Singapore High Court: Arbitration of disputes in the enforcement of architect’s certificates

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In the case of Yau Lee Construction (Singapore) Pte Ltd v Far East Square Pte Ltd and another matter, [2018] SGHCR 11, the Singapore High Court addressed the issue of whether the entitlement of an employer to seek summary judgment on architect’s certificates under the Singapore Institute of Architect (SIA) Conditions and the policy of facilitating cash flow in the construction industry ought to have an impact on how closely the court considers the quality of the claim and defence in determining the existence of a dispute to be referred to arbitration. Brief analysis of the case follows:

Factual Matrix

The Plaintiff is the owner of a construction project and the Defendant was in the business of building construction. Disputes arouse between the parties with regard to the validity and enforcement of Architect’s certificates issued pursuant to a building and construction contracts. Under the SIA Conditions and Policy, an aggrieved party can file a claim on Architect’s certificates issued pursuant to building and construction contracts between the parties which incorporates Articles and Conditions of Building Contract (Measurement Contract) published by SIA (the SIA Conditions). Pursuant to cl 31(13) of the SIA Conditions, a party is entitled to seek payment, including by way of summary judgment, of the sums certified in any valid Architect’s certificate. The validity of these Disputed Certificates had been disputed and the parties sought a stay of proceedings for the matter to be referred to arbitration pursuant to Section 6(1) of the Domestic Arbitration Act (AA) of Singapore as provided for in cl 37(1) of the SIA Conditions.

Arbitration Clause

Clause 37 (1) of SIA Conditions is as follows

“ARBITRATION

Any dispute between the Employer and the Contractor as to any matter arising under or out of or in connection with this Contract or under or out of or in connection with the carrying out of the Works and whether in contract or tort, or as to any direction or instruction or certificate of the Architect or as to the contents of or granting or refusal of or reasons for any such direction, instruction or certificate shall be referred to […] arbitration…”

Applicable Legal Principles

Section 6 of AA

“Stay of legal proceedings

6.—(1)  Where any party to an arbitration agreement institutes any proceedings in any court against any other party to the agreement in respect of any matter which is the subject of the agreement, any party to the agreement may, at any time after appearance and before delivering any pleading or taking any other step in the proceedings, apply to that court to stay the proceedings so far as the proceedings relate to that matter.

(2)  The court to which an application has been made in accordance with subsection (1) may, if the court is satisfied that —

(a)  there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement; and

(b)  the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration,

make an order, upon such terms as the court thinks fit, staying the proceedings so far as the proceedings relate to that matter.

(3)  Where a court makes an order under subsection (2), the court may, for the purpose of preserving the rights of parties, make such interim or supplementary orders as the court thinks fit in relation to any property which is or forms part of the subject of the dispute to which the order under that subsection relates.

(4)  Where no party to the proceedings has taken any further step in the proceedings for a period of not less than 2 years after an order staying the proceedings has been made, the court may, on its own motion, make an order discontinuing the proceedings without prejudice to the right of any of the parties to apply for the discontinued proceedings to be reinstated.

(5)  For the purposes of this section, a reference to a party includes a reference to any person claiming through or under such party.”

Parties’ Contentions

The Plaintiff submitted that the burden lies on the Defendant to satisfy the court of the existence of such a dispute if it is to succeed in its stay application, and it must do so by establishing a “prima facie defence” and not merely the existence of a “prima facie dispute”. Relying on Chin Ivan v H P Construction & Engineering Pte Ltd [2015] 3 SLR 124 and Ser Kim Koi v GTMS Construction Pte Ltd [2016] 3 SLR 51, the Plaintiff further argued that the applicable standard for determining whether a stay of court proceedings in favour of arbitration under section 6 of AA should be granted on the basis that the architect’s certificate is irregular (i.e. not issued in accordance with the [SIA Conditions]) would be that of a prima facie defence or arguable defence and not a prima facie dispute.

According to the Defendant, as per Kwan Im Tong Chinese Temple and another v Fong Choon Hung Construction Pte Ltd [1998] 1 SLR(R) 401, the applicable test is whether it is able to show the existence of a prima facie dispute. The Defendant further contended that the test of “prima facie defence” is of no relevance to an application for a stay in favour of arbitration.

Analysis

The Court observed that in determining whether there is a dispute to be referred to arbitration in the context of a stay application under Section 6 of the AA, the operative question is whether the claim can be said to be undisputed or indisputable.

With regard to burden of proof argument, the Court relied on the rulings of Uni-Navigation Pte Ltd v Wei Loong Shipping Pte Ltd [1992] 3 SLR(R) 595, Fasi Paul Frank v Specialty Laboratories Asia Pte Ltd [1999] 1 SLR(R) 1138, and Anwar Siraj and another v Teo Hee Lai Building Construction Pte Ltd [2007] 2 SLR(R) 500 and held that as the applicant for a stay, the onus is on the defendant to demonstrate the existence of a “prima facie case of disputes”

With regard to architect’s certificates, the Court relied on Samsung Corp v Chinese Chamber Realty Pte Ltd [2004] 1 SLR(R) 382, and H P Construction & Engineering Pte Ltd v Chin Ivan [2014] 3 SLR 1318 to hold that the defendant cannot succeed in establishing a prima facie case of disputes merely by raising “mere allegations”; he must back this up by “credible evidence”.

Further, the Court commented that once the defendant sets up a prima facie case of a dispute, the burden shifts to the plaintiff to satisfy the court that there is “sufficient reason why the matter should not be referred in accordance with the arbitration agreement” under s 6(2)(a) of the AA and the court should instead assume jurisdiction. The Court relied on MAE Engineering Ltd v Dragages Singapore Pte Ltd (formerly known as Dragages et Travaux Publics (S) Pte Ltd) [2002] 1 SLR(R) 853 and Maybank Kim Eng Securities Pte Ltd v Lim Keng Yong and another [2016] 3 SLR 431  for drawing this conclusion.

What is an indisputable claim?

The Court noted that the quality of the parties’ cases is inarguably and inescapably put in issue when one determines whether the claim is “indisputable”.

Methodology to examine the quality of the claim

The Court remarked that that it will not “embark on an examination of the validity of the dispute as though it were an application for summary judgment”. It will not permit “full-scale argument” and will instead adopt a “holistic and commonsense approach to see if there is a dispute”. In the context of allegedly conflicting contractual provisions, if the conflict “cannot be settled without delving deeply into the contract”, the resolution of the question of construction is a “dispute which should go to arbitration”.

Two approaches to determine the existence of an arbitratble dispute

First is the goal of saving time and costs in the resolution of the dispute and, perhaps more importantly, the need to prevent potential abuse (by Lord Mustill in Channel Tunnel Group Ltd and France Manche SA v Balfour Beatty Construction Ltd [1993] 1 All ER 664).

Second is the need to uphold and give effect to parties’ choice of forum i.e. the principle of party autonomy.

Validity of the architect’s certificates

The Court held that the latest date for completion determined in accordance with cl 22.(1) of the SIA Conditions should be the reference point for the architect’s consideration of whether there are matters entitling the contractor to extensions of time. If an event entitling the contractor to an extension of time occurs only after the latest date for completion, that must mean, as a matter of logical inference, that the contractor is in culpable delay in the period between the latest date for completion and the occurrence of that delaying event. The employer is therefore entitled to recover liquidated damages for the whole of that period of culpable delay and it is proper that a Delay Certificate be issued to give effect to this. Thus, the date of reference must be the latest date for completion, rather than some subsequent date (such as the date of issuance of the Delay Certificate).

Conclusion

The Court held that the Defendant has established a “prima facie case of disputes”. The burden therefore shifts to the Plaintiff to satisfy the Court that its claim is either undisputed or indisputable such that there is “sufficient reason” under s 6(2)(a) of the AA to warrant a refusal of a stay. The Court concluded that this case cannot be considered as “the clearest of cases” nor is the Plaintiff’s claim “so unanswerable that there is nothing to arbitrate”. Therefore, there is a dispute to be referred to arbitration in respect of the Plaintiff’s claim, and therefore the Court granted stay of court proceedings in favour of arbitration.

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