SW Trustees Pte Ltd v Teodros Ashenafi Tesemma
| Jurisdiction | Singapore |
| Judge | Goh Yihan JC |
| Judgment Date | 31 May 2023 |
| Docket Number | Suit No 229 of 2021 (Registrar's Appeal No 80 of 2023) |
| Court | High Court (Singapore) |
[2023] SGHC 160
Goh Yihan JC
Suit No 229 of 2021 (Registrar's Appeal No 80 of 2023)
General Division of the High Court
Civil Procedure — Costs — Security — Defendant applying for security for costs — Whether court's discretion to order security for costs was invoked — Section 388(1) Companies Act 1967 (2020 Rev Ed) — Order 23 r 1(1) Rules of Court (2014 Rev Ed)
Civil Procedure — Costs — Security — Defendant applying for security for costs — Whether just to order security for costs — Whether there were circumstances that pertained to avoiding stifling of plaintiff's ability to pursue its claim — Whether order for security would preclude plaintiffs from pursuing their claim
Civil Procedure — Costs — Security — Defendant applying for security for costs — Whether just to order security for costs — Whether there were circumstances that pertained to avoiding stifling of plaintiff's ability to pursue its claim — Whether there was any delay in bringing application for security for costs — Applicable principles in measuring delay
Civil Procedure — Costs — Security — Defendant applying for security for costs — Whether just to order security for costs — Whether there were circumstances that pertained to protecting defendant from adverse costs consequences — Balance in favour of ordering security for costs for defendant who faced litigation by impecunious company
Civil Procedure — Costs — Security — Defendant applying for security for costs — Whether just to order security for costs — Whether there were circumstances that pertained to protecting defendant from adverse costs consequences — Prospects of defendant succeeding
Civil Procedure — Costs — Security — Defendant applying for security for costs — Whether just to order security for costs — Whether there were circumstances that pertained to protecting defendant from adverse costs consequences — Whether there was existing indemnity against defendant's costs
Held, allowing the appeal in part:
Considerations in ordering security for costs
(1) In considering whether SFC should be ordered pursuant to an application made under O 23 r 1(1) (“O 23 r 1(1)”) of the Rules of Court (2014 Rev Ed) and s 388(1) of the Companies Act 1967 (2020 Rev Ed) (“s 388(1)”), a two-stage test should be applied: first, whether the court's discretion to order SFC under O 23 r 1(1) and/or s 388(1) had been invoked; and second, whether it was just to order SFC having regard to all the relevant circumstances: at [14] and [15].
(2) The provision of SFC could be resolved into at least three key purposes, namely: (a) to protect the defendant, who could not avoid being sued, by enabling him to recover costs from the plaintiff out of a fund within the jurisdiction in the event that the claim against him by the plaintiff proved unsuccessful; (b) to ensure, within the limits of protecting the defendant, that the plaintiff's ability to pursue his claim was not stifled; and (c) to maintain a sense of fair play between the parties even amidst the cut-and-thrust of civil litigation: at [19].
(3) The circumstances relevant to assessing whether this first purpose was met included: (a) the prospects of the defendant succeeding in the proceedings, subject to the practical circumstance that the court would not investigate in considerable detail the likelihood of success in the action; (b) the ease with which a defendant might enforce a judgment for costs against a plaintiff in a jurisdiction; and (c) whether, in the event of an adverse cost order being made against the plaintiff, there was reason to believe that the plaintiff's litigation funders would not respond so as to enable the defendant's cost to be paid: at [20].
(4) The circumstances relevant to assessing whether the second purpose was met included: (a) the prospects of the plaintiff succeeding in the proceedings, subject again to the caveat that the court would not generally enter into a detailed examination of the merits; (b) whether an order for SFC would preclude the plaintiff from pursuing its claim; and (c) whether any impecuniosity of the plaintiff arose out of the defendant's alleged breaches: at [21].
(5) In relation to the third purpose, considerations that would be taken into account included: (a) whether the application for SFC was made to embarrass the plaintiff; (b) whether the defendant brought the application for SFC promptly or if he used the application as a chip to be played at a most advantageous time to stifle a bona fide claim; (c) whether there was a significant extent of overlap between the defence or claim and any counterclaim, such that the plaintiff's claim might be prejudiced while the defendant might be indirectly aided in pursuing its counterclaim; (d) whether the conduct of either the plaintiff or the defendant was reproachable; and (e) whether the order for SFC would affect any innocent third parties: at [22].
Whether the court's discretion to order security for costs was invoked
(6) The first stage of the applicable test was satisfied and the court's discretion to order SFC was invoked. The relevant provision in relation to the first plaintiff was s 388(1). This required the first defendant to show “by credible testimony that there was reason to believe that the corporation would be unable to pay the costs of the defendant”. The first plaintiff was an insolvent company in liquidation, which was prima facie evidence that it was impecunious in the sense that it would be unable to pay the first defendant's costs. In relation to the second plaintiff, the relevant provision was O 23 r 1(1)(b) of the Rules of Court (2014 Rev Ed), which required him to prove that the plaintiff was a nominal plaintiff who was suing for the benefit of some other person and that there was reason to believe that he would be unable to pay the costs of the defendant if ordered to do so. The second plaintiff, being the liquidator of the first plaintiff, was such a nominal plaintiff. Further, it was also clear, pursuant to the indemnity that the SGI Creditors had undertaken to provide, that the second plaintiff himself would not pay any of the first defendant's costs: at [25] to [27].
Whether it was just to order security for costs
(7) Turning to the second stage of the applicable test, it was just to order SFC in favour of the first defendant. While the considerations as viewed from the first defendant's and the plaintiffs' perspective were neutral, the first defendant should nevertheless be entitled to SFC. This was to give effect to the key consideration of affording protection to defendants facing litigation from an impecunious company. Moreover, in connection with this, the plaintiffs could not claim to be surprised by the first defendant's application for SFC, at least for some aspects, when they had been legally advised such that they knew that applications for SFC often took place in stages: at [29] and [70].
The circumstances that pertained to protecting the first defendant from adverse costs consequences
(8) To begin with, the following factors showed the circumstances that pertained to protecting the first defendant from adverse costs consequences to be neutral as to whether to order SFC. First, the first defendant's prospects of success in Suit 229 were at best a neutral factor in deciding whether to grant SFC. On the affidavit evidence, while the first defendant's case was not implausible, the case was also not overwhelmingly in favour of the first defendant. It could not be said that the first defendant would more likely than not succeed in his case. In considering the prospects of the first defendant succeeding in Suit 229, it was not necessary that a party had to first satisfy a court that he had an overwhelming case before the court could have regard to the merits of the case. The merits of the parties' cases were always a relevant circumstance in deciding whether to order SFC and went towards the weight to be given to this consideration. As for the question of how a court should assess this, the court was not required to perform an elaborate or detailed investigation of the evidence. Any contention about reasonable prospects or the high probability of success of a party's case should be one that was apparent on the face of the evidence or the pleadings: at [29], [34] to [36] and [39].
(9) Second, while the balance was usually in favour of ordering SFC for a defendant who faced litigation by an impecunious company, this balance was not an immutable one and depended on the circumstances of each case. For instance, a defendant who was sued by an impecunious company might have a completely unsustainable defence. In such a case, the court would rightly favour the company's interest in pursuing its claim over the defendant's interest to be able to recover costs: at [41] and [42].
(10) Third, while the plaintiffs argued that the first defendant's costs would be indemnified under the estate costs rule, this presupposed that the first plaintiff would have enough assets to make any meaningful payment towards the first defendant's costs. In any event, he would still have to wait for the entire liquidation process to be completed before a dividend could be paid. This was unsatisfactory, especially when viewed in light of one of the key purposes of ordering SFC, which was to ensure that a defendant could readily and easily recover his costs if the plaintiff's claim against him proved to be unsuccessful. Finally, contrary to the plaintiffs' submission, the indemnity by the SGI Creditors in favour of the second plaintiff did not give, in effect, an indemnity to the first defendant. An indemnity would only be effective if the second plaintiff were to be liable for the first defendant's costs. For this to happen, the second plaintiff had to have...
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