Lim Oon Kuin v Ocean Tankers (Pte) Ltd

• Jurisdiction: Singapore
• Judge: Andrew Phang Boon Leong JCA,Tay Yong Kwang JCA
• Judgment Date: 28 October 2021
• Court: Court of Appeal (Singapore)
• Docket Number: Civil Appeal No 29 of 2021

Lim Oon Kuin and others

and

Ocean Tankers (Pte) Ltd (interim judicial managers appointed)

[2021] SGCA 100

Andrew Phang Boon Leong JCA and Tay Yong Kwang JCA

Civil Appeal No 29 of 2021

Court of Appeal

Civil Procedure — Costs — Indemnity costs — Whether it would be appropriate to award costs on indemnity basis having regard to conduct of appellants in pursuing arguments devoid of legal and factual merit irreconcilable with contemporaneous documents — Order 59 r 27 Rules of Court (2014 Rev Ed)

Civil Procedure — Summary judgment — Applicable principles — What was appropriate threshold for granting summary judgment — Whether appellate court hearing appeal against order granting summary judgment should approach appeal as rehearing — Appellant repackaging same arguments raised before lower court and seeking to resile from admissions made unreservedly on affidavits previously — Order 14 Rules of Court (2014 Rev Ed)

Companies — Directors — Duties — Applicable principles — How to assess company's solvency for purpose of determining whether directors had fiduciary duty to consider interests of creditors — Utility of going concern test and balance sheet test in assessment of company's financial status

Held, dismissing the appeal:

(1) When a company became insolvent or was in a parlous financial position, directors had a duty to consider the interests of creditors. This fiduciary duty required directors to ensure that the company's assets were not dissipated or exploited for their own benefit, to the prejudice of creditors' interests. The basis for the duty lay in the coincidence of the company's interests and its creditors' interests where a company was financially imperilled. This was because the company was, at that particular point in time, effectively trading and running the company's business with the creditors' money. When assessing a company's solvency for this purpose, a broader inquiry was adopted, taking into account the surrounding circumstances of the case. A strict and technical application of the “going concern” test and the “balance sheet” test was, therefore, of limited utility. Further, the interests of creditors could not be considered in an arid and technical way as if all such considerations were irrelevant and capable of being ignored until and unless the company was found to be technically insolvent: at [11] and [12].

(2) While the threshold for granting summary judgment was a high one, and the fact that an appellate court hearing an appeal against an order granting summary judgment ought not to regard the appeal as reviewing the exercise of the judge's discretion but should approach the appeal as a rehearing, this did not mean that any appeal should simply be brought against a summary judgment granted, without due regard to the merits of the case. What underpinned the enquiry was that there could not be any dispute as to facts or law that raised a reasonable doubt that the plaintiff was entitled to judgment. Two interconnected points arose out of this. First, if an appeal was brought against a decision granting summary judgment, it was incumbent on the appellant to raise reasonable points and, where available, evidence to support the assertions that were made, in order to validly raise a triable issue or question that would warrant ventilation at a full trial. Second, and relatedly, it simply would not generally suffice for an appeal to be mounted based on the exact same arguments that were raised before the judge in the lower court. The need to conduct the appeal as a rehearing in summary judgment applications related to the approach taken by an appellate court; however, even then, the observations of the lower court judge could not simply be disregarded: at [30] to [32].

(3) OTPL had demonstrated on a prima facie basis that the Payments were made at a time when OTPL was insolvent or near insolvent, or at the very least in a parlous financial position, such that the Lims had breached their fiduciary duties. The Lims were unable to raise a bona fide defence, thereby entitling OTPL to summary judgment on its claims. The Lims' riposte that OTPL was in fact solvent was untenable for two main reasons: (a) first, this was made clear by the content of the Moratorium Affidavits, that contained admissions of insolvency; and (b) secondly, the fact that OTPL was clearly in a financially parlous position at the time the Payments were disbursed. The proximity in time of the Moratorium Affidavits to the Payments provided clear insight into the financial health and solvency of OTPL, as sketched out by the Lims themselves and what the Lims themselves understood and perceived to be the prevailing financial situation of the companies at the material time. Moreover, the Moratorium Affidavits closely mirrored the substance of the supporting affidavits filed by HLT and OTPL in their applications to be placed under judicial management. In addition, it was undisputed that HLT was insolvent at the time of, and in the months leading up to the Payments, and this would have inevitably had an impact on OTPL, given that its business was highly intertwined with that of HLT's. Finally, the restructuring plan as proposed by HLT and OTPL bore the classic hallmarks of a company in financial distress: at [13] to [18], [20] and [27].

(4) A court, in deciding whether to make an order for indemnity costs, should have regard to all the circumstances of the case, with the touchstone being that of unreasonable conduct, as opposed to conduct that attracted moral condemnation. While such discretion to make an order for indemnity costs was unfettered, it had to necessarily be exercised judicially: at [36].

(5) This was an appropriate case to award costs against the Lims on an indemnity basis. The Lims' arguments were simply without any factual or legal basis, given that they were simply irreconcilable with the contemporaneous documents placed before the court, including the Moratorium Affidavits. The Lims' treatment of their very own concessions was worthy of the strongest disapprobation. Further, the Lims had enlisted expert witnesses to provide a panoply of reasons as to why OTPL ought to be considered solvent at the material time, but apart from disregarding the admissions made in the Moratorium Affidavits, this had resulted in further unnecessary litigation. The entire conduct of the litigation had led to an immensely unsatisfactory state of affairs: at [4], [33], [34] and [38].

Case(s) referred to

Airtrust (Hong Kong) Ltd v PH Hydraulics & Engineering Pte Ltd [2016] 5 SLR 103 (refd)

Calvin Klein, Inc v HS International Pte Ltd [2016] 5 SLR 1183 (refd)

CIMB Bank Bhd v Italmatic Tyre & Retreading Equipment (Asia) Pte Ltd [2021] 4 SLR 883 (refd)

Dextra Partners Pte Ltd v Lavrentiadis, Lavrentios [2021] SGCA 24 (refd)

Dynasty Line Ltd v Sukamto Sia [2014] 3 SLR 277 (refd)

Goh Chok Tong v Chee Soon Juan [2003] 3 SLR(R) 32; [2003] 3 SLR 32 (refd)

Koh Siak Poo v Perkayuan OKS Sdn Bhd [1989] 3 MLJ 164 (refd)

Kon Yin Tong v Leow Boon Cher [2011] SGHC 228 (refd)

M2B World Asia Pacific Pte Ltd v Matsumura Akihiko [2015] 1 SLR 325 (refd)

Mah Kiat Seng v PP [2021] SGCA 79 (refd)

Miya Manik v PP [2021] 2 SLR 1169 (refd)

Ong Jane Rebecca v Lim Lie Hoa [2021] 2 SLR 584 (refd)

Parakou Shipping Pte Ltd v Liu Cheng Chan [2017] SGHC 15 (refd)

Progen Engineering Pte Ltd, Liquidators of v Progen Holdings Ltd [2010] 4 SLR 1089 (refd)

Tecnomar & Associates Pte Ltd v SBM Offshore NV [2021] SGCA 36 (refd)

Three Rivers District Council v The Governor and Co of the Bank of England (No 6) [2006] EWHC 816 (Comm) (refd)

Traxiar Drilling Partners II Pte Ltd v Dvergsten, Dag Oivind [2019] 4 SLR 433 (refd)

Winkworth v Edward Baron Development Co Ltd [1987] 1 All ER 114 (refd)

Wiseway Global Co Ltd v Qian Feng Group Ltd [2015] SGHC 85 (refd)

Facts

The respondent, Ocean Tankers (Pte) Ltd (“OTPL”), was a ship charterer and ship-management company. OTPL was the sister company of Hin Leong Trading (Pte) Ltd, an oil-trading company (“HLT”). At the material time, the appellants, Mr Lim Oon Kuin (“Oon”), Ms Lim Huey Ching (“Huey”) and Mr Lim Chee Meng Evan (“Chee”) (collectively, the “Lims”) were the sole directors and shareholders of OTPL and HLT.

On 3 April 2020 and 13 April 2020, OTPL made two payments of US$15.02m and US$4m, respectively (the “Payments”). The Payments were procured by the Lims and made from OTPL's accounts to accounts related to the Lims. On 17 April 2020, HLT and OTPL both filed applications seeking interim moratoria relief under s 211B of the Companies Act (Cap 50, 2006 Rev Ed) and in support of these applications, Oon and Chee filed affidavits (the “Moratorium Affidavits”).

On 13 July 2020, OTPL commenced an action against the Lims (the “Suit”), alleging, among other things, that the Lims breached their fiduciary duties owed to OTPL in procuring the Payments. Subsequently, OTPL applied for summary judgment of its claims in the Suit pursuant to O 14 of the Rules of Court (2014 Rev Ed) (the “O 14 Application”).

On 17 February 2021, the High Court judge (the “Judge”) allowed the O 14 Application, finding that OTPL had made out its claim for breach of fiduciary duties on a prima facie basis and that the Lims had failed to raise a bona fide defence. The Lims appealed against the Judge's decision.

Legislation referred to

Bankruptcy Act (Cap 20, 2009 Rev Ed) ss 98, 99

Companies Act (Cap 50, 2006 Rev Ed) ss 210(1), 211B, 227B(1)(a), 227T

Rules of Court (2014 Rev Ed) O 14, O 59 r 27

Davinder Singh s/o Amar Singh SC, Jaikanth Shankar, Lo Ying Xi JohnandGerald Paul Seah Yong Sing (Davinder Singh Chambers LLC) for the appellants;

Narayanan Sreenivasan SC, Rajaram Muralli Raja, Arias Lim Jie, Lim Wei Liang JasonandRanita Yogeeswaran (K&L Gates Straits Law LLC) for the respondent.

28 October 2021

Andrew Phang Boon Leong JCA (delivering the grounds of decision of the court):

Introduction

1 Expediency is the key rationale...