Case Summaries

Facade Solution Pte Ltd v Mero Asia Pacific Pte Ltd [2020] SGCA 88

SUPREME COURT OF SINGAPORE

7 September 2020

Case summary

Facade Solution Pte Ltd v Mero Asia Pacific Pte Ltd
[2020] SGCA 88
Civil Appeal No 44 of 2020

---------------------------------------------------------------------------------------------

Decision of the Court of Appeal (delivered by Judge of Appeal Steven Chong):

 

Outcome: CoA dismisses the appeal and affirms the High Court judge’s decision to set aside the adjudication determination on the ground of fraud.

Pertinent and significant points of the judgment

  • A party seeking to set aside an AD (“the innocent party”) must first establish (at [29][30]):
    • (a) the facts which were relied on by the adjudicator in arriving at the AD;
    • (b) that those facts were false;
    • (c) that the party seeking the claim either knew or ought reasonably to have known them to be false; and
    • (d) that the innocent party did not in fact, subjectively know or have actual knowledge of the true position throughout the adjudication proceedings.
  • Second, the innocent party must establish that the facts in question were material to the issuance of the AD. Materiality is established if there is a real prospect that had the adjudicator known the truth, the outcome of the determination might have been different: at [34]–[35]
  • An AD obtained by fraud should be voidable at the instance of the innocent party: at [38].

Introduction

1 The appellant, Facade Solution Pte Ltd, appealed against the decision of the High Court judge (“the Judge”) to set aside an adjudication determination (“AD” or “ADs” in the plural) made on 15 November 2019 under the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) (“the Act”). This decision examined the applicability of the fraud exception in the context of adjudication proceedings, its breadth and effect on an AD and whether and under what circumstances should a court exercise its discretion to sever the offending parts of an AD infected by fraud.

Background to the appeal

2 The respondent, Mero Asia Pacific Pte Ltd, was the main contractor of a development project (“the Project”). The appellant was engaged by the respondent as a subcontractor to fabricate, deliver and install 864 window panels at the Project site (“the Sub-Contract”). The appellant in turn, engaged a Chinese supplier, known as “Rontec”, to fabricate the window panels for the Project. 

3 The dispute involved payments which were payable to the appellant under the Sub-Contract. The appellant commenced adjudication proceedings on the basis that no payment response was served in response to its payment claim (“the Payment Claim”). The Payment Claim was for a total sum of $830,938.73, which substantially comprised payments due to the appellant for the fabrication of 864 window panels and related storage costs. It was not disputed that at the time of the Payment Claim, 489 out of the 864 window panels remained undelivered (“undelivered panels”).

4 An issue that arose during the adjudication proceedings was whether the appellant was entitled to payment for the undelivered panels that had been fabricated but not delivered. The adjudicator found in the affirmative and also allowed the appellant’s claim for storage costs in relation to the undelivered panels. An Adjudication Determination in the sum of $671,081.01 (“the Adjudicated Sum”) was issued on 15 November 2019 in the appellant’s favour.

5 After the issuance of the AD, it transpired that the appellant had, throughout the adjudication proceedings, faced difficulty in securing delivery of 169 of the undelivered panels (“the 169 panels”) from Rontec. The respondent’s request to deliver the undelivered panels in exchange for the Adjudicated Sum went ignored. On 22 November 2019, Rontec emailed the respondent and introduced itself as the supplier of the window panels for the Project. Rontec informed the respondent that it had withheld the 169 panels in the light of ongoing disputes with the appellant. Rontec then offered to sell those panels directly to the respondent for a sum of S$251,791.59 (RMB1.3m). On 9 December 2019, the respondent applied to set aside the AD on the grounds of fraud and breach of natural justice.

6 The High Court Judge (“the Judge”) set aside the AD on the ground of fraud. The Judge found three material facts that were discovered after the AD was issued. First, the 169 panels were not in Singapore. Second, the appellant had serious disputes with Rontec regarding the delivery of those panels to Singapore. Third, the appellant was encountering significant difficulties negotiating with Rontec for the delivery of those panels to Singapore. The Judge held that it was clear that the appellant was in serious disputes with Rontec throughout the course of the adjudication proceedings. The appellant therefore, was in no position to secure delivery of the 169 panels and its fraud was in claiming payment for the panels which it knew it could not deliver.

7 On appeal, the crux of the appellant’s case was that there was no fraud since it genuinely believed that it had secured the delivery of the 169 panels. This, the appellant claimed, was mainly on the basis of an alleged agreement entered with Rontec on 14 November 2019, under which the appellant would pay Rontec RMB1.3m for the delivery of the 169 panels. The appellant submitted that even if it had disclosed all the material facts in relation to its disputes with Rontec, it would not have changed the outcome of the AD. As against this, the respondent’s case on appeal was that none of the Judge’s findings were plainly wrong or against the weight of the evidence, and therefore, they should not be disturbed.

The court’s decision

8 Fraud was an accepted ground for setting aside an AD. The court would not allow its processes to be used to facilitate fraud and had the power to set aside an AD that had been procured by fraud: at [22]–[23] and [27].

9 A party seeking to set aside an AD (“the innocent party”) must first establish: (a) the facts which were relied on by the adjudicator in arriving at the AD; (b) that those facts were false; (c) that the party seeking the claim either knew or ought reasonably to have known them to be false. This objective test of knowledge would encompass constructive knowledge and would apply to every stage of the adjudication proceedings; and (d) that the innocent party did not in fact, subjectively know or have actual knowledge of the true position throughout the adjudication proceedings: at [29][30].

10 Second, the innocent party must establish that the facts in question were material to the issuance of the AD. Materiality was established if there was a real prospect that had the adjudicator known the truth, the outcome of the determination might have been different. An AD obtained by fraud should be voidable at the instance of the innocent party: at [34]–[35] and [38].

11 Where it was established that an AD was infected by fraud, it was neither material nor relevant to inquire as to whether the innocent party could have discovered the truth by the exercise of reasonable diligence: at [31] and [33].

12 The appellant had fraudulently represented that it had control over all the undelivered panels. Throughout the course of the adjudication proceedings, the appellant represented that it had control over all the undelivered panels and neither disclosed that the 169 panels were in Rontec’s warehouse in China nor its dispute with Rontec. The appellant did not genuinely believe that it had secured delivery of the 169 panels as it had at best, only an in-principle agreement with Rontec for the delivery of the 169 panels and there was a serious dispute between the appellant and Rontec which casted serious doubts on the appellant’s ability to secure delivery of the 169 panels at the time of the adjudication proceedings. Even if the appellant held such a genuine belief, it did not change the fact that the appellant’s Payment Claim was filed on the false representation that it was able to deliver all the undelivered panels despite knowing that it was not in control of 169 of them: at [39]–[40] and [43][47].

13 The respondent only became aware that the 169 panels were in Rontec’s possession after it had received an email from Rontec offering to sell the 169 panels directly to the respondent. This was consistent with the respondent’s proposal to pay the Adjudicated Sum to the appellant in exchange for the undelivered panels after the AD: at [48].

14 The issue before the adjudicator was whether the appellant was entitled to payment notwithstanding that the undelivered panels had been fabricated but not delivered. The adjudicator held in the affirmative. The appellant’s fraud in deliberately omitting to disclose that it had no control over the 169 panels was an operative cause of the impugned AD, as the adjudicator had allowed the appellant’s claim on the assumption that it was able to deliver all the undelivered panels. Had the adjudicator known the truth, the real inquiry would have been whether the appellant was still entitled to payment for all the undelivered panels notwithstanding that it had no control over the 169 panels. In that light, there was a real prospect that the outcome of the determination might have been different: at [55][57].

15 The court had the power under common law to sever an AD in part. The starting point was that an AD that was corrupted by fraudulent conduct would be tainted in its entirety, and the whole must fail. An AD obtained by fraud should only be severed in exceptional circumstances. The factors that the court would take into account would include, the nature of the fraud, the quantum of the claim affected by the fraud and the requirements of textual and substantial severability. Save for extremely limited situations where the fraud was de minimis both in terms of nature and quantum, the court would generally not exercise its discretion to sever the impugned portion of an AD to permit the claimant to retain the balance adjudicated sum: at [60]–[61].

16 The nature of the appellant’s fraud was sufficiently serious in nature as it went towards the appellant’s entitlement to payment for the undelivered panels itself. The appellant deliberately misled the respondent and the adjudicator into thinking that the appellant could, when called upon to do so, deliver all the undelivered panels and fulfil its Sub-Contract when this was certainly not the case. The 169 panels comprised approximately 20% of the appellant’s total claim and was not de minimis. The appellant’s claim could not be textually and substantially severed as it had claimed for payment in relation to the supply of all 864 panels including storage costs for all the undelivered panels and this entire claim was allowed by the adjudicator: at [63]–[64].

 

This summary is provided to assist in the understanding of the Court’s grounds of decision. It is not intended to be a substitute for the reasons of the Court. All numbers in bold font and square brackets refer to the corresponding paragraph numbers in the Court’s grounds of decision.

YOU MAY ALSO BE INTERESTED IN