WHEN TO HOLD A NON-PARTY LIABLE FOR COSTS IN THE SICC?
In Kiri Industries Ltd v Senda International Capital Ltd and another [2021] SGHC(I) 18 (“Kiri v Senda”), the Singapore International Commercial Court dealt with whether a non-party should be held liable for costs of the proceedings.
Background. This decision arose out of the case of Kiri Industries Ltd v Senda International Capital Ltd and another [2021] SGHC(I) 16, where the Singapore International Commercial Court (“SICC”) made costs orders against Senda International Capital Limited (“Senda”) for SIC/S 4/2017 (the “Suit”).
Following from the costs judgment, Kiri Industries Limited (“Kiri”) applied for an order that Zhejiang Longsheng Group Co, Ltd (“Longsheng”) be made jointly and severally liable for the costs payable by Senda.
Result. The SICC declined to make Longsheng jointly and severally liable with Senda for Kiri’s costs in the Suit. This is because the SICC was not persuaded that:
1. Longsheng had such a close connection to the Suit; or
2. Longsheng had caused the incurring of costs by Kiri in the Suit so as to justify the order sought by Kiri.
The principles. The SICC held that the applicable test was set out by the Court of Appeal in DB Trustees (Hong Kong) Ltd v Consult Asia Pte Ltd and another appeal [2010] 3 SLR 542 (“DB Trustees”).
While the parties did not contest the applicability of the principles as set out in DB Trustees, it is relevant to note that SICC held that O 1110 r 46(3)(c) of the Rules of Court does not stipulate a test that is different from DB Trustees.
“4 As per DB Trustees (at [27]), the question is whether the present case is “exceptional”, such that in all the circumstances it will be just to order Longsheng to bear costs. “Exceptional” refers to cases falling outside the ordinary situation in which parties pursue or defend claims for their own benefit and at their own expense. In determining this question, the Court of Appeal singled out two factors which should normally be present to justify ordering a non-party to bear the costs of a given set of proceedings. The first, noted at [30], is that there must be a “close connection” between the non-party and the proceedings, and the second, noted at [35], is that the non-party must have caused the costs to be incurred.”
(emphasis in italics in original)
No close connection. The SICC held that there was no close connection. As clarified at [30] DB Trustees, for there to be a close connection, the non-party must have “either have funded or controlled the proceedings with the intention of ultimately deriving a benefit from it” (emphasis in original).
It is relevant to note that funding and control need not be conjunctive: if a non-party either funds or controls the legal proceedings with the intention of ultimately deriving a benefit from the proceedings, it can be sufficient to demonstrate close connection. In addition, this is just one of the ways of demonstrating a close connection.
On the facts of the case, the SICC found that Kiri has not pointed to any evidence that Longsheng had funded or controlled the proceedings in the Suit or did so for Longsheng’s own benefit. Neither did the SICC found that the fact that Senda did not call any independent witneses and that two of Senda’s witnesses were affiliated with Longsheng as being “indicative of anything” nor “exceptional”.
Mere ownership of subsidiaries insufficient. More relevantly, it is important to note that the SICC held that while Longsheng may have control over Senda as its wholly owned subsidiary, that would be insufficient to meet the threshold on DB Trustees.
The SICC held that if mere ownership was sufficient, then “in every litigation involving a group of companies, the parent company or companies would be liable for costs orders made against subsidiaries. This cannot be right.”
The SICC stated that there must be “evidence of fraud or unconscionable conduct” for the “corporate veil to be pierced”, referring to the case of Montpelier Business Reorganisation Ltd v Armitage Jones LLP and others [2017] EWHC 2273 (QB) (“Montpelier v Armitage”) as a “paradigm example of unconscionable conduct in bringing litigation”.
In Montpelier v Armitage, the SICC identified the concern as being that “… litigation had been advanced on behalf of an insolvent company by its shareholder. In other words, the controlling non-party had been using what was essentially an empty vessel to conduct “risk-free litigation”.”
The SICC then distinguished Montpelier v Armitage:
1. Senda was not insolvent. Hence, there was no issue of Longsheng using an insolvent company to conduct “risk-free litigation”.
2. Senda was defending a claim brought by Kiri. In Montpelier v Armitage, the controlling non-party was using the insolvent company to advance a claim.
Causation. The SICC also held that the second consideration in DB Trustees, causation, was not established.
Referring to the decision of SIC College of Business and Technology Pte Ltd v Yeo Poh Siah and others [2016] 2 SLR 118 (“SIC College”), the SICC held that Senda’s conduct of its defence did not cross the threshold. Senda did not:
1. Defend the claims by Kiri in bad faith; or
2. Unreasonably cause Kiri to incur further costs in the litigation.
When would such a threshold be crossed? In SIC College, the Court of Appeal referred to Taylor v Pace Developments Ltd [1991] BCC 406, where the English Court of Appeal stated that an instance of when a defence would not have been made in good faith is “where the company has been advised that there is no defence, and the proceedings are defended out of spite, or for the sole purpose of causing the plaintiffs to incur irrecoverable costs.”
Ability to make payment. While the SICC accepted that the ability of Senda to make payment is a relevant factor to consider in whether to grant Kiri’s application, on the facts, the SICC found that there was no evidence that Senda will be unable to pay the costs order.
Conclusion. Kiri v Senda clarifies that in determining when should a non-party be ordered to pay costs in the Singapore International Commercial Court, the same principles as set out in DB Trustees would apply.
In addition, it is also relevant to note how Kiri v Senda has applied DB Trustees. While it is not new law, it is an important reminder that the courts are slow to make costs orders against a non-party unless exceptional circumstances exist and that cogent evidence will be needed to establish that such exceptional circumstances do exist.
This publication is not intended to be, nor should it be taken as, legal advice; it is not a substitute for specific legal advice for specific circumstances. You should not take, nor refrain from taking, actions based on this publication. Chancery Law Corporation is not responsible for, and does not accept any responsibility for, any loss or damage that may arise from any reliance based on this publication.