Lim Siew Soo v Sembawang Engineers: Priority of Costs in Company Winding Up

In the case of Lim Siew Soo v Sembawang Engineers and Constructors Pte Ltd (in compulsory liquidation) and Metax Eco Solutions Pte Ltd (Intervener), the General Division of the High Court of Singapore addressed the issue of cost prioritization in company winding up. The liquidator of Sembawang Engineers sought direction on whether a successful defendant in legal proceedings continued by the liquidator should be paid costs in priority to other liquidation expenses, and whether such costs should be paid from the point of continuation or from the beginning of the proceedings. The court ruled in favor of Metax Eco Solutions, the intervener, holding that the estate costs rule encompasses both litigation commenced and adopted by a liquidator, and that the rule accords priority to the company's entire liability under an adverse costs order. The court declined to disapply the estate costs rule, and the liquidator's appeal was dismissed.

1. Case Overview

1.1 Court

General Division of the High Court

1.2 Outcome

Judgment for Intervener

1.3 Case Type

Insolvency

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

Singapore court addresses priority of costs when a company in liquidation loses litigation adopted by its liquidator. Judgment favors defendant.

1.7 Decision Date

9 February 2021

2. Parties and Outcomes

Party Name	Role	Type	Outcome	Outcome Type	Counsels
Lim Siew Soo	Plaintiff	Individual	Lost	Lost	Keith Tnee of Tan Kok Quan Partnership Paul Seah of Tan Kok Quan Partnership Rachel Chin of Tan Kok Quan Partnership
Metax Eco Solutions Pte Ltd	Intervener	Corporation	Won	Won	Chandra Mohan of Rajah & Tann Singapore LLP Doreen Chia of Rajah & Tann Singapore LLP
Sembawang Engineers and Constructors Pte Ltd (in compulsory liquidation)	Defendant	Corporation	Lost	Lost	Keith Tnee of Tan Kok Quan Partnership Paul Seah of Tan Kok Quan Partnership Rachel Chin of Tan Kok Quan Partnership

3. Judges

Judge Name	Title	Delivered Judgment
Vinodh Coomaraswamy	Judge	Yes

4. Counsels

Counsel Name	Organization
Keith Tnee	Tan Kok Quan Partnership
Paul Seah	Tan Kok Quan Partnership
Rachel Chin	Tan Kok Quan Partnership
Chandra Mohan	Rajah & Tann Singapore LLP
Doreen Chia	Rajah & Tann Singapore LLP

4. Facts

A company commenced litigation before going into insolvent liquidation.
A liquidator was appointed and had to decide whether to adopt or discontinue the litigation.
The defendant in the litigation was Metax Eco Solutions Pte Ltd.
The company commenced suit against the defendant at the end of 2012 claiming about $3.6m in damages.
The defendant rejected the claim and counterclaimed about $2.1m from the Company.
The claim and counterclaim were tried before me over eight days in 2015.
The company was placed in compulsory liquidation in August 2017.

5. Formal Citations

Lim Siew Soo v Sembawang Engineers and Constructors Pte Ltd (Metax Eco Solutions Pte Ltd, intervener), , [2021] SGHC 32

6. Timeline

Date	Event
2012-12-31	Company commenced suit against the defendant.
2015-01-01	Trial held over eight days.
2015-09-01	Date fixed for oral closing submissions.
2015-09-01	Company secured an order staying all litigation against it.
2016-01-01	Company secured leave to propose a scheme of arrangement to its creditors.
2016-02-01	Company applied to place itself in judicial management.
2016-06-01	Judicial management order was made.
2017-08-01	Judicial managers applied for and secured their discharge.
2017-08-01	Company was immediately placed in compulsory liquidation.
2017-09-01	Defendant lodged a proof of debt for $2.7m.
2019-01-04	Lim Siew Soo’s Affidavit affirmed.
2019-04-29	Notes of Argument.
2019-04-29	Hearing date.
2019-05-06	Hearing date.
2021-02-10	Judgment date.

7. Legal Issues

Priority of Costs in Winding Up
- Outcome: The court held that the successful defendant is entitled to be paid its entire costs from the beginning of the legal proceedings in priority to the other general expenses of the liquidation.
- Category: Substantive
- Related Cases:
  - [2006] 4 SLR(R) 817
  - (1879) 4 App Cas 733
  - (1898) 2 Ch 684

8. Remedies Sought

Directions from the court regarding the priority of costs.

9. Cause of Actions

No cause of actions

10. Practice Areas

Liquidation
Costs
Priority
Judgment creditors

11. Industries

No industries specified

12. Cited Cases

Case Name	Court	Affirmed	Citation	Jurisdiction	Significance
Re Sembawang Engineers and Constructors Pte Ltd	High Court	Yes	[2016] 3 SLR 1057	Singapore	Cited as background information regarding the company's scheme of arrangement.
Chee Kheong Mah Chaly and others v Liquidators of Baring Futures (Singapore) Pte Ltd	Court of Appeal	Yes	[2003] 2 SLR(R) 571	Singapore	Cited regarding costs payable as of right by reason of contract.
Then Khek Koon and another v Arjun Permanand Samtani and another and other suits	High Court	Yes	[2014] 1 SLR 245	Singapore	Cited for the indemnity principle.
Maryani Sadeli v Arjun Permanand Samtani	High Court	Yes	[2015] 1 SLR 496	Singapore	Cited for the indemnity principle.
Ho Wing On Christopher and others v ECRC Land Pte Ltd (in liquidation)	Court of Appeal	Yes	[2006] 4 SLR(R) 817	Singapore	Cited as the leading judgment on the estate costs rule in Singapore.
Re Movitex Ltd	Unknown	Yes	[1990] BCC 491	England	Cited regarding the super priority accorded by the estate costs rule is not absolute.
Charles Boynton v George H Boynton and others	House of Lords	Yes	(1879) 4 App Cas 733	England	Cited as the origin of the estate costs rule.
In re London Drapery Stores	Unknown	Yes	(1898) 2 Ch 684	England	Cited as authority for the estate costs rule in insolvency.
Norglen Ltd (in liquidation) v Reeds Rains Prudential Ltd and others	House of Lords	Yes	[1999] 2 AC 1	England	Cited as recent authority that the estate costs rule continues to form part of English insolvency law.
Hypec Electronics Pty Ltd (in liq) v Mead and others	Unknown	Yes	(2004) 50 ACSR 448	Australia	Cited as authority that the estate costs rule is part of Australia's insolvency law.
Re Mendarma Pty Ltd (No 2)	Unknown	Yes	(2007) 61 ACSR 601	Australia	Cited as authority that the estate costs rule is part of Australia's insolvency law.
Re Lofthouse; In the matter of Riverside Nursing Care Pty Ltd (subject to deed of company arrangement)	Federal Court of Australia	Yes	[2004] FCA 93	Australia	Cited as authority that the estate costs rule is part of Australia's insolvency law.
Typhoon 8 Research Ltd v Seapower Resources International Ltd and another	Hong Kong Court of Appeal	Yes	[2002] 2 HKLRD 660	Hong Kong	Cited as authority that the estate costs rule is part of Hong Kong's insolvency law.
Re Kenworth Engineering Ltd	Unknown	Yes	[2005] 2 HKLRD 97	Hong Kong	Cited as authority that the estate costs rule is part of Hong Kong's insolvency law.
In re Trent and Humber Ship-Building Company	Unknown	Yes	(1869) LR 8 Eq 94	England	Cited regarding the risk/reward principle.
In re Nortel GmbH (in administration) and related companies	UK Supreme Court	Yes	[2013] 3 WLR 504	United Kingdom	Cited regarding an order for costs is provable as a contingent debt in a liquidation.
Kotjo Johanes Budisutrisno v Ng Wei Teck Michael and others	High Court	Yes	[2001] 2 SLR(R) 784	Singapore	Cited regarding judicial management regime.
Korea Asset Management Corp v Daewoo Singapore Pte Ltd (in liquidation)	High Court	Yes	[2004] 1 SLR(R) 671	Singapore	Cited regarding a liquidator's foremost duty.
In re Lundy Granite Company; Ex parte Heavan	Unknown	Yes	(1871) LR 6 Ch App 462	England	Cited regarding the Lundy Granite principle.
In re Toshoku Finance UK plc	Unknown	Yes	[2002] 1 WLR 671	England	Cited regarding the Lundy Granite principle.
Re Linda Marie Ltd	Unknown	Yes	[1989] BCLC 46	England	Cited regarding the discretion to reverse the order of priorities will only be exercised in exceptional situations.
Gomba Holdings (UK) Ltd and others v Minories Finance Ltd and others (No 2)	Unknown	Yes	[1993] 1 Ch 171	England	Cited regarding costs payable as of right by reason of contract.
British Racing Drivers’ Club Ltd and another v Hextall Erskine & Co	Unknown	Yes	[1996] PNLR 523	England	Cited regarding costs payable as of right as damages for a legal wrong.
Hermann v Withers LLP	Unknown	Yes	[2012] EWHC 1492 (Ch)	England	Cited regarding costs payable as of right as damages for a legal wrong.
Aiden Shipping Co Ltd v Interbulk Ltd	Unknown	Yes	[1986] AC 965	England	Cited regarding the power to order a non-party to bear the costs of litigation.
Symphony Group plc v Hodgson	Unknown	Yes	[1994] QB 179	England	Cited regarding the power to order a non-party to bear the costs of litigation.
DB Trustees (Hong Kong) Ltd v Consult Asia Pte Ltd and another appeal	Court of Appeal	Yes	[2010] 3 SLR 542	Singapore	Cited regarding the power to order a non-party to bear the costs of litigation.
Ex parte James; In re Condon	Unknown	Yes	(1874) LR 9 Ch App 609	England	Cited regarding the common law supervisory jurisdiction which the court can exercise over liquidators as officers of the court.
Re PCChip Computer Manufacturer (S) Pte Ltd (in compulsory liquidation)	High Court	Yes	[2001] 2 SLR(R) 180	Singapore	Cited regarding the common law supervisory jurisdiction which the court can exercise over liquidators as officers of the court.
In re Oak Pits Colliery Company	Unknown	Yes	(1882) 21 Ch D 322	England	Cited regarding the rationale underpinning the Lundy Granite principle.
Glenister v Rowe	Unknown	Yes	[2000] Ch 76	England	Cited regarding the commencement of litigation creates merely a risk of liability under a costs order.
Deputy Commissioner of Taxation v Tideturn Pty Ltd	Supreme Court of New South Wales	Yes	[2001] NSWSC 217	Australia	Cited regarding the test for fault.

13. Applicable Rules

Rule Name
Rules of Court (Cap 322, R 5, 2014 Rev Ed) O 59 r 2(2)
Rules of Court (Cap 322, R 5, 2014 Rev Ed) O 59 r 3(2)
Rules of Court (Cap 322, R 5, 2014 Rev Ed) O 59 r 37
Rules of Court O 23

14. Applicable Statutes

Statute Name	Jurisdiction
Companies Act (Cap 50, 2006 Rev Ed) s 273(3)	Singapore
Companies Act (Cap 50, 2006 Rev Ed) s 328(1)(a)	Singapore
Companies Act (Cap 50, 2006 Rev Ed) s 283(3)	Singapore
Supreme Court of Judicature Act (Cap 322, 2007 Rev Ed)	Singapore
Civil Law Act (Cap 43, 1999 Rev Ed) s 12(1)	Singapore

15. Key Terms and Keywords

15.1 Key Terms

Estate costs rule
Liquidation
Liquidator
Winding up
Priority
Costs order
Pre-liquidation costs
Post-liquidation costs
Risk/reward principle
Reciprocity principle

15.2 Keywords

Winding up
Liquidation
Costs
Priority
Estate costs rule

17. Areas of Law

Area Name	Relevance Score
Winding Up	95
Insolvency Law	90
Costs	70
Civil Procedure	60
Company Law	60
Judgments and Orders	50
Debt Recovery	40

16. Subjects

Insolvency
Winding Up
Civil Procedure
Costs