Knowledge Highlights 18 January 2023
Claim for misrepresentation by omission dismissed by Singapore International Commercial Court
Knowledge Highlights 20 May 2022
In Larpin, Christian Alfred & Anor v Kaikhushru Shiavax Nargolwala & Anor  SGHC(I) 4, the Singapore International Commercial Court (“SICC”) considered an action for misrepresentation by omission, in the context of a completed transaction for the sale and purchase of shares giving rights to a luxury villa located in Phuket, Thailand.
In dismissing the plaintiffs’ claims in their entirety, the SICC made some observations of note about (i) whether dishonesty is a necessary element for a claim for misrepresentation by omission, and (ii) whether costs incurred by a party in defending one set of proceedings may be claimed as damages in a subsequent set of proceedings against the person(s) who is alleged to have committed wrongs causally linked to the initiation of the first mentioned set of proceedings.
Allen & Gledhill Partner Ramesh Kumar acted for the successful defendants.
The defendants owned the equivalent of ownership rights in a luxury villa located in a resort in Phuket, Thailand. These rights were held via the defendants’ shareholding in a British Virgin Islands (“BVI”) company (“Holding Company”), which in turn owned the key rights to the villa.
The defendants decided to put the villa up for sale.
In September 2017, one Mr Solomon Lew (“Mr Lew”) expressed an interest in the villa to the resort’s General Manager (“GM”) and thereafter engaged in indirect negotiations with the defendants regarding the purchase of the shares in the Holding Company. These negotiations were indirect because they were carried out via the GM. As far as the defendants were concerned, nothing came to fruition as between them and Mr Lew regarding the sale of the villa.
As the first plaintiff was also interested in acquiring the villa, he engaged in negotiations with the defendants in October 2017. As these negotiations progressed to quite an advanced stage, the first plaintiff confirmed his decision to purchase the shares of the Holding Company for US$7,900,000 through the second plaintiff, a BVI company owned by the first plaintiff. A Reservation Agreement (“RA”) was executed between the defendants and the second plaintiff on 9 November 2017, and a Share Purchase Agreement (“SPA”) was executed on 14 November 2017. Completion of the transfer of shares was to take place on 16 November 2017.
On 14 November 2017, the day when the SPA was executed, the defendants became aware of a claim by Mr Lew that (on his own belief) he had a binding agreement with them for the purchase of the shares in the Holding Company and was threatening legal proceedings against the defendants for breach of that alleged agreement. On 15 November 2017, the defendants informed the first plaintiff of Mr Lew’s alleged claim and that they believed the claim to be unsustainable. The defendants also offered to the plaintiffs the option of aborting and unwinding the transaction under the SPA, or deferring completion until there was clarity on whether and how Mr Lew was going to act on his threatened claim. Nevertheless, the first plaintiff was keen to proceed with the transaction and confirmed to the defendants that they should proceed to complete the transaction under the SPA. Completion under the SPA took place on 16 November 2017.
Very shortly thereafter, Mr Lew took out proceedings in the BVI and Singapore against the defendants and plaintiffs. Mr Lew’s action in Singapore was eventually dismissed by the SICC at first instance, and the decision was upheld by the Court of Appeal. For more about this decision, please read our article titled “Singapore Court of Appeal holds that there is no fall-back role for lex fori when determining which law governs a contract where the contract’s existence is in dispute”.
In the present case, the plaintiffs alleged that the defendants had fraudulently made misrepresentations by omission (by failing to inform the plaintiffs about - among other things - the negotiations with Mr Lew concerning the villa and that Mr Lew believed that he had a right to purchase the villa) while inducing the plaintiffs’ entry into of the RA and SPA. On the basis of this allegation, the plaintiffs sought rescission of the RA and the SPA, and also sought damages equivalent to (a) the legal costs they incurred in relation to the BVI proceedings Mr Lew had commenced, and (b) the legal costs they had incurred in relation to Mr Lew’s action in Singapore, but which could not be recovered under the cost order in that Singapore action.
The SICC’s decision
The SICC examined all the alleged misrepresentations and found that none of the alleged representations were actionable, as the alleged representations were either not made or not false (even if made). Thus, the SICC held that “the plaintiffs’ claims fall at the hurdle of misrepresentation”.
The SICC also found that, even if the material facts alleged to have been concealed from the plaintiffs had been made known to the plaintiffs, the first plaintiff would still have caused the second plaintiff to enter into the SPA, as he was a man firm in his views and not one to be deterred by Mr Lew’s claim and threat to bring legal proceedings to enforce his claim.
These findings were sufficient to dispose of the case.
The plaintiffs had themselves pitched their case as one of “active concealment” of material facts, and in fact pleaded “active concealment” in their Statement of Claim. Despite noting that the plaintiffs themselves had accepted that “active concealment” required proof of a dishonest intention on the part of the defendants, the SICC observed that the plaintiffs may have mistakenly proceeded on the basis that “misrepresentation by omission” must in all cases be by “active concealment”. The SICC then held that it was not necessary for the plaintiffs to prove any dishonest intention on the part of the defendants in order to succeed, and it was sufficient if the plaintiffs could prove the existence of some relevant duty to speak on the part the defendants.
On the facts, the SICC found that the plaintiffs had not proved any relevant duty to speak, and on that basis held that the plaintiffs were unable to establish any actionable misrepresentation.
The SICC also went further to indicate that, on the authority of the Singapore Court of Appeal’s decision in Maryani Sadeli v Arjun Permanand Samtani  1 SLR 496 (“Maryani”), it would in any event (i.e. even if misrepresentation had been established) not have allowed the plaintiffs’ claim for damages, particularly as regards the legal costs the plaintiffs incurred in relation to Mr Lew’s action in Singapore. In this regard, the SICC observed that, while the principles endorsed in Maryani precluded any award of damages representing the plaintiffs’ unrecovered cost in respect of Mr Lew’s action in Singapore, the position was less certain in respect of the plaintiffs’ costs in respect of the BVI proceedings Mr Lew had commenced.
This decision by the SICC highlights a couple of points of note.
First, a defendant to an action must be prepared to deal with matters that may depart from the positions taken by a plaintiff. The plaintiff in this case had consistently accepted that they must prove dishonesty on the part of the defendants to succeed in their action. The SICC was prepared to view and analyse the merits of the case in a manner that was different to how the plaintiffs had formulated their claim. Therefore, when having conduct of a defence to an action, it is important to anticipate potential issues that might be picked up by and be of interest to the court, even if those issues do not appear to arise from the positions taken by the plaintiff. While it is true that, generally, a court will not allow a party to unfairly be taken by surprise, this general principle should be seen as a last line of defence, instead of one that is at the forefront of any defence.
Secondly, there is some measure of uncertainty surrounding the question of whether costs incurred in relation to a prior foreign proceeding (but unrecovered under the cost order issued in that foreign proceeding) can be claimed as damages in a subsequent proceeding in Singapore against a party whose wrongful act led to the commencement of the foreign proceeding.
In Maryani, the Court of Appeal observed as follows:
“… the law on costs or, more accurately, the policy considerations underlying the law on costs, informs the law on damages in the following manner. Where the plaintiff would only have been able to claim costs based on the indemnity principle in the previous proceedings, it appears to us to be correct in principle that the plaintiff ought not, in subsequent proceedings, to be able to claim for the unrecovered costs of the previous proceedings - albeit with at least one possible caveat. Given the myriad of possible fact circumstances, we would not rule out the possibility of situations where the measure of damages awarded by the court might consist of the full costs…”
The question that remains open is whether these observations apply with equal force to unrecovered costs incurred in relation to proceedings in a foreign jurisdiction, particularly where that jurisdiction’s policy on recovery of costs is different to the policy articulated by the Court of Appeal in Maryani.
In the light of the increasing number of multi-jurisdictional disputes which are partly fought in Singapore, it is anticipated that it will not be too long before the Court of Appeal has the occasion to consider this issue and hand down a definitive ruling on it.
The judgment and a summary of it are available on the website of the Singapore International Commercial Court www.sicc.gov.sg.
Knowledge Highlights 19 January 2023