SA Shee & Co (Pte) Ltd v Kaki Bukit Industrial Park Pte Ltd

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 11 February 2000
• Neutral Citation: [2000] SGCA 7
• Date: 11 February 2000
• Subject Matter: Stay of court proceedings,Whether judge's approach in granting application correct,s7 Arbitration Act (Cap 10, 1985 Rev Ed),Whether alleged agreements were "matters arising under or out of or in connection with" contract,Arbitration,Application for stay,"Matters arising under or out of or in connection with",Words and Phrases
• Docket Number: Civil Appeal No 108 of 1999
• Published date: 19 September 2003
• Defendant Counsel: Howard Cashin and Lim Khoon (Lim Hua Yong & Co)
• Court: Court of Appeal (Singapore)
• Plaintiff Counsel: Vinodh Coomaraswamy (Shook Lin & Bok)

(delivering the grounds of judgment of the court): This was an appeal from the decision of the High Court in SIC 3257/99 in which it stayed the proceedings in Suit 658/99 pursuant to s 7 of the Arbitration Act (Cap 10) (the `Act`) upon the application of the defendants, who were the respondents in this appeal. At the conclusion of the hearing, we dismissed the appeal. We now give our reasons.

The facts

The respondents were the developer of a factory at Kaki Bukit Road 3 (the `project`). The appellants were a building contractor engaged by the respondents as the main contractor for the project pursuant to a building contract (the `contract`). The contract incorporated the Singapore Institute of Architects Conditions of Building Contract (the `SIA Conditions`). In the course of the works, the respondents failed to make payments under five interim certificates issued by the project architect. The appellants brought Suit 658/99 against the respondents to claim payment in respect of those five certificates, including interest and costs. The total amount outstanding under the five certificates was $5,469,137.04.

The respondents denied liability on two grounds. The first was that the respondents had paid $2m to the appellants` director, Chwee Meng Chong (`Chwee`) and the appellants had agreed that this sum would go towards reducing the amount owed by the respondents to the appellants under the interim certificates. Secondly, the appellants had agreed that the balance of $3,469,137.04 need not be paid until a sum of $9.46m was paid to the respondents by the appellants` associated company, How Hwa Investment Pte Ltd. The background to the alleged two agreements is as follows.

In 1994, one Ho Mun Fei (`Ho`) and Chng Heng Tiu (`Chng`) jointly tendered for the project site and when they succeeded, they incorporated the respondent company and assigned to it the tender award. Chng`s company, Chng Heng Tiu Pte Ltd and his associates (the `Chng group`), including Chwee, held 64% of the shares in the respondent company. Chwee himself held 5% of the shares in the respondent company. The other 36% was held by Ho and his brother (the `Ho group`).

The respondents commenced the development of the project. In late 1997, there arose a dispute between the two groups and the Ho group decided to acquire the Chng group`s 64% shareholding in the respondents through their company, Straits International Resources Pte Ltd (`SIR`). On 1 December 1997, an agreement was entered into between members of the Chng group as vendors and SIR as purchasers of the former`s shareholding in the respondents. The purchase price was payable in instalments. In February 1998, SIR stopped payment on these instalments because of a dispute in respect of the agreement of 1 December 1997.

In the meantime, on 8 March 1998, the contract was awarded by the respondents to the appellants. The link between the appellants and the respondents was in the person of Chwee, who besides being a 5% shareholder in the respondents, was also a majority shareholder and director of the appellants.

In October 1998, the Chng group and the Ho group decided to settle their dispute. It was agreed that firstly, SIR would proceed with the purchase of the shares of the Chng`s group in the respondents at a reduced price. Secondly, the Chng group would purchase certain units in the project from the respondents for which they would pay 50% of the price up front. Payment for 30% of the sale price was effected. But a cheque for $9.46m, being for the remaining 20%, issued by the Chng group to the respondents, was dishonoured due to a lack of funds. The Chng group then assured the Ho group that funds would be available subsequently. The respondents alleged that as a result thereof, there was an agreement that the appellants would not insist on payment under the interim certificates until the Chng group had paid the $9.46m due to the respondents. In return, the respondents would not sue on the dishonoured cheque. The appellants, however, denied that they had agreed not to receive payment under the interim certificates until the Chng group had paid the $9.46m to the respondents. I shall hereinafter refer to this point as `the collateral agreement question`.

As regards the $2m allegedly paid to Chwee, $1m was allegedly paid to him by one Darwin Liman, an Indonesian businessman (on behalf of Ho Kok Cheong, the project manager of the respondents), in order to secure the discharge from bankruptcy of Ho Kok Cheong under a scheme of arrangement. That object having failed, Chwee did not return the money. However, Chwee said he had returned the same. As for the other $1m, the respondents claimed that it was a deposit for the sale of shares in the respondents by the Chng group to SIR. This deposit was not yet returned to SIR and was under the control of Chwee as part of the Chng group. The respondents claimed that there was an agreement that the two sums of $1m in Chwee`s control would be used for the payment of the sums owing from the respondents to the appellants under the interim certificates for the project. Again, the appellants denied the existence of this agreement. In any event, the appellants said the two sums, if any, concerned Chwee in his personal capacity and did not concern the appellants. This point involving the two sums will be hereinafter referred to as the `$2m question`.

Notices to terminate

On 11 February 1999, the appellants sent a letter to the respondents giving them notice under cl 33(1)(b) of the SIA Conditions on the ground that the respondents had defaulted in making progress payments as certified by the architect. Clause 33(1)(b) provides:

(1) The Contractor shall be entitled by a written Notice of Termination given to the Employer to terminate his employment under the Contract on any of the following grounds:

...

(b) If the Employer does not pay the Contractor the amount due on any certificates within the Period for Honouring Certificates named in the Appendix hereto (unless and to the extent that under the terms of the Contract the Certificate has been superseded or corrected by a later Certificate or the Employer may be expressly empowered either not to pay, or to make deductions from, the sums shown as due in the certificate) and if such default is continued for 14 days after receipt by registered post or recorded delivery of a prior written notice from the Contractor stating that, failing payment within such further period of 14 days, Notice of Termination will be given under this Condition.

However, just two days later, and without waiting for the 14-day grace period laid down in cl 33(1)(b) to expire, by a letter dated 13 February 1999, the appellants, referring to the letter of 11 February 1999 and invoking cl 33(1)(b), gave the respondents the notice of termination of the contract.

On 22 February 1999, both parties held a meeting and agreed on a `mutual termination` of the contract. Under the termination agreement, the architect and quantity surveyor would measure and certify the value of work done up to 22 February 1999 and the value of materials on site. The respondents would then pay the appellants such certified sum plus the outstanding sums under the interim certificates by 31 March 1999 and the appellants would vacate the site on that date.

On 24 February 1999, the respondents wrote to the appellants pointing out that the notice of termination of 13 February 1999 was invalid. But they went on to point out that the matter had been superseded by the termination agreement of 22 February 1999.

However, disputes soon surfaced when the appellants claimed for loss of additional profit `due to further fall in material since award of contract.` Quite inexplicably, the parties also started to argue if the termination notice of 13 February 1999 was valid. As a result, the appellants continued to remain on the site after 31 March 1999 and what amount was due from the respondents to the appellants could not be resolved. On 8 April 1999, the respondents rescinded the termination agreement and reserved their right to claim damages. The respondents also gave the appellants notice to vacate the site by 15 April 1999. The appellants did not comply with the respondents` notice to vacate. By their letter dated 22 April 1999, the respondents accepted the appellants` repudiation of the contract and reserved their right to claim damages. Eventually, the respondents recovered possession of the site by way of OS 627/99.

The litigation

On 21 April 1999, the respondents gave notice of arbitration to the appellants` solicitors pursuant to cl 37(1) of the SIA Conditions. On 3 May 1999, the appellants took out the writ of summons in Suit 658/99. On 19 May 1999, the respondents took out SIC 3257/99 to stay the proceedings pursuant to s 7 of the Act. On 28 May 1999, the appellants took out SIC 3480/99 for summary judgment on its claim. Both SIC applications were fixed for hearing before the learned Judicial Commissioner Lee Seiu Kin (the judge) on 21 June 1999.

The decision below

The learned judge below ordered that all proceedings in Suit 658/99 be stayed pending arbitration. In view of his order staying the proceedings, he did...