Hitachi Plant Engineering & Construction Co Ltd and Another v Eltraco International Pte Ltd and Another Appeal

CourtCourt of Three Judges (Singapore)
JudgeChao Hick Tin JA
Judgment Date06 October 2003
Neutral Citation[2003] SGCA 38
Citation[2003] SGCA 38
Subject MatterFundamental differences between schemes of arrangement and liquidation,Pari passu principle,Sub-contracts,Companies,Principles for interpreting terms of scheme of arrangement,Whether direct payments to subcontractors fall within the scope of a scheme of arrangement between main contractor and its creditors,Whether pari passu principle applicable in schemes of arrangement outside liquidation,Building and Construction Law,Direct payments to sub-contractor,Whether nominated subcontractors with a contingent entitlement to direct payments should be considered as separate class of creditors,Whether pari passu principle applicable to schemes of arrangement outside liquidation,Schemes of arrangement
Plaintiff CounselLee Eng Beng and Low Poh Ling (Rajah and Tann)
Defendant CounselRavi Chelliah and Damita Nathan (Chelliah and Kiang),Chen Chuen Tat and Subramanian A Pillai (ACIES Law Corpoartion)
Date06 October 2003
Docket NumberCivil Appeal Nos 130 and 134
Published date17 December 2003

Delivered by Yong Pung How CJ

1 These are appeals against the decision of Rubin J where he granted injunctive reliefs prayed for by the respondents, Eltraco International Pte Ltd (‘Eltraco’) against eight defendants in Originating Summons No 1028 of 2002B. Four of the defendants appeal against that decision. We heard the appeals on 21 July 2003 and reserved judgment.

The facts

2 The facts are not in dispute. In 1996, Pine View Holdings Pte Ltd (‘Pine View’) entered into a building contract (‘the Main Contract’) with Eltraco for the development of a project known as Pine Springs at 7B Balmoral Road (‘the Project’). The Main Contract was based on the Articles and Conditions of Building Contract (1990) 4th Edition. Amendments were made by the parties to that standard form contract but those amendments are not material for the purpose of these appeals.

3 Eltraco was the main contractor for the Project. Andrew Tan Architects Pte Ltd (‘the Architects’) was the architect for the Project. Eltraco subsequently entered into separate sub-contracts with various Nominated Sub-Contractors (‘NSCs’). The appellants in both appeals, namely Hitachi Plant Engineering & Construction Co Ltd (‘Hitachi’), Wing Tai Enterprises Pte Ltd (‘Wing Tai’), Yi Wee Pools & Fountains Pte Ltd (‘Yi Wee’) and Nature Landscapes Pte Ltd (‘Nature Landscapes’) were NSCs of the Project. The parties adopted the Singapore Institute of Architects (SIA) Conditions For Sub-Contract For Use In Conjunction With The Main Contract (1980) Edition.

Pertinent Clauses of the Contracts

4 Clause 2 of the Sub-Contract states, in essence, that the Sub-Contract shall be construed consistently with the requirements of the Main Contract. Under the Main Contract, there are two situations in which Pine View is entitled to make direct payment to the NSCs. First, under cl 30(4) of the Main Contract, Pine View has a general discretion to make direct payment to NSCs in the event that a Certificate of Non-Payment is issued by the Architects. Clause 30(4) of the Main Contract states:

Upon issue of a Certificate of Non-Payment the Employer may, but shall not be bound to, pay some or all of any sums so certified directly to the Sub-Contractor or Supplier named in the Certificate, and having done so may at any time thereafter before Final Certificate deduct some or all of any sum so paid from any sum so paid from any sums due or subsequently becoming due to the Contractor under this Contract, or otherwise recover the same from the Contractor. Any Certificate of Non-Payment and decision of the Architect which it represents shall be binding between the Employer and the Contractor until final judgment or award in any dispute between them relating thereto. The Architect shall record any such payment direct or any subsequent deduction or recovery by the Employer in any later payment certificates issued by him.

5 Secondly, under cl 31(10) of the Main Contract, Pine View may make direct payment to the NSCs where the Final Certificate and a Certificate of Direct Payment is issued by the Architects. The relevant parts of cl 31(10)(b) state:

In addition the Architect […] may, but shall not be obliged to, certify direct payment by the Employer to any Nominated Sub-Contractor or Supplier […] of any outstanding balance due to such Sub-Contractor or Supplier and unpaid at that time. […] any amounts so paid may be taken into account by the Architect in the Final Certificate or, if not, may be deducted by the Employer from any sums then certified as payable by him, or may be otherwise recovered by the Employer from the Contractor. [emphasis added]

The Scheme of Arrangement (‘the Scheme’)

6 Eltraco was subsequently placed under judicial management via an Order of Court dated 21 January 2000. A meeting of creditors was convened by the Judicial Managers to propose a Scheme of Arrangement (‘the Scheme’) between Eltraco and its creditors.

7 The contentious term of the Scheme is in paragraph 1.2.1 which states:

The realisation from the Company’s assets (mainly accounts receivable from completed projects) after meeting the costs of realisation and administration shall be paid entirely to the creditors in the manner set out in the following paragraphs. [emphasis added]

8 Paragraph 2 then sets out the creditors’ entitlement under the Scheme. For the unsecured creditors, paragraph 2.2 states:

Unsecured creditors whose claims have been admitted by the JMs/Administrator shall be paid on a pro-rata basis within two weeks of receipt of payment provided the claims of the preferential creditors have been met in full. There shall be no payment and the funds shall be held by the JMs/Administrator to consolidate with future receipts if the sum is not sufficient to make a payment of at least 5%.

9 The Scheme was accompanied by an Explanatory Statement, as required by s 211 of the Companies Act. The material clauses of this Explanatory Statement are as follows:

4.1 The bulk of the Company’s assets are represented by outstanding debts due from CGH Holdings Pte Ltd (“CGH”) and Pine View Holdings Pte Ltd (“Pine View”). The ultimate amount receivable is still uncertain due to the disputes between the Company and the debtors. […]

4.3 With regard to the Pine View project, the defect liability period has expired on 1 June 2000. Pine View has refused to make any payment to the Company on the grounds of outstanding defects work and delay on the project. The Company has recently submitted additional claim against Pine View on the extension time (approximately 500 days) in addition to the outstanding progress claim of $1,992,049 (excluding retention of $251,58).

10 The Judicial Managers applied to the Court for a creditors’ meeting to approve the Scheme. Choo Han Teck J made an order on 12 July 2000 to convene that meeting. Under this Order, the Court dispensed with the need for separate meetings to be called for the different classes of creditors.

11 A majority of the creditors attending and voting, representing 86.5% in value, voted in favour of the Scheme. It is undisputed that the majority of the unsecured creditors who voted at the meeting were creditors who were not NSCs. With the requisite majority, the Judicial Managers applied for and obtained sanction from Lai Siu Chiu J for the Scheme on 4 October 2000. On the same day, an Order of Court was obtained to discharge the Judicial Management Order against Eltraco.

Events leading up the Originating Summons

12 On 15 January 2002, Eltraco received a letter from the Architects stating that they had received requests from the NSCs for direct payment from Pine View. Ten days later, the Judicial Managers, who had become the Scheme Administrators by then (because the Judicial Management Order had been discharged), replied stating that the monies requested by the NSCs for direct payment should be paid to Eltraco. This letter also stated that any direct payment to the NSCs would constitute a preference payment. Four days later, the Architects replied stating their view that the Scheme did not affect the contractual rights between Pine View and the NSCs since Pine View was not privy to the Scheme. They also pointed out that no satisfactory reason had been given as to why direct payment would constitute a preference.

13 On 22 June 2002, the Architects issued a Certificate of Direct Payment to the NSCs. The sums allowed under this Certificate for the respective appellants ranged from $21,463.85 for Yi Wee to $265,407.93 for Hitachi.

14 The Scheme Administrators subsequently took out an Originating Summons against the appellants (and four other defendants, including Pine View). They sought to restrain Pine View from effecting direct payments to the NSCs and an order for the NSCs to authorise Pine View to effect such payments due to them to Eltraco.

Direct Payment to Uni-Strong

15 One other fact bears mention. This pertains to one of the NSCs which was not the subject of Eltraco’s action, Uni-Strong Pte Ltd (‘Uni-Strong’). Uni-Strong refused to furnish the warranties for the waterproofing works for which they were engaged unless and until their outstanding sums were paid in full. In the meantime, the Architects directed Eltraco to submit the waterproofing warranties failing which the retention monies would be withheld and the Final Certificate would not be issued. Despite the Scheme Administrators’ attempts to persuade Uni-Strong to issue the water-proofing warranties without payment of the outstanding sum, Uni-Strong refused to budge.

16 Finally, at a meeting between the Architects, the Scheme Administrators and Pine View on 3 August 2001 (i.e. after the Scheme had been approved), it was agreed that Eltraco would allow Pine View to treat the non-furnishing of the warranty as a default on their part and thus allow Pine View to effect direct payment to Uni-Strong for the sum of $43,000. The Scheme Administrators took the view that this did not constitute undue preference. This was confirmed in a letter dated 13 August 2002. It is imperative to note that this confirmation came after Eltraco initiated the action against the other seven NSCs and Pine View. Eltraco does not dispute that this happened.

The decision below

17 The Judge below granted the injunctive reliefs prayed for by Eltraco. In coming to his conclusion, he rejected the NSCs’ argument that the scheme, as approved, did not expressly exclude their rights to receive direct payment from Pine View. The Judge held, at paragraphs 28 and 29 of his Grounds of Decision:

28. In my view, the […] argument appeared to ignore and sideline a significant feature of the scheme where it was stated in simple and uncomplicated language that the sums receivable by the plaintiffs from the project owners would be distributed as spelt out in the scheme.

29. In my determination, it was a compelling inference that all the unsecured creditors (which group includes the first to seventh defendants) who attended the meeting could not have missed...

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