27 July, 2018
A court was correct to set aside an adjudication determination on natural justice grounds as the adjudicator had failed to consider some of the issues put before him, the Singapore Court of Appeal has ruled.
The Court of Appeal agreed that the adjudicator acted in breach of natural justice when he failed to consider two of the issues raised by the parties in a payment dispute stemming from redevelopment work at the Suntec City convention centre in Singapore. The omission had caused real prejudice to one of the parties, as proper consideration of those two issues could reasonably have led to a different result, it said in its judgment (34-page / 398KB PDF).
Bintai, an engineering firm, had been engaged by Samsung to provide mechanical, electrical and plumbing works on the convention centre project, for which Samsung was the main contractor. In May 2017, Bintai submitted a payment claim to Samsung. In response, Samsung filed a payment response which resulted in a net balance in Samsung's favour, due to additional 'backcharges' and 'variation works'.
Dissatisfied, Bintai referred this matter to adjudication. The adjudicator found in favour of Bintai in August 2017. In its application to court to set aside the adjudication determination, Samsung argued that the adjudicator had breached his duty to comply with the requirements of natural justice, as provided for under section 16(3) of the Singapore Building and Construction Industry Security of Payment Act, in two ways. First, he had failed to consider the issues of the backcharges and variation works in his determination, and second, he had failed to provide reasons for his decision on these issues. Samsung succeeded in setting aside the adjudication determination before the High Court. Bintai appealed.
After reviewing various court decisions in Singapore relating to the setting aside of arbitral awards due to a tribunal's failure to consider issues, the Court of Appeal considered that these principles similarly applied to adjudication determinations: that a breach of natural justice can only be established if those issues are essential to the resolution of the dispute; and a "clear and virtually inescapable inference" that the adjudicator did not consider that issue at all can be drawn from the adjudicator's determination.
"If the facts show that the issue was not essential to the resolution of the dispute at all, or that the adjudicator had considered the issue but had wrongly rejected the aggrieved party’s submissions in respect of that issue, such an inference should not be drawn. This is especially so in the context of adjudications under the Act, where adjudicators do not have the luxury of time to craft immaculately reasoned adjudication determinations," the Court of Appeal explained.
On the facts here, the Court of Appeal was satisfied that this was indeed a breach of natural justice.
"First, these issues were clearly essential to the resolution of the adjudication application," the Court of Appeal said in its judgment.
"For Bintai to prevail in its adjudication application, it not only had to persuade the adjudicator to find in its favour in respect of its position on the first half of the retention monies, but it also had to persuade the adjudicator to rule against Samsung in respect of the contentions it had raised in the adjudication response, which included the matters it had raised in relation to the backcharges and variation works … Hence, there is simply no escaping the fact that [the backcharges and variation works] were essential issues that had to be dealt with by the adjudicator," it said.
"[I]t was evident from the adjudication determination as a clear and virtually inescapable inference that the adjudicator did not apply his mind at all to the issues of the backcharges and variation works … Not a single paragraph in the adjudication determination related to the issues of the backcharges and variation works … If anything, it could instead be inferred from the language of [the determination] that the adjudicator had in fact shut his mind to the issues… Here, the adjudicator … was … under the mistaken impression that the two issues regarding the backcharges and variation works were not relevant to the resolution of the payment claim dispute," it said.
Before the Court of Appeal, Bintai said that it could be "inferred" that the adjudicator had in fact considered the issues as he had allowed full submissions on them and even expressed his provisional views on them at the hearing. However, the Court of Appeal rejected this argument.
"In our judgment, observations made by an adjudicator in the course of an oral hearing are generally nothing more than musings on his part," it said in its judgment.
"At least in the absence of exceptional grounds, the adjudicator's decision must be limited by the four corners of the adjudication determination, and should not be supplemented by speculative or provisional references to portions of the notes of any oral conference. This is so because it would be impossible to ascertain whether the thoughts expressed by the adjudicator in the course of such an oral hearing reflected his final determination on those issues or were, on the contrary, provisional and susceptible to change," it said.
Given these findings, the Court of Appeal said that it was unnecessary for it to consider an alternative argument by Samsung that the adjudicator's failure to give reasons was itself a breach of natural justice. However, it left the door open on whether the failure to give reasons in adjudication determinations constitutes a breach of natural justice, given that adjudicators have merely a "short span of time" to consider a significant amount of factual material.
"Balancing these various considerations may require a considerable margin of tolerance to be applied when the court considers a challenge mounted against a determination based solely on the alleged failure to give adequate reasons," it said.
Construction law expert Wee Jian Ang of Pinsent Masons, the law firm behind Out-Law.com, said that this was a useful decision as it clarified that the "failure to consider" breach of natural justice principles in the context of arbitral awards similarly applied to adjudication determinations.
"It will however be interesting to see how the courts resolve the issue of 'failure to give reasons' in adjudication determinations, given that the main objective of the Security of Payment Act is to provide an 'inexpensive and efficient mode of dispute resolution' even if it sometimes requires 'rough justice'. As observed by the High Court in various decisions, one may credibly argue that the lack of reasons per se should not invariably cause an arbitral award (and similarly so for adjudication determinations) to be set aside for breach of natural justice," he said.
"The critical question may be whether 'the contents of the arbitral award taken as a whole inform the parties of the bases on which the arbitral tribunal reached its decision on the material or essential issues'," he said.
This article was published in Out-law here.
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For further information please contact:
Wee Jian Ang, Pinsent Masons MPillay
Weejian.Ang@pinsentmasons.com
