Engineering Construction Pte Ltd v Sanchoon Builders Pte Ltd

• Jurisdiction: Singapore
• Judge: Quentin Loh J
• Judgment Date: 07 October 2010
• Neutral Citation: [2010] SGHC 293
• Plaintiff Counsel: Philip Jeyaretnam, SC and Benjamin Yam (instructed) (Rodyk & Davidson LLC),Chan Chun Hwee Allan (C H Chan & Co)
• Docket Number: Originating Summons No 321 of 2010
• Date: 07 October 2010
• Hearing Date: 30 June 2010
• Subject Matter: Arbitration
• Year: 2010
• Citation: [2010] SGHC 293
• Defendant Counsel: Tan Joo Seng (Chong Chia & Lim LLC)
• Court: High Court (Singapore)
• Published date: 05 April 2011

Quentin Loh J:

The Plaintiff, subcontractor to the main contractor Defendant, applied for leave under section 49 of the Arbitration Act (Cap 10, 2002 Rev Ed) to appeal to the Court on two questions of law arising from an Arbitration Award dated 1 February 2010.

The Facts

The Defendant tendered for and secured a contract from the West Coast–Ayer Rajah Town Council (“the Town Council”), to carry out certain improvement works at a lump sum of $572,000. The works were broken down into Part A, for $350,000 and Part B, for $222,000. It will be convenient to briefly set out a break down of the works and the contract sums against each item:

Part A:
(1)	Improvement works to pedestrian mall in front of Blocks 608 and 706, Clementi West Street 1 and 2:	$ 59,000 $ 60,000
(2)	Covered Walkway beside Block 413A, Commonwealth Avenue:	$ 41,000
(3)	Drop off porches at Blocks 715 and 716, Clementi West Street 2:	$ 33,000 $ 25,000
(4)	Extended covered walkway at Block 607, Clementi West Street 1 and Block 702, West Coast Road:	$ 23,000 $ 39,000
(5)	Pavillion between Blocks 104C and 106A Depot Road Singapore:	$ 70,000
	Total:	$350,000
Part B:
(1)	Improvement works to pedestrian mall in front of Blocks 726 and 727 Clementi West Street 2:	$ 91,000
(2)	Covered Walkway beside Blocks 724, 725 and 727 Clementi West St 2:	$ 94,000
(3)	Drop off porches at Block 710 Clementi West Street 2:	$ 37,000
	Total:	$222,000

The Defendant subcontracted the whole of the works to the Plaintiff by a letter dated 30 July 2004 for a lump sum of $543,400. The 5% difference in price from the sum of $572,000 was for the Defendant’s profit and attendance.

The Defendant used its own subcontract form and this subcontract agreement was also dated 30 July 2004. The subcontract period of 6 months from 27 August 2004 to 26 February 2005 mirrored the period stipulated in the main contract between the Defendant and the Town Council.

Disputes arose between the Parties during the course of the subcontract works. In essence, the Plaintiff complained that their interim monthly payments, although certified and paid to the Defendant by the Town Council, were being unjustifiably withheld by the Defendant in breach of their contractual obligation to make payment within 10 days of payment by the Town Council. On the other hand, the Defendant complained that the Plaintiff had insufficient labour at site; was falling unacceptably behind in their progress of the works; lost their project manager and did not replace him and caused these and other complaints to be registered by the consultant, E M Services Pte Ltd (“the Consultant”) against the Defendant.

Alleging a repudiatory breach by non-payment of Payment Certificates Nos. 2 and 3, the Plaintiff terminated its subcontract and abandoned the works on 10 January 2005. The Defendant alleged that the Plaintiff had repudiated the contract by stopping work without justification on 10 January 2005 and accepted their repudiatory breach. In addition, the Defendant alleged that the Plaintiff was in breach of their subcontract by failing to carry out their works diligently and with due expedition, resulting in the Defendant having to take over parts of their works; failed to have a competent project manager; and failed to rectify their defective works. The Defendant also alleged that the Consultant had documented the defaults of the Plaintiff.

The disputes were referred to arbitration in February 2006. The Singapore International Arbitration Centre (“SIAC”) appointed Mr John Chung as the sole arbitrator (“the Arbitrator”), on 6 March 2006. The arbitration hearing was held on 31 August, 1, 3, 4 and 10 September 2009, written closing submissions were made on 8 October 2009 and reply submissions on 5 November 2009 and the Arbitrator published his award on 1 February 2010 (the “Award”).

The Arbitrator ruled in favour of the Defendant, finding and holding as follows: the Plaintiff had wrongfully terminated the subcontract; the value of work done by the Plaintiff up to the date of termination was $130,522.87 and after deducting therefrom, the 1st Progress Payment of $20,947.50, the sum owed to the Plaintiff for this was $109,575.37; the Defendant succeeded in its counterclaim for having to rectify the Plaintiff’s defective works, taking over the Plaintiff’s works and finishing the project by appointing other subcontractors, thereby suffering loss and damage. This was quantified at $377,798.01 and was arrived at as follows:

(i)	Cost & Expense to Complete the Project:	$768,290.51
(ii)	Loss of Profit (5% of Main Contract Sum):	$ 28,600.00
	Subtotal:	$796,890.51
(iii)	Less Value of Subcontract works not carried out by Defendant:	($419,092.50)
	Total:	$377,798.01

When the sums were set off against each other, ($377,798.01 - $109,575.37), the net result was an award in the favour of the Defendant for $268,223.23. (Although I pause here to note that mathematically the result should be $268,222.64) The Arbitrator also awarded the Defendant the costs of the arbitration. The Issues of Law

It is from this Award that the Plaintiff seeks leave to appeal on two questions of law. The questions of law set out in the Originating Summons are as follows: Whether when a main contractor, who has awarded a back-to-back contract to a sub-contractor and in so doing agreed to pay the sub-contractor progress payments within 10 days of receipt of payment from the employer net only of 5% profit and attendance and specified permitted deductions, delays payment of the 1st progress payment and makes no payment of the 2nd, 3rd and 4th progress payments having received payment from the Employer, has thereby renounced its obligations under the sub-contract, notwithstanding complaints or concerns about the subcontractor’s progress or quality of work that do not constitute permitted deductions under the sub-contract; Whether a provision permitting the main contractor to make deductions of “ascertained or contra accounts” can extend to a bona fide counterclaim for unascertained and unquantified damages for breach of contract. Question (ii) was amended by the addition of the underlined words “unascertained and unquantified”, pursuant to an oral application to amend made during the hearing by counsel for the Plaintiff, Mr Jeyaretnam SC. This was not opposed.

Mr Jeyaretnam SC concentrated on the 2nd issue of law and anchored his arguments on a fairly simple and straightforward proposition. The question of law arose because the Arbitrator seemed to overlook the fact that when the Defendant refused to make payment of Certificates Nos. 2, 3 and 4 when they were due, there was no evidence given by the Defendant of having quantified or having tried to estimate the sum which they were setting off against the Payment Certificates. There was no finding by the Arbitrator on this and yet the Arbitrator accepted the Defendant’s right to set off unliquidated and unascertained sums against sums that had been certified by the Project Consultant and paid over to the Defendant.

Mr Jeyaretnam SC relied heavily on the House of Lords decision in Gilbert-Ash (Norton) Limited v Modern Engineering (Bristol) Limited [1974] AC 689 (“Gilbert-Ash”) where an issue arose as to the main contractor’s ability to set off sums claimed by way of damages for defective works and delays of the subcontractor against certified progress payments to the subcontractor. The relevant clause, clause 14, provided:

The Contractor also reserves the right to deduct from any payments certified as due to the sub-contractor and/or otherwise to recover the amount of any bona fide contra accounts and/or other claims which he, the Contractor, may have against the sub-contractor in connection with this or any other contract.

On the above clause, the official referee held that even if it was narrowly construed, it entitled the main contractor to withhold the balance of the amounts due pending determination of their cross claims for unliquidated damages against the sub-contractor for delay and defective work. The Court of Appeal reversed that decision and on appeal the House of Lords allowed the appeal. Besides overruling the case of Dawnays Limited v F G Minter Limited and Trollope and Colls Limited [[1971] 1 WLR 1205 (“Dawnays”) the House of Lords held that on its true construction there was no provision in the sub-contract which ousted the right of set off in respect of unliquidated cross claims, and that accordingly, since the sum deducted was related to a “bona fide contra accounts ... or other claims” within the meaning of clause 14, the main contractor was entitled to deduct that sum, pending the determination of the cross claims, from the amounts certified payable to the respondent.

Mr Jeyaretnam SC referred me to the following passage from the judgment of Lord Morris, at 704:

It is upon the interpretation [of the above clause] that the present case, in my view, depends. A ‘certified’ payment is clearly a liquidated sum. To have a process of deduction from such a sum there must clearly be some other stated sum. There could, for example, be some other liquidated sum. There could be some other sum which could be regarded as a contra account. But there would have to be some sum. There could not be a deduction of something that lacked any kind of specification. But need the sum to be deducted be a liquidated sum or an ascertained sum in the sense of an agreed sum or of a sum assessed by a court? The wording of the provision does not so indicate. There may be a deduction of the amount of any bona fide claim which the contractor may have against the sub-contractor. Such claim may be in connection...