High Court Orders Specific Performance: Maxx Engineering v. PQ Builders (2023)

Is There An Obligation To Mediate? The General Division Of The High Court Orders Specific Performance To Compel A Party To Refer A Dispute To Mediation – Maxx Engineering Works Pte Ltd V PQ Builders Pte Ltd [2023] SGHC 71

Executive Summary

1. In Maxx Engineering Works Pte Ltd v PQ Builders Pte Ltd [2023] SGHC 71 the High Court held that specific performance could be ordered to compel a party to refer a dispute to mediation when the underlying contract contained a clause obliging mediation. This was because:

(a) The wording of the clause obliged mediation if negotiations failed; and

(b) On the facts, the test for whether specific performance could be granted as set out in Lee Chee Wei v Tan Hor Peow Victor [2007] 3 SLR(R) 537 (“Lee Chee Wei”) was satisfied. i.e., it would be just and equitable to order specific performance.

Background

2. In the suit, the applicant, Maxx Engineering Works Pte Ltd (“Maxx”) and the respondent, PQ Builders Pte Ltd (“PQ”) entered into a sub-contract (the “Sub-Contract”). One of the clauses in the Sub-Contract, Clause 54, set out that “…the parties shall refer the dispute for mediation” if negotiations to resolve the dispute failed. On the other hand, in Clause 55 of the said Sub-Contract, it sets out that if the dispute was not resolved in accordance with Clause 54 of the Sub-Contract, the parties “shall refer the dispute for arbitration by an arbitrator.”

3. Without referring the dispute to mediation, PQ referred the dispute to arbitration under Clause 55 of the Sub-Contract. In response, Maxx commenced OA 621 for, inter alia, an order to compel PQ to refer the dispute to mediation as obligated under Clause 54 of the Sub-Contract.

4. The two main issues in this case were:

(a) Whether there was a legal obligation to refer the dispute to mediation; and

(b) Whether it was just and equitable to order for specific performance.

Issue 1: Whether there was a legal obligation to refer to mediation

5. Both parties accepted that they were not contractually obligated to mediate the dispute before commencing arbitration. However, Maxx noted the phrase “shall refer” in Clause 54 and 55 of the Sub-Contract implied that both parties had to attempt to resolve the dispute through mediation and arbitration as long as the arbitration of the dispute had not concluded (at [7]).

6. Kwek J observed that PQ did not dispute that the phrase “shall refer” in Clause 55 of the Sub-Contract which imposed an obligation to arbitrate the dispute (at [10]). Moreover, Kwek J found that by commencing arbitration, PQ had accepted the contractual obligation to do so. Thus, it was only consistent that PQ be subject to the same obligation in Clause 54 of the Sub-Contract owing to the plain language of Clause 54 of the Sub-Contract (at [10]).

7. PQ also submitted that they were only obliged to consider mediation, citing the Court of Appeal decision in Cheung Teck Cheong Richard and others v LVND Investments Pte Ltd [2021] 2 SLR 890 (“Richard Cheung”). Kwek J disagreed with the aforesaid submission for two reasons:

(a) The relevant clause in Richard Cheung was different from Clause 54 of the Sub-Contract. Specifically, Clause 20A.1 of the relevant agreement in Richard Cheung stated that parties “shall consider…mediation” as opposed to “shall refer the dispute… for mediation” (at [12]-[13])

(b) The immediate following clause in Richard Cheung emphasized that Clause 20A.1 of the relevant agreement in Richard Cheung did not amount to a legal obligation to attempt mediation. In contrast, Clause 54 of the Sub-Contract in Maxx Engineering placed an obligation on the parties, such that the parties “shall refer” a dispute for mediation (Maxx Engineering at [14] and [15]).

Issue 2: Whether it was just and equitable to order specific performance

8. Applying the principles in Lee Chee Wei, Kwek J found that it would be just and equitable to order specific performance as:

(a) Damages were inadequate since parties specifically bargained for an obligation to refer their dispute to mediation, and damages would be an unsuitable substitute for such an obligation (at [20]);

(b) PQ would not suffer substantial hardship (at [21]).

(c) Maxx’s failure to put forth a proposal for the resolution of the dispute did not render the mandatory mediation of the dispute to be futile, since there was no evidence that parties were unamenable to mediation at [23]);

(d) The order would not be impractical for the court to supervise, as the order required PQ to take specific and concrete steps to refer the dispute to mediation, meaning that there would be no serious difficulty in determining if PQ had complied (at [25]); and

(e) There were three other extraneous circumstances weighing in favour of it being just and equitable to order specific performance (at [26]). Specifically:

(i) the order would benefit both parties as the matter would be resolved efficiently and without further costs (at [27]);

(ii) Kwek J, citing the Court of Appeal in HSBC Institutional Trust Services (Singapore) Ltd v Toshin Development Singapore Pte Ltd [2012] 4 SLR 738 (“Toshin”), held that the parties’ choices on how they sought to resolve potential differences between them should be respected (at [28]); and

(iii) There was a trend towards amicable dispute resolution, as Toshin observed that there was value in promoting consensus and conciliation in lieu of adversarial dispute resolution, and O 5 r 1(1) of the Rules of Court 2021 did impose a duty on litigating parties to consider amicable resolution. Thus, ordering specific performance in this case would be consistent with this trend.

Conclusion

9. The High Court’s decision appears to be the first time the court has made an order for specific performance to refer a dispute to mediation after finding that the underlying contract had a mandatory mediation clause. What appears decisive in this case was the exact wording of the mediation clause, which had used clearly mandatory language, unlike a past decision where the mediation clause had merely called for parties to consider mediation.

The writers are grateful for the contribution of our firm’s intern, Lou Choong Ngan.