DB Trustees (Hong Kong) Ltd v Consult Asia Pte Ltd and another appeal

V K Rajah JA (delivering the judgment of the court):

[4] In OS 1044/2008, DB Trustees applied for, inter alia, an order that its appointment of receivers and managers over Consult Asia on 4 July 2008 was valid. The appointment was made pursuant to the existing security arrangement between the parties. Ms Koh, who previously was a practising solicitor, owned all but one of Consult Asia’s issued and paid up shares – this being 999,999 of Consult Asia’s one million shares. The last remaining share was held by Ms Koh’s mother. Ms Koh was also, at the time of the hearing of CA 19/2009 and CA 90/2009, the only director of Consult Asia.

[5] On 28 December 2006, Consult Asia entered into an arrangement with UBS AG (“UBS”) for Consult Asia to issue US$32 million worth of senior secured notes (“the Notes”). The only notable assets owned by Consult Asia were mortgaged as security for the redemption of the Notes – two pieces of real property located at Balestier Road and Changi Road (collectively referred to as “the Security” hereafter). DB Trustees acted as the trustee of the Security for the holders of the Notes (“the Note-holders”).The overall effect of all the documents signed in relation to this arrangement was that a US$32 million credit facility was obtained by Consult Asia that was secured by a floating charge over all of Consult Asia’s assets as well as a legal mortgage over the Security. Chesterton International Property Consultants Pte Ltd, which was the appointed valuer under the arrangement, provided a valuation report which (rather optimistically) estimated that the Security was worth S$107 million on an “as is” basis.

[6] Consult Asia failed to redeem the Notes by 28 June 2008, which was the contractually stipulated redemption date. Consequently, DB Trustees, after giving notice to Consult Asia, appointed Mr Kon Yin Tong, Mr Wong Kian Kok and Mr Aw Eng Hai (collectively referred to as “the Receivers” hereafter) as receivers and managers on 4 July 2008 over the business and assets of Consult Asia. However, when the Receivers attended at Consult Asia’s known address, Ms Koh was not cooperative and denied the Receivers access to documents pertaining to the affairs and property of Consult Asia. This precipitated the filing of OS 1044/2008 by DB Trustees.

[7] OS 1044/2008 first came before the OS 1044/2008 Judge on 26 September 2008. During that hearing, Consult Asia submitted that it was unable to obtain the requisite financing to redeem the Notes because DB Trustees did not agree to release the Security simultaneously with the payment of the redemption monies and had appointed the Receivers. The OS 1044/2008 Judge then, without adjudicating on the merits of the claim, gave directions for the receivership to be suspended for six weeks and for Consult Asia to provide concrete evidence to DB Trustees of alternative financing for US$42,080,000 (this being the redemption amount owed by Consult Asia on or about 28 June 2008) by 7 November 2008.

[8] Despite this generous extension of time, Consult Asia did not take effective steps to redeem the Notes. OS 1044/2008 was eventually heard on its merits on 29 January 2009. At this point, the bare evidence Consult Asia adduced in relation to the refinancing of the Notes consisted of a letter dated 1 February 2008 from Merrill Lynch (Singapore) Pte Ltd (“Merrill Lynch”) to Consult Asia. In that letter, Merrill Lynch sought to confirm the arrangements under which Merrill Lynch would act as an exclusive placement agent for Consult Asia in its issuance of “SGD [90] million principal amount of senior secured notes”. The proposed arrangements were vaguely detailed in an attached annex entitled “Indicative Term Sheet – For Discussion Purposes Only”. No evidence was adduced by Consult Asia to indicate what had happened to the proposed refinancing arrangements thereafter.

[10] DB Trustees appealed against the decision of the OS 1044/2008 Judge by way of CA 19/2009. It is noteworthy that Consult Asia failed to comply with the 29 April 2009 deadline, leading to DB Trustees re-appointing the Receivers on 30 April 2009. In response, Consult Asia filed OS 800/2009 against DB Trustees and the Receivers, seeking, inter alia, a rescission of the 30 April 2009 appointment of the Receivers.

[11] OS 800/2009 was heard by the OS 800/2009 Judge on 21 July 2009. Before the OS 800/2009 Judge, counsel for Consult Asia in OS 800/2009 (and subsequently CA 90/2009), Mr Christopher Anand Daniel (“Mr Daniel”), provided two main reasons as to why the Receivers ought to be discharged: first, the appointment was wrong on a proper construction of the agreement between the parties, and second, the Receivers had acted improperly in the discharge of their duties as they had failed to provide relevant information to Consult Asia on the sale process and had attempted to sell the Security at a severe undervalue. By this time, the Receivers had commissioned a tender exercise which was to close on 22 July 2009 in respect of the Changi Road property and 23 July 2009 in respect of the Balestier Road property.

[13] In light of the closing dates for the tender exercise commenced by the Receivers, Consult Asia applied, by way of an urgent summons, viz, Summons No 3867 of 2009, for, inter alia, DB Trustees to be restrained from dealing with any of Consult Asia’s assets pending the final disposal of CA 90/2009 and for that appeal to be expedited and heard together with CA 19/2009. This urgent application was granted on 23 July 2009 by Andrew Phang Boon Leong JA, resulting in the joint hearing of both CA 19/2009 and CA 90/2009 before us.

[15] Before us, most of the arguments that were canvassed below were once again rehearsed. After hearing oral submission, we made known our concerns about worrying gaps in the affidavit evidence. In particular, we queried DB Trustees as to why it had not provided any updated valuation report for the Security, given that the only valuation report produced was dated July 2008. In relation to Consult Asia, we queried why it could not have redeemed the Notes even without the release of the Security, and why, even until the dates of the hearings of CA 19/2009 and CA 90/2009 (30 July 2009 and 31 July 2009), it was still unable to redeem the Notes, despite having obtained two extensions of time to do so. The parties then requested for leave to adduce new evidence in relation to the above questions and we acceded to their requests.

(a) DB Trustees would be unfairly prejudiced as Consult Asia would be unable to pay costs due to its state of insolvency;

(b) while costs orders against a non-party should be exceptional, such an order is appropriate when the non-party promotes legal proceedings by an insolvent company solely or substantially for his or her own benefit as Ms Koh, the major shareholder of Consult Asia, did;

(c) it was Ms Koh’s unreasonable behaviour in refusing to cooperate with the Receivers, who were lawfully appointed, which caused the incurring of unnecessary legal costs; and

(d) it is not an essential prerequisite for a non-party to be given notice of an intention to seek costs against him or her before such an order may be made.

[20] Before we set out our reasons for our decision, we ought to clarify a factual crease in the Brief Grounds. Following the release of the 6 August Decision and the Brief Grounds, Mr Daniel, in his letter dated 11 August 2009, pointed out that a particular finding set out in the Brief Grounds was not entirely accurate. In the Brief Grounds, we had stated (at [10]):

Rightly, it was brought to our attention that the tender exercise was first advertised on 17 June 2009 while the valuation reports tendered by DB Trustees to us were dated 6 July 2009 and 14 July 2009 (see [16] above). Hence, the underlined portion of the passage above should have, instead, read as follows: “They did not sell the Security before obtaining independent valuation reports and had taken adequate steps to advertise the sale.” Needless to say, this factual correction does not, in any way, affect the outcome of the matter. The Receivers had not breached any of their duties.

[21] That said, we turn to the reasons for our decision.

In Karting Club of Singapore v Mak David and others (Wee Soon Kim Anthony, intervener) [1992] 1 SLR(R) 786 (“Karting Club”), Chan Sek Keong J declared (at [6]) that “[t]he power so conferred [is] completely unfettered … [although] … it must be exercised judicially.” Second, the general rule is that costs are to follow the event (see O 59 r 3(2) of the Rules).

[25] In the English Court of Appeal case of Symphony Group PLC v Hodgson [1994] 1 QB 179 (“Symphony”), Balcombe LJ stated (at 192–193):

[26] Ten years later, the Privy Council, in Dymocks Franchise Systems (NSW) Pty Ltd v Todd and others (Associated Industrial Finance Pty Ltd, Third Party) [2004] 1 WLR 2807 (“Dymocks”), framed the relevant considerations as follows (at 2815):

[27] On our part, we are of view that the above passage from Dymock is particularly helpful. The ultimate question in any such “exceptional” case, as the Privy Council observed, must be whether, in all the circumstances, it is just to make the order. The following observation in Globe Equities Limited v Globe Legal Services Limited and ors [1999] BLR 232 (“Globe Equities”) is also apposite (at 240):

[30] The first of the two factors is that there must be a close connection between the non-party and the proceedings. The following sentence from the passage in Dymocks that was quoted at [26] above would indicate one way in which a close connection may be demonstrated:

One clarification that we should make is that funding and control need not be conjunctive, as seems to be suggested in the above sentence. It is sufficient that the non-party either funds or controls legal proceedings with the intention of ultimately deriving a benefit from them.

Plainly, Wee could be said to have had a close connection with the unwarranted action due to his role in initiating it.

[34] These cases serve to illustrate the point that there will be many ways to demonstrate a close connection between the non-party and the legal proceedings in question. At the end of the day, whether this factor is adequately shown depends on the facts of the case.

Of course, this factor may be established by the very same facts which go toward the establishment of the first factor, ie, a close connection between the non-party and the proceedings. In Dymocks, the Privy Council decided that but for Associated’s involvement, the appellate proceedings, which led to the incurring of further costs, would not have taken place.

[38] First, Ms Koh, being at all material times the only director, was solely responsible for Consult Asia’s participation in CA 19/2009 and CA 90/2009, as well as the underlying actions. These proceedings, at their roots, stemmed from Consult Asia’s (and Ms Koh’s) unreasonable stance in not cooperating with the Receivers, who had been lawfully appointed by DB Trustees. As we have explained in the Brief Grounds, it was axiomatic that Consult Asia was not in a realistic position to obtain fresh financing during the material period to redeem the Notes. The documentary evidence adduced, pursuant to our directions, showed that Consult Asia had been unable, even as late as mid-June 2008, to resolve the terms of the refinancing arrangements with Merrill Lynch. In this regard, we reject Ms Koh’s explanation in the August Affidavit that the reason why the Merrill Lynch refinancing plan fell through was because DB Trustees refused to release the Security concurrently with the payment of the redemption monies. This was an absurd excuse. In several emails to Ms Koh from end-May 2008 to early-June 2008, the solicitors acting for Consult Asia in the Merrill Lynch refinancing, Lee & Lee, referred to “outstanding commercial issues”, “outstanding points” and “pending discussions” to be resolved between Merrill Lynch and Consult Asia. Yet, there is nothing to suggest that DB Trustees’ insistence on releasing the Security after the redemption monies had been paid had any impact on the refinancing proposal. Ms Koh failed to give any credible explanation as to why the refinancing proposal was called off by Merrill Lynch. In fact, it seems to us that any email that would have explained what the outstanding issues were between Consult Asia and Merrill Lynch was deliberately not exhibited in the August Affidavit, and it would appear that the real reason for the proposal being called off was Merrill Lynch’s concern about the value of the Security. There is good reason to believe that Ms Koh had been less than candid in the proceedings before us and below.

[39] It was suggested by Mr Daniel that Ms Koh was acting bona fide in her discharge of her duties as a director of Consult Asia in causing Consult Asia to defend in OS 1044/2008. We do not agree. Ms Koh, as a former lawyer and, now, a savvy businesswoman should have been well aware that if Consult Asia failed to redeem the Notes by the contractually stipulated redemption date, DB Trustees would be entitled to appoint receivers and managers over the business and assets of Consult Asia. That being the case, it can hardly be said that she was, when Consult Asia failed to redeem the Notes by 28 June 2008, acting reasonably or bona fide in the best interest of Consult Asia in refusing to cooperate with the Receivers and in subsequently causing Consult Asia to defend in OS 1044/2008 and respond in CA 19/2009.

[40] The commencement of OS 800/2009 and the filing of CA 90/2009 would be even more troubling. (It must be remembered that OS 800/2009 was filed after the OS 1044/2008 Judge had given Consult Asia two extensions of time to obtain refinancing.) The bases on which Consult Asia’s case was put in OS 800/2009 and CA 90/2009, as we explained in the Brief Grounds, were entirely devoid of merit. In fact, they were so dubious that we have to conclude that OS 800/2009 and CA 90/2009 were not brought bona fide. It would appear that these proceedings were employed by Consult Asia as a delaying contrivance to impede the sale of the Security – a right that DB Trustees possessed as far back as 29 June 2008. That such a tactic was persisted with even after the OS 1044/2008 Judge had, on no less than two separate occasions, given Consult Asia grace periods to redeem the Notes was a patent abuse of process.

Here, Ms Koh directed Consult Asia’s unreasonable conduct in the proceedings and stood to gain from any success that Consult Asia may have enjoyed – this apparently without incurring a corresponding risk from any failure.