Society of Construction Law (Singapore)

Bintai Kindenko Pte Ltd v Samsung C&T Corp [2018] SGCA 39

Introduction

Adjudications under the Building and Construction Industry Security of Payment Act (Cap 30B) (the “SOP Act”) are routinely described as a rough species of justice, wherein an adjudicator is required to make a determination within a short period of time. The adjudication’s quick pace is a feature of the SOP Act, along with its provisionally binding nature (referred to as temporary finality) until the differences are ultimately resolved in court or at arbitration. Both features facilitate the overall aim of easing cash flow to contractors and sub-contractors downstream in the building and construction industry.

Due to the constrains of time, adjudicators have been given considerable latitude to make their determination. Errors of law in adjudications are tolerated and cannot be appealed against. However, this does not mean that adjudicators have carte-blanche to do as they wish, as they are required to comply with the principles of natural justice in rendering a determination.

In Bintai Kindenko Pte Ltd v Samsung C&T Corp [2018] SGCA 39 (“Bintai Kindenko”), the Court of Appeal decided on the issue of an adjudicator who breached the principles of natural justice by failing to provide a fair hearing. In so doing, the Court of Appeal elaborated on the principles of natural justice, particularly in relation to the duty to provide a fair hearing in the context of adjudications.

Background to Bintai Kindenko

The appellant, Bintai Kindenko Pte Ltd (the “sub-contractor”), was engaged by the respondent, Samsung C&T Corp (the “main contractor”) as its sub-contractor for a project in respect of additions and alterations to Suntec City’s convention centre and retail podium ([7] of Bintai Kindenko).

Disputes occurred between the parties and the sub-contractor applied for adjudication under the SOP Act. The sub-contractor raised 3 issues in dispute for the adjudicator to determine, namely:

1. the retention monies;
2. the backcharges (for scaffolding carried out during the project); and
3. the variation works (certified and paid in earlier payment responses but recomputed and reversed in the main contractor’s payment response).

The main contractor responded to the 3 issues raised by the sub-contractor stated above. In addition, the main contractor also raised a preliminary objection to the validity of the Adjudication Application. Further submissions were also made by both parties, which dealt with all 4 issues stated above ([13]-[17] of Bintai Kindenko).

However, when the adjudicator rendered the adjudication determination in favour of the sub-contractor, the adjudicator only addressed (a) the preliminary objection to the validity of the adjudication application; and (b) the retention monies ([19] of Bintai Kindenko).

The adjudicator did not make any findings with regard to the issues regarding the back charges and the variation works. In fact, the adjudicator stated that the adjudication “[centered] solely on the claim for release of the first retention monies” ([20] of Bintai Kindenko).

The main contractor applied to the High Court to set aside the adjudication determination, arguing that the adjudicator had breached the rules of natural justice by failing to consider the two issues regarding back charges and variation works. The High Court accepted that the rules of natural justice were breached, and set aside the adjudication determination accordingly.

Being dissatisfied with the High Court’s decision, the sub-contractor appealed to the Court of Appeal.

The Court of Appeal’s Decision in Bintai Kindenko

The Court of Appeal dismissed the sub-contractor’s appeal, and found that there was a breach of natural justice as the adjudicator did not accord the respondent a fair hearing by failing to consider the essential issues, and that the breach caused was material to the main contractor.

Two Aspects of Natural Justice

The Court of Appeal highlighted that there were two aspects to the natural justice principles. Firstly, the parties to the adjudication must be accorded a fair hearing (the fair hearing rule), which meant that, inter alia, the adjudicator must consider the essential issues. Secondly, the adjudicator must have been independent and impartial in deciding the dispute (the no bias rule) ([34] of Bintai Kindenko). Only the fair hearing rule was considered as this formed the basis of the High Court’s decision to set aside the adjudication determination.

The Fair Hearing Rule – Failing to Consider the Essential Issues

Importantly, the Court of Appeal distinguished between an adjudicator’s decision to reject an argument against the adjudicator’s failure to even consider that argument. The latter would be a breach of natural justice while the former would only be an error of law, not a breach of natural justice ([38] of Bintai Kindenko).

Additionally, the Court of Appeal highlighted that an adjudicator would not need to consider every issue raised by the parties, but would only need to deal with the essential issues. Furthermore, in deciding the essential issues ([40] of Bintai Kindenko):

1. the adjudicator would not need to deal with every argument canvassed under each essential issue as long as one argument could resolve the issue;
2. the adjudicator could resolve an issue implicitly without expressly addressing it, if the outcome of that issue flows from the conclusion of a specific logically anterior issue; and
3. the adjudicator must have demonstrably attempted to comprehend the parties’ arguments on those essential issues.

As such, the Court of Appeal held that an adjudicator would be found to have breached the principles of natural justice for failing to consider an issue in the dispute only if ([46] of Bintai Kindenko):

1. the issue was essential to the resolution of the dispute; and
2. a clear and virtually inescapable inference could be drawn that the adjudicator did not apply his mind at all to the said issue.

The Failure to Consider the Essential Issues

In Bintai Kindenko’s case, the back charges and the variation works were clearly essential issues to resolving the dispute, especially since they were raised in the main contractor’s Adjudication Response which featured a response amount of “($2,190,963.62)” ([49] of Bintai Kindenko).

As such, the sub-contractor had to persuade the Adjudicator to find in its favour in respect of the first half of the retention monies, as well as rule against the main contractor in respect of the back charges and variation works, especially since the sub-contractor’s claims would have been defeated if the Adjudicator concluded that the main contractor was entitled to the back charges and variation works ([49] of Bintai Kindenko).

The Court of Appeal found that the adjudicator clearly did not apply his mind at all to the issues of the back charges and variation works, especially since the adjudication determination did not contain a single paragraph on the issues of the backcharges and variation works. As such, the Court of Appeal found that the adjudicator had failed to consider the essential issues in resolving the dispute ([50] of Bintai Kindenko).

The Breach of Natural Justice Must be Material

The Court of Appeal then considered whether the breach was material. In so doing, the Court of Appeal held that a breach would only be material if the adjudicator was denied the benefit of arguments or evidence that had a real chance of making a difference to his deliberations, as opposed to a fanciful one. If the breach would not have made any difference because it wholly lacked any legal or factual weight, then such a breach would not be material ([60]-[61] of Bintai Kindenko).

In Bintai Kindenko’s case, the Court of Appeal found that the Adjudicator’s failure to consider the issues regarding the backcharges and variation works was sufficiently material as to prejudice the main contractor, especially since the sub-contractor’s claims would have been defeated if the Adjudicator concluded that the main contractor was entitled to the back charges and variation works ([62] of Bintai Kindenko).

The Effect of Bintai Kindenko

The Court’s decision in Bintai Kindenko highlights the importance that all adjudicators must consider the essential issues in dispute before making the determination. While the SOP Act gives adjudicators a wide latitude in making their determination, the failure to consider the essential issues and provide a fair hearing or comply with the principles of natural justice will result in a determination being set aside through no fault of the parties.

Contributed by: Justin Tan - Senior Associate, Eversheds Harry Elias LLP

Disclaimer: The views expressed in this article are the author’s personal views and do not represent the views of Eversheds Harry Elias LLP.