The Singapore Court of Appeal, in Bintai Kindenko Pte Ltd v Samsung C&T Corporation (2018) SGCA 39, recently upheld the decision of the High Court in setting aside an adjudication determination made under the Building and Construction Industry Security of Payment Act (the SOP Act), on the basis that an adjudicator had not considered certain issues in reaching his determination.
It is also noteworthy that the Court’s observations that a failure by an adjudicator to give reasons may be more tolerable in the context of adjudication cases than in arbitration or litigation. This reflects the Court’s objective of ensuring the efficient resolution of payment disputes under the SOP Act.
Adjudication under the SOP Act was conceived with the objective of improving cash flow in the construction industry. As compared to arbitration and litigation, adjudication provides a speedier means for parties to resolve payment disputes. Decisions made under the SOP Act (i.e., adjudication determinations) may however be set aside by the High Court on grounds that the adjudicator had breached principles of natural justice.
The respondent, Samsung C&T Corporation (Samsung) had successfully applied to the High Court to set aside an adjudication determination made under the SOP Act. The High Court found that there was a “breach of natural justice” because the adjudicator did not, in his adjudication determination, consider issues regarding backcharges and variation works that had been raised by Samsung.
The appellant (Bintai) appealed against the High Court’s decision but the Court of Appeal dismissed the appeal in Samsung’s favour. At the appeal, Samsung submitted that (i) the adjudicator had failed to consider the backcharges and variation works; and (ii) the adjudicator had failed to give any reasons on these issues in the adjudication determination.
The Court of Appeal firstly examined the authorities regarding a tribunal’s duty to consider issues. Importantly, it clarified that the legal authorities associated with arbitration cases are applicable in the context of assessing challenges against an adjudication determination.
Essentially, the Court of Appeal found that an adjudicator acts in breach of natural justice in having failed to consider an issue in the dispute before him only if
Here the Court held that it could draw a clear and virtually inescapable inference that the adjudicator did not apply his mind at all to the backcharges and variation works. The Court noted that not a single paragraph in the adjudication determination related to the issues of the backcharges and variation works.
The Court also found that it was not possible to infer that the adjudicator had implicitly considered these issues; if anything, the adjudicator had in fact shut his mind to these issues, as he had mentioned in the adjudication determination that “the payment claim dispute is centered solely on the release of the first retention monies, and not the variations or backcharges”.
Bintai had relied on its “notes of proceedings” to show that the adjudicator had questioned counsel on the backcharges and variation works at the oral conference. As such, Bintai submitted that when read together with the adjudication determination, it is inferred that the adjudicator had impliedly rejected Samsung’s submissions on these issues.
However, the Court found that the observations made by an adjudicator in the course of an oral hearing are generally nothing more than musings on the adjudicator’s part. Therefore, the basis for an adjudicator’s decision “must be limited to the four corners of the adjudication determination, and should not be supplemented by speculative references to the notes of proceedings.”
The Court also made observations (only) on Samsung’s submission that the adjudicator had failed to give reasons for his decision on the backcharges and variation works.
The Court noted that there was extensive jurisprudence on the duty to give reasons in the context of both litigation and arbitration. For example, the test in arbitration cases is whether the contents of the arbitral award taken as a whole inform the parties of the bases on which the tribunal reached its decision on the essential issues.
However, it was suggested that “any duty on adjudicators to give reasons when issuing their adjudication determinations might be even more attenuated.” This is so because the main objective underlying the SOP Act is to provide for an inexpensive and efficient mode of dispute resolution for payment disputes. Accordingly, a considerable margin of tolerance may be applied when the court considers a challenge mounted against an adjudication determination based solely on the alleged failure to give adequate reasons.
Although Samsung was successful in setting aside the adjudication determination, the threshold for setting aside an adjudication determination for breach of natural justice remains very high – the issue must have been essential to the resolution of the dispute and there must be a clear and virtually inescapable inference that the adjudicator did not apply his mind to an essential issue. That said, the Court’s decision provides helpful guidance for parties seeking to establish such a basis.
Further, the Court’s observations that a failure to give reasons may be more tolerable in the context of adjudication cases indicates the Court’s ongoing commitment to ensuring the efficient resolution of payment disputes under the SOP Act. A challenge on this ground may be more difficult.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers: