TONG HAI YANG CONSTRUCTION PTE LTD V LITTLE SWAN AIR-CONDITIONING & ENGINEERING PTE LTD [2019] SGHC 188
In the recent decision of Tong Hai Yang Construction Pte Ltd v Little Swan Air-Conditioning & Engineering Pte Ltd [2019] SGHC 188 (“THYC v LSACE”), the High Court dismissed an application to set aside an adjudication determination rendered under the Building and Construction Industry Security of Payment Act (the “SOP Act”).
Background. The Defendant, Little Swan Air-Conditioning & Engineering Pte Ltd (“LSACE”), was the sub-contractor of the Plaintiff, Tong Hai Yang Construction Pte Ltd (“THYC”), for Air-Conditioning and Mechanical Ventilation, Electrical, Fire Prevention and Protection System and Additional Optional Works.
About 9 months after the completion certificate had been issued, LSACE served a progress claim on THYC which included claims for works carried out under 21 Variation Orders (“VOs”). THYC failed to file a payment response. LSACE proceeded to lodge an adjudication application and eventually obtained an adjudication determination (“AD”) in its favour.
THYC applied to the High Court to set aside the AD, arguing that the Adjudicator had made a material patent error as the VOs were not part of the contract.
Separate contract? THYC argued that the VOs were only between LSACE and the employer’s representative, EWC Engineers Pte Ltd (“EWC”) (see [7] – [10] THYC v LSACE):
· The quotations were addressed directly to EWC only.
· EWC accepted and approved the quotations.
· THYC was not addressed in communications between EWC and LSACE.
· LSACE’s evidence also clarified that THYC was excluded from the procedure of commissioning and carrying out the VOs.
Waiver. However, the Adjudicator found that THYC had notice of the VOs but failed to clarify whether they were outside the scope of the contract. On this basis, the Adjudicator found THYC liable for the VOs ([11] – [12] THYC v LSACE).
Before the High Court. The High Court agreed that THYC had notice of the VOs, and further found that THYC had waived its right to object to the VOs as being separate from the contract ([17] – [22] THYC v LSACE):
· One month after the completion certificate was issued, LSACE sent a letter to THYC setting out 19 out of 21 of the VOs. The subject title of the letter specified the contract between THYC and LSACE. THYC acknowledged receipt without raising any objections.
· Nine months after the completion certificate was issued, LSACE submitted the Final Account Document which included the 21 VOs. THYC was specified as the main contractor and LSACE as the nominated sub-contractor. Again, THYC acknowledged receipt without raising any objections.
· Further, after the adjudication application was lodged, THYC sent a letter to LSACE recording a meeting where LSACE accepted that some VO items were invalid and agreed to have the final account amount evaluated. The appendix to the letter also set out the approved amounts asserted by LSACE. As this letter was not made without prejudice, THYC’s letter amounted to a concession that only some of the VOs were disputed.
In summary, the effect of the above was that THYC had waived its right to object to the VOs on the basis that the VOs fell outside the contract with LSACE.
No patent error. The High Court was also satisfied that the Adjudicator had not failed to recognize a patent error regarding the VOs.
This is because the Adjudicator had considered the quotations, approvals and letters and had found that the VOs were drawn to THYC’s attention, but THYC did not seek to clarify if the VOs were outside the scope of the contract. The High Court held that THYC could not seek to have the Court re-assess the merits of the adjudicator’s decision ([29] – [30] THYC v LSACE).
Therefore, the setting-aside application was dismissed.
Significance. THYC v LSACE highlights the importance of making objections in a timely manner as and when they arise. This is a point of general importance, and is not limited to the context of providing a payment response to a payment claim under the SOP Act.
THYC v LSACE is also a reminder that parties should consider when (and if) communications with another party should be made on a without prejudice basis. The omission to make use of “without prejudice” communications may potentially prejudice a party further down the road.
In general, clearly identifying communications that are intended to be “without prejudice” to be so is important: this can help to avoid disputes over whether “without prejudice” privilege attaches to the communication. However, parties should not simply label all communications of whatsoever nature to be “without prejudice” as well.
Tags: Building and Construction Industry Security of Payment Act; SOP Act; Setting aside; Variation Orders; Waiver; Patent errors; Without prejudice communication
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