Joo Yee Construction Pte Ltd (in liquidation) v Diethelm Industries Pte Ltd and Others

• Judge: L P Thean J
• Judgment Date: 01 March 1990
• Neutral Citation: [1990] SGHC 16
• Citation: [1990] SGHC 16
• Defendant Counsel: Tan Chee Meng (Attorney GeneralÂ’s Chambers),Tan Hoay Djin (Tan Lee & Choo)
• Published date: 19 September 2003
• Plaintiff Counsel: Jude Benny (Joseph Tan Jude Benny & Co)
• Date: 01 March 1990
• Docket Number: Originating Summons No 958 of 1989
• Court: High Court (Singapore)
• Subject Matter: Winding up,Whether contravened rule that property must be applied in settlement of liabilities pari pasu,Distribution of assets,Companies,Provision for direct payment to nominated sub-contractors by employer if main contractor made bankrupt or wound up,Provision in building contract for direct payment to nominated sub-contractors by employer if main contractor made bankrupt or wound up,Whether provision binding on liquidators,ss 280(1) & 327(2) Companies Act (Cap 50, 1988 Ed),Contract,Whether provision contravened Companies Act (Cap 50, 1988 Ed),Building contract,Contrary to public policy and legislation

Cur Adv Vult

The plaintiff, Joo Yee Construction Co Pte Ltd, is presently in liquidation, a winding-up order having been made against it on 10 February 1989. Long before the commencement of its liquidation, that is, on 12 September 1986, the plaintiff entered into a building contract (the main contract) with the government of Singapore (the government) for the construction of the Blood Transfusion Services/Department of Scientific Services Complex at the General Hospital, Singapore, and International Development and Consultancy Corp Pte Ltd (Indeco) was appointed by the government as the agent for the purpose of administering the main contract, and is the superintending officer as defined in the main contract. The first, second, third and fourth defendants (the four defendants) are the nominated sub-contractors for the development. The provisions of the main contract governing the employment by the plaintiff of nominated subcontractors are contained in cl 20 of the conditions of the main contract, which, so far as relevant, are as follows:

(a) All specialists, merchants, tradesmen and others executing any work or supplying and /or fixing any goods for which prime cost prices or provisional sums are included in the specification who may be nominated or selected by the superintending officer are hereby declared to be sub-contractors employed by the contractor and are herein referred to as `nominated sub-contractors`.

(b) The superintending officer or the contractor if so instructed in writing by the superintending officer shall obtain tenders for sub-contractors` work in respect of which prime cost prices or provisional sums are included in the specification as aforesaid and the contractor shall on the written instructions of the superintending officer place such sub-contractors with the nominated sub-contractors.

(c) No nominated sub-contractor shall be employed upon or in connection with the works against whom the contractor shall make what the superintending officer considers to be reasonable objection or (save where the superintending officer and contractor shall otherwise agree) who will not enter a sub-contract on a form provided by the superintending officer providing:

(i) that the nominated sub-contractor shall, in respect of the sub-contract, duly observe all the terms, stipulations and conditions herein expressed;

(ii) ...

(iii) that payment without discount or deduction shall be made to the nominated sub-contractor by the contractor within seven days of his receipt of the superintending officer`s certificate under cl 38 hereof which includes the value of such nominated sub-contractor`s work.

(e) Before any such certificate is issued to the contractor he shall if requested by the superintending officer furnish to him reasonable proof that all nominated sub-contractors` accounts included in previous certificates have been duly discharged, in default whereof the government may pay the same upon a certificate of the superintending officer and deduct the amount thereof from any sums due to the contractor. Upon a certificate of the superintending officer, direct payments may also be made by the government to the nominated sub-contractors, if a petition has been presented to the court to wind up or to make bankrupt the contractor, or a receiver has been appointed to manage the affairs of the contractor, and the amount so paid shall be deducted from any sums due to the contractor. The exercise of this power shall not create privity of contract as between government and the nominated sub-contractor.

Each of the four defendants as the nominated sub-contractor on diverse dates entered into a sub-contract with the plaintiff, and the terms of each sub-contract are identical in all material respects. For my purpose, the material terms of the sub-contract are cll 22 and 26 of the conditions of sub-contract which are as follows:

22 The contractor shall subject to and in accordance with the main contract from time to time make application (of which prior thereto the contractor shall give to the sub-contractor at least seven days` notice unless otherwise agreed between the contractor and the sub-contractor) to the superintending officer for progress payments and for the inclusion therein of the amount which at the date thereof fairly represents the value of the sub-contract works and of any variations authorized under this sub-contract then executed and of the materials and goods delivered upon the site for use in the sub-contract works.

Provided that the application shall only include the value of the said materials and goods as and from such time as they are reasonably, properly and not prematurely brought upon the site and then only if adequately stored and/or protected against weather and other casualties.

The contractor shall also embody in or annex to the said application any representations of the sub-contractor in regard to such value.

26 If the contractor shall fail to make any payment to the sub-contractor as hereinbefore provided and such failure shall continue for seven days after the sub-contractor shall have given the contractor written notice of the same, then the sub-contractor may (but without prejudice to any other right or remedy) inform the superintending officer and the government may pay the same upon a certificate from the superintending officer and deduct the amount thereof from any sums due to the contractor. The exercise of this power shall not create privity of contract as between the government and the sub-contractor.

In respect of works carried out by the plaintiff and the sub-contractors at various stages of the development, certificates for payment under cl 38 of the conditions of the main contract had been issued by Indeco as the superintending officer for payments to be made to the plaintiff as the main contractor; included in the certificates were the amounts payable by the plaintiff to the nominated sub-contractors respectively for the works carried out and materials and goods supplied by them, and these amounts were set out in a list annexed to each of the certificates. Clause 38, in so far as relevant, provides:

(a) When work to the value of the sum, referred to on page 3 hereof (or less at the discretion of the superintending officer) has been executed by the contractor in accordance with the terms of this contract, the superintending officer shall at that time and once (or more often at the discretion of the superintending officer) during the course of each succeeding month issue to the contractor a certificate showing the estimated total value of the work done up to the date of such certificate.

...

(c) Within a number of days not exceeding that referred to on page 3 of the issue of any such certificate the employer will make payment to the contractor in connection with the work and/or materials referred to in that certificate.

Up to the date of commencement of liquidation of the plaintiff, 19 certificates had been issued, and payment of the full amount thereunder had been made to the plaintiff. Except in respect of two certificates, namely, certificate nos 16 and 17, the plaintiff had, on receipt of the amount under each certificate, paid the amounts stated in the list (annexed to the certificate) to the respective nominated sub-contractors. In respect of certificate nos 16 and 17, though full amounts thereunder had been paid by the government to the plaintiff, the following amounts remain unpaid to three nominated sub-contractors, namely: (a) $221,1067 to the first defendant; (b) $160,160 to the third defendant; and (c) $66,878 to the fourth defendant.

Since the payment under certificate no 19, no further certificate has been issued by Indeco. The reason presumably was that winding up of the plaintiff had by then commenced. Apart from some rectification works to be done, the development has been completed, and certificates are yet to be issued for payments to be made.

The liquidators of the plaintiff took out this application for determination of the following question, namely, whether upon the true construction of cl 20(e) of the main contract, any direct payment made pursuant to the said provision by the government (through the Ministry of Health) to the four defendants would, having regard to the winding-up order being made against the plaintiff, be in contravention of s 329 of the Companies Act (Cap 50, 1988 Ed) (the Companies Act). On this issue, I have two observations. First, the issue does not really turn on the true construction of cl 20(e) of the main contract, but on the effect of such a clause on the liquidation of the plaintiff. Secondly, the relevant section of the Companies Act involved is not s 329, as the operation of cl 20(e) does not call for any payment to be made by the plaintiff, but payment direct by the government to the nominated sub-contractors. In my opinion, the relevant provisions of the Companies Act are s 280(1), which requires the court upon compulsory liquidation of a company to cause all its assets to be collected and applied in discharge of its liabilities, and s 327(2), which in the winding up of an insolvent company imports the same rules with regard, inter alia, to the rights of secured and unsecured creditors and debts provable as are in force under the law relating to bankruptcy in relation to the estates of bankrupt persons. Sections 280(1) and 327(2) respectively provide as follows:

280(1) As soon as possible after making a winding up order, the Court shall settle a list of contributories and may rectify the register of members in all cases where rectification is required in pursuance of this part and shall cause the assets of the company to be collected and applied in discharge of its liabilities.

327(2) Subject to section 328, in the winding up of an insolvent company the same rules shall prevail and be observed with regard to the respective

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