Case Summaries

Diamond Glass Enterprise Pte Ltd v Zhong Kai Construction Co Pte Ltd [2021] SGCA 61

SUPREME COURT OF SINGAPORE

21 June 2021

Case summary

Diamond Glass Enterprise Pte Ltd v Zhong Kai Construction Co Pte Ltd [2021] SGCA 61
Civil Appeal No 119 of 2020

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Decision of the Court of Appeal (delivered by Judge of the Appellate Division Quentin Loh):

Outcome: CoA dismisses the appeal but varies the High Court’s order by imposing the condition that the respondent pay into court the amount stated in the statutory demand made by the appellant within 14 days from the date of the hearing before the CoA.

Pertinent and significant points of the judgment:

  • An adjudication determination judgment debtor (“ADJ debtor”) cannot challenge a winding-up petition founded on the adjudication determination by disputing the adjudication debt (at [32] and [83]).
  • However, where the construction project has come or is coming to an end or has been terminated, the ADJ debtor can stay or set aside the winding-up petition if it can show, on a prima facie standard, the existence of a justiciable cross-claim that is likely to equal or exceed the claim against the debtor, and provided that the said cross-claim is not being raised in an abuse of the court’s process (at [45], [46] and [83]).

Background to the appeal

1 By a letter of award dated 7 November 2016 (“the Subcontract”), the respondent engaged the appellant as a subcontractor for the supply of materials, equipment and tools to carry out certain works (“Subcontract Works”) for a project at Changi Airport (“the Project”).

2 The parties had various disagreements with each other during the course of the Project. The respondent complained, inter alia, that there were delays in the appellant’s completion of the Subcontract Works. The appellant asserted that these delays were caused by the respondent’s acts or omissions, and demanded payment for its work on the Project.

3 On 30 May 2018, the appellant informed the respondent that it would treat the Subcontract as terminated if the respondent did not fulfill payment of certain outstanding sums. When the respondent declined to make the payment sought, the appellant withdrew its workmen from the Project site from 6 June 2018 onwards and, on 29 June 2018, sent the respondent a letter stating that it had no choice but to accept the respondent’s repudiatory breach and terminate the Subcontract. The respondent continued to refute the appellant’s claims, alleging defective and incomplete works and advances totalling $162,113 to assist the appellant purchase material.

4 On 28 August 2019, more than 14 months after the appellant had withdrawn its workmen from the site, the appellant served a payment claim, Payment Claim 17 (“PC 17”) on the respondent, seeking payment for the Subcontract Works. The respondent did not certify the sums claimed in full and separately commenced a High Court suit, HC/S 917/2019 (“S 917”) against the appellant to recover sums allegedly incurred by the appellant’s breach.

5 Dissatisfied, the appellant commenced an adjudication application against the respondent. The adjudicator found in the appellant’s favour. The respondent did not pay the adjudicated amount, and instead proceeded to commence a second High Court suit, HC/S 1282/2019 (“S 1282”) against the appellant. S 917 and S 1282 were consolidated into a single suit (“the Consolidated Suit”).

6 Subsequently, the appellant obtained an order to enforce the adjudication determination (“AD”) as a judgment and issued a statutory demand against the respondent claiming the adjudicated amount, interest and the costs of adjudication (collectively, “the Judgment Debt”). When the respondent did not meet the statutory demand, the appellant commenced a winding-up petition, HC/CWU 95/2020 (“CWU 95”) against the respondent. The respondent filed HC/SUM 1577/2020 (“SUM 1577”) against the appellant seeking an order dismissing SUM 1577 or, alternatively, an order that the hearing of CWU 95 be stayed or adjourned pending the disposal of the Consolidated Suit.

7 The Judge held that the respondent had a bona fide and serious cross-claim against the appellant based on substantial grounds, the value of which might exceed the Judgment Debt. Accordingly, the Judge allowed the respondent’s application in SUM 1577 and granted a stay of CWU 95 pending the determination of the Consolidated Suit and any appeal thereof.

8 The appellant appealed against the Judge’s decision on SUM 1577, asserting that the respondent did not have a genuine cross-claim against the appellant. In the alternative, the appellant argued that CWU 95 ought to be stayed only on the condition that the respondent first paid the value of the Judgment Debt into court as security.

The decision of the Court

9 The Court observed that it was not open to the appellant to dispute the debt comprised in the AD as the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) (“SOPA”) conferred temporary finality on the AD, and there were presently no legal proceedings afoot to invalidate the AD on legal grounds. Here, however, the appellant sought to stay or dismiss CWU 95 not by disputing the AD debt, but by asserting a cross-claim against the respondent: at [32].

10 An ADJ debtor who sought to stay or dismiss a winding-up petition in a building and construction case like the present, where the debt underlying the winding-up petition was founded on an AD, only needed to show, on a prima facie basis, the existence of a justiciable cross-claim that was likely to equal or exceed the claim against the debtor, and provided that the said cross-claim was not being raised in an abuse of the court’s process: at [44] and [45].

11 A careful and principled approach was required to determine when or under what circumstances an ADJ debtor ought to be allowed to stay or dismiss a winding-up petition premised on a debt arising from the AD by alleging a cross-claim on a prima facie basis. This was because the policies underpinning the SOPA, specifically the philosophy of maintaining cash flow in the construction industry, seemingly contradicted an ADJ debtor’s entitlement to stave off winding-up proceedings under the insolvency regime: at [46] and [47].

12 Temporary finality ended when a court or an arbitral tribunal finally determined all the parties’ disputes, rights and obligations; in such cases, the AD and any judgment obtained thereon had to cease to have effect. On the other hand, where the project was ongoing, the ADJ debtor had to pay the adjudicated sum save where the AD could be set aside on legal grounds: at [50] and [51].

13 The real difficulty came when the downstream party secured an AD in its favour when the project came or was coming to an end or had been terminated. In such cases, an argument might be made that to readily allow the ADJ debtor to halt enforcement of the AD by alleging a cross-claim on the prima facie standard might enable upstream parties to evade their payment obligations too easily. However, the winding-up of a company was a draconian order to make with wide economic and social ramifications. Despite the court’s strong backing of the “pay now, dispute later” approach in the SOPA context, a blind enforcement of ADs, whatever the facts or circumstances of a case may be, had never been the rule: at [52], [77] and [78].

14 In cases where the project came or was coming to an end or had been terminated, applying the prima facie standard of review represented a practical and workable solution to the apparent opposing considerations of the winding-up jurisdiction of the court and the temporary finality of ADs. On one hand, reviewing the cross-claim in accordance with a lower prima facie standard acknowledged the reality that the AD would, in all likelihood, be “opened up” when the dispute between the parties was finally determined. On the other hand, the requirement that the cross-claim could not constitute an abuse of the court’s process provided a useful check on parties trying to game the system: at [83].

15 In the present case, the respondent had clearly met the required prima facie standard to resist a winding-up order being made. The Statement of Claim for the Consolidated Suit adequately set out the necessary elements of the respondent’s action against the appellant, and the sums claimed by the respondent were clearly quantified. It could not be conclusively determined, based on the evidence before the Court, that the respondent had repudiated the Subcontract or that there had been no delay or breaches on the appellant’s part. Furthermore, there was no evidence to show that the invoices produced by the respondent in support of its claim were obviously inauthentic: at [89][100].

16 Section 257(2)(f) of the Companies Act (Cap 50, 2006 Rev Ed) empowered the Court to stay winding-up proceedings on condition that the sum of the debt claimed in the statutory demand be paid into court. It would not be appropriate to lay down a general rule that parties in the position of the respondent had to pay the adjudicated amount into court pending the resolution of the dispute by the arbitral tribunal or court. However, on the facts of this case, it was just to order the respondent to pay the Judgment Debt into court: at [108], [110] and [111].

 

This summary is provided to assist in the understanding of the Court’s grounds of decision. It is not intended to be a substitute for the reasons of the Court. All numbers in bold font and square brackets refer to the corresponding paragraph numbers in the Court’s grounds of decision.

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