Singapore: Cross Claims, Counterclaims And Set-Offs From Another Construction Contract - Permissible In An Adjudication?

Executive Summary

It is commonplace in our local building and construction market for the same parties to enter into multiple contracts for different projects. However, what happens if a main contractor has valid backcharges under Project A and wants to apply these to reduce payment for certified work done on Project B? Will the backcharges be considered valid set-offs for the purposes of adjudication under the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) (the SOP Act)?

Recently, the Singapore High Court (the Court) in Hua Rong Engineering Pte Ltd v Civil Tech Pte Ltd, [2017] SGHC 179 decided that one cannot do so.

The Court was of the view that permitting parties to introduce any contracts they wanted to in an adjudication determination under the SOP Act would open the floodgates to unchecked expansion of the scope of materials which must be dealt with. More crucially, this may even lead to unmanageable complexity, which will render the SOP Act no longer capable of providing a simple, low-cost, efficient, and quick resolution of payment claims.

Hence, the Court decided that the simplest and quickest procedure, as stipulated by the SOP Act, is to confine the issues of payment claims to those arising in relation to a single construction contract.

Furthermore, the Court pointed out that the adjudication determination only provides temporary finality, and not the final determination of the parties' rights. Hence, this should address any concerns of injustice.

Brief Facts

Civil Tech Pte Ltd (CTP) and Hua Rong Engineering Pte Ltd (HRE) were parties involved in two MRT construction projects. The two projects related to the construction of two MRT stations on different MRT lines. CTP was a sub-contractor of the main contractor and HRE was a sub-contractor engaged by CTP to supply labour for construction for both projects. CTP and HRE entered into contracts for the two projects (referred to hereafter as the "T211 contract" and the "C933 contract", respectively).

On 6 December 2016, HRE submitted a claim of $601,873.40 to CTP for work done in respect of the T211 contract. While CTP accepted HRE's claim, CTP's Payment Certificate reflected that nothing was due to HRE. CTP justified its action by alleging that HRE had made false and fraudulent payment claims under the C933 contract, and that it had therefore overpaid HRE in respect of the C933 contract. Consequently, CTP sought to withhold a sum of $1,468,276.32 from HRE.

As it turned out, HRE filed an adjudication application as regards its claim under the T211 contract. In its adjudication response, CTP contended that it was entitled to set off $1,468,276.32 from the payment claim of $601,873.40 under the T211 contract as a result of the fraud and overpayment in respect of the C933 contract.

When the dispute was referred to the Adjudicator, he ruled that CTP was not entitled to set off a counterclaim based on another contract. In particular, the Adjudicator held that the SOP Act only permitted him to take into consideration cross-claims, counterclaims and set-offs arising under the same construction contract. Accordingly, CTP was ordered by the Adjudicator to pay an amount of $601,873.40 to HRE.

This issue came before the Court when CTP applied to set aside the adjudication determination.

Issues

The main issue is whether an adjudicator is entitled to consider cross-claims, counterclaims and set-offs which do not arise from the same contract which forms the basis for a payment claim in an adjudication under the SOP Act. In other words, the main issue before the court was whether the Adjudicator was correct in confining his deliberation to matters concerning only the T211 contract (and not the C933 contract).

There were two other less significant issues: one, whether the Adjudicator breached s.17(3) of the SOP Act; and two, whether CTP's allegations of fraud and unjust enrichment were made out.

Findings of the Court

Issue 1: Whether s. 15(3) of the SOP Act allows cross-contract cross-claims, counterclaims or set-offs, or whether it is restricted to withholding reasons arising under the same contract

Before dealing with this issue, the Court revisited the object and purpose of the SOP Act, all of which are well known. The Court also cited Sundaresh Menon CJ's observations in the Singapore Court of Appeal case of W Y Steel Construction Pte Ltd v Osko Pte Ltd, [2013] SGCA 32, [2013] 3 SLR 380 (W Y Steel) that arguments raised by parties regarding cross-claims, counterclaims and set-offs may prove to be specious at the end of lengthy and expensive proceedings, such that they can only be resolved through long and tedious deliberation.

The Court noted that sections 2, 5, 10 and 12 of the SOP Act (in addition to sections 15 and 17) were relevant because the language used in those provisions shed light on whether the adjudication process could possibly entertain matters relating to multiple contracts. In this connection, The Court referred to the recent Singapore High Court case of Rong Shun Engineering & Construction Pte Ltd v C.P. Ong Construction Pte Ltd, [2017] SGHC 34 (Rong Shun), where Vinodh Coomaraswamy J dealt with the issue of whether a payment claim (and an adjudication application based thereon) can arise out of more than one contract, or whether a rule of "one payment claim, one contract" applied. In Coomaraswamy J's view, the "one payment claim, one contract" rule did apply because Parliament consistently used the phrase "a contract" in the SOP Act, and variations thereon similarly adopted the singular form. Therefore, this suggested that payment claims and adjudications under the SOP Act should be confined to a single contract. Be that as it may, the Court noted that the issue he had to deal with was whether a respondent may rely on withholding reasons arising in relation to multiple contracts, and not whether a claimant may base his claim on multiple contracts (which was the issue before the court in Rong Shun).

In the Court's view, the language used by Parliament clearly indicated that the same position which applies to payment claims applies as well to withholding reasons which can be considered in an adjudication under the SOP Act. Furthermore, beyond a purely textual analysis, the Court held that there is also a policy justification which militates toward adopting the single-contract interpretation. In essence, bringing in multiple contracts as the basis for cross-claims, counterclaims or set-offs will unduly prolong and complicate adjudications, and this runs contrary to Parliament's intention of ensuring that there is a simple, quick and fair process for the resolution of payment disputes.

In rejecting CTP's interpretation of the law, the Court observed that accepting CTP's position would imply that there is no limit to the scope of matters which an adjudicator is required to consider as potentially valid withholding reasons in an adjudication determination. This is unrealistic due to the practical limitations of adjudication under the SOP Act.

Ultimately, the Court held that both the language of the SOP Act and the SOP Regulations, and their underlying object and purpose, support the interpretation that Parliament intended to limit the adjudication procedure to a single construction contract. Accordingly, the Court agreed with the Adjudicator's decision on this point.

Issue 2: Whether the Adjudicator breached s.17(3) of the SOP Act

The Court held that the Adjudicator did not breach s.17(3) of the SOP Act in finding that the cross-contract set-off should be disregarded. This was because the Adjudicator's reasoning in the adjudication determination suggested that he had properly considered the contents of the payment response and adjudication response. Therefore, the Court was of the view that the Adjudicator's rejection of the withholding reasons raised therein was a product of that proper consideration.

Issue 3: Whether the allegations of fraud and unjust enrichment are made out

The Court was of the view that it was not necessary for him to make any findings or observations because the alleged fraud and unjust enrichment regarding the C933 contract are immaterial following his holding that the Adjudicator was right to confine his deliberation to the T211 contract. Nevertheless, CTP would be perfectly entitled to pursue these allegations further in a separate action.

Implications for Contractors

Dentons Rodyk believes that this is the first reported High Court authority on the issue of whether an adjudicator is entitled to consider cross-claims, counterclaims, and set-offs which do not arise from the same contract which forms the basis of the payment claim.

This decision thus clarifies that any cross-claims, counterclaims, and set-offs claimed in an adjudication under the SOP Act must arise from the same contract in question. All contractors and employers should be mindful of this when they prepare their payment certificates and payment responses.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
19 Sep 2017, Seminar, Washington, DC, United States

This year's highly anticipated Energy Outlook Series event will draw industry leaders, members of the diplomatic corps, congressional staff and members of the press, among others, for a half-day of panel discussions covering significant developments in the global energy sector.

19 Sep 2017, Webinar, New York, United States

Join Dentons and Welch Consulting for a complimentary webinar focused on the evolving pay equity landscape.

20 Sep 2017, Seminar, Singapore, Singapore

Financial institutions face unprecedented challenges and opportunities from the recent Insolvency Law reforms in Singapore. The secured creditor is no longer supreme. The difficult creditor can no longer hold things up for better terms.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.