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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. Kumar is listed as a leading international arbitration lawyer in the Legal 500 Asia Pacific 2021 and was also named a Litigation Star in the Benchmark Litigation Asia Pacific 2020. Chambers Asia Pacific 2021 quotes “the ‘well respected’ Nandakumar Ponniya for having led commercial and investment arbitrations and notes that he is especially recognised for his focus on construction and contractual issues. He has also been described by clients as being “intellectually sharp and street smart” (Legal 500) and "very savvy and well connected" (Chambers Global). Further, he has been recognised for being "sensitive to commercial realities” (Chambers Asia Pacific) and providing "practical, on the ground advice that clients need” (Legal 500). Kumar is a member of the Expert Panel of the Centre for Cross-Border Commercial Law in Asia (CEBCLA) and is also a Fellow of the Chartered Institute of Arbitrators. He serves on statutory tribunals such as the Income Tax Review Board and the Law Society’s Inquiry Panel. In addition, Kumar also serves as an adjunct assistant professor at the National University of Singapore and the Singapore Management University, where he conducts the International Projects Practice and Law as well as the International Construction Law course. Kumar has a broad focus on dispute resolution with specialist expertise in international arbitration, commercial litigation, and corporate restructuring and insolvency. His particular areas of industry focus include construction, technology, energy and financial services. With more than 20 years of experience, 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, multi-national 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.

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Tjen Wee is a principal in the Dispute Resolution Practice Group in Singapore. His practice covers international arbitration, commercial litigation, and adjudication under the Singapore Security of Payment Act. Tjen Wee is particularly noted for his work relating to infrastructure and construction. Apart from construction disputes, he also handles a broad range of commercial, MCST, shareholder, and employment disputes. Tjen Wee is a recommended lawyer in Construction on Legal 500.

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Daniel Ho is an Associate in the Dispute Resolution Practice Group in the Singapore office of Baker McKenzie.

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