Nanyang Law LLC v Alphomega Research Group Ltd

• Jurisdiction: Singapore
• Judge: Leo Zhen Wei Lionel AR
• Judgment Date: 11 May 2011
• Neutral Citation: [2011] SGHC 117
• Court: High Court (Singapore)
• Docket Number: Suit No 540 of 2009 (Summons Nos 3314, 3525 and 5783 of 2010)
• Published date: 18 May 2011
• Year: 2011
• Hearing Date: 24 March 2011,10 January 2011,13 December 2010
• Defendant Counsel: Wendell Wong, Adrian Tan and Brenda Lim (Drew & Napier LLC),Andrew Ang (PK Wong & Associates LLC),Tham Wei Chern, Margaret Joan Ling and Joal Lim (Allen & Gledhill LLP)
• Subject Matter: Civil Procedure,Security for Costs
• Citation: [2011] SGHC 117

Leo Zhen Wei Lionel AR: Introduction

The three applications before me were for orders that the plaintiff in the counterclaim, Alphomega Research Group Ltd (“Alphomega”), furnish security for the costs of various defendants in the counterclaim. The details of the three applications are as follows: Summons No 3314 of 2010 was taken out by the 5th defendant in the counterclaim, Ms Yeoh Lay Cheng (“Yeoh”), and the security requested was for the sum of $80,000 up until parties exchange their Affidavits of Evidence-in-Chief (“AEICs”). Summons No 3525 of 2010 was taken out by the 4th defendant in the counterclaim, Mr Heng Jee Kian (“Heng”), and the security requested was for the sum of $100,000 up until parties exchange their AEICs. Summons No 5783 of 2010 was taken out by the 1st and 2nd defendants in the counterclaim, Nanyang Law LLC (“Nanyang Law”) and Mr Ng Kim Tean (“Ng”) respectively, and the security requested was for the sum of $80,000 up to the Summons for Directions stage of the proceedings.

The applications were taken out pursuant to s 388(1) of the Companies Act (Cap 50, 2006 Rev Ed) (“the Act”). Although the applications were brought separately and were in fact heard on two separate occasions, the determinative issue in all three applications is the same, namely, whether Alphomega will be able to pay the costs of the various defendants in the counterclaim should they succeed at trial.

Background

The present action was commenced by Nanyang Law against Alphomega for the recovery of legal costs amounting to a sum of $332,229.40. This sum represented the outstanding amount in respect of registrar certificates which had been issued pursuant to the taxation of various Bills of Costs drawn up for work done during the period between April 2008 and February 2009.

Alphomega failed to enter an appearance and Nanyang Law obtained a judgment in default of appearance (“the default judgment”). However, Alphomega subsequently succeeded in setting aside the default judgment on the basis that it had, prima facie, a right of set-off (see Nanyang Law LLC v Alphomega Research Group Ltd [2010] 3 SLR 914 at [23] to [25]).

Alphomega takes the position that the present action is a sequel to the shareholders’ dispute which culminated in a minority oppression action brought by a minority shareholder, Dr Tan Choon Yong (“Dr Tan”). Dr Tan had been the CEO and director of Alphomega until he was removed during a board meeting by the majority shareholders. The majority shareholders were the 3rd defendant in the counterclaim, Mr Goh Jon Keat (“Goh”), and Heng’s wife, Ms Tan Hui Kiang (“Ms Tan”). In Tan Choon Yong v Goh Jon Keat and Ors [2009] 3 SLR(R) 840 (“Tan Choon Yong”), Tan Lee Meng J (“Tan J”) found in favour of Dr Tan.

Relying on Tan J’s decision and findings in Tan Choon Yong, Alphomega counterclaimed against Nanyang Law, Ng (as Nanyang Law’s Chairman), and the previous board of directors which included Yeoh and Heng (as a “shadow director”). The causes of action against them were for, inter alia, breaches of the duty to act in the best interest of Alphomega, and conspiracy to misuse Alphomega’s resources to oppress Dr Tan’s rights as a minority shareholder.

The law on security for costs

Section 388(1) of the Act provides that:

Security for costs

388. (1) Where a corporation is plaintiff in any action or other legal proceeding the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his defence, require sufficient security to be given for those costs and stay all proceedings until the security is given. [emphasis added]

If the court is satisfied that there is credible evidence that the plaintiff will be unable to pay the defendant’s costs should the defendant succeed at trial, the court’s discretion to order security for costs (“security”) is invoked. However, even if the defendant discharges its burden of showing credible evidence of the plaintiff’s inability to pay costs, this does not mean that security would be ordered as of course. As held in Creative Elegance (M) Sdn Bhd v Puay Kim Seng [1999] 1 SLR 60 (“Creative Elegance”) at [13], the court will have to consider all relevant circumstances and decide whether it is just to order that the plaintiff provide security. Several of the factors that the courts have found to be relevant at this stage include whether the ordering of security is being used oppressively to stifle a genuine claim (see Creative Elegance at [32]), and whether the plaintiff’s want of means was brought about by the conduct of the defendants (see Frantonios Marine Services Pte Ltd v Kay Swee Tuan [2008] 4 SLR(R) 237 (“Frantonios”) at [38]). As held in Omar Ali bin Mohd v Syed Jafaralsadeg bin Abdulkadir Alhadad [1995] 2 SLR(R) 407 (“Omar Ali”) at [21] and [37], the court should not generally go into a detailed examination of the merits of the action because the merits would not be relevant unless there appears to be a high degree of probability in one direction or another.

Whether the court ought to consider the applications separately

Before delving into the substance of this application, it is necessary that I deal with one preliminary matter. Given that multiple parties have applied for security, an issue arose as to whether the applications should be considered together or separately. In other words, would the discretion to order security be invoked as regards a particular application for security if the plaintiff is able to pay the costs of that defendant, but not the costs of the other defendants as well?

In the present case, Nanyang Law and Ng had applied for $80,000 in security, Yeoh had applied for $80,000 in security, and Heng had applied for $100,000 in security. Therefore, it is crucial to determine whether the discretion to order security would be invoked in respect of each defendant on a showing that Alphomega would be unable to pay the costs of that defendant ($80,000 in the case of Nanyang Law and Ng as well as Yeoh, and $100,000 in the case of Heng) or of all the defendants ($260,000). This issue could prove to be determinative should Alphomega be able to pay, for instance, $100,000 in costs, but not more.

Although there appears to be no local authority directly addressing this issue, some guidance can be gleaned from the decision of Tjong Very Sumito & Ors v Chan Sing En & Ors [2010] SGHC 344 (“Tjong Very Sumito”). In Tjong Very Sumito, Andrew Ang J (“Ang J”) heard a registrar’s appeal by the 1st defendant who had failed to obtain security against the plaintiff together with applications by the 5th and 6th defendants for security. The plaintiff’s solicitor argued that while his clients had the ability to pay the costs of the 1st, 5th, and 6th defendants’, if all the other eight defendants applied similarly for security, the plaintiff’s claim may be stifled. In response to this argument, Ang J stated, at [46], that: 46 ... I take on board that likelihood. Should it transpire that the other defendants similarly apply for security for costs against the plaintiffs, I direct that their applications be fixed before me. Each application should be considered separately, and the likelihood of stifling of the plaintiffs’ claims should be assessed separately in each application. [emphasis added] Although Ang J’s observations were made in the context of a consideration of whether the application for security would stifle the plaintiff’s claim (and this relates to the exercise of the discretion to order security, and not whether the discretion is invoked in the first place), it is clear that the approach taken was that of assessing the merits and circumstances of each application for security independently of other similar applications for security against the same plaintiff.

In light of the court’s approach in Tjong Very Sumito, I am of the view that each application for security should be considered separately insofar as the question is whether the discretion to order security is invoked. In reaching this conclusion, I am fortified by three considerations. First, the plain words of s 388(1) of the Act state that the question is whether the plaintiff will be unable to pay the “costs of the defendant if successful in his defence”. The reference to “costs of the defendant” suggests that the inquiry focuses on the costs of the particular defendant applying for security, and not on the potential costs of other defendants. Second, where a plaintiff claims against multiple defendants, it could well be that some defendants might successfully defend against the claim while others would be found liable. In such a case, to consider all the applications together could result in the unfair result that security might be ordered even if the...