Ho Wing On Christopher and Others v ECRC Land Pte Ltd (in liquidation)

JurisdictionSingapore
JudgeLai Kew Chai J
Judgment Date26 January 2006
Neutral Citation[2006] SGHC 16
Docket NumberCompanies Winding Up No 102 of
Date26 January 2006
Year2006
Published date27 January 2006
Plaintiff CounselFrancis Xavier and Lai Yew Fei (Rajah and Tann)
Citation[2006] SGHC 16
Defendant CounselOommen Mathew (Haq and Selvam)
CourtHigh Court (Singapore)
Subject MatterLiquidators bringing action on behalf of insolvent estate,Whether liquidators personally liable to winning party for shortfall in costs owed by insolvent estate if liquidators in breach of estate costs rule,Insolvency Law,Liquidator,Winding up

26 January 2006

Lai Kew Chai J:

1 In a case where a liquidator unsuccessfully brought an action on behalf of an insolvent estate, was the liquidator personally liable to the winning party for any shortfall in costs owed by the insolvent estate if the liquidator was in breach of the estate costs rule? This was the sole issue which came up for determination in the present proceedings.

Background

2 ECRC Land Pte Ltd (“the respondent”) was incorporated in late 1994 as a joint-venture vehicle to redevelop the premises located at 1000 East Coast Parkway into a world-class amusement theme park. One of the parties to the joint venture was Grande Leisure Management Pte Ltd, which, together with the fifth to tenth applicants, belonged to the Grande group of companies. The first to fourth applicants were directors of the respondent as well as the fifth to tenth applicants at the material times.

3 In 1999, however, the respondent was ordered to be wound up. Mr Chee Yoh Chuang and Mr Lim Lee Meng (“the liquidators”) of M/s Chio Lim & Associates were appointed as the liquidators of the respondent. In the course of their investigations into the respondent’s affairs, the liquidators uncovered transactions which, to their minds, suggested improper, unreasonable and dishonest behaviour on the part of the applicants, vis-à-vis the respondent.

4 In September 2001, the liquidators took out Suit No 1210 of 2001 on behalf of the respondent against the applicants (“the action”). The action was based on fraud, breach of fiduciary duty, constructive trust and conspiracy. The respondent sought, inter alia, damages and/or repayment of alleged wrongful payments by the respondent to the applicants as well as compensation for rental concessions granted by the respondent to the applicants.

5 The respondent’s claims were dismissed by Tay Yong Kwang J who only allowed the claims against the fifth and sixth applicants for operating expenses between January to March 1995. In the circumstances, Tay J ordered the respondent to pay all the applicants 80% of the costs of the action. Thereafter, the respondent appealed against Tay J’s decision, whereupon the Court of Appeal dismissed the appeal with costs (the costs of the action and of the appeal which were awarded to the applicants are hereafter referred to collectively as “the costs”).

6 In the proceedings before the Court of Appeal and the High Court, the applicants had obtained orders for security for costs in the total sum of $105,000, which was duly paid to the applicants in the course of these proceedings.

The present proceedings

7 Before me, the applicants took out two applications which I heard together. In the first application, Summons in Chambers No 600479 of 2004 (“SIC 600479/2004”), I allowed the application and ordered that the respondent paid the costs to the applicants in priority to all other claims and expenses, including the liquidators’ own remuneration and costs, but subject to the liquidators’ costs of getting in, maintaining and realising the assets of the respondent.

8 The above order was made pursuant to the estate costs rule. It was undisputed that the costs should be paid out of the respondent’s assets in priority to the liquidators’ remuneration and costs since the applicants had successfully defended the action: Norglen Ltd (in liquidation) v Reeds Rains Prudential Ltd [1999] 2 AC 1.

9 As enunciated by the Court of Appeal in Chee Kheong Mah Chaly v Liquidators of Baring Futures (Singapore) Pte Ltd [2003] 2 SLR 571 at [46], the rationale for the estate costs rule was that where an action was taken by a liquidator for the benefit of an insolvent estate, it was only fair that the successful defendant’s costs were entitled to priority over the liquidator’s expenses and remuneration and the claims of the unsecured creditors in general. The liquidator should take the risk for his own actions: see also In re Home Investment Society (1880) 14 Ch D 167; In re Pacific Coast Syndicate, Limited [1913] 2 Ch 26 (“Re Pacific”).

10 In the liquidators’ affidavit of 31 August 2004, they confirmed that the respondent’s remaining funds amounted to $18,105.76 and there were no further assets belonging to the respondent that could be realised. As the applicants alleged that the liquidators had previously paid out moneys in breach of the estate costs rule, the applicants took out the second application, Summons in Chambers No 600611 of 2004 (“SIC 600611/2004”), in which they sought two orders.

11 The relief sought in the applicants’ first prayer was that the liquidators should make good the sums previously paid out in breach of the estate costs rule. The applicants pointed to various instances where the liquidators had used the moneys of the respondent to pay legal costs and their own remuneration. These payments were made in breach of the estate costs rule as the applicants’ costs should have been paid in priority to these payments but the liquidators failed to do so.

12 On the respondent’s part, it was highlighted in the liquidators’ affidavit of 22 November 2004 that the sums paid out for legal expenses were reasonably and properly incurred, while the payments to themselves for their fees and disbursements were reasonable and made in good faith. To this end, I noted that one of the payments for the liquidators’ fees and disbursements had taken place before the action was even initiated.

13 For present purposes, I need not deal with the first prayer of SIC 600611/2004 at length. Suffice to say that I asked the parties to come up with the relevant figures to be coughed up by the liquidators to make good their breach, pursuant to my order in SIC 600479/2004.

14 As there would still be a shortfall in the costs due to the applicants even after the liquidators made good their breach (“the shortfall”), the applicants sought to convince me that I should accede to their second prayer in SIC 600611/2004 and order that the liquidators be made personally liable for the shortfall, ie, order that the liquidators pay the shortfall out of pocket. After considering all the authorities cited to me, I found myself unable to agree with the applicants and dismissed their second prayer with costs. The applicants have appealed against my decision in this regard. Accordingly, I now give the reasons for my decision.

The submissions

The applicants’ arguments

15 The applicants stressed that they were not seeking for the liquidators to be made personally liable as non-parties to the proceedings. Instead, the applicants said that they were entitled to a personal costs order as against the liquidators because the latter had been in breach of the estate costs rule. Since the liquidators had failed to accord due priority to the costs payable to the applicants, the applicants argued that the court should exercise its supervisory jurisdiction over the liquidators and order them to not only use those sums paid to themselves to meet the costs, but to also make up the shortfall out of their own pockets.

16 Another assertion made by the applicants was that if the liquidators were not made personally liable for the shortfall, it would make a mockery of the estate costs rule since the liquidators would be allowed to flagrantly flout the rule without having to account for their actions. The applicants further contended in their submissions that:

In fact, it is the defendants who need the protection of the courts from liquidators commencing an action behind the cloak of a company and then flagrantly flouting the Estate Costs Rule. The hapless defendant [sic] will have no recourse in respect of their costs in defending the action.

The respondent’s arguments

17 The respondent had no serious quarrel with the application of the estate costs rule. However, it submitted that the court’s jurisdiction to make a personal costs order against the liquidators should only be exercised sparingly, where there had been misconduct or impropriety on their part. After all, there would be a greater public interest in ensuring that liquidators were not unnecessarily deterred from taking all reasonable steps to recover assets belonging to the insolvent company. Parties such as the applicants could protect their position by applying to the court for an order for security for costs.

My decision

18 While the liquidators in the present proceedings were admittedly in breach of the estate costs rule, they had already been ordered to return the sums paid to themselves so as to meet the applicants’ costs. The applicants failed to persuade me that they were entitled, over and above that order, to a personal costs order against the liquidators for the shortfall. They were unable to offer any convincing explanation or pertinent authorities to support their assertion that the liquidators’ breach of the estate costs rule should translate into personal liability for the shortfall in the costs incurred in the action.

19 It was established by the English Court of Appeal in Metalloy Supplies Ltd v MA (UK) Ltd [1997] 1 WLR 1613 (“Metalloy”) that where a liquidator commenced an action in the name of the company, he would be a non-party to the action and could not be ordered to pay costs personally. In that case, Waller J held at 1618 that the court would only order a liquidator to pay costs personally in exceptional circumstances where there had been impropriety on the liquidator’s part, having regard to public policy considerations and the fact that the normal remedy of an order for security for costs was available. In situations where a liquidator brought proceedings in his own name, he could also be personally liable for costs though he might or might not be entitled to recover out of the company’s assets: Kumarasamy v Haji Daud [1972] 2 MLJ 16; Re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274; Metalloy (supra at 1620) per Millett LJ.

20 In the present case, the liquidators had brought the action in the respondent’s name. As a non-party to the...

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    ...shortfall, and found the appellants’ proposition to be “as disingenuous … as it was novel”: Ho Wing On Christopher v ECRC Land Pte Ltd [2006] 2 SLR 103 (“GD”) at [21]. He affirmed the position by the English Court of Appeal in Metalloy Supplies Ltd v MA (UK) Ltd [1997] 1 WLR 1613 (“Metalloy......
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1 books & journal articles
  • Insolvency Law
    • Singapore
    • Singapore Academy of Law Annual Review No. 2006, December 2006
    • 1 Diciembre 2006
    ...in particular situations, such as where the liquidator has acted with impropriety. 15.11 In Ho Wing On Christopher v ECRC Land Pte Ltd[2006] 2 SLR 103, Lai Kew Chai J affirmed these general principles. In Ho Wing On Christopher v ECRC Land Pte Ltd[2006] 4 SLR 817 (‘ECRC Land’), the Court of......

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