SIC College of Business and Technology Pte Ltd v Yeo Poh Siah and others [2016] SGCA 5

Significance: Singapore Court of Appeal orders retrial of an action because the trial judge had wrongly rejected certain key evidence from being admitted for purposes of the counterclaim because it was brought for purposes of the main claim, which had been dismissed.

Significance (2): Singapore Court of Appeal opined that order for security for costs against plaintiff company may not have been justifiable.

Significance (3): Singapore Court of Appeal held that lower court’s order for non-party to pay costs of the proceedings was wrong.

Order of Retrial due to Trial Judge’s Rejection of Evidence

It was incorrect for the Judge below to have denied the Appellant the opportunity to prove relevant facts in respect of the counterclaim simply because these facts would also prove the main claim, which had been stayed and subsequently dismissed: [40].

First, facts which are relevant to the main claim may similarly be facts which are relevant to the Appellant’s defence to the counterclaim. As pointed out by the Appellant, s 3 of the Evidence Act defines a “fact in issue” as including “any fact from which either by itself or in connection with other facts the existence, non-existence, nature or extent of any right, liability or disability asserted or denied … necessarily follows”. The starting point is that “every litigant has a general right to bring all evidence relevant to his or her case to the attention of the court”, and that, while a litigant should not be allowed to abuse the processes of the court to further his ulterior or collateral motives, “it is usually both prudent and just to err in favour of admission rather than exclusion”. there is no rule that facts which are relevant in establishing a defence to the counterclaim cannot be proven simply because these same facts would establish liability under the main claim as well: [41].

Second, the various allegations of misappropriation of funds were sufficiently pleaded as part of the defence to the counterclaim: [42].

Third, the process of pleadings is to ensure, inter alia, that the plaintiff knows the nature and substance of the defence. A court should not adopt “an overly formalistic and inflexibly rule-bound approach” which might result in injustice (see V Nithia (co-administratrix of the estate of Ponnusamy Sivapakiam, deceased) v Buthmanaban s/o Vaithilingam and another [2015] 5 SLR 1422 (CA) at [39]). Ultimately, the underlying consideration of the law of pleadings is to prevent surprises arising at trial (see, for example, the Singapore High Court decision of Lu Bang Song v Teambuild Construction Pte Ltd and Another and Another Appeal [2009] SGHC 49 at [17]): [46].

While the Judge should have considered the Rejected Evidence it does not necessarily follow that his decision must be reversed or a new trial ordered, if it can be shown that the result was correct in any event. See Order 57 r 14 of the Rules of Court; section 169 of the Evidence Act and section 39(2) of the Supreme Court of Judicature Act (Cap 322, 2007 Rev Ed) (“SCJA”): [48]-[50].

The question therefore turns on whether any substantial wrong had been caused by the exclusion of the Rejected Evidence: [51].

The key evidence in the facts of this case was a printout of accounts from a company’s accounts software. While the Printout was prima facie admissible under s 32(1)(b) of the Evidence Act as a statement made in the course of trade, business, profession or other occupation, the court is nevertheless required to properly consider the discretion to exclude such evidence under s 32(3). This involves a balancing exercise involving weighing the significance of the evidence against its unreliability or other harm which might compromise fair adjudication (with the effect of being substantively unjust or procedurally oppressive): see the decision of this court in Gimpex Ltd v Unity Holdings Business Ltd and others and another appeal [2015] 2 SLR 686 (CA) at [105]–[109]: [52] (for an article on this decision written by me, please click here).

However, the admission of the Printout was not in itself sufficient, without other evidence, to prove a debt because s 34 of the Evidence Act states that such statements “shall not alone be sufficient evidence to charge any person with liability”: [55]. For that reason, the Court could not determine whether the respondent had failed to discharge his burden of proof on the counterlcaim and determine the matter: [57].

A new trial would ordinarily be ordered only where (a) the improperly rejected evidence would, if admitted, have a substantial and realistic prospect of making a meaningful difference to the outcome of the case, and (b) the appellate court is in no position to evaluate the improperly rejected evidence itself: [59].

The Court held that it was in no position to determine whose version of the facts should be believed based merely on the AEICs filed and the transcript generated from the limited cross-examination on the background facts relating to both the counterclaim and main claim that was permitted below: [70].

Order for Plaintiff Company to Provide Security for Costs

The Court below had made an order under s 388 of the Companies Act (Cap 50, 2006 Rev Ed) that the plaintiff company provided security for costs. The underlying rationale for ordering a plaintiff to give security for costs is to “protect a defendant (or a claimant placed in a similar position by a counterclaim) who is forced into litigation at the election of someone else against adverse costs consequences of that litigation” (see the English Court of Appeal decision of Autoweld Systems Ltd v Kito Enterprises LLC [2010] EWCA Civ 1469 (“Autoweld”) at [59]). This is because “while it is up to a plaintiff to decide on whether to run the risk of suing a party who may not be good for costs, a defendant has no comparable choice” (Singapore Civil Procedure Volume I (GP Selvam gen ed) (Sweet & Maxwell, 2015) (“SCP”) at para 23/0/2). The point of security for costs under s 388 of the Companies Act is to protect the defendant from abusive suits by impecunious corporate bodies and it should not itself be wielded as an instrument of oppression: see SCP at para 23/3/19: [75].

[76]: A non-exhaustive list which the court might take into account in determining whether to order security for costs is as follows (L & M Concrete Specialists Pte Ltd v United Eng Contractors Pte Ltd [2001] 3 SLR(R) 208 (HC) at [10]):

(a) whether the company’s claim is bona fide and not a sham;
(b) whether the company has a reasonably good prospect of success;
(c) whether there is an admission by the defendants on the pleadings or elsewhere that money is due;
(d) whether the application for security was being used oppressively;
(e) whether the company’s want of means has been brought about by the defendants, such as delay in payments;
(f) lateness in taking out the application.

It is often inappropriate to award security for costs where the claim and counterclaim are co-extensive. This is a weighty factor: [77].

On the factor of lateness in taking out the application for security of costs, The weight to be given to this factor may depend on the reasons for the delay, the length of the delay, and, crucially, the prejudice caused by the delay. A good explanation may be necessary in circumstances where the defendant was well aware from an early stage of the proceedings that the plaintiff company is impecunious but only applies for security for costs late in the day, after the financially straitened plaintiff has already expended much of its limited resources preparing for a trial which may now never come: [79].

A close overlap between the claim and the counterclaim militates against the granting of the security for costs: [82].

Where the claim and counterclaim raise the same issues it will not usually be just to make an order for security for costs in favour of the defendant, although the court must always consider the particular circumstances of the case. This is an important, but not determinative, factor – for example, the prejudice of the plaintiff being limited in the continuing litigation may be offset by the possibility that there may be no continuing litigation at all: [83].

Even though security for costs may generally be ordered in respect of a counterclaim, a court will ordinarily not order security for costs in respect of a counterclaim that arises in respect of the same matter or transaction upon which the claim is founded if it is in substance the nature of a defence: [85].

On the facts, the court opined (but did not hold) that the existence of the counterclaim which would require the raising of numerous issues that coincide with the claim is a factor which may well have influenced the various procedural decisions below, if only the argument had been clearly made: [87]. The order for security for costs may thus have been unjustifiable on the facts.

Whether Third Party Costs Should Have Been Ordered

[89]: The general principles on when non-party costs should be ordered are as follows (DB Trustees (Hong Kong) Ltd v Consult Asia Pte Ltd and another appeal [2010] 3 SLR 542 (CA) (“DB Trustees”)):

(a) A court is not precluded from awarding costs in favour of or against a third party (at [23]).

(b) Such costs orders are exceptional in the sense that it is outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense – the ultimate question is whether in all the circumstances it is just to make the order (at [26]–[27], citing the Privy Council decision of Dymocks Franchise Systems (NSW) Pty Ltd v Todd and others (Associated Industrial Finance Pty Ltd, Third Party) [2004] 1 WLR 2807 (“Dymocks”) (at [25]).

(c) There are two factors, among the myriad of possibly relevant considerations, that ought to almost always be present to make it just to award costs against a non-party, even though they do not necessarily have to be present (see generally at [29]−[36]):

(i) There must be a close connection between the non-party and the proceedings – it is sufficient that the non-party either funds or controls legal proceedings with the intention of ultimately deriving a benefit from them – and whether there is a close connection depends on the facts of the case (at [30] and [34]).

(ii) The non-party must have caused the incurring of the costs – it would not be fair to order costs against the non-party if the litigant would have incurred the costs regardless (at [35]).

These two factors are by no means conclusive and the award of costs is ultimately a matter of discretion: Maryani Sadeli v Arjun Permanand Samtani and another and other appeals [2015] 1 SLR 496 (at [66]).

The fact that the non-parties are the only shareholders and directors of a company and would therefore be the real and only beneficiaries of any successful outcome in the litigation should not be the overriding factor in consideration for otherwise “any court which rules against any closely-held company would have to order costs against its shareholders and directors personally” and “drive a coach and horses through the doctrine of the separate liability of the company” (see Raffles Town Club Pte Ltd v Lim Eng Hock Peter and others (Tung YuLien Margaret and others, third parties) [2011] 1 SLR 582 at [26]): [91(a)].

Ordering costs against a non-party and shareholder of an impecunious litigant company is to pierce the corporate veil and it is not a principle of law that where a litigant company is unable to pay costs the successful party can look to the person with a close connection to that company for costs; the corporate veil is usually only lifted where there is fraud or highly unconscionable conduct: see Nanyang Law LLC v Alphomega Research Group Ltd [2012] 4 SLR 1153 (at [5]): [91(b)].

Whilst impropriety or bad faith on the directors’ or shareholders’ part in causing the company to bring proceedings is an important factor in deciding whether they should be made personally liable for costs, there is no strict requirement that such elements should be made out before an order can be made: [93].

In the present case, costs were awarded against non-party shareholders or directors, even though they were funding a bona fide claim, which had been belatedly dismissed for failure to provide security for costs, in circumstances where the impecunious corporate plaintiff is clearly the proper claimant and there has been no finding of any impropriety or bad faith from the aforesaid shareholders. The court saw nothing extraordinary about the facts on the present case that should have merited such an order: [99].

Different considerations may apply where a company is forced to defend a claim as compared to a case where the company itself is the claimant: [103].

When a claim or a counterclaim is brought against a company that is short of funds, the directors and shareholders (or the liquidator, if it is already insolvent) will frequently be the ones who are both in control of the proceedings and funding the company in the litigation, resulting in costs being incurred. To the extent that the value of their shareholding or any other interest that they may have in the company (if any) is enhanced by a positive result, they also stand to benefit by a successful defence. The factors in Dymocks and DB Trustees will therefore frequently be made out: [104].

Thus where the insolvent company’s defence is bona fide, a court should lean against an award of such third party costs for the primary reason that it would not be in the public interest or, indeed, the interests of the other creditors, to deter the directors or shareholders from assisting it to pursue a legitimate defence even if it turns out, in the end, that the defence was not successful. But this is not a strict rule and the factual circumstances may vary widely from case to case: [106].

On the facts, the court did not find that the defence to the counterclaim was not bona fide in that it was unsustainable or was for the sole purpose of causing the defendant to incur irrecoverable costs: [106].