StreetSine Singapore Pte Ltd v Singapore Institute of Surveyors and Valuers and others

JudgeZeslene Mao AR
Judgment Date28 December 2018
Neutral Citation[2019] SGHCR 1
CourtHigh Court (Singapore)
Docket NumberSuit No 1207 of 2016 (Summons Nos 2968 and 2970 of 2018)
Published date05 January 2019
Hearing Date12 October 2018,10 October 2018
Plaintiff CounselJaikanth Shankar, Tan Ruo Yu and Deborah Loh (Drew & Napier LLC)
Defendant CounselTng Sheng Rong and Chan Min Hui (Rajah & Tann Singapore LLP),Chia Huai Yuan (Dentons Rodyk & Davidson LLP)
Subject MatterCivil Procedure,Costs,Security
Citation[2019] SGHCR 1
Zeslene Mao AR:

Summons No 2968 and 2970 of 2018 are two applications for security for costs taken out by the 23rd Defendant and the 1st to 22nd Defendants (collectively referred in this judgment to as “the Defendants”) respectively against the Plaintiff, StreetSine Singapore Pte Ltd. The 23rd Defendant’s application is for security for its costs up to and including the filing of affidavits of evidence-in-chief in the sum of $70,000. The 1st to 22nd Defendants’ application is for their costs up to the completion of discovery in the sum of $386,750. The applications for security for costs are made pursuant to s 388(1) of the Companies Act (Cap 50, 2006 Rev Ed), which provides:

Security for costs

Where a corporation is a 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.

In essence, the Defendants’ position is that they are entitled to security for costs as there exists credible evidence to believe that the Plaintiff will be unable to pay the Defendants’ costs. Such credible evidence consists of, amongst other things, the Plaintiff’s financial woes such as its balance sheet insolvency and operating losses as well as loan agreements entered into between the Plaintiff’s parent company, StreetSine Technology Group Pte Ltd (“STG”), and STG’s shareholders for the funding of the present litigation. The Plaintiff opposes the application, inter alia, on the ground that given its liquidity, the Defendants cannot show that there is reason to believe that the Plaintiff will be unable to pay the Defendants’ costs if they are successful in their defence.

Having considered the parties’ respective evidence and submissions, I now give my decision on the applications.

Background and procedural history

The Plaintiff is a private company incorporated in Singapore and carries on the business of an information technology company that integrates big data sets with mobile applications to provide property information and transaction tools to the real estate market. It is a wholly-owned subsidiary of STG. The majority of the shares in STG are held by SPH Interactive Pte Ltd.

The 1st Defendant is a national body representing professionals who carry out various services relating to the real estate and construction industry, including land surveying, quantity surveying, property management, marketing, estate agency and valuation practice. The 2nd to 22nd Defendants are either individual members or employees of the 1st Defendant. The 23rd Defendant, which is also a member of the 1st Defendant, is a property consultancy firm that offers valuation advisory services.

The present suit was commenced by the Plaintiff against the 1st Defendant on 10 November 2016. At that time, the Plaintiff alleged that the 1st Defendant had engaged in a conspiracy with the predominant purpose of injuring the Plaintiff’s business. On 16 October 2017, the 2nd to 27th Defendants were added as defendants to the action pursuant to leave granted by the Court. The Plaintiff’s case is that as a result of the Defendants’ wrongful acts and breaches, the Plaintiff has been, amongst other things, unable to market its valuation products to banks, financial institutions or the public in any meaningful manner within Singapore or overseas.

On 28 June 2018, the Defendants filed their respective applications for security for costs. At this time, the applications were not supported by any expert opinion. Both the 1st to 22nd Defendants and the 23rd Defendant relied on the Plaintiff’s financial statements, especially those produced for the year ended 31 August 2017 (“2017 Financial Statements”). The Defendants highlighted these points from the Plaintiff’s financial statements to support their case that security for costs ought to be granted: The Plaintiff had made losses over the years in 2014 to 2017. The Plaintiff had made a net loss of $41,538 in 2017 and a net loss of $1,227,675 in 2015. The Plaintiff had a negative total asset position and a negative current asset position over the years from 2014 to 2017. In particular, as at 31 August 2017, the Plaintiff had a negative total asset position of $1,354,238 and a negative current asset position of $2,402,275. In the 2017 Financial Statements, the independent auditors, KPMG LLP (“KPMG”), had expressed a “material uncertainty related to going concern”, as follows:

We draw attention to Note 21 to the financial statements which indicates that [the Plaintiff] incurred a net loss of $41,538 during the year ended 31 August 2017 and, as of that date, the Company’s total liabilities exceeded its total assets by $1,354,238, and its current liabilities exceeded its current assets by $2,402,275. As stated in Note 21, these conditions indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

In a reply affidavit filed by Mr Jason Barakat-Brown, the Chief Executive Officer of STG, the following points in response were made on behalf of the Plaintiff: The profitability of a company from an accounting perspective did not necessarily reflect the company’s financial strength or its liquidity. In any case, the Plaintiff made a profit of $630,860 in 2016. Although it posted a small loss of $41,538 in 2017, its revenue had increased by more than 25% from $4,940,990 in 2016 to $6,192,499 in 2017. Further, the Plaintiff generated positive operating cash flow of $1,330,352 and $1,286,549 respectively in 2016 and 2017. The claim that the Plaintiff might be in financial difficulties because it was a negative total asset and negative current asset position as at 31 August 2018 was premised on a misunderstanding of the Plaintiff’s business model. The Plaintiff was an information technology company that offered its services to customers using a subscription business model that allowed them to obtain access to its services over a 12-month membership period. The Plaintiff billed and received payment from its customers for the full amount of the subscription fee at the start of the 12-month period. As a matter of accounting treatment, these sums received were recorded as liabilities as they represented revenue which the Plaintiff had not earned when it received payment. However, the Plaintiff was free to utilise these sums for its business and to meet any obligations or liabilities. Further, under the Plaintiff’s contracts with its customers, these sums were not refundable in any circumstances. Thus, this line item in the Plaintiff’s balance sheet (referred to hereinafter as “billings in advance”), which formed 72% of the Plaintiff’s current liabilities as at 31 August 2017, should be viewed in this light. While the Plaintiff invested heavily in growing its business, these investments were made on a discretionary, month to month basis. This meant that the Plaintiff could, if required, reduce the cash it invested at short notice in order to make more cash available for funding the legal proceedings. The Plaintiff would be able to do so without affecting its ability to provide services to existing subscribers in any way, because such services were being provided using an existing platform which the Plaintiff had already developed and paid for. STG entered into separate loan agreements with each of its three shareholders, under which STG’s shareholders agreed to provide loans to STG for the purpose of funding the legal costs incurred and/or anticipated by the Plaintiff in connection with the present action. Each loan agreement was for a term of two years from 11 January 2017 and could be extended for an additional year by STG and STG’s shareholders. STG was entitled to borrow up to $420,000 under these loan facilities. The 2017 Financial Statements did not reflect the Plaintiff’s latest cash position. In this regard, the Plaintiff exhibited redacted bank account statements dated 30 June 2018 showing that it had cash and cash equivalents of $1,696,951.85, which was significantly higher than the sum of $924,511 reflected in the 2017 Financial Statements.

The Plaintiff also relied on the evidence of an independent expert, Mr Premjit Dass, a chartered accountant and a director in Navigant Consulting (APAC) Pte Ltd. In his expert report, Mr Dass opined that: The billings in advance were classified in the Plaintiff’s financial statements as current liabilities only because of the timing of the collection of the subscription revenues rather than because they were liabilities that needed to be settled by the outflow of cash at some point in the future. The Plaintiff categorised the billings in advance as liabilities to comply with paragraph B49 of the Financial Reporting Standard in Singapore (“FRS”) 115 which states that “the upfront fee is an advance payment for future goods or services and, therefore, would be recognised as revenue when those future goods or services are provided”. Thus, an assessment of the Plaintiff’s liquidity should exclude billings in advance as the Plaintiff “is not required to discharge those liabilities in cash”. KPMG’s statement that “a material uncertainty exists” does not mean that the Plaintiff is unable to continue as a going concern. Under Singapore standards for auditing and financial reporting, a company’s management is required to make an assessment of its ability to operate as a going concern, and to disclose any material uncertainty related to events or conditions that might cast doubt on its ability to do so. An auditor’s responsibilities are in turn to review the appropriateness of such an...

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