Maryani Sadeli v Arjun Permanand Samtani and another and other appeals

Andrew Phang Boon Leong JA (delivering the grounds of decision of the court):

[1] The present proceedings comprise appeals against the decision of the judge (“the Judge”) in Then Khek Koon and another v Arjun Permanand Samtani and another and other suits [2014] 1 SLR 245 (“the Judgment”). These appeals stem from a long and chequered history of litigation surrounding the unsuccessful collective sale of the development known as Horizon Towers and find their origin in three consolidated suits brought by the five plaintiffs (“the Appellants”) against the two defendants (“the Respondents”).

[7] Secondly, the Respondents were parties to the previous proceedings as members of the collective sales committee as a whole, whereas the claim in the present proceedings was brought by the Appellants against the Respondents in their individual capacities. This was significant inasmuch as the Appellants sought to rely on this distinction to persuade the court that their present claim was valid.

[9] We observe that the Judgment was a lengthy one, but in fairness to the Judge, this was because he felt that he had to deal with all the issues which were presented to him (including the one upon which the present appeal turns, but which was dealt with by the Judge only in the last part of the Judgment (and whose decision in this particular regard we have, for the reasons set out below, generally affirmed)). In particular, the Judge considered the controversy surrounding, inter alia, the issue of causation in the context of the award of equitable compensation for breach of fiduciary duties (here, by the Respondents, as found in Ng Eng Ghee (CA) but which the Respondents nevertheless sought to controvert in the present proceedings). The Judge characterised this issue of causation as a question of whether the Appellants’ claim against the Respondents fell within the class of cases stemming from the Canadian Privy Council decision of Brickenden v London Loan & Savings Company of Canada [1934] 3 DLR 465 (in which but-for causation is not essential for liability) or the class of cases stemming from the House of Lords decision of Target Holdings Ltd v Redferns (a firm) [1996] 1 AC 421 (in which but-for causation is essential for liability) (see Judgment at [109]). Counsel for the Appellants, Mr Kannan Ramesh SC, submitted during the appeal that this was an unsettled area of law within the Commonwealth and was the subject of much academic debate (although this submission must now be considered in light of the very recent UK Supreme Court decision of AIB Group (UK) Plc v Mark Redler & Co Solicitors [2014] UKSC 58 (“AIB”), which in fairness to the parties was not yet decided when the present appeals were heard).

[10] As astutely pointed out by Lord Toulson in AIB (at [47]), “the debate which has followed Target Holdings is part of a wider debate, or series of debates, about equitable doctrines and remedies and their inter-relationship with common law principles and remedies, particularly in a commercial context”. Coincidentally, that was our view on the issue when the appeals were heard, which was also borne out by the various opinions and views on the subject put forward by many learned writers (see, for example, Charles Mitchell, “Equitable Compensation for Breach of Fiduciary Duty” (2013) 66 Current Legal Problems 307; Michael O’Meara, “Causation, Remoteness and Equitable Compensation” (2005) 26 Aust Bar Rev 51; Matthew Conaglen, “Remedial Ramifications of Conflicts between A Fiduciary’s Duties” (2010) 126 LQR 72; Matthew Conaglen, “Equitable Compensation for Breach of Fiduciary Dealing Rules” (2003) 119 LQR 246; Jamie Glister, “Breach of Fiduciary Duty: Brickenden Lives On (Premium Real Estate v Stevens)” (2011) 5 J Eq 59; Charles Rickett, “Equitable Compensation: Towards a Blueprint?” (2003) 25 Sydney L Rev 31; as well as James Edelman and Steven Elliot, “Money Remedies against Trustees” (2004) 3 TL 116).

It was on the basis of those principles that the Court of Appeal made the cost orders it did (see Ng Eng Ghee (Costs) at [43] and the Judgment at [267]), which, as we have said, resulted in the Appellants having a shortfall in their legal costs recovered.

[18] The nature of the Appellants’ claim and the precise facts and context of the appeals gave rise to two inextricably related issues:

(a) First, did the general rule that unrecovered costs in relation to previous legal proceedings cannot be recovered in a subsequent claim for damages apply only to the same-party case or did it also apply to a third-party case as well (“Issue 1”)?

(b) Secondly, if the general rule referred to at (a) above did not apply to a third-party case, could the Appellants nevertheless be precluded from claiming unrecovered costs as such a claim was, on the facts of this case, an abuse of process (“Issue 2”)?

[19] Let us turn to consider each of the above issues seriatim.

The general rule: unrecovered costs in relation to previous legal proceedings cannot be recovered in a subsequent claim for damages in the same-party case

[22] The legal basis for this rule was later considered in detail in the English Court of Appeal decision of Berry v British Transport Commission [1962] 1 QB 306 (“Berry”), where Devlin LJ traced the origins of this rule to the case of Hathaway v Barrow (1807) 1 Camp 151 (at 320–321):

[36] The reasons for the position adopted by the Appellants were succinctly set out by the Judge (at [212] of the Judgment), and we summarise them as follows:

(a) In most third-party cases, the plaintiff’s action against the defendant will be based on a cause of action independent of the earlier litigation. The plaintiff therefore has a right to compensation for his losses.

(b) This right to compensation is not affected by other policy reasons which apply to same-party cases.

(c) First, an award of compensation will not undermine finality because the defendant was not before the earlier court. The plaintiff had no opportunity to invite the earlier court to consider the defendant’s liability to pay for the costs of the earlier litigation.

(d) Secondly, the legal costs claimed as against the defendant by the plaintiff will not be extravagant since principles of causation, foreseeability, remoteness and mitigation apply when assessing compensation, and the plaintiff would limit his expenditure in the earlier proceedings because he would have no assurance of securing subsequent reimbursement from the defendant.

[37] However, the Judge then proceeded to hold that a distinction between same-party cases and third-party cases was conceptually flawed, relying on the English High Court decision of British Racing Drivers’ Club Ltd and another v Hextall Erskine & Co (a firm) [1996] 3 All ER 667 (“British Racing”). In that case, the plaintiffs brought proceedings against their solicitors for providing negligent advice in relation to a joint venture agreement. This was after the plaintiffs had already brought prior proceedings against other parties involved in the joint venture agreement and arrived at a settlement. Part of the plaintiffs’ claim against the defendants was for the professional fees incurred in the prior proceedings. The defendants admitted that they were negligent but disputed, inter alia, the extent of their liability with regard to the professional fees. They argued that any claim for professional fees expended by the plaintiffs should be subject to some form of inquiry or taxation to ensure that they were reasonable, ie, that the professional fees should be taxed on a standard basis. The plaintiffs, on the other hand, maintained that the professional fees had been incurred and they were therefore recoverable in full unless the defendants could demonstrate that they were unreasonable. Alternatively, they argued that any taxation should be done on an indemnity basis.

[38] Carnwath J took the view that the professional fees incurred in bringing the prior proceedings was a reasonable mitigation of the plaintiffs’ loss, but held that the quantification of liability should be subject to taxation on the standard basis, and that the mere fact that it was a third-party case should not otherwise affect the basis of quantification. He observed thus (at 691):

[39] Carnwath J took the view that the policy considerations which applied to same-party cases applied equally to third-party cases. The Judge agreed with this view to the effect that there was no distinction of principle between same-party cases and third-party cases. This was supported, in the Judge’s view, by the fact that (see [222] of the Judgment):

[43] Returning to McGregor, the learned author, after having analysed the two cases just mentioned, criticised British Racing in the following terms (see McGregor at para 17-019):

We also note the recent English High Court decision of Herrmann v Withers LLP [2012] PNLR 28, where Newey J was of the view (at [115]) that the approach that Carnwath J adopted in British Racing was “no longer appropriate” (a decision which, not surprisingly, was warmly welcomed in the latest edition of McGregor (see Harvey McGregor, McGregor on Damages (Sweet & Maxwell, 19th ed, 2014) at p vii and para 20-011), although the learned author did also observe thus (ibid at para 20-011):

[49] Although this was not raised by the Appellants, there is, in fact, a line of first instance English decisions which held that the third-party rule applied to cases involving a single action comprising claims between different parties (see, in particular, Kasler and Cohen v Slavouski [1928] 1 KB 78; Butterworth v Kingsway Motors Ltd [1954] 1 WLR 1286; and Bowmaker (Commercial) Ltd v Day [1965] 1 WLR 1396). This appeared to undermine the very premise of the Judge’s (and indeed our) argument relating to joinder, since that simply meant that joinder cases were not treated as same-party cases but as third-party cases instead.

[51] Therefore, it was apparent that any arguments based on joinder had to be premised on a more fundamental position, which was foreshadowed by Waller LJ in Penn as follows (at 1365):

(a) There must be a close connection between the non-party and the proceedings, such as where the non-party either funds or controls legal proceedings with the intention of ultimately deriving a benefit from the same.

(b) The non-party must have caused the incurring of costs in the legal proceedings, which may be established by the very same facts which go toward the establishment of the first factor.

[65] We were not persuaded by the Appellants’ arguments in this regard for a number of reasons.

It was clear to us that it was possible for costs to have been awarded against the Respondents even if the two factors had not been met so long as it was in the interest of justice to do so. This was especially so in the particular situation of collective sale application disputes where the nature of such applications is that the parties to the dispute might not be as intimately involved in the proceedings as some non-parties who might not fall within the ambit of the two factors. The Respondents in the present appeals are a case in point.