SK Lateral Rubber & Plastic Technologies (Suzhou) Co Ltd v Lateral Solutions Pte Ltd

• Court: International Commercial Court (Singapore)
• Judge: Roger Giles IJ
• Judgment Date: 17 April 2020
• Neutral Citation: [2020] SGHC(I) 9
• Citation: [2020] SGHC(I) 9
• Defendant Counsel: Tan Chuan Thye, SC, Disa Sim, Jared Kok, Chiang Yuan Bo and James Kwong (Rajah & Tann Singapore LLP)
• Published date: 24 April 2020
• Plaintiff Counsel: Jimmy Yim, SC, Kevin Lee, Eunice Lau and Ho Wah Jiang (Drew & Napier LLC)
• Hearing Date: 30 March 2020
• Docket Number: Suit No 6 of 2019 (Summons No 13 of 2020)
• Date: 17 April 2020
• Subject Matter: Civil Procedure,Costs,Security

Roger Giles IJ:

The defendant/counterclaimant, Lateral Solutions Pte Ltd (“Lateral”), applies for an order that the plaintiff/counterdefendant, SK Lateral Rubber & Plastic Technologies (Suzhou) Co Ltd (“SKL”), furnish security for its costs to the end of the trial. For the reasons which follow, the application should be dismissed.

Facts The parties

SKL is a company established under the laws of the People’s Republic of China. Its business includes the manufacture and sale of polymer parts (“parts”) used in electronic consumer goods. Lateral is a Singapore incorporated company, engaged in the supply of electronic components for such goods. Lateral has no manufacturing facilities of its own, and outsources the components from companies such as SKL.

Background to the dispute

In 2011, SKL and Lateral entered into an agreement (“the Agreement”) under which SKL was to manufacture and supply parts for Lateral, which Lateral would in turn supply to Apple and perhaps others. Business was done for some years, but the relationship deteriorated and ended in acrimony in 2017.

SKL claims USD 10.3 million from Lateral, for parts supplied and for tooling procured, equipment purchased and expenses incurred for the manufacture of parts.

Lateral’s defence to the parts claim is that, by virtue of “operational realities” and a course of discussion and conduct, payment of SKL’s invoices was due only when Lateral’s cash flow permitted it to pay (“the cash flow defence”). To this is added that one Wei Fengpin, said to be the controller of SKL, had engaged in conduct intended to damage Lateral’s business and “take it out as a competitor” in favour of other entities he controlled. It is alleged that Wei himself is responsible for Lateral’s cash flow problems and its subsequent inability to pay, and that the proceedings themselves are part of a scheme to drain Lateral’s finances (“the Wei conduct”). As to tooling, the defence appears to be that SKL was not entitled to payment unless Lateral’s customer had agreed to pay for the tooling and had paid, or until Lateral was being paid for the parts produced by the tooling. The claims as to equipment and expenses were simply denied.

SKL’s reply to the defence includes that the Wei conduct is not relevant.

Lateral counterclaims against SKL on a number of grounds. First, it says that it paid USD 1.1 million for parts supplied, which parts were then found to be defective, and that SKL had refused to repay it. Secondly, it says that SKL owes it USD 1.3 million, such sums being the amount paid to a casings supplier for casings required by SKL for the manufacture of parts. SKL had allegedly agreed to repay Lateral but had so far failed to do so. Thirdly, Lateral claims that it owns a large number of items of equipment purchased and held by SKL for the manufacture of parts. Lateral claims damages for wrongful detention or conversion of the equipment. Fourthly, Lateral says that SKL wrongfully ceased to supply parts under the Agreement, which it alleges by discussion and conduct was or became a long term supply agreement, and claims damages for its breach.

Procedural history

The proceedings were commenced in the High Court in October 2017. In November 2017 it was ordered by consent that SKL provide security for Lateral’s costs up to the conclusion of discovery in the sum of $30,000. The security was duly paid into court (“the initial security”). By the end of February 2018, particulars of the claim had been requested and given and the pleadings had closed.

In April 2018, SKL applied for summary judgment. The hearing of the application was delayed by an application to amend the defence and counterclaim and applications to file affidavits. An amended defence and counterclaim was allowed, and in January 2019 the application for summary judgment was dismissed by Kannan Ramesh J on the basis that Lateral had a defence of set-off against SKL’s claim.

In May 2019, the defence and counterclaim was again amended. Over the next five months particulars were requested and given of the defence and counterclaim and of the reply and defence to counterclaim, with a number of disputed applications. Following amendment of the claim, the defence and counterclaim was also again amended. Lists of documents were filed in November 2019.

In December 2019 the proceedings were transferred to the SICC. Order 24 of the Rules of Court (“the Rules”), relating to discovery, was to continue to apply. There was no condition relating to security for costs.

A case management conference was held on 2 March 2020. This application, and a cross-application by SKL for security for its costs of the counterclaim, were foreshadowed. Directions were given for filing the applications and the exchange of affidavits and written submissions, ending on 27 March 2020, the decision of the applications to be on the papers. In the event, SKL did not file an application.

Pursuant to leave given on 2 March 2020, on 6 March 2020 the defence and counterclaim were amended yet again. Until then, Lateral’s defence to the parts claim had been that payment of SKL’s invoices was due only when Lateral received payment from its customers (“the pay when paid defence”). In the amendments, it became the cash flow defence. Other directions were given, and have been given, leading to a trial fixed for seven days commencing on 21 July 2020.

The present application

On 3 November 2017, Lateral wrote to SKL requesting the initial security in the sum of $40,000, giving as the basis for the request that SKL was “domiciled in China” and “it does not appear that [it] has any assets of a permanent nature in Singapore”. SKL’s reply on 7 November 2019 made no comment on these assertions, and simply said that it was agreeable to the request, but in the sum of $30,000. The consent order followed.

On 27 February 2020 Lateral wrote to SKL, saying that SKL had not disputed the earlier assertions and that it (Lateral) was entitled to further security for costs to the end of the trial. SKL replied on 2 March 2020, declining to provide the security and saying:

“As you know, the SICC approaches the issue of security for costs by foreign plaintiffs differently. Moreover, since SIC 6 was first commenced in October 2017, SKL has conducted its litigation properly at all times. SKL had earlier furnished security voluntarily in order to avoid unnecessary costs, and has complied with every cost order made. There is thus no cause for concern that SKL might not voluntarily comply with any award of costs.”

Lateral’s application was filed on 13 March 2020. Security for costs was claimed on two bases for the power to order it: in shorthand, later more fully described - that SKL would be unable to pay Lateral’s costs if ordered to do so (“the impecuniosity basis”); and that SKL is ordinarily resident out of the jurisdiction (“the foreign plaintiff basis”).

Lateral’s submissions included that, by providing the initial security, SKL admitted that Lateral was entitled to the further security for costs now sought. SKL took issue with that submission, saying that it provided the initial security as a matter of expediency with a view to getting a resolution by an application for summary judgment.

It is not necessary to go into SKL’s motives. Lateral’s submission cannot be accepted. For either of the bases, the court must first be satisfied that the power to order security for costs has been enlivened by satisfaction of a requisite condition for its exercise, and must then consider the exercise of a discretion to order the provision of the security. The condition is found, and the discretion is exercised, on the facts now appearing. The facts of incorporation and domicile in China and absence of permanent assets in Singapore may be accepted, but otherwise the entitlement to further security must be made out.

The Impecuniosity Basis for the power to order security

The impecuniosity basis rested on s 388 of the Companies Act (Cap 50, 2006 Rev Ed), providing –

“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.”

Lateral’s case for SKL’s inability to pay costs was narrow. It had two planks.

First, the affidavit in support of the application referred to payment of costs ordered against SKL in three of the many applications in the High Court, being SUM 1623 in the amount of $20,000; SUM 1626 in the amount of $1000; and SUM 3623 in the amount of $2500. It was said that the last amount of $2500 was paid more than two months after it was ordered, after “repeated chasers”. In submissions, it was said that SKL’s payment of costs had been “erratic to say the least”.

SKL’s responsive affidavit pointed out that it had duly paid the other costs amounts, that the $2500 was really $1250 because costs ordered to be paid by Lateral were set off against it, that the passage of time was due to debate over the setting off, and that the passage of time also included (and Lateral was told of) compliance with Chinese regulatory controls for transfer of money out of China.

Copies of the extensive correspondence were provided. Lateral’s submission is excessive. In my view, nothing adverse to SKL’s ability to pay costs as stated in s 388 is to be drawn from the course of payment of the interlocutory amounts.

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