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Singapore: First Court of Appeal Decision on whether an employer can set off its claim for liquidated damages against a contractor’s payment claim

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In Range Construction Pte Ltd v Goldbell Engineering Pte Ltd [2021] SGCA 34, the Singapore Court of Appeal (SGCA) considered, for the first time, whether an employer has the right to set off its claim for liquidated damages against a contractor’s payment claim in an adjudication under the Building and Construction Industry Security of Payment Act (SOPA). The contractor’s payment claim was submitted on 2 December 2019, and the applicable statute was the pre-amendment Building and Construction Industry Security of Payment Act (“pre-amendment SOPA“). The SGCA answered in the affirmative and found that an adjudicator’s jurisdiction to consider the employer’s set-off for liquidated damages was statutorily entrenched. Moreover, there was no provision in the pre-amendment SOPA that precluded an adjudicator from determining the employer’s set-off for liquidated damages.

The SGCA also considered the issue of whether the adjudication determination could be set aside for breach of natural justice. This was answered in the negative. The SGCA found that the contractor was provided with the opportunity to present his case, and that the adjudicator did apply his mind to the arguments raised. The court’s decision is unsurprising, given that it is generally not easy to establish a breach of natural justice.

Summary

Range Construction Pte Ltd (“Range“) had lodged an adjudication application against its employer, Goldbell Engineering Pte Ltd (“Goldbell“). An adjudication determination was subsequently issued, and Range applied to set aside part of the AD on grounds that the adjudicator had acted: (i) in excess of his jurisdiction; and (ii) in breach of natural justice.

A. Excess of jurisdiction

Range argued that the adjudicator had acted in excess of his jurisdiction as claims for liquidated damages are not permitted under the SOPA. Moreover, Range further argued that the adjudicator had exceeded his jurisdiction by designating 17 November 2018 as the completion date when Range and Goldbell (collectively, the “parties“) had expressly agreed that the adjudicator was not required to make any findings on the completion date.

(i) The adjudicator’s jurisdiction to consider set-off under the SOPA

The SGCA found that the adjudicator was entitled to consider Goldbell’s set-off for liquidated damages, and this jurisdiction was premised on sections 15(3)(a) and 17(3) of the pre-amendment SOPA:

  • Section 15(3)(a) explicitly allows an adjudicator to consider the right to set off if it was included as a reason in the payment response.
  • Section 17(3) requires an adjudicator to have regard to the provisions of the contract. This was relevant because the contract expressly provided for the right to set off any liquidated damages.

Interestingly, Range also relied on a ministerial statement made at the Parliamentary Debates to argue that claims for damage, loss or expense were prohibited even under the pre-amendment SOPA. However, this argument was rejected by the SGCA, which took the following views:

  • Ministerial statements do not have force of law.
  • Section 15(3) of the pre-amendment SOPA would be devoid of any substantive content if claims for damage, loss or expense were prohibited under the pre-amendment SOPA.  
  • In interpreting the NSW Act, on which the SOPA is based, the Australian courts have affirmed that an adjudicator has the jurisdiction to take set-offs for liquidated damages into account.

(ii) Determination of completion date

Range’s argument that the adjudicator had exceeded his jurisdiction by determining a completion date was likewise rejected. The SGCA held that the adjudicator merely found that the project remained incomplete as at 17 November 2018 and did not designate a specific completion date.

In the appeal proceedings, Range additionally argued that the adjudicator had in any event acted beyond his jurisdiction in finding that the project was incomplete as at 17 November 2018. This argument was again rejected by the SGCA. The SGCA reiterated its position that the adjudicator derived his jurisdiction from the SOPA and was not confined to the binary question of whether the works were completed on 30 November 2019 (i.e., the date specified by the parties for determination). The adjudicator acted within his jurisdiction in finding that the project was still incomplete as at 17 November 2018.

B. Breach of natural justice

Range also argued that there was a breach of natural justice for the following reasons:

  • The adjudicator breached the fair hearing rule by identifying 17 November 2018 as the completion date: (i) despite the parties’ explicit instruction that he was not required to determine the completion date; and (ii) without providing the parties an opportunity to address that issue.
  • The adjudicator failed to consider if the grant of a Temporary Occupation Permit (TOP) was determinative of Range’s entitlement to the Handing Over Certificate (HOC), and the HOC would have been critical in determining the amount of liquidated damages payable by Range to Goldbell.

(i) Breach of Fair Hearing Rule

The SGCA took the view that there was no breach of the fair hearing rule for the following reasons:

  • The adjudicator was not confined to the binary question of whether Goldbell was entitled to liquidated damages until 30 November 2019, or not at all.
  • The adjudicator was able to determine that Goldbell was entitled to liquidated damages without identifying a completion date.

On this point, Range also further argued that the adjudicator should have invited submissions on the 17 November email, given his reliance on the email to determine that specific works were still incomplete as of that date. However, the SGCA’s response was that the email was self-explanatory and that it is not the duty of an adjudicator to invite submissions on every issue that might arise in the adjudication proceedings. In any event, the SGCA found that Range did make submissions on how the email ought to be interpreted, and there was no question that Range had every opportunity to be heard.

(ii) Whether the adjudicator acted in breach of natural justice for failing to consider the significance of the TOP

The SGCA was of the view that there was no breach of natural justice as it was not possible to draw a clear inference that the adjudicator did not apply his mind to the issue. While natural justice requires that the parties be heard, there was no corresponding requirement for parties to be given responses on all submissions made. The fact that an adjudicator did not explicitly state his conclusions in relation to a given issue does not inevitably lead to the conclusion that they did not give due regard to the parties’ submission on that issue. In the circumstances, the SGCA was of the opinion that the adjudicator found Range’s submission on the significance of the grant of the TOP so unconvincing that he thought it was unnecessary to explicitly state his findings. As such, there was no breach of natural justice.

Key takeaways

From this decision, the following are clear:

  • Under the pre-amendment SOPA, an adjudicator’s jurisdiction to consider set-off for liquidated damages is statutorily entrenched. Accordingly, the right to set off liquidated damages will be available if it was: (i) specified as a reason for withholding a sum of money under the payment response; and (ii) the contract expressly provides for such a right.
  • For the avoidance of doubt, the amendments to the Building and Construction Industry Security of Payment Act (“post-amendment SOPA“) came into effect on 15 December 2019, and the newly enacted section 17(2A) of the post-amendment SOPA generally bars claims related to damage, loss or expense. In contrast to the pre-amendment position, it is unlikely that an employer can set off its claim for liquidated damages against a payment claim under the post-amendment SOPA. Set-off is only available if the employer can avail itself to the exceptions under section 17(2A) by showing that the claim for liquidated damages is supported by either:
    1. any document showing agreement between the claimant and the respondent on the quantum of liquidated damages specified in the payment response
    2. any certificate or other document that is required to be issued under the contract.
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Nandakumar (Kumar) Ponniya heads the Dispute Resolution Practice of Baker & McKenzie in the Asia Pacific. He is widely acclaimed in international arbitration and cross-border litigation, with extensive experience in the areas of construction, technology, energy and financial services. His practice includes dealing with disputes arising from corporate and commercial matters, and managing multijurisdictional restructuring and insolvency. With over 25 years' experience, Kumar has handled disputes and matters across various industry sectors and jurisdictions, serving clients in Asia and beyond. He is qualified to practice in Singapore, England and Wales and New York; and is also a fellow of the Chartered Institute of Arbitrators. Kumar is listed as a leading international arbitration lawyer in the Legal 500 Asia Pacific, is recognized for his capabilities in Construction and in Arbitration by Chambers Asia Pacific, as well as named a Litigation Star by Benchmark Litigation Asia Pacific for Construction and for International arbitration. Chambers Asia Pacific commended "the 'well respected' Nandakumar Ponniya for having led commercial and investment arbitrations’ and notes that he "stands out for his quickness and perspicacity". He has also been described by clients as having "excellent advocacy skills" (Chambers Asia Pacific), being "intellectually sharp and street smart" (Legal 500) and "extremely technically proficient and commercially savvy" (Chambers Global). He has also been listed in the Guide to the World's Leading Experts in Commercial Arbitration. Kumar is also ranked as a Recommended practitioner by Who's Who Legal in its Southeast Asia: Arbitration guide. Kumar also regularly sits as arbitrator and has acted as sole arbitrator and as presiding arbitrator under various arbitral rules and regimes. In litigation, Kumar has appeared as counsel before all divisions of the Singapore Courts, including the Singapore International Commercial Court and the Court of Appeal. In arbitration, he has sat as presiding arbitrator in high value disputes and as counsel, has had conduct of international arbitrations involving all the major arbitral rules with hearings in multiple jurisdictions. Further, Kumar is skilled in a range of alternative dispute resolution mechanisms, including adjudication and mediation, to help clients resolve complex disputes and avert the need for time-consuming and costly litigation or arbitration. In addition to disputes, Kumar has vast experience in front-end risk advisory work and risk management or mitigation. Aside from practice, Kumar has served as an adjunct assistant professor at various universities such as the National University of Singapore, the Singapore Management University, Universitas Pelita Harapan (UPH) and ESSEC Business School. Kumar also serves on statutory tribunals such as the Law Society’s Inquiry Panel. Kumar has a broad focus on dispute resolution with a focus on international arbitration, commercial litigation, and corporate restructuring and insolvency. Kumar has an in-depth understanding of the legal and regulatory frameworks of the major Asian markets. His wealth of experience is drawn from handling disputes for government, state-owned enterprises, multinational corporations and regional industry leads arising from a variety of commercial transactions and investments, as well as complex engineering and development projects in Singapore, ASEAN and the wider Asia Pacific region. He has had conduct of international arbitrations involving all the major arbitral rules including ICC, SIAC, HKIAC, KLRCA, BANI, UNCITRAL and ICSID; with hearings in multiple jurisdictions such as Singapore, Kuala Lumpur, Jakarta, Hong Kong, London and Mexico City. He also advises on investment arbitration, particularly in relation to matters in Asia. Kumar's litigation experience encompasses disputes in the areas of corporate and commercial law, banking and financial services, construction law and corporate restructuring. He has acted for clients across various industry sectors such as banking and financial services, infrastructure and construction, oil and gas, power, technology and telecommunications. He is well-versed in the mechanics of corporate restructuring and has a keen understanding of insolvency regimes across the region. He has significant experience with several large and complex restructuring deals relating to major projects in Singapore and the region, as well as the distressed debt restructuring of many large corporations in Asia.

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Tjen Wee is a Principal in the Dispute Resolution Practice Group in Singapore. Tjen Wee’s practice covers international arbitration, commercial litigation, and adjudication under the Singapore Security of Payment Act. He is particularly noted for his work relating to infrastructure and construction. His wealth of experience in international arbitration involves the major arbitral rules including UNCITRAL, ICC, SIAC and AIAC; with conduct of hearings in multiple jurisdictions across Asia Pacific. His litigation expertise encompasses disputes in commercial law, banking and financial services, building and construction law, and insolvency law. Tjen Wee has been recognised by Benchmark Litigation Asia Pacific 2024 as a Litigation Star in Construction, and noted in The Legal 500 Asia Pacific as "…a genuine construction specialist, particularly in disputes but also handles a significant proportion of front-end work", "…very able, experienced, approachable, friendly, prompt and efficient in all his dealings – for litigation, arbitration, adjudications and in negotiations” and "highly intelligent and strategic thinker." A client has also praised him for standing out “for the deep and thorough manner in which he considers the client's legal and commercial risks.” Tjen Wee was also named by Singapore Business Review as one of the most influential lawyers under 40 in 2019. Tjen Wee’s construction practice is a full-service practice. He regularly advises on the drafting and reviewing of construction related contracts as well as providing project administration advice during the course of a project cycle. He has particular expertise in commercial litigation and domestic and international arbitration in the construction and energy/mining spaces both in Singapore and throughout Southeast Asia. Tjen Wee acts in, coordinates and manages international arbitration and litigation processes across Asia, and regularly appears as lead counsel in these proceedings.

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Daniel is a Local Principal with the Dispute Resolution Practice Group in Singapore. He is accredited by the Singapore Academy of Law as an Accredited Specialist in Building and Construction Law, and is currently a Council Member of the Society of Construction Law (Singapore). He has more than 13 years of experience in this industry, having worked as an engineer and project manager handling overhaul and maintenance projects for the Republic of Singapore Navy’s submarines prior to practising law. Daniel focuses on the law relating to construction, engineering and technology projects (e.g., building, infrastructure, renovation/fit out, manufacturing, turn key, transportation, supply chain, energy, oil and gas projects etc.), for which he supports his clients on the: Drafting of the suite of contracts and related documentation (either bespoke or based on standard form construction contracts such as SIA, REDAS, PSSCOC, FIDIC, JCT, NEC etc.) as well as the reviewing of tender bids and negotiations to close out; Handling of legal issues throughout the project (e.g., claims for outstanding payment, additional costs, losses and expenses, omissions, variations, delay and/or disruption issues such as extensions of time and prolongation costs, suspension, acceleration, inspection and quality assurance, defects, insurance, indemnities, termination, SOP Act payment claim / payment response / adjudication procedures, final account closure, general business law queries etc.); and Resolution of their disagreements with their contractual counterparties if there are any disputes that arise (e.g., through arbitration, litigation, adjudication or other alternative means of dispute resolution such as negotiations, mediation, expert determination or neutral evaluation). Daniel is ranked in The Legal 500 Asia Pacific for Construction: Local Firms in Singapore for three consecutive years (as a Next Generation Partner in 2025, and as a Rising Star in 2023 and 2024). He was also awarded "Rising Star of the Year – Construction and Real Estate" at The Legal 500 Southeast Asia Awards 2023. His clients have noted that Daniel “was pivotal in one of our arbitration cases”, “stands out for his great attention to detail, thorough understanding of the case, and ensuring efficient communications between the stakeholders”, “was able to grasp the complex issues easily without many difficulties”, “is very responsive and has considerable industrial knowledge and expertise”, “stands out as a hard working lawyer whom I can count on for prompt response and creative thoughts on the matter that I had worked with the team”, and that "[h]is engineering background is very helpful.”

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