Envy Asset Management Pte Ltd (in liquidation) and others v Lau Lee Sheng and others

[2] Having taken some time to consider the matter, I dismiss the first and second defendants’ appeal for the reasons below.

[3] I begin with the background facts as formulated for the purpose of the present application. From early 2016 to early 2020, the first claimant, Envy Asset Management Pte Ltd (“EAM”) purported to be in the business of nickel trading. It did so by supposedly purchasing quantities of nickel at a discount, and then reselling the nickel at a profit. Investors invested in EAM’s purported nickel trading by entering into Letters of Agreement (“LOAs”) with EAM. In brief, under the terms of the LOA, investors would invest a principal sum with EAM, and upon the maturity date of the LOA, they would be entitled to a return of their principal investment along with profits paid out from EAM’s profits from its purported nickel trading business.

[4] Subsequently, it emerged that EAM’s purported nickel trading was non-existent. Instead, profits were paid out to earlier investors from the invested funds of subsequent investors. After the scheme unravelled, EAM and its related companies (collectively, the “Envy Companies”), the second and third claimants, Envy Management Holdings Pte Ltd and Envy Global Trading Pte Ltd, respectively, were compulsorily wound up.

[5] OC 193 is an action brought by the liquidators of the Envy Companies to recover certain sums that were paid to the defendants, who are former employees of the Envy Companies, in connection with the non-existent nickel trading.

[6] For the purposes of SUM 2893 and the present appeal therefrom, only the claim in respect of the Overwithdrawn Sums is relevant. The Overwithdrawn Sums represent the fictitious profits from the non-existent nickel trading that were paid out to the first, second, and fifth to eighth defendants (the “relevant defendants”), who received the said sums not strictly as employees of the Envy Companies but as investors. As mentioned above, the Overwithdrawn Sums were paid out from the invested funds of other investors.

[7] The claimants have sought to claw back the Overwithdrawn Sums through various causes of action: (a) transactions defrauding creditors under s 73B of the Conveyancing and Law of Property Act (Cap 61, 1994 Rev Ed) (“CLPA”) and/or s 438 and s 439(1) of the Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed) (“IRDA”); (b) transactions at an undervalue under s 224 of the IRDA; (c) unfair preferences under s 225 of the IRDA; and (d) unjust enrichment.

[8] To compute the quantum of the Overwithdrawn Sums that are claimed against the relevant defendants, the claimants have applied a “running account” approach. This entails setting out all inflows and outflows in respect of each of the relevant defendants’ purported nickel trading accounts with the Envy Companies (based on the records available to the claimants). From this, the claimants have derived the quantum of the Overwithdrawn Sums which is the net of aggregating the inflows and outflows.

[9] The first and second defendants sought in SUM 2893 to strike out the whole or part of the claimants’ claim for the Overwithdrawn Sums in OC 193. The principal objection that the first and second defendants raised is the claimants’ inclusion of a specific category of transfers as relevant outflows in their computations pursuant to the running account approach. This impugned category of transfers is the aforementioned Internal Transfers (at [1] above), which refer to transfers from the relevant defendants’ purported nickel trading accounts to the accounts of other investors.

[10] In essence, the first and second defendants argued that since the claimants’ pleaded case is that the Internal Transfers do not entail any actual withdrawal of moneys out of the Envy Companies, the claimants’ claim for the Overwithdrawn Sums must fail in as much as they include the Internal Transfers. This is because, as the first and second defendants argued, for any transaction to be the subject of a clawback action or unjust enrichment claim, it must be shown that the transaction led to a dissipation of assets from the estate of the relevant company. Since the Internal Transfers did not lead to such dissipation of assets, the claimants’ reliance on the Internal Transfers is not sustainable as a matter of fact and law.

[11] Furthermore, the first and second defendants also argued that it is impermissible for the claimants to rely on the Internal Transfers to derive the total Overwithdrawn Sums claimed against the relevant defendants. Rather, the court must consider the derived quantum of Overwithdrawn Sums if the Internal Transfers were to be excluded from the computation. In this respect, as regards the first defendant, because the Internal Transfers exceed the amount being claimed against him, the computation of the Overwithdrawn Sums would produce a net negative figure. This would result in the claimants’ claim against him being dismissed entirely. As for the second defendant, while the Internal Transfers do not exceed the amount being claimed against him, striking out the Internal Transfers would result in a lower computed quantum of the Overwithdrawn Sums, and therefore a lower claim against him.

[12] The first and second defendants maintain these positions before me. In addition, as I mentioned at the outset of this judgment, they now also seek, for the first time, on appeal, that the claimants be directed to make appropriate amendments to their pleadings to clarify that they are not seeking to claw back the sums constituting the Internal Transfers. The first and second defendants argue that the claimants should not be permitted to defeat the striking out application by their concession that they do not intend to claw back the Internal Transfers. According to them, the claimants have a duty to plead their case in as clear and precise a fashion as possible. As such, if the claimants truly do not intend to claim for the Internal Transfers, they should state so clearly in their pleadings.

[13] In response, the claimants argue that the first and second defendants’ complaint essentially pertains to the methodology used by the claimants in calculating the Overwithdrawn Sums. Any dispute over methodology should be determined at trial.

[14] In response to the first and second defendants’ allegations that the Internal Transfers do not entail any actual withdrawal of moneys out of the Envy Companies, the claimants make the following submissions. First, the Internal Transfers may have been subsequently transferred out of the Envy Companies, and may therefore not necessarily remain within the Envy Companies’ bank accounts. This possibility is not precluded by the mere fact that the Internal Transfers were transfers to the bank accounts of other investors. Second, even if the moneys remain within the Envy Companies’ bank account, the relevant defendants could still have received consideration and/or been enriched by the Internal Transfers. At the hearing, Ms Lee Ping, who appeared on behalf of the claimants, further submitted that it is self-evident that the claimants are not claiming for the Internal Transfers. In this regard, she pointed to the fact that while the Internal Transfers amount to over $7m, the claimants’ pleaded claim for the Overwithdrawn Sums is roughly only $584,700. There was therefore no defect or ambiguity in the pleadings to justify a striking out or requiring any amendment to be made.

[15] Having considered the parties’ arguments, I dismiss the first and second defendants’ appeal for the reasons below.

[16] To begin with, the first and second defendants’ application in SUM 2893 to strike out the claimants’ claim in OC 193 was based on O 9 r 16(1) of the Rules of Court 2021 (the “ROC 2021”), which provides that:

However, and this is a point that I will return to below, the first and second defendants do not make clear in their written submissions for this appeal which limb in O 9 r 16(1) that they are relying on.

[17] In the High Court decision of Leong Quee Ching Karen v Lim Soon Huat and others [2023] 4 SLR 1133 (“Karen Leong”), the court made the following general observations on the law on striking out (at [25]–[26]):

[18] As for the first ground in O 9 r 16(1)(a), the Court of Appeal explained (albeit in relation to its predecessor provision) in Gabriel Peter & Partners (suing as a firm) v Wee Chong Jin and others [1997] 3 SLR(R) 649 (“Gabriel Peter”) (at [21]) that the guiding principle in determining what constitutes a “reasonable cause of action” is whether the pleadings demonstrate some chance of success or raise a question fit to be decided at trial. Similarly, the Court of Appeal explained in Iskandar bin Rahmat and others v Attorney-General and another [2022] 2 SLR 1018 (“Iskandar”) (at [17]) that the test under O 9 r 16(1)(a) is whether “the action has some chance of success when only the allegations in the pleadings are concerned”. Thus, a cause of action will not be struck out just because the case is weak and is not likely to succeed. In assessing the viability of an action, a court will presume the pleaded facts to be true in favour of the claimant since this is properly a question of law (see the High Court decision of Tan Eng Khiam v Ultra Realty Pte Ltd [1991] 1 SLR(R) 844 at [29]).

[19] Turning now to the two grounds in O 9 rr 16(1)(b) and 16(1)(c), the High Court has held (albeit in relation to the predecessor provisions) that there would be an abuse of process (which is the ground under r 16(1)(b)) if a claimant knowingly pursues a case that is “doomed to fail” (see Kim Hok Yung and others v Cooperatieve Centrale Raiffeisen-Boerenleenbank BA (trading as Rabobank) (Lee Mon Sun, third party) [2000] 2 SLR(R) 455 (“Kim Hok Yung”) at [17]). In such a case, the claimant would, in effect, be wasting the court’s time and this would amount to an abuse of process as the proceedings serve no useful purpose (see Karen Leong at [28]). Further, the Court of Appeal explained in Iskandar (at [18]) that this ground “includes considerations of public policy and the interests of justice”, in that “the process of the court must be used bona fide and properly and must not be abused”. Therefore, the emphasis is on preventing the “improper use of [the courts’] machinery and the judicial process from being used as a means of vexation and oppression in the process of litigation” (see Iskandar at [18], referring to Gabriel Peter at [22]).

[21] While the first and second defendants do not make clear in their submissions for this appeal which of the grounds in O 9 r 16(1) they are relying on, it appears that they are relying on ground (a) given their characterisation of the claimants’ “cause of action” as being “unsustainable” or “untenable”. In my view, counsel should clearly specify which limb of O 9 r 16 they are invoking, and to particularise their arguments according to the legal standard for that limb. This ensures conceptual clarity in their arguments.

[22] To be fair to the first and second defendants, they did state in their written submissions before AR Lee that they were relying on all three grounds in O 9 r 16(1). However, even then, their submissions below largely centred on how the claimants’ case is “unsustainable in law”. In this appeal, without specifying which limb of O 9 r 16 they are invoking, the first and second defendants state, in a heading to a particular section in their written submissions, that “[i]t is legally and factually unsustainable, and an abuse of process, for the Claimants to seek to claw back the Overwithdrawn Sums …” [emphasis added]. The first and second defendants therefore appear to have collapsed grounds (b) and (c) in O 9 r 16(1) into ground (a). In effect, they seem to be saying that because the claimants are pursuing a case that discloses no reasonable cause of action, the claimants must, by extension, be abusing the process of the court, and that it must also be in the interests of justice to strike out the claimants’ claim.

[23] As a matter of principle, I am hesitant to collapse the three grounds in O 9 r 16(1) in the manner that the first and second defendants seem to be doing. In the first place, the three grounds in O 9 r 16(1) are framed in the alternative to each other. This connotes that they are separate and distinct. If the first and second defendants’ logic were correct, every striking out application that succeeds on ground (a) would also succeed on grounds (b) and (c). This would defeat the purpose of setting out three separate grounds for striking out. More broadly, and on a slightly different point, I respectfully agree with Hri Kumar Nair J’s observations in the High Court decision of Asian Eco Technology Pte Ltd v Deng Yiming [2023] SGHC 260 (at [18]) that “the grounds of ‘abuse of process’ and ‘interests of justice’ under O 9 r 16 of the ROC 2021 should not be construed too widely” because “[a]n overly liberal interpretation of the grounds under O 9 r 16 may invite a deluge of striking out applications and appeals arising out of these applications”.

[24] As such, I do not think that a claimant who pursues a case (or part of a case) that discloses no reasonable cause of action is necessarily one who has abused the court’s process. Instead, the emphasis of the ground in O 9 r 16(1)(b), as the Court of Appeal held in Iskandar (at [18]), is on matters of public policy. One policy concern encompassed by O 9 r 16(1)(b) is that a claimant, who knowingly pursues a case that is “doomed to fail”, should have its claim struck out. In this sub-category of cases, however, the focus is on the mental state of the claimant, and not the mere fact that the claimant happens to have brought a case that turns out to be unsustainable.

[25] Indeed, this understanding of O 9 r 16(1)(b) is borne out by Kim Hok Yung, which was concerned with its predecessor provision in the prevailing Rules of Court at the time. In Kim Hok Yung, the plaintiffs were recruited by the defendants to help the latter set up, operate, and carry on the business of investment banking. When the defendants ceased their investment business and terminated the plaintiffs’ employment (as they were contractually entitled to), the plaintiffs brought claims for misrepresentation in tort and under statute pursuant to s 2 of the Misrepresentation Act (Cap 390, 1994 Rev Ed). The alleged misrepresentations included, among others, that the defendants had taken steps to establish an investment banking business and the plaintiffs’ expertise was required to participate in this business (at [3]). The High Court seems to have found that the plaintiffs could not have, and must have known that they had not, relied on the purported misrepresentations (at [15] and [18]). Therefore, in suing for misrepresentation, the plaintiffs were bringing an action that they knew, or must have known, could not succeed. In doing so, they were making a frivolous and vexatious claim, thereby, abusing the process of court (at [17]). This is thus consistent with my view that O 9 r 16(1)(b) is concerned with, among others, claimants who knowingly pursue a case that is “doomed to fail”.

[26] Taking the first and second defendants’ reliance to be primarily on the ground in O 9 r 16(1)(a), I find that the claimants have shown a reasonable cause of action in their case on the Internal Transfers.

[27] First, I agree with the claimants that it is not necessarily the case that the Internal Transfers remained within the Envy Companies’ bank accounts, and that the mere fact that the Internal Transfers were transfers to the bank accounts of other investors does not preclude the possibility that they were later transferred out of the Envy Companies. What has eventually become of the moneys that were the subject of the Internal Transfers is something for the claimants to prove at trial.

[28] Second, I also agree with the claimants that, even if the Internal Transfers remain within the Envy Companies’ bank accounts, this does not necessarily preclude the claimants from claiming for the underlying sums. The claimants may be able to establish, on the facts and in law, that the relevant defendants had received consideration and/or were enriched. For instance, the claimants have pointed out the possibility that the relevant defendants may have nominated third parties to receive the Internal Transfers. Again, this is something for the claimants to prove at trial. This argument also potentially responds to the first and second defendants’ argument (at [10] above) that for the claimants’ claim to the Overwithdrawn Sums to succeed, they must prove either a dissipation of the Envy Companies’ assets, or a benefit enjoyed by the Envy Companies. Given what I have said above, the claimants’ case is not unarguable. It certainly cannot be said that the claimants are so plainly wrong that their case in relation to the Overwithdrawn Sums should be struck out.

[29] Third, and more broadly, the claimants have pleaded the material facts at length. They have also provided an account of their calculation of the Overwithdrawn Sums paid to the relevant defendants. In this regard, the claimants have provided a line-by-line account of the inflows and outflows of the defendants’ respective purported nickel trading accounts with the Envy Companies. Thus, while the first and second defendants say that they cannot be left to guess which transactions from the line entries led to the Overwithdrawn Sums the claimants are claiming, it is clear from the pleadings that the claimants are not claiming for the Internal Transfers. In any event, I find that there is also a factually and legally sustainable claim under O 9 r 16(1)(c) when one looks beyond the pleadings to the affidavit evidence (which would not have been permitted under the ground in O 9 r 16(1)(a); see the High Court decision of Peloso, Matthew v Vikash Kumar and another [2023] SGHC 308 at [26]). Indeed, in the relevant affidavit evidence, the claimants clearly define the Overwithdrawn Sums as “monies in excess of the principal amounts which are in the nature of purported profits from the Purported Nickel Trading paid to [the relevant defendants].” It should therefore be clear to the first and second defendants the case that they have to meet. In any event, I agree with the claimants that the essence of the first and second defendants’ complaint is really about the methodology that the claimants have used in arriving at the Overwithdrawn Sums. But this does not mean that the claimants’ case on the Overwithdrawn Sums is so wrong as to be struck out for not disclosing a reasonable cause of action.

[30] Fourth, as I indicated to counsel for the first and second defendants, Mr Daniel Liu (“Mr Liu”), at the hearing, I have difficulty in striking out a claim in its entirety that, on the first and second defendants’ best argument, is overinclusive. The first and second defendants’ case is only that the Internal Transfers, being part of the claimants’ calculation of the quantum of the Overwithdrawn Sums (or so they argue), should be struck out for not disclosing a reasonable cause of action. Yet, their prayers are for all references to the Overwithdrawn Sums to be struck out. Thus, to strike out such references would be overinclusive as it would also strike out line entries that are not Internal Transfers, which are not – on the first and second defendants’ own case – without a reasonable cause of action. In so far as the first and second defendants suggest that the Overwithdrawn Sums are derived from, among others, taking into account the Internal Transfers, that is an argument that goes towards the claimants’ methodology, as opposed to any fundamental flaw in the claimants’ case that warrants a striking out at this stage.

[31] Accordingly, it cannot be said that the claimants’ case in relation to the Internal Transfers fails to demonstrate some chance of success or raise questions fit to be decided at trial. For these reasons, I dismiss the first and second defendants’ appeal against AR Lee’s decision below.

[33] To begin with, this is a fresh point on appeal. To be fair to the first and second defendants, Mr Liu clarified at the hearing that this new point has only been taken up on appeal in light of the claimants’ allegedly new position before AR Lee that they would not be claiming for the Internal Transfers. Nevertheless, the point remains that the claimants could not meaningfully respond to this fresh prayer because they only had sight of it after the exchange of the written submissions for this appeal.

[35] In the present case, it is important that the first and second defendants have essentially relied on the same reason to support both their prayer for striking out and their prayer for amendment, which is that the claimants have no basis to include the Internal Transfers in their claims. In this regard, implicit in my dismissal of the first and second defendants’ application to strike out the affected pleadings based on this reason, is a finding that they have also failed to establish any of the grounds for amendment under O 9 r 16(1) in respect of those pleadings for the same reason. Therefore, it must follow that the first and second defendants’ new prayer for the same pleadings to be amended for the same reason must be dismissed.

[36] For all the reasons discussed above, I dismiss the first and second defendants’ appeal.