Hitachi v Eltraco: Direct Payment to Subcontractors & Scheme of Arrangement
In Hitachi Plant Engineering & Construction Co Ltd and Another v Eltraco International Pte Ltd and Another Appeal, the Court of Appeal of Singapore heard appeals against a decision granting injunctive relief to Eltraco, restraining direct payments from Pine View to nominated subcontractors (NSCs). The court dismissed the appeals, holding that the scheme of arrangement prevented the NSCs from receiving direct payments, as these payments fell within the definition of 'accounts receivable' under the scheme. The court also clarified that the pari passu principle does not automatically apply to schemes of arrangement outside of liquidation.
1. Case Overview
1.1 Court
Court of Appeal of the Republic of Singapore1.2 Outcome
Appeals dismissed.
1.3 Case Type
Civil
1.4 Judgment Type
Grounds of Decision
1.5 Jurisdiction
Singapore
1.6 Description
Court of Appeal case regarding direct payments to subcontractors and whether they fall under a scheme of arrangement. Appeal dismissed.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| Hitachi Plant Engineering & Construction Co Ltd | Appellant | Corporation | Appeal Dismissed | Lost | |
| Wing Tai Enterprises Pte Ltd | Appellant | Corporation | Appeal Dismissed | Lost | |
| Eltraco International Pte Ltd | Respondent | Corporation | Judgment for Respondent | Won | |
| Yi Wee Pools & Fountains Pte Ltd | Appellant | Corporation | Appeal Dismissed | Lost | |
| Nature Landscapes Pte Ltd | Appellant | Corporation | Appeal Dismissed | Lost |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Chao Hick Tin | Justice of Appeal | No |
| Judith Prakash | Judge | No |
| Yong Pung How | Chief Justice | Yes |
4. Counsels
4. Facts
- Pine View contracted with Eltraco for a development project.
- Eltraco subcontracted with Hitachi, Wing Tai, Yi Wee, and Nature Landscapes.
- The Main Contract allowed Pine View to make direct payments to NSCs under certain conditions.
- Eltraco was placed under judicial management, and a scheme of arrangement was proposed.
- The scheme stated that realizations from Eltraco's assets would be paid to creditors pro-rata.
- The Architects issued a Certificate of Direct Payment to the NSCs.
- The Scheme Administrators sought to restrain Pine View from making direct payments to the NSCs.
5. Formal Citations
- Hitachi Plant Engineering & Construction Co Ltd and Another v Eltraco International Pte Ltd and Another Appeal, CA 130/2002, 134/2002, [2003] SGCA 38
6. Timeline
| Date | Event |
|---|---|
| Pine View entered into a building contract with Eltraco. | |
| Eltraco was placed under judicial management. | |
| Court order to convene a creditors’ meeting to approve the Scheme. | |
| Scheme was sanctioned by Lai Siu Chiu J. | |
| Order of Court obtained to discharge the Judicial Management Order against Eltraco. | |
| Agreement reached to allow direct payment to Uni-Strong. | |
| Eltraco received a letter from the Architects stating that they had received requests from the NSCs for direct payment from Pine View. | |
| Architects issued a Certificate of Direct Payment to the NSCs. | |
| Appeals heard. | |
| Judgment delivered. |
7. Legal Issues
- Direct Payments to Subcontractors
- Outcome: The court held that the scheme of arrangement prevented the NSCs from receiving direct payments, as these payments fell within the definition of 'accounts receivable' under the scheme.
- Category: Substantive
- Sub-Issues:
- Entitlement to direct payment
- Effect of scheme of arrangement on direct payment rights
- Interpretation of Scheme of Arrangement
- Outcome: The court interpreted the term 'accounts receivable' to include direct payments, thus preventing the NSCs from receiving them.
- Category: Substantive
- Sub-Issues:
- Meaning of 'accounts receivable'
- Effect of express terms on creditors' rights
- Pari Passu Principle
- Outcome: The court clarified that the pari passu principle does not automatically apply to schemes of arrangement outside of liquidation.
- Category: Substantive
- Sub-Issues:
- Applicability to schemes of arrangement outside liquidation
- Effect on corporate rescue mechanisms
8. Remedies Sought
- Restraint of direct payments to NSCs
- Order for NSCs to authorize payments to Eltraco
9. Cause of Actions
- Injunction to restrain direct payments
- Breach of Scheme of Arrangement
10. Practice Areas
- Construction Law
- Commercial Litigation
- Insolvency Law
11. Industries
- Construction
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| Daewoo Singapore Pte Ltd v CEL Tractors Pte Ltd | Court of Appeal | Yes | [2001] 4 SLR 35 | Singapore | Cited for the principle that a scheme of arrangement affects only the rights of creditors against the company, not against third parties, unless expressly stated. |
| Re Halley’s Departmental Store Pte Ltd | High Court | Yes | [1996] 2 SLR 70 | Singapore | Cited in relation to the requirement of full disclosure of the mechanics of the scheme of arrangement. |
| B Mullan & Sons (Contractor) Ltd v Ross & Anor | Northern Ireland Court of Appeal | Yes | (1996) 54 Con LR 161 | Northern Ireland | Distinguished on the basis that the sub-contractor's entitlement to direct payment was contingent upon the exercise of discretion. |
| Glow Heating Ltd v Eastern Health Board | Irish High Court | Yes | (1992) 8 Const L J 56 | Ireland | Distinguished on the basis that there was a mandatory provision in the contract that the employer ‘shall himself pay’ the direct payments to the sub-contractors. |
| Golden Sand Marble Factory Ltd v Easy Success Enterprises Ltd & Anor | Hong Kong Court of First Instance | Yes | [1999] HKCFI 359 | Hong Kong | Distinguished on the basis that there was no express agreement to elevate the NSCs’ entitlement to the direct payments to a right that had to be protected by the express terms of the Scheme. |
| Investors Compensation Scheme v West Bromwich Building Society | N/A | Yes | (1998) 1 All ER 98 | N/A | Cited for the principles of contractual interpretation. |
| Joo Yee Construction Pte Ltd v Diethelm Industries Pte Ltd & Ors | High Court | Yes | [1990] SLR 278 | Singapore | Cited for the principle that direct payments to NSCs form part of the general assets of the company available for distribution among the creditors. |
| British Eagle International Airlines Ltd v Compagnie Nationale Air France | N/A | Yes | [1975] 2 All ER 390 | N/A | Cited for the principle against 'contracting out' of insolvency provisions. |
| Carreras Rothmans Ltd v Freeman Mathews Treasure Ltd (in liquidation) & Anor | N/A | Yes | [1985] CH 207 | N/A | Cited for the principle that there is no scope for the application of public policy considerations prior to the commencement of winding-up of the debtor company. |
| Attorney-General v McMillan & Lockwood Ltd | New Zealand Court of Appeal | Yes | [1991] 1 NZLR 53 | New Zealand | Cited for the principle that the pari passu rule applies absolutely only when the point of liquidation is reached. |
| Wah Yuen Electrical Engineering Pte Ltd v Singapore Cables Manufacturers Pte Ltd | Court of Appeal | Yes | [2003] SGCA 23 | Singapore | Cited in relation to the timing of challenging the scheme. |
| UDL Argos Engineering & Heaving Industries Co Ltd v Li Oi Lin | Hong Kong Court of Final Appeal | Yes | [2001] HKCFA 53 | Hong Kong | Cited for the principles in accordance with which creditors should be divided into classes. |
| Re Bank of Credit and Commerce International SA (No 3) | Court of Appeal | Yes | [1993] BCLC 1490 | England | Cited for the principle that in a liquidation there can be a departure from the pari passu rule by a scheme of arrangement. |
| Re Anglo American Insurance Ltd | N/A | Yes | [2001] BCLC 755 | N/A | Cited for the principle that the court has jurisdiction to impose a scheme, in effect, on a liquidator which is in any way different from the statutory scheme which applies on liquidation. |
| Hill v Anderson Meat Industries Ltd | Supreme Court of New South Wales | Yes | [1971] 1 NSWLR 868 | New South Wales | Cited for the principle that there is a valid distinction between a composition within the bankruptcy legislation or a scheme within a current winding up on the one hand, and a scheme outside a winding up on the other. |
| Re London Chartered Bank of Australia | N/A | Yes | (1893) 3 Ch 540 | N/A | Cited for the principle that a scheme of arrangement is an alternative mode of liquidation. |
| Mortgage Insurance Corporation v Pound | N/A | Yes | (1895) 65 LJ QB 394 | N/A | Cited for the proposition that a scheme is to be regarded as being effected by operation of law in the same manner as a bankruptcy or composition. |
13. Applicable Rules
| Rule Name |
|---|
| No applicable rules |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Companies Act s 210 | Singapore |
| Companies Act s 227X | Singapore |
15. Key Terms and Keywords
15.1 Key Terms
- Scheme of Arrangement
- Nominated Sub-Contractors
- Direct Payment
- Accounts Receivable
- Pari Passu Principle
- Judicial Management
- Certificate of Direct Payment
- Main Contract
- Sub-Contract
- Injunction
15.2 Keywords
- scheme of arrangement
- direct payment
- subcontractors
- construction law
- insolvency
- Singapore
17. Areas of Law
| Area Name | Relevance Score |
|---|---|
| Schemes of Arrangement | 80 |
| Company Law | 75 |
| Insolvency Law | 70 |
| Direct payments | 70 |
| Construction Law | 65 |
| Pari passu principle | 60 |
| Bankruptcy | 60 |
| Breach of Contract | 50 |
| Contract Law | 40 |
| Winding Up | 40 |
| Arbitration | 30 |
16. Subjects
- Construction Dispute
- Insolvency Law
- Contract Law
- Schemes of Arrangement