationally, arbitrarily and capriciously” (Judgment [17]).
On the facts of the case, the High Court found that Clause 9(a) was not worded such that the defendants’ obligation to exercise their discretion rationally had been excluded.
So, what does that mean in context of claims for work done?
The answer is given at Judgment [18], which we excerpt below:
“18 As such, the defendants’ discretion is not as unfettered as they claim. It is clear, for instance, that the defendants cannot be the sole arbiters of fact in relation to the parties’ relationship. They cannot insist that works were not completed if there is evidence to the contrary. They may not conjure a random figure as the commercial value of the works or manpower. And they certainly cannot ignore the terms of agreements into which they have entered just because they feel like it. In each case, the defendants must have a basis for exercising their discretion, and that basis cannot be Wednesbury unreasonable, ie, it cannot be outside the possible range of reasonable decisions available to any person in the defendants’ shoes. To hold otherwise would put the plaintiffs at the mercy of the defendants’ whims and fancies. It would leave the defendants free to disregard promises without consequences.”
This is important. It suggests that, e.g., if the reasonable market price for engaging a labourer is $15/hr, then it is likely that even if the main contractor had an “absolute discretion”, it would not be reasonable for the main contractor to simply use the rate of $1/hr (in the absence of any other relevant factors).
Irregularities. The defendants had also challenged the plaintiffs’ claim based on various irregularities. We will just flag out some observations.
1. Signatures impugned. The defendants managed to successfully impugned some of their representatives’ signatures on the plaintiff’s timesheets through use of a handwriting expert (Judgment [32] – [41]). What is interesting to note is that (a) the evidence of all of the relevant signatures’ makers were admitted under s 32(1)(i)(iii) of the Evidence Act as the High Court was satisfied that the defendants had no practicable way to secure their attendance at trial and (2) the High Court was satisfied that the plaintiffs were responsible for “or forging, fabricating or reproducing the signatures of the defendants’ representatives. There is no other conceivable explanation available — the defendants have no reason or motive to forge, fabricate or reproduce their representatives’ signatures” (Judgment [37]).
2. Biometric system. While the defendants sought to challenge the plaintiffs’ claim on the basis that the records showed manpower in excess of the number of workers recorded in the defendants’ biometric security system, this was rejected. The reason is because the High Court accepted that the workers might “might tailgate each other and not scan their passes”, and that “where the defendants’ representative’s signature on the Plaintiffs’ Timesheet is unchallenged, that representative is taken to have endorsed the number of workers on the particular day” (Judgment [42]). This is relevant, as it shows that biometric systems may not be perfect in practice, and it is important to know how the system actually functioned.
3. Double claim? One of the defendants’ other challenges was that the plaintiffs had double-claimed for work done. This was rejected by the High Court. Among others, at Judgment [54], the High Court emphasized that the supporting documents that the supporting documents “bear the signatures of one of the defendants’ engineers and a manager verifying that the work was done. What this means is that the defendants had checked the plaintiffs’ work on each Sub-Task invoice at least two times before approving. Indeed, the defendants had even made progress payments (see [14] above) to the plaintiffs pursuant to some of these invoices. All these strongly suggest that the plaintiffs had in fact completed the Sub-Tasks under all the invoices.” And the High Court noted that the defendants’ witness who testified that there was a double-claim was a person who was “not even personally involved in verifying these works” and that his claims that he had went through with the engineers who oversaw the tasks was “a mere assertion” as those engineers “have not provided any statements, let alone affidavits, accusing the plaintiffs of double claiming” (Judgment [56]).
While there are other issues being challenged, what is interesting to note is that while a claim for labour is usually a simple claim, this case shows that just because a case is usually straightforward does not mean that it will necessarily be so. Indeed, even though there was a process in place (see Judgment [3] - [14]), there were nonetheless issues which (it seems) were arose due to a failure to implement the process properly during execution of the works.
Conclusion. This judgment is interesting as it makes clear (once again) that even if a party purports to reserve to itself an “absolute discretion”, generally, such discretion is not “absolute” in the sense that it can be exercised irrationally or capriciously.
Nonetheless, for contracting parties, if you see the word “absolute discretion” (or words to similar effect), you should pay careful attention to what the clause provides. As this judgment suggested, with the appropriate qualifiers, it is perhaps possible for the “absolute discretion” to, in fact, be “absolute” such that it can be exercised even irrationally or capriciously.
The other point to note that is that while the defendants did successfully impugn certain claims, the defendants also failed in certain aspects. What is interesting to note is that the biometric system did not (from the report) appeared to have functioned as it should, whereas the “double signature” verification system was given significant weight. While it all turns on the facts, it is, perhaps, a reminder that for contractors, if your representatives sign something, they should pay careful attention to what they are signing, and if you wish to implement an electronic system, it is important to note how the system operated in practice, and not merely in theory.
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