Facade Solution Pte Ltd v Mero Asia Pacific Pte Ltd

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ,Tay Yong Kwang JA,Steven Chong JA
• Judgment Date: 07 September 2020
• Court: Court of Appeal (Singapore)
• Docket Number: Civil Appeal No 44 of 2020
• Date: 07 September 2020

Facade Solution Pte Ltd

and

Mero Asia Pacific Pte Ltd

[2020] SGCA 88

Sundaresh Menon CJ, Tay Yong Kwang JA and Steven Chong JA

Civil Appeal No 44 of 2020

Court of Appeal

Building and Construction Law — Dispute resolution — Setting aside adjudication determination on ground of fraud — Whether adjudication determination could be severed in part — Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed)

Held, dismissing the appeal:

(1) Fraud was an accepted ground for setting aside an AD. The court would not allow its processes to be used to facilitate fraud and had the power to set aside an AD that had been procured by fraud: at [22], [23] and [27].

(2) A party seeking to set aside an AD (“the innocent party”) had to first establish: (a) the facts which were relied on by the adjudicator in arriving at the AD; (b) that those facts were false; (c) that the party seeking the claim either knew or ought reasonably to have known them to be false (this objective test of knowledge would encompass constructive knowledge and would apply to every stage of the adjudication proceedings); and (d) that the innocent party did not in fact, subjectively know or have actual knowledge of the true position throughout the adjudication proceedings: at [29] and [30].

(3) Second, the innocent party had to establish that the facts in question were material to the issuance of the AD. Materiality was established if there was a real prospect that had the adjudicator known the truth, the outcome of the determination might have been different instead of the opposite verdict test as adopted by the Judge below. An AD obtained by fraud should be voidable at the instance of the innocent party: at [34], [35] and [38].

(4) Where it was established that an AD was infected by fraud, it was neither material nor relevant to inquire as to whether the innocent party could have discovered the truth by the exercise of reasonable diligence: at [31] and [33].

(5) The appellant had fraudulently represented that it had control over all the undelivered panels. Throughout the course of the adjudication proceedings, the appellant represented that it had control over all the undelivered panels and neither disclosed that the 169 panels were in Rontec's warehouse in China nor its dispute with Rontec. The appellant did not genuinely believe that it had secured delivery of the 169 panels as it had at best, only an in-principle agreement with Rontec for the delivery of the 169 panels and there was a serious dispute between the appellant and Rontec which cast serious doubts on the appellant's ability to secure delivery of the 169 panels at the time of the adjudication proceedings. Even if the appellant held such a genuine belief, it did not change the fact that the appellant's Payment Claim was filed on the false representation that it was able to deliver all the undelivered panels despite knowing that it was not in control of 169 of them: at [39], [40] and [43] to [47].

(6) The respondent only became aware that the 169 panels were in Rontec's possession after it had received an e-mail from Rontec offering to sell the 169 panels directly to the respondent. This was consistent with the respondent's proposal to pay the Adjudicated Sum to the appellant in exchange for the undelivered panels after the AD: at [48].

(7) The issue before the adjudicator was whether the appellant was entitled to payment notwithstanding that the undelivered panels had been fabricated but not delivered. The adjudicator held in the affirmative. The appellant's fraud in deliberately omitting to disclose that it had no control over the 169 panels was an operative cause of the impugned AD, as the adjudicator had allowed the appellant's claim on the assumption that it was able to deliver all the undelivered panels. Had the adjudicator known the truth, the real inquiry would have been whether the appellant was still entitled to payment for all the undelivered panels notwithstanding that it had no control over the 169 panels. In that light, there was a real prospect that the outcome of the determination might have been different: at [55] to [57].

(8) The nature of the appellant's fraud was sufficiently serious in nature as it went towards the appellant's entitlement to payment for the undelivered panels itself. The appellant deliberately misled the respondent and the adjudicator into thinking that the appellant could, when called upon to do so, deliver all the undelivered panels and fulfil its Sub-Contract when this was certainly not the case. The 169 panels comprised approximately 20% of the appellant's total claim and was not de minimis. The appellant's claim could not be textually and substantially severed as it had claimed for payment in relation to the supply of all 864 panels including storage costs for all the undelivered panels even though there remained a dispute as to the quantity of panels which the appellant was able to deliver: at [63] and [64].

Case(s) referred to

Brodyn Pty Ltd v Davenport [2004] NSWCA 394 (folld)

Chuang Long Engineering Pte Ltd v Nan Huat Aluminium & Glass Pte Ltd [2019] 4 SLR 901 (refd)

Citiwall Safety Glass Pte Ltd v Mansource Interior Pte Ltd [2015] 1 SLR 797 (folld)

Clone Pty Ltd v Players Pty Ltd [2012] SASC 12, Supreme Court of South Australia (refd)

Clone Pty Ltd v Players Pty Ltd [2018] HCA 12, High Court of Australia (folld)

Derry v Peek (1889) 14 App Cas 337 (folld)

Hansen Yuncken Pty Ltd v Ian James Ericson [2011] QSC 327 (refd)

Hip Foong Hong v H Neotia and Co [1918] AC 888 (refd)

L W Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd [2013] 1 SLR 125 (refd)

Lazarus Estates Ltd v Beasley [1956] 1 QB 702 (folld)

Lee Wee Lick Terence v Chua Say Eng [2013] 1 SLR 401 (folld)

Mansource Interior Pte Ltd v Citiwall Safety Glass Pte Ltd [2014] 3 SLR 264 (refd)

OGSP Engineering Pte Ltd v Comfort Management Pte Ltd [2018] 3 SLR 1031 (refd)

Panatron Pte Ltd v Lee Cheow Lee [2001] 2 SLR(R) 435; [2001] 3 SLR 405 (refd)

QC Communications NSW Pty Ltd v CivComm Pty Ltd [2016] NSWSC 1095 (refd)

Quoine Pte Ltd v B2C2 Ltd [2020] 2 SLR 20 (refd)

Rong Shun Engineering & Construction Pte Ltd v CP Ong Construction Pte Ltd [2017] 4 SLR 359 (distd)

Royal Bank of Scotland plc v Highland Financial Partners LP [2013] 1 CLC 596 (folld)

Ser Kim Koi v GTMS Construction Pte Ltd [2016] 3 SLR 51 (refd)

Su Sh-Hsyu v Wee Yue Chew [2007] 3 SLR(R) 673; [2007] 3 SLR 673 (refd)

Takhar v Gracefield Developments Ltd [2019] 2 WLR 984 (folld)

United Overseas Bank Ltd v Bebe bte Mohammad [2006] 4 SLR(R) 884; [2006] 4 SLR 884 (refd)

W Y Steel Construction Pte Ltd v Osko Pte Ltd [2013] 3 SLR 380 (refd)

Wee Chiaw Sek Anna v Ng Li-Ann Genevieve [2013] 3 SLR 801 (refd)

Wishing Star Ltd v Jurong Town Corp [2008] 2 SLR(R) 909; [2008] 2 SLR 909 (refd)

Facts

The appellant, Facade Solution Pte Ltd, appealed against the decision of the High Court judge (“the Judge”) to set aside an adjudication determination (“AD” or “ADs” in the plural) made on 15 November 2019 under the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) (“the Act”).

The respondent, Mero Asia Pacific Pte Ltd, was the main contractor of a development project (“the Project”). The appellant was engaged by the respondent as a subcontractor to fabricate, deliver and install 864 window panels at the Project site (“the Sub-Contract”). The appellant in turn, engaged a Chinese supplier, known as “Rontec”, to fabricate the window panels for the Project.

The dispute involved payments which were payable to the appellant under the Sub-Contract. The appellant commenced adjudication proceedings on the basis that no payment response was served in response to its payment claim (“the Payment Claim”). The Payment Claim was for a total sum of $830,938.73, which substantially comprised payments due to the appellant for the fabrication of 864 window panels and related storage costs. It was not disputed that at the time of the Payment Claim, 489 out of the 864 window panels remained undelivered (“undelivered panels”).

An issue that arose during the adjudication proceedings was whether the appellant was entitled to payment for the undelivered panels that had been fabricated but not delivered. The adjudicator found in the affirmative and also allowed the appellant's claim for storage costs in relation to the undelivered panels. An AD in the sum of $671,081.01 (“the Adjudicated Sum”) was issued on 15 November 2019 in the appellant's favour.

After the issuance of the AD, it transpired that the appellant had, throughout the adjudication proceedings, faced difficulty in securing delivery of 169 of the undelivered panels (“the 169 panels”) from Rontec. The respondent's request to deliver the undelivered panels in exchange for the Adjudicated Sum went ignored. On 22 November 2019, Rontec e-mailed the respondent and introduced itself as the supplier of the window panels for the Project. Rontec informed the respondent that it had withheld the 169 panels in the light of ongoing disputes with the appellant. Rontec then offered to sell those panels directly to the respondent for a sum of S$251,791.59 (RMB1.3m). On 9 December 2019, the respondent applied to set aside the AD on the grounds of fraud and breach of natural justice.

The High Court judge (“the Judge”) set aside the AD on the ground of fraud. The Judge found three material facts that were discovered after the AD was issued. First, the 169 panels were not in Singapore. Second, the appellant had serious disputes with Rontec regarding the delivery of those panels to Singapore. Third, the appellant was encountering significant difficulties negotiating with Rontec for the delivery of those panels to Singapore. The Judge held that it was clear that the appellant was in serious disputes with Rontec throughout the course of the adjudication proceedings. The appellant therefore, was in no position to secure delivery of the 169...