CAN ENFORCEMENT OF AN ADJUDICATION DETERMINATION BE STAYED IF THE ENFORCEMENT RESPONDENT WOULD BE PUSHED INTO LIQUIDATION?
In Wan Sern Metal Industries Pte Ltd v Hua Tian Engineering Pte Ltd [2023] SGHC 46, Kwek Mean Luck J dismissed an appeal for a stay for enforcement of adjudication determination. Kwek J noted that the appellant’s third argument, on the basis that enforcement would push them into liquidation, was “an additional novel ground”.
Facts. Wan Sern Metal Industries Pte Ltd (“WS”) applied to stay the enforcement of the Adjudication Determination (“AD”) awarded in favour of Hua Tian Engineering Pte. Ltd. (“HT”) (at [1]).
The application was dismissed by the learned Assistant Registrar (“AR”) below, and this was WS’s appeal, based on the two limbs of W Y Steel Construction Pte Ltd v Osko Pte Ltd [2013] 3 SLR 380 (“W Y Steel”) “and on an additional novel ground that the court may stay the enforcement of the AD on the basis that enforcement would push WS into liquidation.” (at [2] – [3])
WS’s appeal was dismissed on all three grounds (at [4]).
W Y Steel Test. The two limbs of W Y Steel are reproduced below (at [2]):
“2 The applicable legal principles are well-established and were not disputed by the parties. A stay of the enforcement of an adjudication determination may ordinarily be justified where (W Y Steel Construction Pte Ltd v Osko Pte Ltd [2013] 3 SLR 380 (“W Y Steel”) at [70] and CEQ v CER [2020] SGHC 192 (“CEQ”) at [9]) ("the W Y Steel test”):
(a) there is clear and objective evidence of the successful claimant’s actual present insolvency; or
(b) the court is satisfied on a balance of probabilities that, if the stay were not granted, the money paid to the claimant would not ultimately be recovered if the dispute were resolved in the respondent’s favour.”
This test is concerned with the enforcement applicant’s financial position, viz, whether the money paid to the enforcement applicant can be recovered in the event the winner was ultimately reversed.
This article will focus on WS’s third ground, which is that the court may stay enforcement of the AD on the basis that enforcement would push WS into liquidation.
Pushing WS into liquidation. WS’s argument is essentially “that enforcement of the AD would push it into liquidation, given its weak financial position” (at [27]).
This is the “reverse” of the W Y Steel test, given that it focusses on the enforcement respondent’s financial position, rather than the enforcement applicant’s.
WS tried to rely on W Y Steel’s description of the Building and Construction Industry Security of Payment Act 2004 (2020 Rev Ed) (“SOPA”) (which at the time of W Y Steel was the 2006 Rev Ed of the Act) regime as “pay now, argue later”, such that “if payment now rendered WS insolvent, it would not be able to “argue later”.” (at [27])
Kwek J, however, stated that “there was no legal basis” as “WS’s submissions completely misinterpreted W Y Steel and attempted to use it for a proposition which W Y Steel did not put forth.” (at [28]) Kwek J’s reasoning on W Y Steel at [28] – [29] is set out below.
“28 Firstly, there was no legal basis for WS’s submission. In my view, WS’s submission completely misinterpreted W Y Steel and attempted to use it for a proposition which W Y Steel did not put forth. The phrase cited by WS related to the need for an expeditious regime under SOPA. As the court in W Y Steel explained at [20]: “… payments, and therefore cash flow, should not be held up by counterclaims and claims for set-offs that may prove to be specious at the end of lengthy and expensive proceedings that have to be undertaken in order to disentangle the knot of disputed claims and cross-claims.” In Audi Construction Pte Ltd v Kian Hiap Construction Pte Ltd [2018] 1 SLR 317 (“Audi Construction”), the CA explained at [1] that the aim of SOPA was to establish “a fast and low cost adjudication system to resolve payment disputes” (quoting the Singapore Parliamentary Debates, Official Report (16 November 2004), vol 78 at col 1113 (Cedric Foo Chee Keng, Minister of State for National Development)), in the light of “the need to ensure that contractors and subcontractors in the construction industry receive timely payments for work done and materials supplied.”
29 W Y Steel did not establish that, where a party is on the verge of insolvency, there should be a stay of enforcement of an adjudication determination. The only two grounds for such a stay were laid out in W Y Steel, as set out at [2] above.”
In fact, Kwek J agreed with HT that “if WS did have genuine financial difficulties, that would equally point to a need to ensure that HT recovered the adjudicated amount without further delay.” (at [30])
Kwek J noted that in any event, “even if there were such legal basis, there was absolutely no evidential basis … that payment pursuant to the AD would push WS into liquidation” (at [31]), and “[c]ritically, WS had not provided any evidence on its current assets or liabilities, or its recent financial position, to show that it could not pay its debts as and when they fell due.” (at [32])
Chance of recovery. WS also sought to say that businesses “that have a chance of recovery should not be pushed into a state that makes it difficult for them to recover” (at [33]). However, Kwek J found that the evidence was not clear:
“33 Furthermore, WS had cited, in support of its case, Strategic Construction Pte Ltd v JH Projects Pte Ltd [2018] 4 SLR 1192 (“Strategic Construction”) at [19], which stated that, in winding up applications, businesses “that have a chance of recovery should not be pushed into a state that makes it difficult for them to recover” (quoting Metalform Asia Pte Ltd v Holland Leedon Pte Ltd [2007] 2 SLR(R) 268 at [82]). In light of this quote in Strategic Construction, it was not clear on present evidence that WS would be put into liquidation, even if there was a winding up application, as there would also be a consideration of whether WS has “a chance of recovery.””
Kwek J ended by reiterating the high threshold required before a stay of enforcement of an adjudication determination would be granted, considering the importance of cashflow in the construction industry.
“34 For the reasons set out above, in a similar vein to the court’s finding in W Y Steel at [72], I found that “it [was] evident that [WS] had not met the high threshold that was required to justify granting a stay of enforcement of the Adjudication Determination.” The submissions of WS were without merit and unsupported by the evidence. Granting WS a stay would defeat the purpose of SOPA, which, as explained in Audi Construction, is to ensure that, in light of the need for timely payment in the construction industry, there is a fast and low-cost system to resolve payment disputes. I hence dismissed the appeal. …”
Significance. This case serves as a reminder of the principles governing a stay of enforcement of an adjudication determination. A high threshold is needed to justify a grant of the same, and this is not surprising given the purpose behind the SOPA regime in ensuring timely payment in the construction industry, as well as the general proposition that courts are slow to deprive a successful litigant of the fruits of litigation.
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