Soh Beng Tee & Company Pte Ltd v Fairmount Development Pte Ltd

• Jurisdiction: Singapore
• Judgment Date: 09 May 2007
• Date: 09 May 2007
• Docket Number: Civil Appeal No 100 of 2006
• Court: Court of Appeal (Singapore)

Soh Beng Tee & Co Pte Ltd

Plaintiff

and

Fairmount Development Pte Ltd

Defendant

[2007] SGCA 28

Chan Sek Keong CJ

,

Andrew Phang Boon Leong JA

and

V K Rajah JA

Civil Appeal No 100 of 2006

Court of Appeal

Arbitration–Award–Recourse against award–Setting aside–Rules of natural justice–Applicable principles–Arbitrator purportedly dismissing claims on basis that time was at large–Whether issue of time being at large pleaded and alive during arbitration–Whether decision that time was at large leading to making of award–Whether decision causing prejudice–Whether one party being denied right to be heard –Whether award should be set aside or remitted to arbitrator–Section 48 (1) (a) (vii) Arbitration Act (Cap 10, 2002 Rev Ed)

The appellant, Soh Beng Tee & Company Pte Ltd (“SBT”), was employed by the respondent, Fairmount Development Pte Ltd (“Fairmount”), as the main contractor to construct a condominium (“the Project”). The parties entered into a formal contract dated 26 February 1998 modelled on the standard terms of the Singapore Institute of Architects' Articles and Conditions of Building Contract (“the SIA Articles” and the “SIA Conditions” respectively). The original agreement between the parties was for the construction of the condominium, including mock-up units and a substation, to be completed by 1 February 1999. However, this was not to be. In fact, while the construction of the condominium was in progress, SBT submitted numerous applications for extensions of time. Mr Daniel Law (“Mr Law”) of M/s Archurban Architects Planners (“the Architect”) assessed SBT's applications for extension of time and ultimately granted a mere five-day extension that extended the date of completion of the project to 6 February 1999.

Having failed to complete the project by 6 February 1999, SBT was served with a delay certificate in May 1999 in relation to the mock-up units, and again in July 1999 in relation to the main works. These delay certificates, issued by Mr Law, purportedly entitled Fairmount to claim liquidated damages for the delay pursuant to cl 24 (2) of the SIA Conditions. SBT then submitted to Fairmount and the Architect a revised plan committing to complete the project by 21 December 1999. In spite of this, Mr Law immediately issued SBT a written notice dated 21 September 1999 declaring that SBT had failed to proceed with due diligence and expedition. A month later, Mr Law issued a termination certificate dated 21 October 1999 (“the Termination Certificate”) pursuant to cl 32 (3) of the SIA Conditions. On 9 November 1999, Fairmount terminated SBT's employment, relying on s 32 (2) of the SIA Conditions.

Two grounds were stipulated to justify the termination. The first was a purely contractual one. As Mr Law had issued the Termination Certificate, Fairmount contended that it was entitled, as a matter of contract, to rescind its employment of SBT pursuant to s 32 (2) of the SIA Conditions (“the contractual termination”). The second alternative ground was that as SBT was already in repudiatory breach of its agreement to complete the Project, Fairmount was entitled to terminate the Project.

In the course of the arbitration, three issues eventually took centre stage: (a) whether Fairmount had rightfully terminated SBT's employment as contractor under the SIA Conditions pursuant to cl 32 (2); (b) if not, whether Fairmount had rightfully terminated SBT's employment on the ground that SBT was in repudiatory breach of its obligation to complete the project with diligence and due expedition; and (c) whether Fairmount could counterclaim for liquidated damages under the SIA Conditions for SBT's delay in completing the Project by the contractually stipulated time. At the end of the lengthy arbitration proceedings, the arbitrator (“the Arbitrator”) ruled in favour of SBT on all the issues.

In relation to the first issue (a), the Arbitrator determined that the issuance of the Termination Certificate was itself invalid as the wrong person had issued it. Notwithstanding his threshold determination that the Termination Certificate was invalid, the Arbitrator then proceeded to also determine whether SBT had failed to proceed with the Project with due diligence and expedition, and whether SBT had been improperly denied an extension of time. The Arbitrator then decided that apropos SBT's application for an extension of time in March 1998, Fairmount was entitled to an extension of time and had committed acts of prevention that set time for the performance of the Project at large. In relation to whether SBT had been improperly denied an extension of time in July 1999 before the warning letter was issued on 21 September 1999, and accordingly whether the issue of the Termination Certificate was justified, the Arbitrator determined that the Architect's grant of five days' extension of time was not fair and reasonable in the circumstances and that SBT was entitled to a reasonable time to complete the Project.

As for the second issue (b), the Arbitrator found that Fairmount could not rely on SBT's alleged repudiatory breach to justify the termination of its employment of SBT because time was not of the essence to the contract. Hence, delay alone did not amount to repudiation unless coupled with an intention not to complete the Project, which was not the case.

Finally, in relation to the third issue (c), since the Arbitrator found that Fairmount could not rightfully rescind its employment of SBT on the basis of a contractual termination, it followed that the claim for liquidated damages by Fairmount was unsustainable because the delay certificates, an essential prerequisite for the counterclaim to succeed, were invalid.

Fairmount argued in the court below that the Arbitrator's decision to set time at large rather than determine the reasonable extension of time that SBT was entitled to (“the Disputed Issue”) had not been submitted for arbitration and therefore the decision ran foul of s 48 (1) (a) (iv) of the Arbitration Act (Cap 10, 2002 Rev Ed) (“the Act”) (“the jurisdiction issue”). Furthermore, Fairmount was deprived of putting forward a case against setting time at large, in breach of its right to be heard and contrary to s 48 (1) (a) (vii) of the Act (“the natural justice issue”).

On the jurisdiction issue, the trial judge found that a finding that time was at large would not necessarily be unanticipated or extraordinary or completely outside the contemplation of the parties when questions of delay had to be considered because while the parties might not have conducted their respective cases on the basis that various acts by the Architect and/or Fairmount had led to time being at large, the central dispute was, in the end, about the period of time within which SBT had to complete its work.

On the natural justice issue, the trial judge found that there had been a breach of Fairmount's right to be heard. The crux of her finding was that the Disputed Issue was not a live issue before the Arbitrator, and therefore Fairmount had been deprived of an opportunity to be heard on this issue, including the consequential question of what would constitute a reasonable time within which SBT would have to complete. As a result, Fairmount had been deprived of an opportunity to present the requisite evidence to the tribunal. Moreover, Fairmount was prejudiced because the consequence of the Arbitrator's decision to set time at large was that SBT was held not to be in breach of its contractual and common law obligations, and that Fairmount in turn had wrongfully repudiated its contract with SBT. In any case, the trial judge observed that a breach of natural justice itself created prejudice that would be suffered by one of the parties. Having found that Fairmount had been deprived of its right to be heard on whether time should be set at large, the judge then decided to set aside the entire award, holding that applying for an additional award under s 43 (4) of the Act would be futile since the whole basis on which the Arbitrator had set time at large was that he did not have the evidence on which to make an award on the exact number of additional days to which SBT was entitled under the contract. SBT appealed against the trial judge's decision on the natural justice issue.

Held, allowing the appeal:

(1) A party challenging an arbitration award as having contravened the rules of natural justice had to establish: (a) which rule of natural justice was breached; (b) how it was breached; (c) in what way the breach was connected to the making of the award; and (d) how the breach prejudiced its rights. The rule of natural justice alleged to have been breached in the present case was the alleged right of Fairmount to be heard on an issue that it maintained was crucial to the outcome of the Arbitrator's decision: at [26].

(2) The first issue in deciding whether the Arbitrator's decision to set time at large breached the rules of natural justice was whether this issue was in play during the arbitration or whether it was entirely the Arbitrator's own idea. The court found that the constantly reiterated refrain in SBT's pleadings that time had been set at large (albeit in different contexts) must have alerted and sensitised Fairmount to the fact that SBT was not only submitting that it was entitled to an extension of time under the SIA Conditions because of Fairmount's acts of prevention (this was indisputably pleaded), but that, in the alternative, time to complete was at large. Indeed, it was pertinent that in its re-amended defence and counterclaim, Fairmount itself unequivocally pleaded that it denied that time was at large for the reasons pleaded by SBT “or at all”. It was clear that Fairmount was denying all possible contentions that time had been set at large, quite apart from those explicitly pleaded by SBT. This lent some support to SBT's claim that Fairmount had anticipated that SBT might contend that...