WITHDRAWING BACKCHARGES IN AN ADJUDICATION AND CALL ON PERFORMANCE BOND
The Appellate Division in Ee Hup Construction Pte Ltd v China Jingye Engineering Corporation Limited (Singapore Branch) & Anor [2025] SGHC(A) 3 (the “Judgment”) rendered an interesting decision that, among others, dealt with the effect of withdrawing backcharges from an adjudication and its effect on a subsequent call on a performance bond.
Background. The 1st respondent (“CJY”) was the main contractor engaged by the Land Transport Authority for a project involving the construction of the Bedok South Mass Rapid Transit train station and tunnels for the Thomson-East Coast train line (the “Project”), and had engaged the appellant (“EH”) as its sub-contractor to carry out excavation and earthworks (the “Sub-Contract”) (Judgment [4]).
EH then procured an on-demand performance bond (the “Bond”) from the 2nd respondent insurance company (“III”) pursuant to the Sub-Contract (Judgment [5]).
Disputes arose between EH and CYJ (Judgment [7]). On 25 March 2023, EH issued a payment claim number 69 (the “PC”) claiming for $1,909,794.65. On 15 April 2023, CYJ issued a payment response number 65 (the “PR”) for the sum of $63,938.87, which alluded to back-charges amounting to $327,656.17.
EH commenced an adjudication against CYJ in respect of the PC, and on 13 June 2023, the adjudicator determined a sum of $642,307.63 in favour of CYJ (Judgment [7]).
Relevantly, the adjudication determination did not take into account the back-charges, as CYJ had withdrawn its claims for back-charges for the purposes of the adjudication (Judgment [7]).
EH applied for an adjudication review which was dismissed (Judgment [7]), and thereafter, EH issued multiple payment claims to which CJY issued payment responses that incorporated the back-charges (Judgment [7]).
On 16 April 2024, CYJ called on the Bond (Judgment [8]) on the basis that it had incurred costs and/or expenses amounting to $598,015.19, of which $499,864.67 were for back-charges for the provision of equipment, services, materials and manpower, as well as for safety lapses, and $98,150.52 for “Temporary Land Occupation (“TOL”) fees and charges” (Judgment [8]).
EH then applied to the High Court on 25 April 2024 for an injunction to restrain CYJ from calling on the Bond (Judgment [9]).
And on 29 April 2024, EH applied for adjudication in SOP/AA 103/2024 (“AA103”), where CYJ again withdrew its claim for backcharges for purposes of the adjudication proceedings (Judgment [9]).
The High Court partially allowed EH’s application by granting an injunction for the sum of $98,150.52, but refused for the sum of $499,864.67 (Judgment [1]).
The High Court also allowed EH’s application for a stay of execution of the judgment pending the filing of an appeal, though the High Court ultimately did not grant an Erinford injunction (Judgment [2]).
The issue. Readers may recall the case of Samsung C&T Corp v Soon Li Heng Civil Engineering Pte Ltd [2020] 2 SLR 955 (“Samsung C&T v Soon Li Heng”), where the Court of Appeal held at [48] that “if a beneficiary were to deliberately avoid making a claim before an adjudicator simply to preserve its right to claim under a performance bond, that might itself be evidence of unconscionability.”
As set out in Judgment [18] – [19], that was a key issue here. EH argued that CYJ had acted in bad faith by “deliberately” withdrawing its backcharges and then calling on the Bond to “claw back” the adjudicated amounts.
What the Appellate Division held. This argument was, however, rejected by the Appellate Division.
The Appellate Division held at [19] that each case turns on its facts, and in the Samsung C&T v Soon Li Heng case, the Court of Appeal found that “the parties themselves did not dispute that “the nub of Samsung’s complaint about overpayment”, which it had advanced in calling on the performance bond, “concerned matters that had already been adjudicated” earlier by the adjudicator.”
However, the Appellate Division held at Judgment [20] that in the case before it, neither of the adjudicators made any determination on CYJ’s back-charges, because the backcharges were withdrawn by CYJ.
The Appellate Division at Judgment [23] also noted that CYJ’s position for withdrawing those claims was because CYJ took the view that they fell within s. 17(3) of the Building and Construction Industry Security of Payment Act 2004 (“SOPA”) and hence were not the appropriate subject of adjudication.
Thus, the Appellate Division at Judgment [24] said the following:
“25. … We agreed with the Judge that these costs could potentially fall under s 17(3) SOPA; that CJY’s view that its back-charges claim fell within s 17(3) was not unreasonable; and that there was some basis for believing that, had CJY pursued the back-charges in the adjudication proceedings, “time and cost [would have been spent] at the adjudication proceedings on the evidence surrounding these back-charges”. We thus rejected EH’s contention that CJY was acting in bad faith in withdrawing its back-charges claim from adjudication and subsequently making a call on the Bond.”
Conclusion. Given the above, the Appellate Division dismissed EH’s appeal, and held that EH’s arguments on unconscionability were without merit.
With this in mind, it means that it may be now harder for claimants to rely on Samsung C&T v Soon Li Heng as a basis for restraining a call on a performance bond.
This is because it is not uncommon for respondents to withdraw claims for back-charges for the purposes of an adjudication due to an inability to satisfy the requirements under s 17(3) SOPA. If so, Samsung C&T v Soon Li Heng may be difficult to apply for those cases in light of the present decision, in the absence of any other facts.
And as the Appellate Division set out at Judgment [26], a court does not engage in a detailed merits review when considering an application to injunct a call on a performance bond.
Given this, respondents would do well to consider carefully if they should bring and contest their claims for back-charges in an adjudication, or to withdraw them for the purposes of the adjudication.
This is because if the back-charges were (reasonably) withdrawn for the purposes of the adjudication, like what CYJ did, it does not necessarily mean that the respondent cannot subsequently rely upon them when calling on a performance bond.
But if the back-charges were not withdrawn, but were instead dismissed by the adjudicator, it may well be difficult to distinguish the case from Samsung C&T v Soon Li Heng.
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