Ho Pak Kim Realty Co Pte Ltd v Revitech Pte Ltd

[3] This suit, which has been ongoing since 2006, concerns a construction dispute. The plaintiff is the main contractor of a project, known as “Proposed erection of 5 storey flats (22 Units) with basement carpark and swimming pool on Lots 114-41 MK22 at 89 Kovan Road” (“the Project”), that was completed on 18 March 2005. The defendant is the owner of the Project. Essentially, the plaintiff’s claim is for underpayment in relation to the sum certified by the project architect, as well as for an alleged undervaluation by the defendant of the works carried out and materials delivered by the plaintiff. The defendant denies underpaying the plaintiff, and takes the position that the plaintiff was, in fact, overpaid. Accordingly, the defendant counterclaims for a sum corresponding to the alleged overpayment.

In any application for security for costs under s 388(1), the court must first determine if there is “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”. In Re Unisoft Group Ltd (No 2) [1993] BCLC 532, the court held that the above quoted phrase simply means that the defendant has to show that the plaintiff company would be unable, and not may be unable, to meet its debts when an order for costs is made against it. If the defendant fails to adduce credible testimony to this effect, the inquiry ends and the application for security for costs should be dismissed.

Nevertheless, in Frantonios Marine Services Pte Ltd and Anor v Kay Swee Tuan [2008] 4 SLR 224 (“Frantonios”), Chan Seng Onn J made clear (at [33]) that s 388(1) does not require that there must be a winding up application against the plaintiff before it could be applicable. Chan J went on to state (at [34]) the various considerations that he thought were relevant to a determination of whether there is credible evidence that a plaintiff company is unable to pay the defendant’s costs:

[8] It is self-evident that a plaintiff company’s cash position, available financing and credit facilities, as well as its assets and liabilities would be crucial in determining whether the company is impecunious. The most obvious way for the court to gain insight on such matters is through an examination of the plaintiff company’s audited accounts. In this respect, Halsbury’s Laws of Australia (Butterworths, 1995) states at para 325-9670 that:

The difficulty in the present case is that the plaintiff has not filed audited accounts for the last four years (ie, since the year 2004). The plaintiff also did not produce bank statements or any other evidence of its current assets and liabilities apart from a bare assertion, albeit stated on oath, by one of its directors, Ho Soo Fong (“Ho”), that the company was solvent and capable of paying the defendant’s costs. When I questioned the plaintiff’s counsel, he informed me that the plaintiff could not produce, at this time, accounts for the four years since 2004. When pressed further, he also confirmed that the plaintiff was required, in law, to file audited accounts periodically but had failed to do so. However, plaintiff’s counsel argued that while the plaintiff is admittedly poorly administered, this did not mean that it is insolvent or impecunious.

I am of the view that credible testimony that a plaintiff will be unable to pay the defendant’s costs can come in the form of both direct and circumstantial evidence. To my mind, where it can be shown that the plaintiff has been derelict in its duty to file audited accounts for an extended period of time and there is no other evidence showing that the plaintiff currently has assets and/or revenue in excess of its liabilities, this is certainly circumstantial evidence that the plaintiff may be impecunious. In order to counter the weight of this circumstantial evidence, the plaintiff will have to produce other material which evidences its allegedly solvent financial position. In this respect, s 108 of the Evidence Act (Cap 97, 1997 Rev Ed) states:

It would thus be appropriate to place the burden of producing evidence of the plaintiff’s financial position on the plaintiff in cases such as the present one since this information would obviously be especially within its knowledge. Conversely, the defendant is severely handicapped in procuring evidence to show that the plaintiff is impecunious when there are no audited accounts in existence and no bank statements are furnished.

[19] It is not seriously disputed that the defendant’s counterclaim is based entirely on its defence. Where there is an overlap between the defence and the counterclaim, the granting of security would amount to indirectly aiding the pursuit of the counterclaim (see Jurong Town Corp v Wishing Star Ltd [2004] 2 SLR 427 (“Wishing Star”)). In Wishing Star, the Court of Appeal held (at [16], [19] and [20]) that:

However, a complete overlap between the defence and the counterclaim, while not decisive, is a critical factor against granting security for costs. In Wishing Star, Chao Hick Tin JA held the fact of the counterclaim being based entirely on the defence to be one of two “critical factors” which “weighed heavily” against granting security for costs in that case. The weight attached to this factor is evident on an examination of [23] of Wishing Star:

On the facts before me, I find Wishing Star to be indistinguishable. As such, the overlap between the defence and the counterclaim weighs heavily against an exercise of the court’s discretion to order security for costs.

In line with the court’s reasoning in Ooi Ching Ling, it would follow that the impact of lateness in applying for security for costs would depend largely on whether the bulk of costs had already been incurred and whether the delay was satisfactorily explained.

[27] I am wary of entering into a detailed examination of the merits of the case at this stage of the proceedings in light of Chan J’s exhortation in Frantonios (at [48] to [51]) that this is usually an unprofitable exercise unless it can be clearly demonstrated one way or another that there is a high degree of probability of success or failure. Nevertheless, on the materials before me, I am satisfied that at least a substantial part of the plaintiff’s claim did bear a reasonable prospect of success.