Sun Electric Pte Ltd v Sunseap Group Pte Ltd and others and another suit

• Jurisdiction: Singapore
• Judge: Justin Yeo AR
• Judgment Date: 22 January 2020
• Neutral Citation: [2020] SGHCR 1
• Court: High Court (Singapore)
• Docket Number: Suit No 1229 of 2016 (Summons No 5302 of 2019) and Suit No 190 of 2018 (Summons No 5303 of 2019)
• Year: 2020
• Published date: 30 January 2020
• Hearing Date: 11 December 2019
• Plaintiff Counsel: Mr Chan Wenqiang, Mr Alvin Lim and Mr Alvin Tan (Ravindran Associates LLP)
• Defendant Counsel: Mr Nicholas Lauw and Ms Leow Jiamin (Rajah & Tann Singapore LLP)
• Citation: [2020] SGHCR 1

Justin Yeo AR:

This judgment concerns two applications for security for costs under s 388 of the Companies Act (Cap 50, 2006 Rev Ed). These applications are the latest in a long line of interlocutory applications and appeals taken out in two related patent suits, ie Suit No 1229 of 2016 (“Suit 1229”) and Suit No 190 of 2018 (“Suit 190”) (collectively, “the Suits”).

Background

Sun Electric Pte Ltd (“the Plaintiff”) is the registered proprietor of two Singapore patents relating to a method of determining power consumption (ie Singapore Patent Application No 10201405341Y, “the 341 Patent”) and a method of consolidating power injunction and consumption in a power grid system (ie Singapore Patent Application No 10201406883U, “the 883 Patent”) (collectively, “the Patents”).

The Plaintiff brought the Suits against Sunseap Group Pte Ltd, Sunseap Energy Pte Ltd and Sunseap Leasing Pte Ltd (collectively, “the Defendants”), alleging that the Defendants had infringed several system claims (in the 341 Patent) and process claims (in the 883 Patent). Suit 1229 was filed on 18 November 2016, while Suit 190 was filed on 22 February 2018. It is undisputed that the Suits will be consolidated in due course. Presently, the Suits are fixed to be heard at a 12-day trial commencing end-July 2020.

The Defendants’ account of the matters leading up to the taking out of the present applications is outlined below. The Plaintiff has not generally taken issue with the chronology of these events.

In late August 2019, the Defendants discovered that Sun Electric Power Pte Ltd (“SEPPL”) had applied to be put under judicial management, by way of Originating Summons No 1060 of 2019 (“OS 1060”). SEPPL is a wholly-owned subsidiary of Sun Electric (Singapore) Pte Ltd (“SESPL”), which is in turn a 99.9%-owned subsidiary of the Plaintiff. In the Defendants’ view, placing SEPPL into judicial management would have a direct effect on the Plaintiff’s financial viability. In particular, if SEPPL is wound up, the Sun Electric Group may no longer be able to retail electricity to end-users.¹

In mid-September 2019, the Defendants became aware that an injunction was being sought against the Plaintiff in a separate suit brought by the Plaintiff and SEPPL against Menrva Solutions Pte Ltd (“Menrva”), ie Suit No 200 of 2016 (“Suit 200”). Upon inspection of the Suit 200 case file, the Defendants learnt that Menrva had filed an ex parte application on 27 August 2019, seeking a worldwide Mareva injunction against the Plaintiff, Dr Matthew Peloso (“Dr Peloso”, the Plaintiff’s representative, sole director and chief executive officer) and SEPPL. Menrva subsequently successfully joined a number of the Plaintiff’s other related entities (ie, SESPL, Sun Electric Energy Assets Pte Ltd (“SEEA”), a BVI entity known as Sun Electric Digital Stream Ltd (“SEDS”) and Dr Peloso) in Suit 200. Menrva also obtained an order for disclosure of those entities’ assets within and outside Singapore. Despite vigorous resistance, the High Court granted the injunction on 16 September 2019.

The Defendants further discovered Dr Peloso’s affidavit filed in OS 1060, in support of SEPPL being placed under judicial management. The affidavit revealed that money had been withdrawn from SEPPL’s bank account, in breach of an interim injunction ordered in a separate suit brought by RCMA Asia Pte Ltd against SEPPL, ie, Suit No 191 of 2018 (“Suit 191”). Amongst other things, more than $1.5m was withdrawn from SEPPL’s bank account in August 2018, purportedly to enable SEPPL to pay the Plaintiff. Subsequently, another $1.5m was withdrawn for the purposes of extending a loan to SEEAPL which “urgently required [the money] for the completion of certain rooftop projects with imminent deadlines”.² Dr Peloso affirmed on affidavit that in view of the injunction in Suit 191, the sums should not have been moved from SEPPL’s bank account.³ Committal proceedings have since been commenced against Dr Peloso in Originating Summons No 1137 of 2019 for breaches of the injunction in Suit 191.

The Defendants also found out that the Plaintiff’s controlling majority stake in SEEA would be sold as part of a “proposed investment”. This was of particular concern to the Defendants because, other than SEPPL, SEEA was the only entity in the Sun Electric Group licensed to generate and export electricity to the national grid. Indeed, SEEA was the Sun Electric entity in all but one of the agreements produced by the Plaintiff in the Suits.

On 4 October 2019, the Defendants requested for security for costs from the Plaintiff. On 11 October 2019, the Plaintiff refused to provide security. The Defendants therefore filed Summonses No 5302 of 2019 (“SUM 5302”) and 5303 of 2019 (“SUM 5303”) on 24 October 2019.

The applications

SUM 5302 and SUM 5303 are the Defendants’ applications for security for costs in Suit 1229 and Suit 190 respectively. The Defendants have sought security for costs of $600,000 (in Suit 1229) and $300,000 (in Suit 190), up to the end of trial, including closing submissions. They have also sought a stay until the security is provided, and for the Plaintiff’s claims to be struck out without further order in the event that the Plaintiff fails to provide security.

The applications are brought pursuant to s 388(1) of the Companies Act, which provides as follows:

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.

In determining whether security for costs should be ordered under s 388(1) of the Companies Act, the court applies a two-stage test (Creative Elegance (M) Sdn Bhd v Puay Kim Seng and anor [1999] 1 SLR(R) 112 (“Creative Elegance”) at [13]). Plaintiff’s counsel Mr Chan Wenqiang (“Mr Chan”) and Defendants’ counsel Mr Nicholas Lauw (“Mr Lauw”) raised a multitude of arguments at each stage. I set out here the arguments raised and my decision on each of the stages.

First Stage

At the first stage, the court considers whether there is “credible testimony” that there is “reason to believe” that the plaintiff company will be unable to pay the defendant’s costs should the defendant be successful in defending the trial (s 388(1) of the Companies Act; see also Creative Elegance at [13]). The defendant bears the legal burden of proof (see, eg, StreetSine Singapore Pte Ltd v Singapore Institute of Surveyors and Valuers and ors [2019] SGHCR 1 at [14]).

In considering whether there is “credible testimony” that there is “reason to believe” that the plaintiff will be unable to pay the defendant’s costs, the court will consider a range of factors. These include the plaintiff’s sources of funds, cash position, financing and credit facilities, assets and liabilities (Frantonios Marine Services Pte Ltd v Kay Swee Tuan [2008] 4 SLR(R) 224 (“Frantonios”) at [34]; see also Bilia AB v Te Pte Ltd and others [1999] SGHC 96 at [14]). For the avoidance of doubt, the court will consider neither non-legally binding offers nor possible sources of financial assistance from interested third parties or based on goodwill (Frantonios at [34]). Concessions made by the plaintiff (or its representatives) in relation to the plaintiff’s financial situation are also relevant (see, eg, Elbow Holdings Pte Ltd v Marina Bay Sands Pte Ltd [2014] SGHC 219, where the court took into consideration the plaintiff’s managing director’s concession that the plaintiff was in a dire financial situation).

The assessment of a plaintiff’s ability to pay costs is prospective in nature. The relevant consideration is whether the plaintiff will be able to pay costs awarded against the plaintiff in the event that the defendant succeeds in defending the action. If the plaintiff is demonstrably unable to pay costs as at the time of the application for security, the onus will be on the plaintiff to show that the position would be different at the future time when an adverse costs order is made (Uni-continental Holdings Ltd v Eurobond Adhesives Ltd [1996] FSR 834 (“Uni-continental Holdings”) at 837). The plaintiff may attempt to show, for instance, that he has the benefit of a contract that guarantees large forthcoming profits.

At the hearing, I expressed my preliminary view that – from the written submissions, affidavits as well as Mr Lauw’s opening oral arguments – the Plaintiff appeared to be in a tight financial situation. Despite these indications and my invitation to be persuaded otherwise, Mr Chan was content to rely on his written submissions and had no additional matters to raise for the court’s consideration vis-à-vis the first stage. Having considered the submissions and evidence proffered by both sides, I find that there is “credible testimony” that there is “reason to believe” that the Plaintiff will be unable to pay costs should the Defendant succeed in defending the Plaintiff’s claims. This is for the following four reasons. First, the Plaintiff has no real assets. It is undisputed that the Plaintiff is a shell company and does not do any actual business. The only assets that the Plaintiff owns are the Patents. Should the Defendants succeed in their counterclaims to invalidate the Patents, the Plaintiff does not appear to have any other known assets of value to make good adverse cost orders. Second, based on Dr Peloso’s evidence in Suit 200, the Plaintiff appears to be in poor financial health. As affirmed by Dr Peloso on affidavit in Suit 200, he had stopped drawing a salary from the Sun Electric Group since January 2019, and had in fact been extending personal loans to the Plaintiff to cover the Plaintiff’s payroll and business expenses. While the...