Singapore’s Court of Appeal explicates on principles of natural justice in the context of adjudication

Introduction

In a reversal of the High Court Judge’s (“Judge’s”) decision to set aside an adjudication determination where the adjudicator rejected the respondent’s cross-claim on the premise that the respondent had failed to provide its claim “beyond reasonable doubt”, Singapore’s Court of Appeal (“CA”) recently upheld the same determination.

The Singapore apex court provided detailed grounds to explain why it disagreed with the Judge in light of the trend of litigants seeking to set aside adjudication determinations for breach of natural justice.

Background to the Appeal

The dispute arose out of a subcontract between WCS Engineering Construction Pte Ltd (“Respondent” or “WCS”) and Glaziers Engineering Pte Ltd (“Appellant” or “Glaziers”).

The Respondent had engaged the Appellant to carry out aluminium, stainless steel and glazing works, including the fabrication, supply and installation of shower screens in all bathrooms in a development known as “The Hillford”.

The Appellant commenced adjudication proceedings for its claim covering work done under the subcontract which remained unpaid. The adjudicator allowed the Appellant’s claim in full (“Determination”) without making any deduction for costs arising from shattering shower screens, which the Respondent had sought to back charge to the Appellant. The Respondent then sought to have the Determination set aside.

The Judge found that the adjudicator had breached the rules of natural justice. The Judge disagreed with the Appellant’s argument that the adjudicator could not have breached the rules of natural justice because the adjudicator had heard from the Respondent fully on the point of whether the Appellant was liable for the shattering shower screens. This was because if the adjudicator had heard from both parties on the applicable standard of persuasion, it was highly likely that the adjudicator would have accepted the parties’ common position that the standard of persuasion was the standard of a prima facie case. On the facts, if the adjudicator had accepted that the applicable standard was that of a prima facie case, he could reasonably have reached a different determination.

Thus, the Judge concluded that the breach of natural justice caused the Respondent prejudice. The Determination was set aside.

Parties’ Cases on Appeal

The Appellant argued that:

1. the adjudicator was not a legally-trained person, and it was not possible to conclude that he had applied the standard of “beyond reasonable doubt” in the way that a legally-trained person would have understood that term;
2. in any event, even if the adjudicator had misapplied the standard of persuasion, this was, at best, an error of law which did not amount to a breach of natural justice;
3. even if there had been any breach of natural justice, it had not caused the Respondent any prejudice because the adjudicator would nevertheless have arrived at the same determination.

The Respondent submitted that:

1. it was entirely speculative to suggest that the adjudicator had used the term “beyond reasonable doubt” without understanding its legal significance and import;
2. if the adjudicator had examined the evidence according to the prima facie standard of persuasion, this could reasonably have led him to a difference conclusion because, in the Respondent’s submissions, there was at least some evidence to support the Respondent’s entitlement to a set-off.

Decision of the CA

The Issues

It is well-established that a party seeking to challenge an award on the ground that the tribunal breached the rules of natural justice must identify (a) which rule of natural justice was breached, (b) how it was breached, (c) in what way the breach was connected to the making of the award, and (d) how the breach prejudiced its rights. In the present case, the rule of natural justice alleged to have been breached was the fair hearing rule. The key issues which arose for determination related to, first, whether this rule was breached (“Issue 1”) and second, whether the breach caused prejudice to the Respondent (“Issue 2”).

With regard to Issue 1, the CA analysed this in terms of two sub-issues:

• the first sub-issue was whether the adjudicator actually applied the standard of “beyond reasonable doubt” in the way that a legally-trained individual would understand that standard;
• assuming that the adjudicator applied the “criminal standard of persuasion”, the second sub-issue was whether this was a breach of the fair hearing rule.

Analysis

The CA found that although the adjudicator used the term “beyond reasonable doubt” on a few occasions, it was doubtful that he intended to use those words with all the import they would carry if they were used by a lawyer or judge, and therefore turned to its primary reason for allowing the appeal, which was that there was no breach of the fair hearing rule, regardless of whether the adjudicator actually applied the criminal standard of persuasion.

This was because:

• it was not a breach of the fair hearing rule for a decision-maker to fail to invite submissions on an issue as fundamental and inherent in every legal dispute as that of the standard of persuasion or proof to be applied;
• ·on the facts, the parties did engage each other as to the sufficiency of the evidence.

The Court’s Decision

Having decided that there was no breach the fair hearing rule, the CA considered that this was sufficient reason for it to allow the appeal.

However, the CA opined that even if it had found that there had been a breach of the principles of natural justice, it would nevertheless have allowed the appeal because any such breach did not cause prejudice to the Respondent.

Key Takeaways

Standard of proof to set aside Determination: In allowing the Appellant’s appeal against the setting aside of the Determination, the CA affirmed that an applicant who seeks to have an adjudication determination set aside must establish his case on the balance of probabilities. The remarks of the court in AKN and another v ALC and others and other appeals [2015] 3 SLR 488, that the court should only infer that there had been a breach of natural justice if such an inference was “clear and virtually inescapable”, should not be taken as a general rule that every alleged breach of natural justice must be made out to the level of being “clear and virtually inescapable” to justify a setting aside of an adjudication determination.

Where the alleged failure is that the adjudicator has wholly failed to consider an important pleaded issue, then the court, being mindful that the adjudicator’s silence may be equally consistent with his rejection of that submission as it is with a failure to consider that submission entirely, will require a “clear and virtually inescapable inference” before finding that the latter hypothesis is to be preferred on a balance of probabilities.

Standard of persuasion to be applied by adjudicator: The CA noted that the correct standard of satisfaction to be applied by an adjudicator in adjudication is that of a prima facie case that the payment claim is supported by the facts

• This is the standard that applies regardless of whether a payment adjudication response has been filed, because it is part of the adjudicator’s core duty to adjudicate.
• This is also the standard which ought to be applied to any alleged entitlement to a set-off which a respondent may raise in the payment response.

Omission to invite submissions: The CA’s analysis that it was not a breach of the fair hearing rule for a decision-maker to fail to invite submissions on an issue as fundamental and inherent in every legal dispute as that of the standard of persuasion or proof to be applied, was based on its view that: while it is undoubtedly true that a decision-maker must adhere to the principles of natural justice even in dealing with subsidiary issues, this does not necessarily mean that the decision-maker must specifically invite submissions or hear from parties on all subsidiary issues if the subsidiary issues ought reasonably to have been foreseen by the parties.

Prima facie standard: Even if the adjudicator had applied the standard of a prima facie case, the CA found that he could not reasonably have come to a different decision. In his determination, the adjudicator highlighted multiple reasons as to why he was doubtful about various aspects of the Respondent’s case.

Other observations: In other observations, the CA had expressed surprise that the parties had pursued an application to have the award set aside, which eventually led the matter to be brought before the CA, given the relatively small quantum in dispute. The CA stressed that it was important for litigants to conduct a cost-benefit analysis and to consider, in each case, whether the consequence of a matter justifies the effort and expense of going to court. This is all the more so where the matter concerns an adjudication determination which only enjoys temporary finality and which may be superseded when the parties eventually ventilate their dispute more fully in litigation or arbitration.