Case Details
- Citation: [2023] SGHC 160
- Title: SW Trustees Pte Ltd (in compulsory liquidation) and another v Teodros Ashenafi Tesemma and others (Teodros Ashenafi Tesemma, third party)
- Court: High Court of the Republic of Singapore (General Division)
- Date of decision: 31 May 2023
- Judgment reserved: 8 May 2023
- Judge: Goh Yihan JC
- Suit / Proceedings: Suit No 229 of 2021
- Registrar’s Appeal: Registrar’s Appeal No 80 of 2023
- Underlying application: HC/SUM 519/2023 (“SUM 519”)
- Underlying suit: HC/S 229/2021 (“Suit 229”)
- Parties (Plaintiffs/Applicants): (1) SW Trustees Pte Ltd (in compulsory liquidation) (2) Farooq Ahmad Mann
- Parties (Defendants/Respondents): (1) Teodros Ashenafi Tesemma (2) Cheng Ka Wai (3) Chooi Kok Yaw (4) Alexander Ressos (5) Sino Africa Trading Limited (6) Coca-Cola Sabco (East Africa) Limited
- Third party: Teodros Ashenafi Tesemma
- Legal area: Civil Procedure — Costs (Security for Costs)
- Statutes referenced: Companies Act 1967; Insolvency, Restructuring and Dissolution Act 2018
- Rules referenced: Rules of Court (2014 Rev Ed), O 23 r 1(1)
- Key statutory provision: s 388(1) of the Companies Act 1967
- Length of judgment: 41 pages; 12,715 words
Summary
This decision concerns an appeal by a defendant against the Assistant Registrar’s dismissal of his application for security for costs (“SFC”) in the sum of $310,000 against the plaintiffs in Suit 229. The plaintiffs were SW Trustees Pte Ltd (in compulsory liquidation) and its liquidator, Farooq Ahmad Mann. The defendant, Teodros Ashenafi Tesemma, sought SFC on the basis that the plaintiffs were impecunious and that ordering security was justified under O 23 r 1(1) of the Rules of Court and/or s 388(1) of the Companies Act 1967.
The High Court accepted that the first stage of the applicable test was satisfied. However, the central dispute lay in the second stage: whether it would be “just” to order SFC given the defendant’s delay in bringing the application and whether such delay prejudiced the plaintiffs’ conduct of the litigation. The court held that the defendant’s prospects of success were neutral, and that public policy supports SFC against impecunious companies, but the court ultimately found that the delay and its consequences had to be assessed carefully in light of the specific procedural history.
Allowing the appeal in part, the court disagreed with the Assistant Registrar’s ultimate conclusion and set the appropriate quantum of SFC having regard to the balance between protecting defendants from adverse costs consequences and avoiding stifling the plaintiffs’ ability to pursue their claim—particularly where the plaintiffs had funding arrangements and where the delay was explained and did not cause the kind of prejudice that would overwhelm the public policy in favour of SFC.
What Were the Facts of This Case?
SW Trustees Pte Ltd was placed into insolvent liquidation on 21 June 2019. Farooq Ahmad Mann was appointed as liquidator. The underlying debt that precipitated the liquidation arose from an arbitration award obtained on 21 July 2017 by SGI SWE Limited and Schulze Global Investments Holdings LLC (together, the “SGI Creditors”). The SGI Creditors were described as the first plaintiff’s only creditors.
In March 2021, the plaintiffs commenced Suit 229 against multiple defendants. The plaintiffs did so with the court’s permission granted under s 144(1) of the Insolvency, Restructuring and Dissolution Act 2018 (in HC/SUM 62/2021, “SUM 62”). Importantly, in SUM 62, the liquidator was also authorised to enter into a funding agreement with the SGI Creditors. Under that funding agreement, the SGI Creditors were to indemnify the liquidator in respect of legal fees, costs, and expenses incurred in pursuing Suit 229.
The plaintiffs’ case against the first defendant was that he conspired with one or more of the other defendants to wrongfully cause the first plaintiff’s assets to be sold at an undervalue to the fifth and sixth defendants (Sino Africa Trading Limited and Coca-Cola Sabco (East Africa) Limited). The plaintiffs alleged that this conduct rendered the company unable to pay its debts, leading to its winding up. The first defendant had been a director of the first plaintiff from 1 September 2004 until his resignation on 1 August 2017, and he was also the sole shareholder from 30 May 2016 to 27 February 2018.
Procedurally, general discovery was completed in October 2021. By August 2022, the parties were in the specific discovery stage and had prepared witness lists and estimates of trial days. The parties were to exchange affidavits of evidence-in-chief (“AEICs”) in April 2023, with trial scheduled for late June 2023. Against this timeline, the first defendant filed his application for SFC only on 28 February 2023. The Assistant Registrar heard the parties in early April 2023 and issued his decision on 12 April 2023. On 12 April 2023, however, the plaintiffs informed the Registry that they intended to amend their Statement of Claim. As a result, the Registry indefinitely deferred the April dates for AEIC exchange and vacated the June trial dates. The first defendant filed his Notice of Appeal on 24 April 2023, meaning that the appeal was heard in a materially different procedural context than that which confronted the Assistant Registrar.
What Were the Key Legal Issues?
The appeal turned on the proper application of the two-stage framework for SFC. While the parties did not dispute the existence of a two-stage test, they disagreed on how the second stage should be applied. The first stage asks whether the court’s discretion to order SFC is enlivened—typically by reference to the statutory triggers in O 23 r 1(1) and/or s 388(1). The second stage concerns whether, having regard to all the circumstances, it is just to order security.
The principal issue was whether the first defendant’s delay in bringing his application for SFC (if there was indeed a delay) prejudiced the plaintiffs’ conduct of Suit 229 to such an extent that it should outweigh the public policy in favour of ordering SFC against an impecunious company. The court also had to consider whether the plaintiffs’ claim had reasonable prospects of success and whether the application for SFC was being used oppressively to stifle the plaintiffs’ pursuit of their claim.
In addition, the court had to determine the effect of the plaintiffs’ funding arrangements. The defendant argued that there was no evidence that the SGI Creditors lacked means to pay, and therefore the plaintiffs would not be stifled. The plaintiffs, by contrast, argued that the defendant’s lateness caused prejudice and that public policy should not protect a defendant who does not timely avail himself of the right to seek SFC.
How Did the Court Analyse the Issues?
The High Court began by confirming that the applicable law was not in dispute. The application for SFC was made pursuant to O 23 r 1(1) of the Rules of Court and/or s 388(1) of the Companies Act 1967. O 23 r 1(1) empowers the court, where specified conditions are met (including, relevantly, that the plaintiff is ordinarily resident out of jurisdiction, or is a nominal plaintiff unable to pay costs, or has changed address to evade litigation consequences), to order security if it is “just” having regard to all circumstances. Section 388(1) similarly provides that where a corporation is a claimant and it appears by credible testimony that there is reason to believe the corporation will be unable to pay the defendant’s costs if successful, the court may require security and stay proceedings until security is given.
Consistent with prior authority, the court applied a two-stage test. At the first stage, it asked whether the discretion to order SFC was enlivened. At the second stage, it asked whether it was just to order security, considering the overall circumstances. The court accepted that the first defendant satisfied the first stage. The analysis therefore focused on the second stage, which required a structured assessment of competing considerations.
Under the second stage, the court considered several factors. One key factor was the prospects of the first defendant succeeding in Suit 229. The court reviewed the applicable principles and concluded that the first defendant’s prospects of success were a neutral factor. This meant that the court did not treat the merits as strongly favouring either granting or refusing SFC on that basis.
Another factor was the public policy in favour of awarding SFC against impecunious companies. The court recognised that this policy exists to protect defendants from the risk of being unable to recover costs if they succeed. However, the court emphasised that public policy is not absolute. It must be weighed against countervailing considerations, including whether ordering SFC would stifle the plaintiffs’ ability to pursue their claim and whether the defendant’s conduct—particularly delay—should affect the exercise of discretion.
The court also addressed whether the first defendant would recover his costs in any event if SFC were not granted. This required attention to the funding context. The defendant argued that the SGI Creditors were the litigation funders and that there was no evidence they lacked means. The court’s reasoning, however, did not treat the existence of funding as automatically eliminating the need for SFC. Rather, it treated funding as part of the broader “justness” inquiry, especially where the timing of the application and the procedural consequences of delay were in issue.
Crucially, the court then turned to the circumstances that pertain to avoiding stifling the plaintiffs’ ability to pursue their claim. It assessed the prospects of the plaintiffs succeeding in Suit 229 and the effect of delay. The court noted that the first defendant filed his SFC application only on 28 February 2023, and that the application was heard and decided by the Assistant Registrar in early April 2023. The court then examined the effect of the plaintiffs’ intended amendments to the Statement of Claim on 12 April 2023, which led to deferral of AEIC exchange and vacating of trial dates. This procedural development meant that the appeal was heard in a different context from that below.
On delay, the court considered the length of time between the commencement of Suit 229 and the filing of SUM 519. The plaintiffs argued that prejudice arose because the application was brought 727 days after Suit 229 was commenced. The court, however, did not treat delay as self-executing. It required an assessment of whether the delay actually prejudiced the plaintiffs’ conduct of the litigation in a way that would overwhelm the public policy supporting SFC.
The court found that the first defendant provided a satisfactory explanation for the delay in bringing the application for SFC for both trial and post-trial work. It also found that there would have been no prejudice to the plaintiffs in any event. In other words, even if the defendant’s application was late, the court was not satisfied that the lateness caused the kind of disadvantage that would justify refusing SFC entirely.
Finally, the court addressed whether ordering SFC would prevent the plaintiffs from pursuing their claim. The court considered the funding arrangement authorised in SUM 62, under which the SGI Creditors indemnified the liquidator for legal fees, costs, and expenses. This supported the conclusion that SFC would not necessarily stifle the plaintiffs’ prosecution of Suit 229. The court therefore concluded that the discretion should be exercised in a way that protects the defendant without undermining access to justice for the liquidator and the estate.
Having completed the structured analysis under the second stage, the court determined that SFC should be ordered but in an appropriate quantum. The court allowed the appeal in part, indicating that the Assistant Registrar’s ultimate conclusion was not correct, while recognising that the Assistant Registrar had provided a clear and carefully reasoned decision on the applicable principles.
What Was the Outcome?
The High Court allowed the first defendant’s appeal in part. While it disagreed with the Assistant Registrar’s ultimate conclusion, it accepted the underlying analytical framework and applied it to the specific procedural history of Suit 229. The court ordered security for costs, but it adjusted the outcome from what the Assistant Registrar had done, reflecting the court’s view that it was just to grant SFC notwithstanding the defendant’s delay.
Practically, the decision clarifies that delay in seeking SFC is relevant, but not determinative. Where the defendant can provide a satisfactory explanation for delay and where the plaintiffs cannot show meaningful prejudice that would overwhelm the public policy in favour of SFC, the court may still order security. The court also signalled that funding arrangements and the likelihood of stifling are central to the “justness” inquiry, and that security may be calibrated rather than refused outright.
Why Does This Case Matter?
This case is significant for practitioners because it provides a detailed, structured approach to the second-stage “justness” inquiry in SFC applications. While Singapore courts recognise the two-stage test, this decision illustrates how the court weighs delay, prejudice, prospects, public policy, and the risk of stifling in a single integrated analysis. For defendants, it underscores that late applications for SFC can still succeed if the delay is explained and does not cause actionable prejudice. For plaintiffs—especially impecunious corporate plaintiffs in liquidation—it emphasises that courts will scrutinise whether the defendant’s delay has actually affected the conduct of the case.
From a policy perspective, the decision balances two competing imperatives: (1) protecting defendants from the risk of unrecoverable costs, and (2) preserving access to justice for impecunious claimants, including liquidators authorised to pursue claims on behalf of creditors. The court’s treatment of litigation funding is particularly useful. It suggests that the existence of funding does not automatically eliminate the need for SFC, but it can be highly relevant to whether an order would stifle proceedings.
For law students and litigators, the judgment also serves as a practical guide to evidential and procedural considerations. The court’s focus on credible testimony, prejudice, and the timing of applications highlights that SFC is not merely a mechanical entitlement. It is a discretionary remedy requiring careful factual demonstration. The decision therefore has precedent value for future SFC disputes, especially those involving corporate claimants in compulsory liquidation and applications brought at advanced stages of litigation.
Legislation Referenced
- Rules of Court (2014 Rev Ed), O 23 r 1(1)
- Companies Act 1967, s 388(1)
- Insolvency, Restructuring and Dissolution Act 2018, s 144(1)
Cases Cited
- [1939] MLJ 165
- [2014] SGHC 219
- [2017] SGHCR 5
- [2019] SGHCR 1
- [2023] SGHC 160
Source Documents
This article analyses [2023] SGHC 160 for legal research and educational purposes. It does not constitute legal advice. Readers should consult the full judgment for the Court's complete reasoning.