SH Design & Build Pte Ltd v BD Cranetech Pte Ltd

JudgeTan Siong Thye J
Judgment Date31 May 2018
Neutral Citation[2018] SGHC 133
CourtHigh Court (Singapore)
Docket NumberOriginating Summons No 290 of 2018
Published date18 September 2018
Hearing Date14 May 2018
Plaintiff CounselChuah Chee Kian Christopher, Koh Swee Yen, Lee Hwai Bin, Tay Bing Wei and Sheryl Ang (WongPartnership LLP)
Defendant CounselYam Wern-Jhien (Rajah & Tann Singapore LLP)
Subject MatterBuilding and Construction Law,Building and construction related contracts,Guarantees and bonds,Statutes and regulations
Citation[2018] SGHC 133
Tan Siong Thye J (delivering the oral judgment of the court): Introduction

This Originating Summons No 290 of 2018 (“OS 290/2018”) is an application by the plaintiff, SH Design & Build Pte Ltd (“the Plaintiff”) to set aside an adjudication determination (“the AD”) made under the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) (“the SOP Act”) by the adjudicator, Mr Aw Wei Keng Kelvin (“the Adjudicator”), on 11 August 2016.

In the alternative, should the setting aside application be refused, the Plaintiff applies for the enforcement of the AD to be stayed pending the disposal of the arbitration proceedings in Singapore International Arbitration Centre (“SIAC”) Arbitration No 314/16/AB (“the Arbitration”). At the hearing for OS 290/2018, I directed the parties not to make submissions on the alternative application pending the issuance of my written grounds of decision for the primary application. Doing so would have been akin to putting the cart before the horse. Therefore, I shall make no determination on the application for the stay in this judgment until I have dealt with the primary application.

In the AD, which is the subject of the primary application for setting aside, the Adjudicator decided that the Plaintiff was liable to pay the defendant, BD Cranetech Pte Ltd (“the Defendant”), the sum of $1,127,088.40 (before GST).

There are two main grounds postulated by the Plaintiff for the primary application. First, the Adjudicator had exceeded his jurisdiction by wrongly taking into account the amount of $1,293,600 received by the Plaintiff‘s assignee under the performance bond. Second, the Adjudicator should have rejected the Defendant’s adjudication application (“Adjudication Application”) which was invalid as it failed to contain the name and service address of the owner of the project. Following the omission, the Plaintiff submits that the Adjudicator had no power to allow the Defendant to rectify this error in the Adjudication Application.

I shall now give my decision and the reasons for my decision.

Facts The parties

The Plaintiff is the main contractor for the construction of an integrated logistics hub (“the Development”).1 The Defendant is a specialist subcontractor engaged by the Plaintiff for the design, supply, installation and commissioning of overhead cranes for the Development.2

The owner of the Development is SH Cogent Logistics Pte Ltd (“the Owner”). It was the Owner that had engaged the Plaintiff to construct the Development. The Plaintiff has stated that it is completely unrelated to the Owner and is a separate entity from the Owner.3

The Subcontract and Performance Bond

The Plaintiff entered into an agreement with the Defendant on 22 February 2013 for the works relating to the Development (“the Subcontract”).4 Before entering into the Subcontract, the Owner had already contracted with the Defendant on 10 December 2012 (“the 10 December Agreement”) also for the provision of overhead cranes. In the 10 December Agreement there was a cl 6 which required the Defendant to provide a demand bond in favour of the Owner in order to secure the due performance of the Defendant’s obligations under the 10 December Agreement. The Subcontract which was subsequently entered into between the Plaintiff and the Defendant incorporated the terms of the prior agreement that had been entered into between the Owner and the Defendant, including cl 6.5 Therefore, the Defendant had to furnish a guarantee to the Plaintiff in the form of a demand bond. Clause 6 of the Subcontract states:6 PAYMENT

Payment schedule shall be as follows:

20% down-payment

The [Defendant] shall provide to the [Plaintiff] a guarantee from a Bank or an Insurance Company for the amount of the down payment. The Guarantee shall be in the form of a demand bond, and shall cover the period from signing of this contract to the expiry of the 2-year warranty period.

Pursuant to the requirement in cl 6 of the Subcontract, the Defendant procured an on-demand performance bond dated 21 May 2013 (“the Performance Bond”) for up to the sum of $1,293,600 (“the Bond Proceeds”).7 The Performance Bond was issued by MSIG Insurance (Singapore) Pte Ltd (“MSIG”) in favour of the Plaintiff.8

Pursuant to cl 1 of the Performance Bond, MSIG was obligated to pay the Bond Proceeds to the Plaintiff in full upon such demand being made in writing, without the need for any proof that the Plaintiff was indeed entitled to the Bond Proceeds. Further, cl 2 of the Performance Bond provided that the sums so demanded by the Plaintiff shall be paid immediately and unconditionally by MSIG without any deduction whatsoever, notwithstanding the existence of any differences or disputes between the Plaintiff and the Defendant.9

The events leading to the calling of the Performance Bond

Pursuant to a deed of assignment dated 22 December 2015, the Plaintiff assigned to the Owner all of its rights, title, interest and benefit under the Subcontract, including the Performance Bond.10 The Defendant was duly notified of this assignment.

Subsequently, on the same day, ie, 22 December 2015, the Owner issued a notice to terminate the Defendant’s employment under the Subcontract.11 Concurrently, the Owner also issued a written demand to MSIG for payment of the Bond Proceeds.12

When MSIG did not comply with this initial demand, the Owner issued a further demand on 4 January 2016 and also commenced proceedings in Suit No 12 of 2016 to recover the full Bond Proceeds under the Performance Bond.13

On 5 January 2016, the Defendant filed Originating Summons No 4 of 2016 (“OS 4/2016”) applying for an injunction to restrain the Owner from calling on the Performance Bond. After hearing parties’ submissions, Kannan Ramesh JC (as he then was) dismissed the Defendant’s application in OS 4/2016, thereby allowing the Owner to call on the Performance Bond unhindered.14

On 23 March 2016, pursuant to its obligations under the Performance Bond, MSIG made full payment of the Bond Proceeds to the Owner.15

The Adjudication proceedings

On 23 May 2016, the Defendant served a payment claim on the Plaintiff for the sum of $4,250,683.08 (“the Payment Claim”) for the work that it had done from January 2015 to December 2015.16 On 7 June 2016, the Plaintiff provided its payment response for a negative sum of $15,063,770.47 (“the Payment Response”).17 It should be noted that in its Payment Response, the Plaintiff had expressly accounted for the “Bond proceeds received by [the Owner]”.18

On 27 June 2016, the Defendant lodged an Adjudication Application against the Plaintiff based on its purported entitlement to outstanding payment for work done under the Subcontract.19 The Plaintiff’s adjudication response was lodged on 5 July 2016. The adjudication conference was held on 18 July 2016 before the Adjudicator (“the Adjudication”).20

On 11 August 2016, the Adjudicator issued the AD.21 The Adjudicator’s assessment of the adjudicated amount is as follows:22

Description Payment Claim Payment Response Adjudicated Amount
1 Value of work done 7,311,257.12 1,083,400.00 4,110,918.56
2 Less previous payment (3,060,574.04) (3,062,443.20) (3,060,574.04)
4,250,683.08 (1,979,043.20) 1,050,344.52
3 Add GST 0 (138,533.02) 0
Subtotal 4,250,683.08 (2,117,576.22) 1,050,344.52
4 Less liquidated damages 0 (738,659.60) (738,659.60)
5 Less deductions imposed by [Owner] 0 (13,501,134.65) (478,196.52)
6 Add amount received under [Performance Bond] 0 1,293,600.00 1,293,600.00
Claimed amount/Nett balance due 4,250,683.08 (15,063,770.47) 1,127,088.40

It should be highlighted that in arriving at the final adjudicated amount of $1,127,088.40 (“the Adjudicated Amount”), the Adjudicator had taken into account the Bond Proceeds which had already been received by the Owner as a result of the deed of assignment and the Owner’s calling of the Performance Bond.

The genesis of the present application

On 17 August 2016, the Plaintiff wrote to the Adjudicator requesting amendments to be made to the AD pursuant to s 17(6)(a) of the SOP Act. This was on the basis that the Adjudicator had allegedly erred in including the Bond Proceeds in his assessment of the Adjudicated Amount.23 On 29 August 2016, the Adjudicator responded, declining to amend the AD on the terms requested by the Plaintiff.24

On 13 December 2016, the Defendant obtained an Order of Court for leave to enforce the AD. This Order of Court was only served on the Plaintiff on 26 February 2018, together with a statutory demand for $1,218,104.33 (being the Adjudicated Amount with interest at the rate of 5.33% per annum).25

On 12 March 2018, the Plaintiff made the present application in OS 290/2018 to set aside the AD.

It should also be noted that the Plaintiff, the Defendant and the Owner are currently involved in the Arbitration, in respect of disputes arising out of the Subcontract. The Arbitration is scheduled for hearing from 16 to 27 July 2018.26

The parties’ cases The Plaintiff’s case

The Plaintiff relies on the following grounds in support of its application to set aside the AD.27

First, the Plaintiff argues that the Adjudicator had acted in excess of his jurisdiction by taking into account the Bond Proceeds in assessing the Adjudicated Amount in the Subcontract. 28 The Bond Proceeds which stem from the Performance Bond were from a separate contract. This is tantamount to a cross-contract set-off, which is prohibited in adjudication proceedings under the SOP Act. Additionally, the Adjudicator should not have accounted for the Bond Proceeds because these were not included in the Payment Claim. If anything at all, the Bond...

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2 cases
  • CEQ v CER
    • Singapore
    • High Court (Singapore)
    • 6 April 2020
    ...Pte Ltd v Yau Lee Construction (Singapore) Pte Ltd [2019] 2 SLR 189 (“Yau Lee”) and SH Design & Build Pte Ltd v BD Cranetech Pte Ltd [2018] SGHC 133 (“SH Design”). The two main issues arising from this application centre around these two cases, which respectively discuss the validity of pay......
  • China Railway No 5 Engineering Group Co Ltd Singapore Branch v Zhao Yang Geotechnic Pte Ltd
    • Singapore
    • High Court (Singapore)
    • 22 May 2019
    ...have been conclusively decided by Tan Siong Thye J (“Tan J”) in the earlier decision of SH Design & Build Pte Ltd v BD Cranetech Pte Ltd [2018] SGHC 133 (“SH Design”). There, Tan J held that the adjudicator “had jurisdiction to account for the Bond Proceeds because these were included in th......
1 books & journal articles
  • Security for performance
    • United Kingdom
    • Construction Law. Volume II - Third Edition
    • 13 April 2020
    ...J Murphy & Sons Ltd v Beckton Energy Ltd [2016] EWhC 607 (TCC) at [63], per Carr J; SH Design & Build Pte Ltd v BD Cranetech Pte Ltd [2018] SGhC 133 at [52], per Tan Siong hye J. In the case of where a subcontractor, who is not in a contractual relationship with the owner, provides (through......

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