Econ Piling Pte Ltd v Sambo E&C Pte Ltd

• Jurisdiction: Singapore
• Judgment Date: 22 April 2010
• Date: 22 April 2010
• Docket Number: Originating Summonses Nos 1084 of 2009 and 54 of 2010
• Court: High Court (Singapore)

Econ Piling Pte Ltd and another

Plaintiff

and

Sambo E&C Pte Ltd and another matter

Defendant

[2010] SGHC 120

Steven Chong JC

Originating Summonses Nos 1084 of 2009 and 54 of 2010

High Court

Insolvency Law—Schemes of arrangement—Joint debtors—Effect of scheme of arrangement on joint debt—Whether scheme of arrangement in relation to one joint debtor has effect of compromising entire debt with regard to other joint debtors

Econ Piling Pte Ltd (“Econ”) and NCC International Aktiebolag (“NCC”) (hereinafter collectively referred to as “ENJV”) were partners in a joint venture that was set up in 2001 to submit a joint bid to construct two underground stations at Macpherson and Upper Paya Lebar. There had been a previous judicial determination that the joint venture agreement gave rise to a partnership.

After securing the bid, ENJV sub-contracted certain parts of the work to Sambo E&C Pte Ltd (“Sambo”). However, Econ fell into financial difficulties in 2003, and was put into judicial management in 2004. By 25 October 2004, a scheme of arrangement that was proposed by the judicial manager (“the Scheme”) had received approval from three quarters in value of Econ's creditors, and had been sanctioned by an order of court. On 19 March 2009, all distributions under the Scheme were completed and the Scheme administrator was discharged.

One week after the Scheme was proposed by the judicial manager but a month prior to the court's sanction, Sambo commenced an ad hocarbitration against ENJV in respect of claims arising under the Sub-Contract. Five years after the commencement of the arbitration, the parties referred three questions of law to the High Court for determination. ENJV were the plaintiffs in Originating Summons No 1084 of 2009 (“OS 1084/2009”), while Sambo was the plaintiff in Originating Summons No 54 of 2010 (“OS 54/2010”).

The three questions of law were:

1. (a) whether the terms of the Scheme required the consent of Econ before Sambo could commence an ad hoc arbitration against it;

2. (b) whether the joint debts of Econ as a plaintiff in any joint venture, including ENJV, were compromised or settled in accordance with the terms of the Scheme; and

3. (c) if the joint debts of Econ incurred in ENJV had been compromised by the Scheme, whether the liability of NCC incurred in ENJV, had been similarly compromised.

Held:

(1) With respect to the first question of law, cl 4.1.3 of the Scheme provided that “no creditor shall, without the consent in writing of Econ, take any step to commence or continue in proceedings against the company for the adjudication of any claim”. It was apparent that cl 4.1.3 of the Scheme applied not only to the commencement of proceedings, but to its continuance as well. Accordingly, while Sambo did not require Econ's consent to commence the arbitration proceedings (since this took place before the Scheme was sanctioned), it required Econ's consent before it could continue the arbitration proceedings: at [9].

(2) With respect to the second question of law, the terms of the Scheme were widely drafted to cover all claims by a creditor against Econ. This meant that the joint debts and liabilities of Econ as a partner in any joint venture, including the JVA, were compromised or settled in accordance with the terms of Scheme in that no claim could be brought against Econ in respect of such joint debts and liabilities. The question of whether these joint debts were also compromised in relation to the other joint debtors was an issue for the third question of law to answer: at [15] and [16].

(3) With respect to the third question of law, a release of one joint debtor would only release all the other joint debtors if the release constituted accord and satisfaction of the joint debt. It was a matter of construction as to whether a release of one joint debtor amounted to a release of the entire debt or merely a contract not to sue that joint debtor: at [18] and [19].

(4) A discharge of a joint debtor by operation of law did not amount to accord and satisfaction of the joint debt. Although a scheme of arrangement was not regarded as a statutory contract in Singapore, this did not mean that it was therefore consensual in nature. A scheme of arrangement and its attendant legal consequences owed its efficacy entirely to the order of court that sanctioned it, and was tantamount to a release by operation of law: at [28].

(5) In a case where a joint debtor's liability was to be released by operation of law, there was no need for the creditor to reserve its rights to proceed against the other joint debtors. On the other hand, if a scheme expressly provided that the rights of a creditor in relation to other joint debtors were to be compromised, these terms would be enforced if they received the necessary creditor consent and court sanction. In the circumstances, as there was no express provision under the Scheme that had released NCC from its joint liabilities to Sambo, NCC remained liable for these joint liabilities: at [35], [38], [41] and [42].

Bank of Canton, The v Mak Lai Ting [1923] HKLR 27 (refd)

Buttle v Allan as Official Liquidator of Buttle & Co Sharebrokers (in liquidation) [1994] 1 NZLR 396 (refd)

CEL Tractors Pte Ltd, Re [2001] 1 SLR (R) 700; [2001] 2 SLR 549 (refd)

Daewoo Singapore Pte Ltd v CEL Tractors Pte Ltd [2001] 2 SLR (R) 791; [2001] 4 SLR 35 (refd)

Deanplan Ltd v Mahmoud [1993] Ch 151 (refd)

E W A, A Debtor, Re [1901] 2 KB 642 (refd)

Garner's Motors Ltd, Re [1937] Ch 594 (folld)

Good, Ex parte;Re Armitage (1876) 5 Ch D 46 (refd)

Hill v Anderson Meat Industries Ltd [1971] 1 NSWLR 868 (refd)

Hill v Anderson Meat Industries Ltd [1972] 2 NSWLR 704, CA (refd)

Jacobs, Ex parte;Re Jacobs (1875) LR 10 Ch App 211 (folld)

Johnson v Davies [1999] Ch 117 (not folld)

Kempe v Ambassador Insurance Co [1998] 1 WLR 271 (refd)

London Chartered Bank of Australia, Re [1893] 3 Ch 540 (refd)

Morris v Wentworth-Stanley [1999] QB 1004 (refd)

Oriental Insurance Co Ltd, The v Reliance National Asia Re Pte Ltd [2008] 3 SLR (R) 121; [2008] 3 SLR 121 (refd)

Pirie v Richardson [1927] 1 KB 448 (refd)

Southern World Airlines Ltd, Re [1993] 1 NZLR 597 (refd)

Watts v Aldington [1999] L&TR 578 (refd)

Arbitration Act (Cap 10,2002 Rev Ed) s 45 (2) (a)

Companies Act (Cap 50,2006 Rev Ed) ss 210, 210 (3)

Partnership Act (Cap 391,1994 Rev Ed) s 9

Bankruptcy Act 1869 (c 71) (UK)

Insolvency Act 1986 (c 45) (UK) s 260

Balachandran s/o Ponnampalam (Robert Wang & Woo LLC) for the plaintiffs in OS 1084/2009 and the defendants in OS 54/2010

Karam S Parmar and Esther Yang (Tan Kok Quan Partnership) for the plaintiff in OS 54/2010 and the defendant in OS 1084/2009.

Steven Chong JC

Introduction

1 By notice of arbitration dated 23 September 2004, Sambo E&C Pte Ltd (“Sambo”) commenced an ad hocarbitration against Econ Piling Pte Ltd (“Econ”) and NCC International Aktiebolag (“NCC”). On 25 October 2004, the High Court sanctioned the Scheme of Arrangement (“the Scheme”) in respect of the debts and liabilities of Econ. Five years later, Econ and NCC (hereinafter collectively referred to as “ENJV”) applied by way of Originating Summons No 1084 of 2009/Z (“OS 1084/2009”) for the High Court to determine two questions of law pursuant to s 45 (2) (a) of the Arbitration Act (Cap 10, 2002 Rev Ed). In response, Sambo applied by way of Originating Summons No 54 of 2010/S (“OS 54/2010”) for an additional question of law to be determined arising from the two questions of law raised by ENJV. The key issue arising from the three questions of law raised by both Sambo and ENJV is whether the joint liability of NCC as a partner of Econ was released as a result of the Scheme which released the debts and liabilities of Econ.

2 The determination of the key issue would entail a critical analysis of the scope of the principle that a release of a joint debtor releases all other joint debtors. In Deanplan Ltd v Mahmoud [1993] Ch 151 (“Deanplan Ltd”), Judge Baker QC observed at 170 that this principle has been described by some as “illogical”. Similarly, Steyn LJ (as he then was) in Watts v Aldington [1999] L&TR 578, has also described it as an “absurd” rule that requires “re-examination”. Nevertheless, it has withstood the test of time for more than a century.

3 I heard both OS 1084/2009 and OS 54/2010 together on 19 March 2010. On 23 March 2010, I delivered my oral decision with brief grounds. In respect of the key question of law before me, I arrived at the conclusion that the Scheme did not release NCC from its joint liability with Econ. I now give my reasons for my decision.

The facts

4 Sometime in 2001, the Land Transport Authority (“LTA”) invited tenders to construct two underground stations at Macpherson and Upper Paya Lebar including the tunnels between the two stations and for other ancillary works (“the Contract”). NCC invited Econ to submit a joint bid for the Contract. Econ and NCC then entered into a Joint Venture Agreement dated 13 May 2002 (“the JVA”). Econ had a 55% interest while NCC had the balance 45% interest in the joint venture. The JVA specifically provided that ENJV was not a partnership. Notwithstanding the terms of the JVA, the High Court in Originating Summons No 694 of 2006 found that ENJV was in fact a partnership.

5 In August 2002, ENJV's tender for the Contract was accepted by LTA. ENJV invited Sambo to submit a quotation for the construction of the diaphragm walls and barrette pipe works for the two underground stations (“the Sub-Contract”). By letter of award dated 28 December 2002 and duly signed on 21 April 2003, ENJV engaged Sambo as their domestic sub-contractor for the Sub-Contract.

6 By early 2003, Econ had fallen into financial difficulties. Following Econ's financial woes, the parties' participating interests in the JVA were altered pursuant to a Deed of Variation dated 22 May 2003 under which NCC's interest was...