W Y Steel Construction Pte Ltd v Tycoon Construction Pte Ltd (in liquidation)

• Jurisdiction: Singapore
• Judge: Lee Seiu Kin J
• Judgment Date: 22 April 2016
• Neutral Citation: [2016] SGHC 80
• Citation: [2016] SGHC 80
• Hearing Date: 15 February 2016
• Published date: 29 April 2016
• Year: 2016
• Docket Number: Suit No 112 of 2015 (Summons No 5277 of 2015)
• Court: High Court (Singapore)
• Plaintiff Counsel: Ng Pei Yin and Jasmine Low (WongPartnership LLP)
• Defendant Counsel: Gan Kam Yuin and Joey Quek (Bih Li & Lee LLP)

Lee Seiu Kin J:

This was an application by the plaintiff for leave to proceed with suit no 112 of 2015 (“Suit 112”) against the defendant, which is in liquidation, pursuant to s 299(2) of the Companies Act (Cap 50, 2006 Rev Ed). After hearing arguments, I dismissed the plaintiff’s application and awarded costs fixed at $8,000 plus reasonable disbursements to the defendant. I now set out the grounds of my decision.

Background

The plaintiff was the main contractor for a Housing Development Board project in Hougang (“the Project”). The defendant was the sub-contractor engaged by the plaintiff to carry out the construction works under the Project.

On 9 October 2014, the defendant submitted Payment Claim No 28 (“the Payment Claim”) to the plaintiff for the sum of $1,878,439.39 (exclusive of GST) for work done for the period ending 30 September 2014. The plaintiff’s position was that the Payment Claim was invalid as it was, amongst other grounds, served out of time. Nevertheless, on 29 October 2014, the plaintiff served Payment Response No 28 on the defendant, certifying a negative sum of $666,382.89 (exclusive of GST).

On 30 October 2014, the defendant lodged adjudication application no SOP/AA 343 of 2014 (“AA 343”) in respect of the Payment Claim for the sum of $1,878,439.39 (exclusive of GST). On 7 November 2014, the plaintiff filed its adjudication response wherein it objected to the validity of the Payment Claim and AA 343. The adjudication determination was rendered on 1 December 2014, and the plaintiff was held liable to pay the defendant the sum of $1,135,987.04 (exclusive of GST).

On 10 December 2014, the plaintiff brought originating summons no 1160 of 2014 (“OS 1160”) against the defendant to set aside the adjudication determination. The plaintiff’s contention was that the adjudicator had erred in finding that the Payment Claim and AA 343 had been lodged within time. Pursuant to s 27(5) of the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) (“the SOP Act”), the plaintiff paid into court as security the sum of $1,135,987.04, representing the unpaid portion of the adjudicated amount which it was required to pay pending the final determination of OS 1160. On 24 December 2014, the defendant filed summons no 6372 of 2014 (“SUM 6372”) in OS 1160 to enforce the adjudication determination in court. The matter was fixed for hearing on 10 February 2015.

On 3 February 2015, the plaintiff commenced Suit 112 against the defendant in respect of the latter’s purported repudiation of the sub-contract shortly after AA 343 was brought. The plaintiff claimed the sum of $18,588,051.25 (inclusive of GST) in damages. According to the plaintiff, the disputes in Suit 112 pertained to, amongst others, issues of back-charges and delays, which were the same issues dealt with in AA 343.

On 9 February 2015, the plaintiff filed summons no 634 of 2015 (“SUM 634”) in OS 1160 for judgment in SUM 6372 to be stayed pending the disposal of Suit 112 in the event that a court order was granted to enforce the adjudication determination.

At the hearing of OS 1160 before me on 10 February 2015, the defendant’s then solicitor, Mr Tan Tian Luh, reported that the defendant had been placed under creditors’ voluntary liquidation that very morning and that he had no authority to act on the defendant’s behalf. In the circumstances, I ordered for OS 1160 and SUM 6372 to be adjourned sine die with liberty to restore. Due to the commencement of the winding up of the defendant, both OS 1160 and Suit 112 were also stayed by operation of s 299(2) of the Companies Act. The plaintiff would require leave of court to proceed with either action.

In the meantime, the plaintiff also filed a proof of debt on 9 February 2015 for the $18,588,051.25 sought in Suit 112 (although the defendant was only placed in liquidation the following day). This was superseded by another proof of debt filed on 8 May 2015 for $9,081,020.16 (“the 8 May Proof of Debt”). According to the defendant, there remained a substantial overlap between the claims in the 8 May Proof of Debt and in Suit 112 even though the total sum claimed in the 8 May Proof of Debt was a smaller sum.

Subsequent attempts by the plaintiff and liquidators to reach settlement failed, and the plaintiff filed the present application for leave to proceed with Suit 112 pursuant to s 299(2) of the Companies Act.

The applicable law

Section 299(2) of the Companies Act prohibits, unless with leave of the court, commencement or continuation of legal proceedings against a company after winding up has commenced. The provision states as follows:

After the commencement of the winding up no action or proceeding shall be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes.

The rationale behind the provision is well established. In Korea Asset Management Corp v Daewoo Singapore Ptd Ltd (in liquidation) [2004] 1 SLR(R) 671 (“Korea Asset Management”), VK Rajah JC set it out clearly as follows: 36 … [the purpose of s 299(2)] is to prevent the company from being further burdened by expenses incurred in defending unnecessary litigation. The main focus of a company and its liquidators once winding up has commenced should be to prevent the fragmentation of its assets and to ensure that the interests of its creditors are protected to the fullest extent. In other words, returns to legitimate creditors should be maximised; the process of collecting assets and returning them to legitimate creditors should be attended to with all practicable speed. Unnecessary costs should not be incurred; liquidators should act in the collective interests of all legitimate stakeholders and not with a view to enhancing their own self-interests or fees. 37 This statutory ring-fencing of the company also acts as a strong disincentive to creditors inclined to scramble to the judgment finishing line, in the often mistaken belief that their priority will be enhanced. …

[emphasis added]

More recently, in LaserResearch (S) Pte Ltd (in liquidation) v Internech Systems Pte Ltd and another matter [2011] 1 SLR 382 (“LaserResearch”), Belinda Ang J highlighted the purpose and function of s 299(2) of the Companies Act in quoting the following passage from Woon’s Corporations Law (LexisNexis, Looseleaf Ed, 1994, Issue 34 (March 2010 release)) at [12]:

The purpose of s 299(2) … is to preserve the limited assets of the company in the best way for distribution among all the persons who have claims upon them. As the fund is limited, it ought not to be diminished because of costs incurred due to actions against the company … The policy in winding up is that all claims should generally be disposed of by the cheap summary procedure of proving a debt in the winding up rather than by dissipating the assets in a multiplicity of suits.

Therefore, in the...