Civil Tech Pte Ltd v Hua Rong Engineering Pte Ltd

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ
• Judgment Date: 02 March 2018
• Neutral Citation: [2018] SGCA 12
• Plaintiff Counsel: Tan Tian Luh, Ngo Wei Shing and Yap Pei Yin (Chancery Law Corporation)
• Docket Number: Civil Appeal No 153 of 2017
• Date: 02 March 2018
• Hearing Date: 19 January 2018
• Subject Matter: Statutes and regulations,Building and Construction Law
• Published date: 07 March 2018
• Defendant Counsel: Ho Chye Hoon (KEL LLC)
• Court: Court of Appeal (Singapore)
• Citation: [2018] SGCA 12
• Year: 2018

Sundaresh Menon CJ (delivering the grounds of decision of the court):

The appellant, Civil Tech Pte Ltd (“Civil Tech”), appealed against the decision of the Judge below to dismiss its application to set aside an adjudication determination under the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) (“the Act”). The central question in this appeal was whether under the Act, a respondent to a payment claim may withhold payment based on a claim or asserted set-off which does not arise from the contract on which the payment claim is based (“the Payment Claim Contract”), but from a separate construction contract regulated by the Act.

The Judge below answered this question in the negative. Civil Tech then brought this appeal against the Judge’s decision. After hearing the appeal, we dismissed it, indicating that we would issue detailed grounds of decision given the importance of the issue at hand. We now deliver the grounds of our decision.

Facts The parties

Civil Tech and the respondent, Hua Rong Engineering Pte Ltd (“Hua Rong”), are Singapore-incorporated companies in the business of building and construction. Civil Tech was engaged as the main sub-contractor for two construction projects by the Land Transport Authority, the T211 project for the construction of the Bright Hill MRT station and the C933 project for the construction of the Jalan Besar MRT station. By two separate contracts (“the T211 Contract” and “the C933 Contract”), Civil Tech engaged Hua Rong as its sub-contractor to supply labour for each of these projects.

The background to the dispute

On 6 December 2016, Hua Rong submitted a payment claim (“the Payment Claim”) in the sum of $601,873.40 to Civil Tech for work under the T211 Contract.

On 21 December 2016, Civil Tech issued a payment certificate, which the parties accepted served as a payment response (“the Payment Response”), certifying a negative sum of $1,571,055.66. In other words, by the Payment Response, Civil Tech claimed that far from being liable to Hua Rong, the latter owed it a substantial sum of money. According to Civil Tech, Hua Rong had made fraudulent payment claims under the C933 Contract, not the T211 Contract, which claims Civil Tech had satisfied and which it contended it was entitled to recover. Civil Tech sought to raise a set-off to the Payment Claim on this basis, and indicated this in the Payment Response.

Hua Rong subsequently filed an adjudication application in relation to the Payment Claim. In its adjudication response, Civil Tech again claimed that it had satisfied fraudulent payment claims made by Hua Rong under the C933 Contract, and was entitled to withhold payment of the Payment Claim on this basis.

On 15 February 2017, the adjudicator (“the Adjudicator”) released his determination (“the Adjudication Determination”). The Adjudicator held that the Act did not permit the respondent in an adjudication application to set-off claims arising under another contract against monies due to a claimant under the contract to which the adjudication relates. In the absence of any other asserted defence, the Adjudicator therefore determined that Hua Rong was entitled to the claimed sum of $601,873.40, interest and costs.

In March 2017, Hua Rong applied for and obtained leave to enforce the Adjudication Determination, and judgment in terms of the same.

On 4 April 2017, Civil Tech applied to court to set aside the Adjudication Determination, and the order of court granting Hua Rong leave to enforce the Adjudication Determination and judgment in terms of the same. In gist, Civil Tech argued that the respondent to a payment claim under the Act is entitled to raise any claim or set-off to withhold payment, as long as the payment response makes mention of that claim or set-off. The Adjudicator had thus erred in refusing to consider the set-off that Civil Tech had raised based on the C933 Contract. This was a jurisdictional error, and the Adjudication Determination should therefore be set aside.

The decision below

After hearing Civil Tech’s application on 15 and 30 May 2017, the Judge dismissed the application on 24 July 2017 in Hua Rong Engineering Pte Ltd v Civil Tech Pte Ltd [2017] SGHC 179 (“the Judgment”). The Judge held that in an adjudication under the Act (“a SOPA adjudication”), a respondent to a payment claim may only rely on reasons for withholding payment (“withholding reasons”) arising out of the Payment Claim Contract. We will refer to this interpretation of the law as “the Single Contract Interpretation”.

The Judge began his analysis by stating the purpose of the Act, drawing on our judgment in W Y Steel Construction Pte Ltd v Osko Pte Ltd [2013] 3 SLR 380 (“W Y Steel”). The Judge noted that Parliament had introduced the Act “to provide the construction industry with a low-cost, efficient and quick process for the adjudication of payment disputes” (Judgment at [22]). While a SOPA adjudication delivers “roughshod” justice, an adjudication determination enjoys only temporary finality, that is, finality until and unless the dispute is reopened in a “more thorough and deliberate forum” (W Y Steel at [20], cited in the Judgment at [24]). Yet one aspect of the philosophy of temporary finality was that “payments, and therefore cash flow, should not be held up by counterclaims and claims for set-offs that may prove to be specious at the end of lengthy and expensive proceedings” (W Y Steel at [20]). A SOPA adjudication was meant to be a simplified process where a provisional determination was made, which would be final and binding unless and until proceedings were later brought for a final determination of the parties’ rights and obligations. Given their nature and purpose, the proceedings could not encompass all matters that parties were entitled to raise in court or in arbitration.

The Judge then turned to the provisions of the Act and the Building and Construction Industry Security of Payment Regulations (Cap 30B, Rg 1, 2006 Rev Ed) (“the Regulations”). He noted that in Rong Shun Engineering & Construction Pte Ltd v CP Ong Construction Pte Ltd [2017] 4 SLR 359 (“Rong Shun”), the High Court had held that an adjudication application had to be founded on a single payment claim that arose out of a single contract (“the ‘one payment claim, one contract’ rule”). The High Court in Rong Shun had reached this conclusion based on the consistent use of the phrase “a contract”, and variations thereof adopting the singular form, in the Act and the Regulations (Judgment at [28]). While the issue before the Judge was different from that which was decided in Rong Shun, the Judge considered that it would be “curious” if notwithstanding the “one payment claim, one contract” rule affirmed in Rong Shun, the respondent to a payment claim could rely on any other contract (or a non-contract-based reason) to withhold payment (Judgment at [31]).

The Judge proceeded to analyse ss 15(3) and 17(3) of the Act, which he considered “especially germane” to the issue before him (Judgment at [8]). The Judge noted that both these provisions used the singular articles, referring to “a” or “the” contract (Judgment at [34]). The Judge held on this basis that the language of ss 15(3) and 17(3) supported the Single Contract Interpretation.

The Judge then reasoned that “a convincing reason of policy” supported the Single Contract Interpretation (Judgment at [35]). If respondents to payment claims could rely on withholding reasons that did not arise out of the Payment Claim Contract, adjudications would become prolonged and complicated because the merits of those reasons would have to be investigated and determined. The cost of an adjudication and the time needed to complete the same would be increased. That could not have been Parliament’s intention. Civil Tech’s interpretation of the law would “cut against the statute’s purpose of offering a contained and expedited means of giving temporary finality to payment disputes” (Judgment at [39]). The Judge also opined that permitting the respondent to a payment claim to raise any claim or set-off that was raised in the payment response as a withholding reason was not realistic, given two features of SOPA adjudications: strict timelines had to be adhered to, and not all adjudicators were legally trained (Judgment at [38]–[39]).

The Judge concluded that the text of the Act and the Regulations, and their underlying object and purpose, required the court to adopt the Single Contract Interpretation (Judgment at [40]). The Judge then considered and rejected Civil Tech’s arguments against the Single Contract Interpretation. In particular, the Judge addressed Civil Tech’s submission that respondents to payment claims in some foreign jurisdictions had been held to be entitled to withhold payment, under security of payment legislation similar to the Act, on the basis of a claim arising from a contract other than the Payment Claim Contract (a “Cross-Contract Claim”). The Judge examined the authorities cited by Civil Tech and found that there was no clear case where a foreign court had held that Cross-Contract Claims could constitute valid grounds for withholding payment. Rather, it seemed that the legislative and judicial attitude in foreign jurisdictions was one of suspicion towards Cross-Contract Claims (Judgment at [61]–[62]).

The Judge then held that the Adjudicator did not breach s 17(3)(d) of the Act in refusing to consider Civil Tech’s defence in its payment response and adjudication response. Section 17(3)(d) was subject to s 15(3), which in the Judge’s view restricted the withholding reasons that a respondent to a payment claim could raise in a SOPA adjudication (Judgment at [75]). Since s 15(3) precluded a respondent to a payment claim from raising Cross-Contract Claims as a basis for withholding payment, the Adjudicator had not breached s 17(3)(d) in refusing to consider...