PT Muliakeramik Indahraya TBK v Nam Huat Tiling & Panelling Co Pte Ltd

• Jurisdiction: Singapore
• Judge: Teo Guan Siew AR
• Judgment Date: 28 August 2006
• Neutral Citation: [2006] SGHC 154
• Court: High Court (Singapore)
• Published date: 27 September 2006
• Year: 2006
• Plaintiff Counsel: Edmund Kronenburg (Tan Peng Chin LLC)
• Defendant Counsel: Daniel Koh (Rajah & Tann)
• Citation: [2006] SGHC 154

28 August 2006

AR Teo Guan Siew:

1 This application concerns the principles governing the court’s exercise of discretion in ordering security for costs when there is an overlap between the defence and the counterclaim by the same defendant.

Background

2 The plaintiff, a company incorporated in Indonesia, entered into various contracts with the defendant, under which the plaintiff supplied floor tiles to the defendant for use in HDB projects. The plaintiff commenced action claiming for amounts allegedly due for certain batches of tiles that were delivered to the defendant (“the material tiles”).

3 The defendant did not deny that the material tiles were delivered, but resisted the claim on the ground that the tiles were defective in that they (a) did not comply with the contractual specifications, and/or (b) were in breach of the implied condition as to quality under s 14(2) of the Sale of Goods Act (Cap 393, 1999 Rev Ed). The defendant further counterclaimed for damages in respect of the alleged defects in the material tiles. In addition, the defendant sought recovery of payments which they made to the plaintiff for earlier batches of tiles (“the other tiles”) on the basis that the plaintiff had misrepresented that the tiles would comply with HDB standards. The final aspect of the counterclaim was to recover sums which the defendant incurred in contributing to rectification works that were allegedly necessitated by the defects in the plaintiff’s tiles.

The Present Application

4 The defendant applied for security for costs based on three main arguments, viz (a) the plaintiff is an Indonesian company with no assets in Singapore and there is no reciprocal enforcement of judgments between Indonesia and Singapore; (b) the defendant has a bona fide and arguable defence; and (c) it is undisputed that the plaintiff is a company with means such that an order for security will not stifle their claim.

5 In resisting the defendant’s application for security for costs, counsel for the plaintiff, Mr Kronenburg, relied principally on Jurong Town Corp v Wishing Star Ltd [2004] SGCA 14 (“JTC v Wishing Star”) for the proposition that where the defence is substantially part of the counterclaim, the court will not grant security for costs. He argued that in this case, the whole of the defence forms part of the counterclaim. Mr Kronenburg also emphasized the strength of the plaintiff’s case on the merits, and that there is no reason to suppose that the plaintiff will not honour an order for costs.

6 It was not made clear whether the defendant was proceeding under O 23 r 1 of the Rules of Court (Cap 322, R5, 2006 Rev Ed) or s 388 of the Companies Act (Cap 50, 1994 Rev Ed), but reference to the fact that the plaintiff is an Indonesian company would suggest that reliance was being placed on the former. Be that as it may, it did not appear to be in dispute that a basis for ordering security for costs exists. The focus of the inquiry was solely on the court’s exercise of discretion, the governing principles of which are the same whether the application is under the Rules of Court or the Companies Act: see Creative Elegance (M) Sdn Bhd v Puay Kim Seng [1999] 1 SLR 600 (“Creative Elegance”).

Overlapping Defence and Counterclaim

Nature of Overlap

7 In JTC v Wishing Star, the defendant-appellant awarded the plaintiff-respondent a contract to build certain façade works for a major construction project. The defendant subsequently terminated the contract on the basis that the plaintiff had made material misrepresentations in its tender submission. The plaintiff commenced action for damages for wrongful termination. The defendant pleaded that it had lawfully rescinded the contract and counterclaimed for damages. An application for security for costs was taken up by the defendant. On appeal before the Court of Appeal, it was held that the defendant’s defence and its counterclaim were “launched from the same platform”, and that granting security would amount to indirectly aiding the pursuit of the counterclaim. In particular, the Court of Appeal was influenced by the practical consequence of making an order for security in such a situation, which was explained by Bingham LJ in BJ Crabtree (Insulation) Ltd v GPT Communication Systems Ltd [1990] 50 BLR 43 (“BJ Crabtree”) in the following way:

It is however, necessary as I think, to consider what the effect of an order for security in this case would be if security were not given. It would have the effect, as the defendants acknowledge, of preventing the plaintiffs pursuing their claim. It would, however, leave the defendants free to pursue their counterclaim. The plaintiffs could then defend themselves against the counterclaim although their own claim was stayed. It seems quite clear…that in the course of defending the counterclaim all the same matters would be canvassed as would be canvassed if the plaintiffs were to pursue their claim…

The Court of Appeal reasoned that in these circumstances, it will serve no purpose to stay the claim of the plaintiff in the event that security is not provided. The Court of Appeal went on to rely on this in denying the defendant security for costs.

8 In the application before me, counsel for the defendant, Mr Koh, sought to distinguish JTC v Wishing Star by submitting that in that case, the defence and the counterclaim were in fact identical, whereas his client’s counterclaim covers much more than its defence. He argued that there should be complete overlap between the defence and counterclaim before the aforesaid principle in JTC v Wishing Star is operative. In support of this argument, he relied on T Sloyan & Sons (Builders) Ltd and another v Brothers of Christian Instruction [1974] 3 All ER 715 (“T Sloyan”).

9 In T Sloyan, the contractor claimed from its employer £10,500 as the amount owing under a building construction contract. Arguing that the building had numerous defects, the employer cross-claimed...