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  • Ch.21 Economic Torts
    to further their common design 2 Intention to injure must be the predominant purpose of conspirators actions 21 4 3 The conspirators intention to harm the victim is the gist of this tort Thus it is necessary to prove that such ill intent is the predominant purpose with which the conspirators acted It follows that where it can be proven that the design of the alleged conspirators is motivated by some legitimate purpose such as the protection of their own economic interests the tort is not made out even if injury to the victim is an unavoidable consequence of the scheme 3 Damage victim must have suffered pecuniary loss 21 4 4 The victim of the conspiracy has to prove that he has suffered pecuniary loss It is generally sufficient if such losses can be inferred from the surrounding circumstances C Conspiracy by unlawful means 1 Tort characterised by use of unlawful means and intention to harm need not be predominant motive 21 4 5 A conspiracy using unlawful means is unlike the simple conspiracy to injure in two ways first it is characterised by the use of unlawful means and secondly while it requires proof of the conspirators intention to harm the victim such intention does not have to be their predominant motive 2 Unlawful means concept as yet unsettled but may encompass any illigality that is an effective link between act of combination and injury 21 4 6 It is reasonably clear that an agreement between two or more persons to commit a tort such as intimidation or procuring a breach of contract would amount to a conspiracy by unlawful means A scheme to commit crimes that involve the use of violence or fraud or dishonesty would also clearly suffice Although it is as yet unsettled there are judicial authorities that suggest that the unlawful means need not be independently actionable as a civil wrong see Beckkett Pte Ltd v Deutsche Bank AG 2009 3 SLR R 452 and EFT Holding Inc v Marinteknik Shipbuilders S Pte Ltd 2014 1 SLR 860 at 91 On this view unlawful means is construed broadly so that any illegality that contributes to the causative link between the act of combination and the claimant s injury may suffice Return to the top SECTION 5 UNLAWFUL INTERFERENCE WITH TRADE A Cause of action where a persons intentionally injures another by employing unlawful means against an intermediary 21 5 1 At common law A commits a tort against B if A a commits an unlawful act affecting a third party C b with the intention to injure B and c such conduct does in fact result in damage to B Unlike the tort of inducing breach of contract this tort is not primarily concerned with the protection of pre existing legal obligations but with proscribing indirect harm inflicted through the use of unlawful means on an intermediary B Mental element intention must be to injure victim through conduct 21 5 2 The mental element of this tort appears to be a narrow one the alleged tortfeasor must have intended to injure the victim as an end in itself or as a means to an end The fact that the alleged tortfeasor s unlawful conduct would inevitably injure the victim is not by itself sufficient C Unlawful means 1 Unlawful means must be directed at third party intermediary but unclear as to whether it has to be independently actionable 21 5 3 Since the House of Lords decision in OBG v Allan 2008 1 AC 1 it is reasonably clear that the illegality must have been applied to a third party intermediary with the result of causing damage to the plaintiff However it is unclear whether the illegality must also be separately actionable as a civil wrong The alternative view is that any legal wrong even one that is not independently actionable will suffice so long as it is an effective causative agent of the victim s loss A number of authorities from other leading jurisdictions see OBG v Allan 2008 1 AC 1 and AI Enterprises Ltd v Bram Enterprises Ltd 2014 SCC 12 have adopted the former view that unlawful means should be restricted to independently actionable wrongs In Singapore however our courts have yet to make any definitive pronouncement in this regard 2 Breach of statutory duty tort generally non actionable unless claimant falls within class of persons that statute was imposed to benefit or has suffered special damage 21 5 4 As a general rule statutory duties enforceable by way of criminal prosecution are presumed to be enforceable only in that manner There are however two exceptional situations in which such statutory breaches could constitute unlawful means for purposes of civil actions First if a statutory provision is on its true construction imposed for the benefit of a class of persons a complainant who falls within that class may plead that his or her interests have been unlawfully interfered with Secondly where a statutory provision creates a public right a complainant may enforce the breach of the provision in a civil suit if he or she has suffered special damage over and above that suffered by the public at large Return to the top SECTION 6 MALICIOUS FALSEHOOD A Cause of action where two or more persons agree on course of conduct to harm another 21 6 1 A person is liable for malicious falsehood if he or she maliciously makes false representations in respect of another with a view to injure that person s goodwill or economic reputation B Elements of the tort 21 6 2 The tort of malicious falsehood may in some respects overlap with the tort of defamation see Section 7 below However these two torts are clearly distinct In particular the tort of malicious falsehood is founded on a false representations b malicious motives and c the complainant s incurrence of special damage but none of these is a necessary element of the tort of defamation 1 Falsehood false statement is made in respect of complainant s person property or trade 21 6 3 The element of falsehood is generally satisfied by proving that the tortfeasor has made a false statement in respect of the complainant s person property or trade The offending representation may be verbal written or implied by conduct It must also have been published to third persons other than the complainant 2 Malice evidence of personal ill will and spite or intention to injure is sufficient 21 6 4 Malice may be established by proof that the maker of a statement knows of the untruth of a statement or is reckless as to its truth Mere negligence is not malice but evidence of personal ill will and spite or an intention to injure would suffice 3 Special damage generally required except where false statements are in writing or permanent form and calculated to cause pecuniary injury 21 6 5 At common law the tort of malicious falsehood is only actionable upon proof that the complainant has sustained special damage This may require for instance evidence of quantifiable losses arising from loss of sales or asset devaluation Note however that this aspect of the common law has been modified by section 6 of the Defamation Act Cap 75 1985 Rev Ed such that the proof of special damage may be dispensed with if the false statements are published in writing or permanent form and are calculated to cause pecuniary injury to the complainant in respect of his or her office profession calling trade or business Return to the top SECTION 7 DEFAMATION A Introduction 1 Competing interests protection of personal reputation and upholding rights of free speech and public communication 21 7 1 The objectives of the tort of defamation are on the one hand to protect personal reputation and on the other to ensure that the right of free speech and public communication are not unduly compromised Within the tort of defamation these competing interests and rights have to be judiciously balanced 2 Two forms libel and slander 21 7 2 There are two forms of defamation libel words in permanent form and slander words in temporal or transient form Libel is actionable per se without proof of special damage whilst slander would require such proof unless specific common law and statutory exceptions apply For example special damage is not required to be proved in respect of words calculated to disparage the plaintiff in any office profession calling trade or business held or carried on at the time of the publication see section 5 of the Defamation Act 3 Criminal defamation not the focus of this section 21 7 3 Apart from the civil tort of defamation section 499 of the Penal Code provides for the offence of criminal defamation For the prosecution of such an offence it must be shown that the accused made the publication with the intention to harm the reputation of the defamed person or knows or has reason to believe that such harm would result The focus of this section is however on the civil tort of defamation B Elements of the cause of action 21 7 4 The three main requirements for a cause of action under the tort of defamation are as follows The statement must be defamatory in nature The statement must refer to the plaintiff and The statement must be published 1 Defamatory in nature based on the objective reasonable man test a Defamation found if plaintiff is lowered in estimation of society shunned or avoided or exposed to hatred contempt or ridicule 21 7 5A statement is defamatory in nature if it tends to i lower the plaintiff in the estimation of right thinking members of society generally or ii cause the plaintiff to be shunned or avoided or iii expose the plaintiff to hatred contempt or ridicule This is based on the objective reasonable man test The judge determines whether the test is satisfied in a particular case upon hearing the evidence adduced at the trial There are no jury trials in Singapore b Defamation may be found in natural and ordinary meaning of words or by true or legal innuendo 21 7 6 In terms of construction a statement may be defamatory in two ways i via the natural and ordinary meaning of the words used or as may be reasonably inferred from the words and ii by way of true or legal innuendo True innuendo arises from words which appear innocuous but may be understood to be disparaging of the plaintiff by third parties who have knowledge of special facts which are not generally known To support a cause of action based on true innuendo the plaintiff will have to plead those special facts known to such third parties to whom the statement has been published 2 Reference to plaintiff words must be reasonably understood by third party to refer to plaintiff 21 7 7 The plaintiff must show that the third party would reasonably understand the defamatory words to refer to the former The intention of the defendant to defame the plaintiff is not a prerequisite Thus the defamation action may still succeed notwithstanding that the defendant did not intend to refer to the plaintiff but to some other person or even a fictitious character bearing the same name a Action by non natural persons 21 7 8 Apart from natural persons legal persons such as incorporated bodies including companies and some unincorporated bodies for example societies registered under the Societies Act Cap 311 1985 Rev Ed with the capacity to sue and be sued in its own name may also bring defamation actions against persons who have made defamatory statements adversely affecting their commercial trading or governing reputations b Group defamation 21 7 9 In class or group defamation actions the issue is whether the defamatory statement though targeted at a class or group is nonetheless reasonably understood by the reasonable third party to refer to the individual claimant s To ascertain whether such reference exists criteria such as the group size the generality and extravagance of the defamatory statement and other factors may be taken into consideration 3 Publication statement must be communicated to third parties who would reasonably understand it to be defamatory 21 7 10 The defamatory statement must have been communicated to third parties who would reasonably understand the statement to be defamatory of the plaintiff Thus the communication of the defamatory statement to the plaintiff alone would not be sufficient C Defences 1 Justification where statement is proven to be true in substance and in fact 21 7 11 The plaintiff is not required to prove that the defamatory statement is false Instead the defendant may establish the defence of justification by proving that the defamatory statement is true in substance and in fact Where the allegedly defamatory statement is a comment both the facts on which the comment is based and the comment itself must be substantiated Similarly where an innuendo is pleaded both the statement and the innuendo have to be justified Particulars of the statement s of fact and the true facts relied upon by the defendant must be pleaded Order 78 Rule 3 2 Rules of Court The defendant is not required to substantiate every charge so long as the unsubstantiated charges do not materially injure the plaintiff s reputation see section 8 of the Defamation Act The defence of justification normally constitutes a complete defence against the plaintiff s claims 2 Fair comment an expression of opinion based on true facts that is fair and relates to a matter of public interest 21 7 12 To succeed in the defence of fair comment the defendant has to show that the words complained of are in the nature of a comment that is an expression of opinion as opposed to facts the comment is based on true facts it is not necessary to prove the truth of all allegations of facts but only those facts alleged or referred to in the defamatory words which form the basis of the opinion see section 9 of the Defamation Act the comment is fair that is it must be an honestly held opinion of a fair minded person though some allowance may be given for prejudices and exaggeration and the comment relates to a matter of public interest that is a matter which the public at large may legitimately be interested in or concerned with 21 7 13 The defence of fair comment will not succeed if the defendant s comments are motivated by malice An opinion is made maliciously if it is shown that the defendent did not genuinely hold the view he expressed Actuation by spite animosity intent to injure intent to arouse controversy or other motivation whatever it may be even if it is the dominant or sole motive does not of itself defeat the defence see paragraph 21 7 14 3 Privilege 21 7 14 The next defence against the plaintiff s claim in defamation is based on the concept of privilege There are two types of privilege absolute and qualified privilege Absolute privilege cannot be defeated by the plaintiff s proof that the defendant s statements were motivated by malice On the other hand qualified privilege can be defeated by proof of malice A statement is made maliciously if it was actuated by dominant improper motive s In addition a statement which is made without belief in its truth or recklessly that is with indifference to its truth or falsity is one that is published with malice a Absolute privilege defence cannot be defeated by proof of defendant s malice 21 7 15 Absolute privilege arises in the following situations or circumstances Parliamentary proceedings the Members of Parliament are conferred immunity from both civil and criminal actions in respect of defamatory statements made in the course of parliamentary proceedings see section 6 of the Parliament Privileges Immunities and Powers Act Cap 217 2000 Rev Ed Similarly the reports papers and journals relating to the proceedings the publication of which is authorised by Parliament are immune from suit see section 7 of the Parliament Privileges Immunities and Powers Act Judicial proceedings immunity is conferred on the judges counsel witnesses and parties in respect of statements made in the course of or for the purposes of judicial proceedings including proceedings conducted by tribunals and bodies recognised by law and acting judicially The fair accurate and contemporaneous reports of judicial proceedings which are publicly heard are also absolutely privileged section 11 of the Defamation Act This privilege extends to a fair and bona fide comment on such report Executive matters this generally covers communications made by ministers and civil servants relating to state affairs b Qualified privilege defence can be defeated by proof of defendant s malice 21 7 16 The defence of qualified privilege arises in the following instances Where the defendant has an interest or duty to communicate information and the third party has the corresponding interest or duty to receive the information for instance communications made by solicitors for the purposes of advancing clients interests and communications between employers and employees in relation to work matters are ordinarily accorded qualified privilege Where the defendant makes a statement with a view to protect his or her self interests such as when he or she is responding to accusations such statements are privileged to the extent that they are published bona fide as well as relevant and necessary to protect such interests Where reports of parliamentary and judicial proceedings are fair and accurate qualified privilege arises at common law that is outside the scope of the statutory provisions Newspaper reports of parliamentary and judicial proceedings in the Commonwealth are also accorded qualified privilege statutorily section 12 of the Defamation Act 4 Innocent dissemination where intermediary did not know publication was libelious could not have been alerted to libellous content in the circumstances and was not negligent 21 7

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  • Ch.22 Banking and Finance
    for contravening statutory obligations of banking secrecy 22 3 9 Contravention of section 47 is an offence Upon conviction an individual may be punished with a fine not exceeding S 125 000 or imprisonment for a term not exceeding three years or both In the case of a corporation a fine not exceeding S 250 000 may be imposed E Statutory secrecy regime does not prevent assumption of higher standard of confidentiality 22 3 10 The statutory banking secrecy regime does not prevent a bank from contracting with its customers to assume a higher standard of confidentiality This is provided for in section 47 8 F Common law exceptions to duties of confidentiality no longer applicable in Singapore 22 3 11 It was previously thought that the statutory banking secrecy regime did not override the common law of duties of confidentiality on a bank which arose out of the banker customer relationship 22 3 12 However following the decision of the Singapore Court of Appeal in Susilawati v American Express Bank Ltd 2009 2 SLR R 737 2009 SGCA 8 it is now clear that the current statutory secrecy regime leaves no room for the four general common law exceptions expounded in Tournier v National Provincial and Union Bank of England 1924 1 KB 461 to co exist 22 3 13 In the seminal case of Tournier v National Provincial and Union Bank of England 1924 1 KB 461 the English Court of Appeal held that a banker had an implied duty to keep the affairs of a customer confidential subject to four general exceptions under which disclosure could be made by the bank These were classified into four categories a where disclosure is under compulsion by law b where there is a duty to the public to disclose c where the interests of the bank require disclosure d where the disclosure is made by the express or implied consent of the customer 22 3 14 The Singapore Court of Appeal held that in light of the plain wording of section 47 the four exceptions in Tournier had been embraced within the framework of section 47 of the Banking Act Cap 19 2008 Rev Ed which is now the exclusive regime governing banking secrecy in Singapore 22 3 15 In arriving at its decision the Singapore Court of Appeal held that in terms of details and scope section 47 of and the Third Schedule to the Banking Act Cap 19 2008 Rev Ed provided a more comprehensive regime than that articulated in Tournier In the words of the Court of Appeal There is simply no room in Singapore for the less sophisticated and more general common law rules articulated in Tournier to have any further relevance save for the perspective of historical evolution and context it provides G Banks in Singapore and the Personal Data Protection Act 2012 Organisations in Singapore are obliged to observe and comply with the requirements of the Personal Data Protection Act 2012 the PDPA which establishes the Singapore regime for the protection of personal data While the PDPA does not establish specific statutory obligations specifically applicable to banks as they are organisations operating within Singapore banks are obliged to observe and comply with the requirements of the PDPA An individual s personal data refers to data whether true or not about an individual who can be identified from that data or other accessible information Broadly banks have to observe the following obligations under the PDPA Banks may only collect use and disclose personal data of an individual with the individual s consent and for a reasonable purpose which the organisation has made known to the individual Personal data must not be transferred outside Singapore except in accordance with requirements of the PDPA In short banks are to provide a standard of protection to the transferred personal data comparable to the protection granted under the PDPA Except in certain circumstances which is discussed below banks must accede to an individual s right of access and correction in respect of his personal data that is in the bank s possession The individual has a right of action for relief against a bank for losses or damages suffered directly as a result of the contravention by the bank of its personal data protection obligations If an individual has registered his Singapore telephone number with the Do Not Call Registry DNC and has thereby opted out from receiving certain types of marketing messages banks have to ensure that such messages are not sent to the registered telephone number In general banks have to carry out the following compliance obligations Designate one or more individuals to be a data protection officer responsible for ensuring that the bank complies with the PDPA and making available to the public contact information of at least one such individual Develop and implement policies and practices to enable the bank to meet its obligations under the PDPA Communicate information on its PDPA related policies and practices to its staff Establish a process to receive and respond to complaints arising with respect to the PDPA and Make available information about the bank s PDPA related policies and practices and complaint process upon request Exceptions and the effect of other written law on the PDPA There are various exceptions and exclusions to the obligations described above within the PDPA In addition the PDPA provides that the provisions of other written law prevail over portions of the PDPA to the extent of any inconsistency For banks it is useful to note that MAS Notice to Banks on Prevention of Money Laundering and Countering the Financing of Terrorism MAS 626 was prepared to take advantage of this MAS 626 is discussed further below MAS 626 In the course of performing customer due diligence in compliance with MAS 626 banks may be required to collect use and disclose personal data of individuals without first obtaining consent This would be in breach of the PDPA provisions To alleviate this situation the MAS amended MAS 626 on 1 July 2014 to expressly allow a bank whether directly or through a third party e g data intermediaries to collect use and disclose personal data of an individual the relevant individual who is a customer appointed to act on behalf of a customer a connected party of a customer namely the director or natural person having executive authority in a customer which is a company the partner or manager of a customer which is a partnership limited partnership or limited liability partnership or any natural person having executive authority in a customer which is a body corporate or unincorporate a beneficial owner of a customer without the relevant individual s consent for the purposes of complying with the requirements under MAS 626 Further MAS 626 provides that in general the bank is not required to provide the relevant individual with the right to access or correct an error or omission of his personal data in the possession or under the control of the bank except with regard to the following personal data of the relevant individual which was provided by him to the bank his factual identification data namely his name identity card number birth certificate number passport number existing residential address contact telephone number date of birth and nationality H Power of IRAS to obtain information 22 3 16 The Inland Revenue Authority of Singapore the IRAS is given broad powers to obtain information for domestic tax administration purposes under section 65B of the Income Tax Act Cap 134 2014 Rev Ed Notwithstanding that the information sought by the IRAS may consist of customer information which may not be disclosed under section 47 of the Banking Act Cap 19 2008 Rev Ed including any regulations made under section 47 10 of the Banking Act Cap 19 2008 Rev Ed a person is not excused from producing the information by reason only that he is under a statutory obligation to observe secrecy section 65D 1 and 2 Income Tax Act Cap 134 2014 Rev Ed Section 65D Income Tax Act Cap 134 2014 Rev Ed overrides any duty of secrecy imposed by the Banking Act Cap 134 2014 Rev Ed in relation to the information sought and provides for immunities for a breach of a duty under the Banking Act Cap 19 2008 Rev Ed when complying with a notice for such information Sections 65B and 65D also apply in relation to information formally requested by a foreign tax authority concerning the tax position of any person pursuant to any Avoidance of Double Taxation Agreement which Singapore has entered into with the country of the foreign tax authority to implement the international standard for the exchange of information for tax purposes developed by the Organisation for Economic Co operation and Development Return to the top SECTION 4 LENDING AND SECURITY A Lending regulated by various statutes depending on the provider of the funds 1 Banks and finance companies 22 4 1 In Singapore the business of lending is regulated by various statutes depending on the person or type of institution that is providing the funds 22 4 2 Banks and finance companies are licensed or regulated under the Banking Act Cap 19 2008 Rev Ed and the Finance Companies Act Cap 108 2011 Rev Ed respectively 2 Licensing and regulation under the Moneylenders Act 22 4 3 Every person who carries on the business of moneylending in Singapore other than banks or finance companies licensed under the relevant Acts to carry on their respective businesses in Singapore must be licensed under or excluded or exempted from the provisions of the Moneylenders Act Cap 188 2010 Rev Ed Moneylending by a person who is not so licensed or who is not an excluded or exempted moneylender is an offence In addition section 14 2 of the Moneylenders Act Cap 188 2010 Rev Ed renders the borrower s obligation to repay such a person unenforceable 22 4 4 The Moneylenders Act Cap 188 2010 Rev Ed came into force on 1 March 2009 repealing and replacing its predecessor which was enacted 50 years ago The new Act underscores a more flexible and progressive approach to the regulation of moneylending in Singapore to keep pace with the modern credit economy With the introduction of the concept of excluded moneylender any person who lends money solely to corporations or limited liability partnerships or to business trusts and real estate investment trusts or their respective trustees or trustee managers will generally not be subject to the new Act However a person lending to individuals other than those which qualify as accredited investors within the meaning of Section 4A of the Securities and Futures Act Cap 289 2006 Rev Ed will not be an excluded moneylender for the purposes of the new Act B Security taken for a loan 22 4 5 Security for a loan is taken by a bank in Singapore to avoid the effects in the winding up or bankruptcy of its borrowing customer of the pari passu distribution of the assets of that borrowing customer Such securities may be classified as proprietary security or possessory security 1 Proprietary security confers upon the secured creditor a right of ownership to property 22 4 6 Proprietary security confers on the secured creditor a right of ownership to the property that is subject to the security Possession of the property remains with the person providing the security The most common proprietary securities are the mortgage and the charge 2 Possessory security depends on creditor obtaining and retaining possession of property 22 4 7 In contrast the legal effectiveness of a possessory security is dependent upon the creditor obtaining and retaining possession of the property that is the subject of the security The most common possessory securities are the pledge and the lien 3 Personal security undertaking by a third party to pay in event of default by borrower 22 4 8 In addition to proprietary and possessory security a bank may enhance its position by obtaining personal security in the form of an agreement by a third party to undertake a personal obligation to pay the bank if the borrowing customer defaults There are two types of such personal security namely guarantees and indemnities While the taking of such personal security does not usually result in the bank acquiring rights over the assets of the relevant third party such guarantees and indemnities are nonetheless useful in providing further recourse for the bank in the event of its borrowing customer s default 4 Characterisation of security based on substance of agreement rather than label applied by parties or form of documents 22 4 9 In determining whether a security interest is created by a particular transaction and the nature of that security interest the courts look to the substance of the parties agreement rather than the label applied by the parties or the form of the documents The true nature of the transaction should be ascertained from the documents against the surrounding circumstances in which they came into being 5 Security over scripless shares Distinct regime provided by the Companies Act 22 4 10 Apart from the security rights granted in favour of the bank under charges mortgages pledges and liens the Companies Act Cap 50 2006 Rev Ed provides for a distinct regime for the taking of security over scripless shares or book entry securities listed on the Singapore Exchange Securities Trading Limited 6 Bank s common law right to combine accounts and contractual rights of set off 22 4 11 In addition to the proprietary possessory and personal security which are available to a bank in Singapore to secure the obligations of its borrowing customer the bank may also avail itself of its common law right to combine accounts and contractual rights of set off against the borrowing customer s accounts with the bank Unless the bank and its customer have agreed otherwise a bank is entitled to combine accounts maintained with the bank by a customer in his own right against a debt payable by the customer to the bank and to treat the balance if any as the amount actually standing to the customer s credit This right to combine all the accounts of a customer is regarded as a right of set off which in practice is usually fortified by contract to circumvent the limitations of this right under the common law For example contractual provisions are usually introduced to entitle a bank to set off a sum presently due to or from the customer with a sum payable by or as the case may be to the customer at a future date to combine different kinds of accounts maintained by the customer in different currencies Return to the top SECTION 5 CHARGES A Characteristics of a charge 1 Confers the right to a creditor to resort to property for payment of a debt or claim 22 5 1 A security interest by way of charge arises when the owner of a property gives the right to his creditor to resort to the property for payment of a debt or claim In the event of the chargor s insolvency the chargee may enforce the security in priority to the claims of unsecured creditors 2 Differences between charge and mortgage no transfer of ownership in a charge 22 5 2 In practice the terms mortgage and charge are often used interchangeably Statutory usage has also tended to assimilate mortgages and charges as well For example a mortgage under the Conveyancing and Law of Property Act Cap 61 1994 Rev Ed is defined to include a charge However there are differences between the two types of security 22 5 3 A charge is created by the contractual acts of the parties Unlike a mortgage a charge does not involve a transfer of ownership to the chargee Also unlike possessory securities such as the pledge and lien the effectiveness of a charge is not dependent upon the chargee obtaining and retaining possession of the charged property In the event of default the chargee has the right to realise the charged property through judicial process whether by way of order for sale or the appointment of a receiver B Creation of charge 1 Charge takes effect by way of agreement without passing of title or possession in property 22 5 4 A charge takes effect by way of an agreement between debtor and creditor without title or possession in the property passing to the chargee 2 Generally no formalities required to create charge except that in certain circumstances agreement must be in writing and signed 22 5 5 There is generally no formal requirement as to the agreement creating the charge However there are two important instances whereby writing is required First section 6 d of the Civil Law Act Cap 43 1999 Rev Ed provides that no action shall be brought against any person upon any contract for the disposition of interest in immovable property unless the agreement is in writing and signed Accordingly a charge created in respect of an interest in land will not be enforceable unless the contract between the parties is in writing and signed The second exception relates to promises to answer for the debt of another Pursuant to section 6 b of the Civil Law Act Cap 43 1999 Rev Ed no action shall be brought against a defendant upon a promise to answer for the debt of another person unless the promise is in writing and signed Consequently a charge created over the chargor s assets to secure the debt of the bank s borrowing customer for instance a charge given by a holding company to secure a loan given by the chargee to a subsidiary of the holding company must be in writing and signed C Types of charges 1 Registration of all floating charges and certain fixed charges under section 131 of the Companies Act 22 5 6 A charge may be fixed or floating All floating charges must be registered under section 131 of the Companies Act Cap 50 2006 Rev Ed but only fixed charges over one or more of the specific types of assets listed in section 131 3 need to be registered 2 Fixed charge fastens on identifiable and ascertainable assets 22 5 7 A fixed charge is one that fastens on assets that are identifiable and ascertainable such as land shares ships and aircraft The fixed charge encumbers the charged asset immediately from the time it is created The chargor is unable to deal with a charged asset without the consent of the chargee 3 Floating charge creates immediate security interest without specifically attaching to individual assets 22 5 8 In contrast a floating charge creates an immediate security interest but does not specifically attach to the individual assets until crystallisation The assets secured by a floating charge are always generally identified in the charging document by referring to all of or as the case may be all of an identifiable class or type of the undertaking and assets of the chargee both present and future 4 Fixed v floating charges distinguished by liberty of chargor to deal with assets and ascertained from terms and circumstances of the agreement 22 5 9 The labelling of a charge as fixed or floating is not determinative of the nature of the charge The critical feature distinguishing a floating charge from a fixed charge is whether the chargor is at liberty to deal with the assets 22 5 10 The true nature of a charge must be ascertained by considering the terms of the security agreement and the factual and commercial matrix in which the agreement is created and performed As such a charge over uncollected book debts which leaves the chargor free to collect them and use the proceeds in the ordinary course of business is a floating charge even if expressed as a fixed charge over the uncollected book debts and a floating charge over the proceeds 5 Fixed v floating charges fixed charge holders and statutorily preferred creditors have priority if charging company is wound up 22 5 11 The main disadvantage of having a floating rather than a fixed charge is the treatment of floating charge holders in the winding up of the charging company Fixed charge holders and persons to whom statutory preferential debts are owed have priority over floating charge holders for the payment of their debts D Registration requirements for charges created by companies incorporated or registered in Singapore 1 Application of section 131 1 of the Companies Act for registration of charges 22 5 12 Section 131 1 of the Companies Act Cap 50 2006 Rev Ed provides that a charge that is created by a company incorporated in Singapore or the branch of a foreign corporation registered in Singapore under Division 2 of Part XI of the Companies Act and to which section 131 applies must be lodged with the Registrar of Companies for registration within 30 days after the creation of the charge in the case where the document creating the charge is executed in Singapore and within 37 days after the creation of the charge in the case where the document creating the charge is executed outside Singapore section 139 22 5 13 Charges that are subject to registration under section 131 are a charge to secure any issue of debentures a charge on uncalled share capital of a company a charge on shares of a subsidiary of a company which are owned by the company a charge or an assignment created or evidenced by an instrument which if executed by an individual would require registration as a bill of sale a charge on land wherever situate or any interest therein a charge on book debts of the company a floating charge on the undertaking or property of a company a charge on calls made but not paid a charge on a ship or aircraft or any share in a ship or aircraft and a charge on goodwill on a patent or licence under a patent on a trade mark or on a copyright or a licence under a copyright Charges capable of registration under the International Interests in Aircraft Equipment Act Cap 144B 2012 Rev Ed do not fall within the ambit of section 131 of the Companies Act Cap 50 2006 Ed 2 Charges that are not registered within time limit are void against liquidators and other creditors of company 22 5 14 A charge that is not registered under section 131 of the Companies Act Cap 50 2006 Rev Ed within the time limit is void against the liquidator and other creditors of the company In the event of insolvency of the chargor company the chargee of an unregistered charge will lose its security and can only claim as an unsecured creditor of the company 3 Failure to register does not affect underlying debt 22 5 15 Notwithstanding the failure to register a charge as required under section 131 of the Companies Act Cap 50 2006 Rev Ed the underlying debt due from the chargor company to the chargee is not affected by the avoidance of the charge against the liquidator and creditors of the company However pursuant to section 131 2 the money secured by the charge will become immediately repayable if the charge becomes void for non registration 4 Registration constitutes notice of the existence of the charge 22 5 16 Registration constitutes notice of the existence but not necessarily the particulars of the charge to all persons dealing with the charged property who might reasonably be expected to search the register of all matters for which registration is prescribed 5 Additional registration requirements apart from those under the Companies Act may apply based on nature of charged asset 22 5 17 Apart from registration under the Companies Act Cap 50 2006 Rev Ed there may be additional registration requirements depending on the nature of the charged asset For example a charge over real property governed by the Land Titles Act Cap 157 2004 Rev Ed must be in the prescribed form and registered thereunder Similarly security given over a ship for a loan must be in the prescribed form and registered with the Registry of Ships When an individual creates a charge over his property the charge is subject to the registration requirements of the Bills of Sale Act Cap 24 2011 Rev Ed if the charge constitutes a bill of sale Under the Bills of Sale Act Cap 24 2011 Rev Ed in order to be effective as security the bill of sale must secure at least S 100 should not be made or given wholly or partly in consideration of a pre existing debt has to be executed in the prescribed form and must be registered within three days of its execution E Enforcement of charges different rights available before and upon default in payment 22 5 18 Some of the rights of enforcement available to a chargee of charged property may be exercised even before a payment default Upon any dealing inconsistent with the charge the chargee has not merely a personal remedy for breach of contract but has other remedies such as an injunction notwithstanding that there has been no failure to pay A chargee can also obtain the appointment of a receiver prior to default on grounds of jeopardy of security However the power of sale arises as a remedy only upon default in payment of the secured debt In the event of default in payment by the chargor the chargee is entitled to look to the property and its proceeds for the discharge of the liability Return to the top SECTION 6 MORTGAGES A Characteristics of a mortgage 1 Transfer of ownership of asset but subject to mortgagor s equity of redemption 22 6 1 In most cases where a bank obtains security in the form of a mortgage the mortgagor transfers ownership of the asset that is the subject of the security to the mortgagee The transfer of ownership is subject to the mortgagor s right to redeem which entitles the mortgagor to call for the re transfer of ownership to the mortgagor when the secured debt is satisfied this is known as the mortgagor s equity of redemption 2 Differences between mortgage and charge transfer of either legal or equitable title in a mortgage 22 6 2 As mentioned above despite the technical differences between a mortgage and a charge the terms are often used interchangeably From the perspective of the secured creditor a mortgage and charge will yield the same practical result although the nature of the security is different A mortgage may be viewed as an enhanced charge as it gives not only rights of appropriation over an asset as a charge does but also entails a transfer of ownership of either legal or equitable title to the mortgagee B Creation of mortgage formalities required to create mortgage agreement except that in certain circumstances agreement must be in writing and signed 22 6 3 As in the case of a charge there is generally no formal requirement on the agreement creating a mortgage However formal requirements must be observed depending on the nature of the property which is the subject of the mortgage The provisions of sections 6 d and 6 b of the Civil Law Act Cap 43 1999 Rev Ed which have been discussed above would similarly apply to mortgages in the circumstances described C Types of mortgages either legal or equitable 1 Equitable mortgage 22 6 4 A mortgage can be either legal or equitable The mortgage will be equitable where the formalities necessary to create a legal mortgage have not been fully complied with the mortgagor s interest in the asset being mortgaged is itself an equitable interest or the parties have entered into an agreement to create a legal mortgage in the future over the asset in question 2 Equitable mortgagee loses priority to subsequent legal mortgagee if latter was a purchaser for value in good faith without notice 22 6 5 Generally the main difference between a legal and an equitable mortgage is that an equitable mortgage loses priority to a subsequent legal mortgage if the subsequent mortgagee was a purchaser for value in good faith without actual or constructive notice of the prior equitable mortgage 3 Different rules of priority where a mortgage is taken over land 22 6 6 Different rules of priority apply where a mortgage is taken over land In Singapore the rules of priority applicable to legal and equitable mortgages over land that is not regulated under the Land Titles Act Cap 157 2004 Rev Ed are governed by the Registration of Deeds Act Cap 269 1989 Rev Ed Section 14 of the Registration of Deeds Act Cap 269 1989 Rev Ed provides that all instruments entitled to be registered under the Registration of Deeds Act Cap 269 1989 Rev Ed will have priority according to the date of their registration and not according to the date of the instruments or of their execution Pursuant to section 6 a charge by reason of a deposit of title deeds will have no effect or priority as against a subsequent assurance for value unless and until a memorandum of charge signed by the person against whom the charge is claimed has been registered in accordance with the Registration of Deeds Act Cap 269 1989 Rev Ed Where the mortgaged land is governed by the Land Titles Act Cap 157 2004 Rev Ed priority is determined according to the date of registration of the instrument of legal mortgage In the case of an equitable mortgage a caveat may be lodged to protect the mortgagee s interest D Registration requirements under section 131 of the Companies Act 1 Mortgages subject to same provisions relating to registration of charges under the Companies Act 22 6 7 The Companies Act Cap 50 2006 Rev Ed defines a charge to include a mortgage and the provisions of section 131 of the Companies Act Cap 50 2006 Rev Ed in relation to the registration of charges applies to mortgages 2 Additional requirements and or formalities depending on nature of mortgaged asset 22 6 8 Apart from registration under the Companies Act Cap 50 2006 Rev Ed there may be additional registration requirements depending on the nature of the mortgaged asset For instance a mortgage over real property governed by the Land Titles Act Cap 157 2004 Rev Ed must be in the prescribed form and registered under that Act It is the act of such registration that creates the mortgage Further it is provided that a registered mortgage shall not operate as a transfer of the land mortgaged but shall take effect as security only 22 6 9 Pursuant to section 53 of the Conveyancing and Law of Property Act Cap 61 1994 Rev Ed a mortgage of land will be void at law unless it is by deed in the English language If however the subject matter of the mortgage is not land then there is no requirement for the mortgage to be executed by deed Nevertheless in practice it is advantageous for the mortgage to be executed by deed as in order to enforce a deed it is not necessary to show that consideration passed between the contracting parties At common law a promise is not binding as a contract unless it is either made in a deed or supported by consideration 22 6 10 There are also practical issues to be taken into consideration when creating a mortgage For example in the case of a mortgage of shares a mortgage is created through a transfer of title in the subject shares to the mortgagee following which the shares are registered in the name of the mortgagee Pursuant to section 195 4 of the Companies Act Cap 50 2006 Rev Ed the mortgagor s interest cannot be reflected in the share register Hence in practice the mortgage is effected by delivery of the share certificate and its related transfer form duly executed by the mortgagor together with a document setting out the circumstances of the transfer and providing for re transfer to the mortgagor upon repayment of the loan E Enforcement of security upon default in payment 1 Rights of secured lender to enforce security are cumulative 22 6 11 Where the borrower defaults in repaying the sums due under the mortgage a bank can have recourse to a number of rights and remedies in order to enforce its security The rights of the secured lender are cumulative which means that the bank may exercise all or any of the remedies until it is fully repaid Thus even after it sells the property and there is a shortfall unless the sale is pursuant to the right of foreclosure the bank can sue the borrowing customer for the balance on his personal promise to repay the moneys 2 Exercising the power to sell mortgaged property 22 6 12 The bank may choose to exercise its power to sell the property The power to sell is usually provided for in every well drafted mortgage document It is also implied by statute pursuant to section 24 of the Conveyancing and Law of Property Act Cap 61 1994 Rev Ed into every mortgage that is made by deed If the objective is to protect the security and to collect profits yielded by the property which may be applied towards discharging the mortgage debt a receiver may be appointed either pursuant to the provisions of the security document section 29 of the Conveyancing and Law of Property Act Cap 61 1994 Rev Ed or a court order Where the subject of the mortgage is land the express terms of a mortgage instrument will usually give the bank the right to enter into possession upon default and after written notice is given to the borrowing customer In selling the property the bank has a duty to take reasonable steps to obtain a proper price such as holding a public auction where appropriate Return to the top SECTION 7 PLEDGES A Characteristics of a pledge transfer of possession of asset without transfer of ownership 22 7 1 A pledge operates upon the transfer of possession of the asset by the pledgor to the pledgee There is no transfer of ownership B Delivery of pledged item critical to creation of pledge and may be actual or constructive 22 7 2 Critical to the creation of a pledge is the delivery of the subject matter of the pledge Delivery may be actual or constructive For example a pledge may be created over personal chattels stocks or goods by actual delivery of the items or bill of lading relating to the goods C Pledged assets retained by pledgee until secured debt is satisfied 22 7 3 The pledgee retains possession of the pledged assets until the secured debt is satisfied If the pledgor does not repay the debt the pledgee is entitled to sell the pledged asset and use the proceeds to satisfy the debt D Implied term of pledge that asset may be sold to satisfy debt upon default in repayment 22 7 4 It is an implied term of the contract of pledge that the pledgee may sell the asset pledged to satisfy the debt on default of payment at the time fixed for repayment Where there is no time fixed for repayment the pledgee may demand payment and in default of payment sell on notice to the pledgor of his intention to do so The pledgor has a right to redeem the pledge up to the time of the sale Return to the top SECTION 8 LIENS A Characteristics of a lien confers a right to retain lawful possession of property owned by another until a claim is met 22 8 1

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  • Ch.23 The Law of Guarantees
    the surety s promise Thus if at the time of giving the guarantee the creditor had already given the consideration such as by the advance of money under a loan the danger is that the contract is unenforceable since the consideration appears to be past An alternative is to execute the document under seal another alternative is to show forbearance either through a promise to forbear or actual forbearance at the request of the surety Return to the top SECTION 4 FORMALITIES A Oral guarantees are unenforceable under s 6 b of the Civil Law Act 23 4 1 Section 6 b of the Civil Law Act provides that in order for a legal proceeding to be brought against a defendant for any promise to answer for the debt default or miscarriage of another person there must be a written note or memorandum signed by the surety an oral guarantee is unenforceable under Singapore law B For S 6 b of the Civil Law Act to apply four requirements must be met 23 4 2 The main purpose of such a legal requirement is to protect honest people from being liable for guarantees they never gave The ambit of the statutory provision however is potentially wider Over time the courts have established that in order for a promise to be within the statute four requirements need to be satisfied the promise is made to the creditor the promise is collateral to the primary obligation of another there must be an absence of liability on the part of the defendant or his property apart from his promise and the main object of the promise must be to guarantee 23 4 3 If any of these requirements is not satisfied the statute does not apply and an oral promise may be sued upon The presence of these four hurdles helps to curtail the potential harshness of the writing requirement C Additional Formalities 1 Moneylending and hire purchase contracts are subject to separate formalities 23 4 4 Where guarantees are given in respect of loans by moneylenders or in connection with hire purchase there are additional formalities required under the Moneylenders Act cap 188 and Hire Purchase Act cap 125 respectively Return to the top SECTION 5 LIABILITY OF SURETY A Construction of Guarantee 1 Guarantees to be construed in favour of surety 23 5 1 The liability of a surety under a guarantee is a matter of construction or interpretation of the guarantee in question However there is some controversy as to whether guarantees should be construed somewhat differently from other contracts It has been said that the liability of the surety arises strictissimi juris the contract of guarantee is to be strictly construed in favour of the surety There are two main reasons for such an approach Firstly the surety is entering into liability not for himself but for a third person it is therefore the duty of the creditor to see that the obligation is couched in clear terms so that the surety understands the liability he is undertaking Secondly the surety often receives no benefit for his onerous obligation An opposing view is that a guarantee should be construed no differently from other contracts The balance of judicial opinion suggests that the strictissimi juris rule still exists 2 The other general rules of construction also apply 23 5 2 In addition to this rule the general rules relating to the construction of contracts apply such as the intention of the parties is to be gathered from the document and from such extrinsic evidence as is admissible the plain meaning of the words used subject to exceptions is to be given effect to and the parol evidence rule and its exceptions According to the parol evidence rule no extrinsic evidence is admissible for the purpose of contradicting varying adding to or subtracting from the terms of a written contract The exceptions to the rule include adducing extrinsic evidence to show that the contract is invalid such as because it lacked consideration or was induced by vitiating conduct eg undue influence giving extrinsic evidence of a separate oral agreement as to a matter on which the written contract is silent B Extent of liability depends on construction of contract 23 5 3 The extent of liability of a particular surety depends on what was undertaken by the contract The guarantee has to be construed to determine whether for example the guarantee covers a past or future debt the guarantee is specific or continuing the guarantee is for the whole or part of the principal debt if the guarantee is for only part of the debt upon payment of that part of the debt the surety has recovery rights against certain parties the guarantee is limited or unlimited in amount note that leaving the amount blank in a limitation clause gives rise to complications and should be avoided the guarantee is limited or unlimited in duration the principal debtor s guarantee liability i e the principal debtor s liability as surety is also covered and interest and costs are covered C Estoppel by convention may be relevant to liability 23 5 4 The principle of estoppel by convention may be relevant to the liability of a surety According to this principle when parties have acted in their transaction upon the agreed assumption that a given state of facts is to be accepted between them as true then they will be estopped from questioning the truth of the state of facts so assumed For instance on this basis a surety has been held liable for loans made to a number of companies within a group although the guarantee referred to one of them only D Liability arises upon debtor defaulting unless guarantee is conditional 23 5 5 A surety s liability being collateral to that of the principal debtor arises when there has been a default by the principal debtor The liability arises immediately upon the default and unless the guarantee provides otherwise is not conditional upon the creditor doing any of the following notifying the surety of the principal debtor s default making a demand upon the surety suing the principal debtor or realizing any security held by the creditor 23 5 6 A surety who wishes to make his liability so conditional must make specific provision in the guarantee Return to the top SECTION 6 DISCHARGE OF SURETY 23 6 1 There is a wide variety of grounds upon which a surety may be discharged from liability some of these grounds are an application of general law while others are particular to the law of guarantees A Discharge of Principal Debtor 23 6 2 As we have seen collateral liability is an essential aspect of a guarantee and if the principal debtor is discharged so is the surety Thus if the principal debtor performs his primary obligation and makes payment the surety is also discharged There is no general principle that a payment by the principal debtor to the creditor must be made towards the payment of the guaranteed debt Another situation where the principal debtor is discharged is where the creditor s breach of contract entitles the principal debtor to terminate the principal contract B Discharge by Creditor s Conduct 23 6 3 There are many scenarios in which the conduct of the creditor may result in the discharge of the surety 1 Variations of principal contract not beneficial to or not consented to by surety 23 6 4 Any variation to the principal contract other than variations which are beneficial or which cannot be prejudicial to the surety will discharge the surety The reason for this strict rule is that since the surety is understandably concerned about transactions involving the principal debtor the creditor must inform and consult him The surety is not discharged if the principal contract allowed for variations or if the surety had consented such as through a clause in the guarantee to the variation Note however that a clause in the guarantee may not justify a radical change 2 Alteration of terms of guarantee without surety s consent 23 6 5 If the creditor deliberately alters the instrument of guarantee in any material particular without the consent of the surety the instrument will become void and the surety will be discharged 3 Departure from terms of guarantee 23 6 6 If the creditor departs from or breaches a term in the guarantee whether the surety is discharged depends on the seriousness of the breach If it is a serious breach the surety is fully discharged whereas if it is not serious then the surety is discharged only to the extent that he suffered prejudice 4 Agreement to give time to principal debtor without surety s consent 23 6 7 It is a strict principle of suretyship law that an agreement to give time to the principal debtor discharges the surety if it was made without the surety s consent whether or not the surety is prejudiced by it The technical reason is that this agreement interferes with the surety s right to pay the creditor and sue the principal debtor 5 Agreement with Principal Debtor to Give Time to Surety 23 6 8 Where the creditor agrees with the principal debtor to give time to the surety the surety is discharged The reason is that such an agreement ties the hands of the creditor from receiving payment from the surety and therefore interferes with the surety s right to pay the debt and sue the principal debtor 6 Release of principal debtor 23 6 9 A release of the principal debtor discharges the surety for the same technical reason that his right to pay the debt and sue the principal debtor is interfered with The surety is not discharged if the contract of guarantee provides otherwise 7 Release of Surety 23 6 10 Obviously if the creditor chooses to release the surety the latter is discharged from liability 8 Release of Co Surety 23 6 11 A release of a co surety discharges the surety the reason being that such release may prejudice his right of contribution from the co surety 9 Release or Loss of Securities 23 6 12 Where the existence of the security is a condition of the guarantee the release or loss of the security by the creditor fully discharges the surety Where there is no such condition the release or loss discharges the surety only to the extent that he has been prejudiced The creditor however is probably not under a duty to the surety to realize a security before it became worthless the creditor is free to decide whether or not to realize security and if so when 10 Negligent realization of enforced securities 23 6 13 While a creditor is not under a duty to enforce securities held by him if he does enforce any such securities he owes a duty to the surety to take reasonable care in enforcing them He is under a duty to realize the securities at the best possible price or the true market value at the time he realizes them 11 General Duty not to Prejudice the Surety 23 6 14 There is some authority for a general proposition that if the creditor does any act which is injurious to the surety or inconsistent with the surety s rights the surety is discharged 12 Clauses Taking Away Surety s Defences 23 6 15 Most standard form guarantees contain clauses that seek to preserve the surety s liability in every scenario where the surety would have been discharged on account of the creditor s conduct While such clauses are generally effective it is possible that in some situations they may amount to unreasonable exclusion clauses under the Unfair Contract Terms Act cap 396 13 Guarantee may be avoided because of vitiating factors or illegality 23 6 16 Like any contract a guarantee can be avoided because of vitiating factors such as misrepresentation undue influence unconscionability and so forth or illegality Misrepresentation involves the false statement of a material fact to induce the other party Undue influence refers to the improper use of pressure or influence Unconscionability involves the exploitation of a person s disadvantage or disability to achieve an oppressive result If the creditor uses any of these forms of improper conduct to induce the guarantee to be given the guarantee may be avoided 14 Non disclosure of unusual facts 23 6 17 It is well established that unlike contracts of insurance a contract of guarantee is not a contract uberrimae fidei there is no obligation on the part of the creditor to disclose to an intending surety all material facts of which the creditor is aware Instead the creditor has a duty to disclose unusual facts or put in another way anything that might not naturally be expected to take place between the parties It has been said that a creditor is obliged to disclose to a guarantor any unusual feature of the contract between the creditor and the debtor which makes it materially different in a potentially disadvantageous respect from what the guarantor might naturally expect C Principal Debtor s Vitiating Conduct 23 6 18 In the context of guarantees the vitiating conduct that is likely to occur is not so much that of the creditor but rather that of the principal debtor towards the surety The typical scenario is where a debtor husband through some vitiating conduct induces his wife to stand as surety or mortgagor for him The difficulty here is in deciding which of the two apparently innocent parties is deserving of the law s protection the surety or the creditor The recent decades have seen significant developments in this area of law 23 6 19 The current position after two landmark House of Lords decisions appears to be as that the creditor is affected by the principal debtor s misconduct towards the surety if the principal debtor was the creditor s agent in securing the surety s consent to giving the guarantee or the creditor had actual or constructive notice of the principal debtor s impropriety 1 Creditors are affixed with constructive notice if they are put on inquiry and do not take reasonable steps to ensure the surety understands the nature of the guarantee 23 6 20 The constructive notice concept used here needs elaboration A creditor who is put on inquiry as to the impropriety is required to take reasonable steps to ensure that the surety understands the nature and effect of the transaction otherwise he is affixed with constructive notice A creditor is said to be put on inquiry by a combination of two factors the transaction not being to the financial advantage of the surety and substantial risk of the debtor committing wrong in procuring the guarantee 2 Reasonable steps the creditor must take 23 6 21 The creditor has to take reasonable steps either through a private meeting with the surety or through obtaining confirmation from a solicitor acting for the surety There are elaborate requirements and qualifications with regard to the steps that should be taken 3 Wider propositions for when a creditor is put on inquiry 23 6 22 In addition to these principles there is weighty dicta for two wider propositions of law that the creditor is put on inquiry whenever a wife stands surety for her husband s debts and that a creditor is put on inquiry in respect of all non commercial sureties D Avoidance of Corporate Guarantees 23 6 23 A corporate guarantee may be avoided on account of it being ultra vires the company i e beyond the company s capacity In addition the Companies Act cap 50 prohibits a company from giving a guarantee for the purpose of the purchase by any person of shares in the company or in its holding company for the benefit of a director of the company or a related company or for the benefit of a company that is connected to the directors of the company giving the guarantee However the respective contraventions have differing effects on the enforceability of the guarantee Return to the top SECTION 7 RIGHTS OF SURETY 23 7 1 The main rights of a surety are the right of indemnity as against the principal debtor the right of subrogation as against the creditor and the right of contribution as against co sureties A Claims in indemnity and restitution against the principal debtor 23 7 2 There are two main bases upon which a surety may claim against the principal debtor indemnity and restitution The indemnity basis applies whenever there is as between the principal debtor and the surety an express or implied agreement that the former will indemnify the latter from all losses incurred as a result of giving the guarantee Upon paying the principal debt the surety is entitled at law to exercise his right of indemnity When the creditor makes a demand on the surety it would be prudent for the surety to inform or consult the principal debtor as it helps the surety to confirm that there has been default it helps the surety to ascertain whether the principal debtor has any defences and the principal debtor may in response give specific instructions to the surety or even assume responsibility of defending the action 1 Indemnity rights in equity via a quia timet action 23 7 3 In equity even before payment the surety has indemnity rights As soon as the surety s liability to pay under the guarantee has become absolute in that the creditor has acquired a right to immediate payment by the surety the surety is entitled to call upon the principal debtor to pay the debt in order to relieve the surety of such liability The surety proceeds by way of a quia timet action literally because he fears 2 Restitutionary rights for non officious sureties 23 7 4 The second basis is restitution The restitutionary

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  • Ch.24 Insurance Law
    must be noted that the mere usage of labels is not necessarily conclusive The inclusion of the term warranty will not automatically entitle an insurer to an automatic discharge in the event of non compliance L Union des Assurances de Paris IARD v HBZ International Exchange Co Singapore Pte Ltd 1993 3 SLR 161 Instead the courts will give effect to parties intentions on the true construction of the policy 24 5 4 To circumvent such uncertainty insurers have instead opted to incorporate basis of the contract clauses at the foot of the proposal form The effect of which is to make all of the insured s responses on the proposal form the basis of the contract and thus entitle the insurer to repudiate liability should any untruths be discovered subsequently This conveniently allows insurers to sidestep the various hurdles to making a successful non disclosure or misrepresentation claim Evidently the fairness of such a practice can be questioned and it has since been expressly invalidated in England s consumer insurance regime by virtue of section 6 of the Consumer Insurance Disclosure and Representation Act 2012 24 5 5 Another issue that arises on the true construction of a term is whether a warranty is to past or present fact or is a continuing promissory warranty as to the future This determination requires the court to undertake a contextual analysis including considerations such as references to the future and the usage of tenses Hair v Prudential Assurance Co Ltd 1983 2 Lloyd s Rep 667 Notably such an issue is particularly prevalent where responses to questions in a proposal form are made the basis of the contract and are ambiguous as to the scope warranted 24 5 6 Nonetheless despite the all or nothing nature of breaches of warranty one exception is where there is a waiver of the breach of warranty see section 34 3 of the Marine Insurance Act For the sake of clarity it must further be noted that the automatic discharge of an insurer on the insured s breach of warranty precludes the option of waiver by election and only waivers by estoppel will apply in respect of breaches of warranty 24 5 7 Accordingly to establish waiver by estoppel there must be an unequivocal representation that the insurer is content not to rely on his right whether expressly made or implied by conduct and proof of the policyholder s consequent reliance on such a representation Notably an unequivocal representation is an objective legal concept and silence or inaction of the insurer simpliciter would fall short of such a standard Liberty Insurance Pte Ltd and Another v Argo Systems Fze 2011 EWCA Civ 161 Clauses delimiting the risk 24 5 8 Alternatively a clause that may appear to be a warranty on its face may be reinterpreted as a mere clause delimiting or describing the risk on its true construction Provincial Insurance Co v Morgan 1933 AC 240 Delimiting clauses merely stipulate that coverage will be suspended for the duration of the non compliance and will resume when remedied unlike breaches of warranties which lead to an automatic discharge regardless of whether the non compliance is remedied Judicial interpretation of such clauses therefore mitigates the harshness of a warranty in favour of the insured Condition Precedent 24 5 9 While warranties entitle an insurer to be discharged from liability on non compliance condition precedents operate similarly to the extent that compliance with certain requirements may be stipulated as a pre condition to an insurer s liability Return to the top Section 6 Intermediaries 24 6 1 As insurance providers are companies which have to act through designated persons intermediaries play a particularly pertinent role in the arrangement of insurance policies Regulation of Insurance Intermediaries 24 6 2 Insurance intermediaries are regulated under the auspices of both the Insurance Act as well as the Financial Advisers Act Cap 110 24 6 3 The terms insurance agent insurance broker as well as insurance intermediary are defined in section 1A of the Insurance Act with an insurance agent identified as a person who carries on insurance business as an agent for the insurer an insurance broker as a person who carries on insurance business as an agent for the insured and an insurance intermediary as a broad umbrella term for both insurance agents and insurance brokers alike 24 6 4 The Insurance Act governs general insurance which is often consumption based and not considered investment products Under which insurance intermediaries are subject to various regulations which include the duty on pre contractual disclosure section 35P the duty not to misrepresent section 35R as well as the requirement of registration for insurance brokers see sections 35W to 35Z 24 6 5 On the other hand the Financial Advisers Act governs the entire range of financial advisory services and specifically includes the arranging of any contract of insurance in respect of life policies alongside the dispensation of advice regarding any investment linked life insurance plans Section 2 read with Schedule 2 of the Financial Advisers Act Life insurance agents are therefore subject to additional licensing requirements Part II Financial Advisers Act and checks on the conduct of business Part III Financial Advisers Act Issues of Agency 24 6 6 The role of intermediaries in the procurement of insurance business from prospective policyholders can often become contentious In the advisory and application process the knowledge and acts of an insurance intermediary becomes relevant when an agent may fail to or erroneously record certain details in the proposal form The question then becomes whether a policy applicant should be penalized for the acts of the insurance intermediary 24 6 7 The general rule that has emerged from the prevailing judicial authorities is that a person vested with the authority by the policy applicant to fill in a proposal form will be deemed the insured s agent for the purposes of filling in the proposal form Globe Trawlers Pte Ltd v National Employers Mutual General Insurance Association Ltd 1989 SLR 192 This is based on the notion that a man cannot contract with himself and a person who fills up the proposal form thus cannot logically be the person accepting the proposal as well The courts have thus held it impermissible to impute the knowledge of a scribe or amanuensis for the policy applicant to the insurer 24 6 8 Moreover the principle of the sanctity of one s signature has also been consistently upheld by the court on the basis of commercial certainties It is therefore no defence for an applicant to sign on a proposal form and later allege that he was not aware of the contents Biggar v Rock Life Assurance Co 1902 1 KB 516 Duties of an Intermediary 24 6 9 On the finding of a principal agent relationship it must be noted that the agent will be subject to fiduciary duties as well as duties of care and skill 24 6 10 On the former it is trite that a fiduciary is subject to the strict duty to avoid conflicts of interests unless he does so with full disclosure and his principal s consent Boardman v Phipps 1966 UKHL 2 24 6 11 On the latter an insurance intermediary is held out to the standard reasonably expected of him Zurich Insurance v B Gold Interior Design and Construction 2008 3 SLR R 1029 and there is no requirement of dishonesty before a breach will be made out 24 6 12 However the duties owed to the principal will vary depending on the circumstances of each case and relevant considerations can include the particular instructions received Nevertheless the agent for the insured is duty bound to ensure that he attains adequate coverage for the insured McNealy v Pennine Insurance Co Ltd 1978 2 Lloyd s Rep 18 and should point out any special circumstances such as the shaky financial position of the insurer Osman v J Ralph Moss Ltd 1970 1 Lloyd s Rep 313 or any terms in the policy that might leave the policyholder underinsured J W Bollom Co Ltd v Byas Mosley Co Ltd 2000 Lloyd s Rep IR 136 Return to the top Section 7 Construction of the Insurance Contract 24 7 1 To determine the true construction of a word or a phrase the courts endeavor to give effect to the intention of parties objectively ascertained As construction is a question of law previous judicial interpretations of a certain word or phrase are necessarily binding or at the very least persuasive authority on subsequent claims 24 7 2 Words used will be given their plain and ordinary meaning unless they are a legal terms of art Lake v Simmons 1927 AC 487 b have acquired special meaning by long usage in a trade Robertson v French 1803 102 ER 779 or c their given context requires otherwise Kearney v General Accident Fire and Life Assurance Corporation Ltd 1968 2 Lloyd s Rep 240 Terms thus will not typically be construed in vacuo and will be understood in the context of the entire contract Hamlyn v Crown Accidental Insurance Co Ltd 1893 1 QB 750 24 7 3 In event of ambiguity a term will be construed in favour of the party who did not draft the term by virtue of the contra proferentem rule Additionally the parol evidence rule stipulates that once a contract is reduced into writing extrinsic materials such as negotiations are not typically admissible However it must be noted that this rule only kicks in on the finding that the contract in question was intended by parties to contain all terms of the contract Extrinsic evidence and the surrounding circumstances of the contract are thus permissible and necessary considerations for the court to first make this preliminary finding before the parol evidence rule would come into effect Zurich Insurance v B Gold Interior Design and Construction 2008 3 SLR R 1029 Return to the top Section 8 Illegality and public policy 24 8 1 The general rule against contractual illegality applies with equal force to insurance contracts To this end as per the oft cited latin maxim ex turpi causa non oritur actio no action can arise from a wrongful cause no person can rely on his own illegal act or an illegal contract to make a claim on his insurance policy Tinsley v Milligan 1994 1 AC 340 nor can a person benefit from his own criminal conduct Cleaver v Mutual Reserve Fund Life Association 1892 1 QB 147 From a policy standpoint it is evident that indemnifying such risks would be to encourage the commission of crimes or civil wrongs and would be wholly against public policy Gray v Barr 1971 2 QB 554 24 8 2 Illegality can manifest in several forms For instance a contract will be deemed illegal from its inception where an insurer agrees to indemnify a policyholder in respect of crimes or civil wrongs which they knew the policyholder intended to commit Hardy v Motor Insurers Bureau 1964 2 QB 745 at 760 24 8 3 Alternatively a claim will be tainted by illegality when a policyholder seeks recovery under a policy based on his own criminal or tortious act In such a scenario the policyholder s claim is barred not just by the general rule against illegality but the rule specific to insurance law that an assured would not typically be allowed to recover on an intentional act This rule should be understood as a rule of construction of the insurance policy On the policy argument the English courts have gone so far as to suggest that the overwhelming weight of policy considerations in ensuring one does not benefit from his illegal act can override any express provisions in the policy Beresford v Royal Insurance Co 1938 AC 586 24 8 4 The finding of illegality forms an exception to the rule that all premiums already paid would be disgorged for total failure of consideration see section 84 1 of the Marine Insurance Act Return to the top Section 9 Loss Causation 24 9 1 Although a loss may prima facie fall within the terms of an insurance policy on its true construction a policyholder is still required to prove the element of causation between the loss incurred and the insured risk before the insurer will make the relevant pay out 24 9 2 The element of causation becomes particularly complex where a sequence of events precedes the loss and there are multiple causes and some of which are expressly excluded from policy coverage 24 9 3 When a sequence of events precedes a loss it will be necessary to first determine the proximate cause This is a question of fact in all cases and judicial precedents thus serve as mere guidelines and are not binding However the principles that have emerged are instructive chief of which is that a proximate cause is not necessarily the most recent cause At all times the proximate cause must be understood as the effective and actual cause Thus as long as a loss or damage is the necessary consequence of the insured peril causation is prima facie proven 24 9 4 Where there are multiple causes that are both necessary but individually insufficient for the occurrence of the loss it is suggested that the insured will not be able to recover in respect of the entire claim even if only one of the causes is excluded under the policy Lloyd JJ Instruments Ltd v Northern Star Insurance Co The Miss Jay Jay 1987 1 Lloyd s Rep 32 24 9 5 However it must be noted that the common law principles on causation can be expressly modified by policy wording where insurers may only cover losses caused by the insured peril independently and exclusively of all other causes See e g Jason v Batten 1969 1 Lloyd s Rep 281 Valued and unvalued policies 24 9 6 The loss recoverable by an insured is determined by the type of policy coverage taken out On an unvalued policy the indemnity recoverable will be calculated based on the value at the time and place of loss On the other hand on a valued policy an insured will simply recover the agreed value Parties thus contract out of indemnity and by doing so are thus insulated from any possible incidences of over or under insurance regardless of whether the actual loss is greater or lesser than the agreed valuation the insurer will still be liable for the agreed amount 24 9 7 However it must be noted that whether a policy is a valued or unvalued policy turns on the construction of the policy and the mere fact that the policy states the sum insured does not automatically mean that the policy is a valued policy Quorum A S v Schramm 2002 1 Lloyd s Rep 249 Allianz General Insurance Malaysia Bhd v Navis Shim Lee Hiong 2004 1 MLJ 437 Over and Under Insurance 24 9 8 Most insurance policies are subject to a limit on recovery However since the market value of the insured subject matter may fluctuate in goods and property insurance the subject matter may accordingly become over or under insured 24 9 9 Looking specifically at under insurance i e where the market value is beyond the maximum sum recoverable under the policy a policyholder becomes his own insurer for the sum not covered assuming there is no preliminary issue of non disclosure or breach of warranty While such a scenario only seems fair what bears noting is that an insured will nevertheless be able to recover fully in respect of partial losses as long as the partial loss incurred remains within the stated limits on recovery Accordingly insurers have thus sought to protect themselves from such a scenario by incorporating average clauses into the policy which ensure that a policyholder bears a rateable proportion of any loss should underinsurance arise 24 9 10 On the other hand no such issue arises under a valued policy In respect of partial losses under a valued policy it is settled law that the insurer will be liable for a portion of the agreed sum with the agreed sum reduced in proportion to the depreciation in the actual value i e market value of the property Elcock v Thomas 1949 2 KB 755 Value of loss 24 9 11 Another issue that arises is the method of assessing the value of the loss It must be noted that the value of a loss can be calculated in more than one way and can be calculated in terms of 1 the market value of the loss damage 2 the replacement value or 3 reinstatement costs Reynolds v Phoenix Assurance Co 1978 2 Lloyd s Rep 440 The most appropriate method of indemnification will depend on the specific circumstances of the case and the actual loss suffered must be determined as a question of fact Return to the top Section 10 Claims Claims Procedure 24 10 1 The claims procedure is typically governed by express terms and conditions in the policy This includes clauses requiring notification of the loss clauses requiring the provision of documentary evidence as well as arbitration clauses see e g Tay Eng Chuan v Ace Insurance Ltd 2008 4 SLR R 95 However whether such clauses are condition precedents to the insurer s liability must be determined on the true construction of the contract Fraudulent claims 24 10 2 A fraudulent statement if made knowingly is made without belief in its truth or if made recklessly is made carelessly whether it is true or not However a fraudulent claim must be properly distinguished from an exaggerated claim used as a bargaining device Mere exaggeration is not immediately fraud without more Orakpo v Barclay Insurance Services Co Ltd 1994 CLC 373 as commercial reality dictates that policyholders will often put forward a claim higher than they

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  • Ch.25 Shipping Law
    Pte Ltd v Voss Peer 2002 2 SLR R 1119 The Rafaela S 2005 2 AC 423 2 The bill of lading entitles its holder to the delivery of goods against presentation of the bill 25 4 10 As a document of title the bill of lading entitles its holder to delivery of the goods against presentation of such a bill Accordingly a delivery to the holder of the bill of lading even where he has not paid for the goods discharges the shipowner from any liability provided that such delivery was made in good faith and without notice of the holder s defect in title or competing claims for the goods A shipowner is liable for breach of contract of carriage and or conversion of the cargo if the goods were delivered to a person without production of the bill of lading A carrier who delivers cargo without surrender of the bill of lading or against the production of a forged bill of lading does so at his peril The Cherry 2003 1 SLR R 471 The Jian He 1999 3 SLR R 432 The Arktis Sky 1999 3 SLR R 177 A seller who holds onto the bill of lading although having received partial payment from his buyer is not estopped from suing the carrier who delivers the cargo without production of the bill of lading The Pacific Vigorous 2006 3 SLR R 374 3 Switching of bills of lading is a dangerous practice for the shipowner but is not untoward if meant to conceal the identity of the shipper or to split bulk cargo 25 4 11 Switching of bills of lading is a relatively common practice but is one fraught with danger to the shipowner especially if the switching is imperfectly carried out and two sets of bills of lading are left in circulation BNP Paribas v Bandung Shipping Pte Ltd 2003 3 SLR R 611 There is however nothing untoward if the switch is solely to conceal the identity of the original shipper from the receiver of the goods or to split up a bulk cargo into smaller quantities Samsung Corp v Devon Industries Sdn Bhd 1995 3 SLR R 603 D Rights of Suit under Bills of Lading 1 The Bills of Lading Act transfers all rights of suit for a contract of carriage not including charterparties to any person who lawfully becomes the holder of a bill of lading 25 4 12 Rights of suit under a bill of lading were previously governed by the 1855 Bills of Lading Act and depended on the passing of property in the goods shipped under the bill of lading by reason of the indorsement or consignment of the bill of lading The 1855 Bills of Lading Act has been abolished and replaced in Singapore by the current Bills of Lading Act hereinafter BLA which is in pari material with the UK Carriage of Goods by Sea Act 1992 25 4 13 The BLA removes the link between contractual rights and the passing of property and allows the assertions of rights of suit against the carrier irrespective of the passing of property in the goods shipped As such a person who becomes a lawful holder of the bill of lading as defined by the BLA has by virtue of becoming the holder of the bill transferred to and vested in him all rights of suit as if he had been a party to the bill of lading see s 2 1 of the BLA For the purpose of the Act the holder of the bill of lading can be in either physical or constructive possession through an agent for instance of the bill of lading The Cherry 2002 1 SLR R 643 2 A person who has the right of suit may exercise that right for another person who has an interest in relation to the goods to which bill of lading relates and sustains loss in consequence of a breach of contract 25 4 14 Where a person with any interest or right in relation to goods to which a bill of lading relates sustains loss or damage in consequence of a breach of the contract of carriage but rights of suit in respect of the breach are vested in another person that other person is entitled to exercise those rights for the benefit of the person who sustained the loss or damage to the same extent as they could have been exercised if they had been vested in the person for whose benefit they are exercised see s 2 4 of the BLA 3 A bill of lading is not transferrable where the goods are specified to be delivered to a named person 25 4 15 A bill of lading is not transferable where it requires the goods specified in it to be delivered to a named person omitting any language of transferability Such a bill is described as a straight consigned bill of lading For the purposes of the BLA a straight consigned bill is treated as a waybill 4 Where a bill of lading is indorsed by a special indorsement the bill of lading ceases to be transferable until it is indorsed by the named indorsee 25 4 16 The indorsement of a bill of lading may be by a special indorsement i e it may name the transferee to whom delivery is to be made If no transferee is named the indorsement is called an indorsement in blank and the goods specified in the bill of lading are deliverable to the bearer without indorsement However the bearer or holder of the bill of lading may at any time convert the indorsement in blank to a special indorsement by inserting in it the name of the person to whom delivery is to be made In such circumstances the bill of lading ceases to be transferable by mere delivery and requires indorsement by the indorsee named in the special indorsement before it is capable of being further transferred Bandung Shipping Pte Ltd v Keppel TatLee Bank Ltd 2003 1 SLR R 295 Where an order bill of lading names a consignee there is no requirement for the bill of lading to be indorsed by the shipper or any intermediate party before the named consignee becomes holder of the bill of lading UCO Bank v Golden Shore Transportation Pte Ltd 2006 1 SLR R 1 5 A person who becomes the lawful holder of a bill of lading and demands delivery or makes a claim under the contract of carriage is also subject to the liabilities under that contract 25 4 17 Where a person becomes the lawful holder of a bill of lading under the BLA and takes or demands delivery from the carrier of any of the goods to which the bill of lading relates or makes a claim under the contract of carriage against the carrier in respect of any of those goods that person will become subject to the same liabilities under that contract as if he had been a party to that contract see s 3 of the BLA E Singapore Carriage of Goods by Sea Act and the Hague Visby Rules 1 Scope of the Hague Visby Rules 25 4 18 Under the Carriage of Goods by Sea Act of Singapore the Hague Visby Rules hereinafter HVR have the force of law in Singapore The Epar 1983 1984 SLR R 545 Pacific Electric Wire Cable Co Ltd v Neptune Orient Lines Ltd 1993 2 SLR R 102 The HVR apply to every bill of lading relating to the carriage of goods between ports in two different states if the bill of lading is issued in a contracting state of the HVR or the carriage is from a port in a contracting state or the contract contained in or evidenced by the bill of lading provides that the rules or legislation of any state giving effect to the HVR are to govern the carriage see Art X of the HVR 2 The HVR apply only to contracts of carriage covered by a bill of lading or any similar document of title 25 4 19 The HVR apply only to contracts of carriage covered by a bill of lading including a straight consigned bill of lading see The Rafaela S 2003 3 All ER 369 or any similar document of title insofar as such a document relates to the carriage of goods by sea The HVR apply to the period from the time when the goods are loaded on board the ship to the time they are discharged from the ship 3 The carrier is bound to exercise due diligence to make the vessel seaworthy before and at beginning of the voyage 25 4 20 A carrier is bound to exercise due diligence to make the ship seaworthy before and at the beginning of the voyage see Art III rule 1 of the HVR The obligation under the HVR to exercise due diligence to make the ship seaworthy replaces the absolute obligation at common law to provide a seaworthy ship Subject to the provisions conferring protection on the carrier in certain circumstances the carrier is obliged under Art III rule 2 of the HVR to properly and carefully load handle stow carry keep care and discharge the goods carried 4 The carrier enjoys package and weight limitations in addition to the exclusions under Art IV rule 2 of the HVR 25 4 21 A carrier enjoys package and weight limitations of 10 000 gold francs S 1 563 65 per package and 30 gold francs S 4 69 per kilogramme under the HVR There is also a list of exclusions under Art IV rule 2 of the HVR which a carrier may avail himself of provided he satisfies the obligation of exercising due diligence to provide a seaworthy vessel 5 The carrier is discharged from all liability in respect of goods carried unless a suit is brought within 1 year of the delivery date but this period may be extended if parties agree 25 4 22 The carrier is discharged from all liability whatsoever in respect of the goods unless a suit is brought within 1 year of the date of delivery or of the date when the goods should have been delivered The 1 year period may however be extended if the parties so agree after the cause of action has arisen 6 The limits specified in the HVR may not be reduced further for the carrier s benefit 25 4 23 The exclusions time limits and limitation of liability prescribed by the HVR may not be reduced further for the carrier s benefit Art III rule 8 of the HVR see also The Epar 1983 1984 SLR R 545 F Jurisdiction or Arbitration Agreements in Contracts of Carriage 1 A jurisdiction or arbitration clause may be incorporated into a contract of carriage 25 4 24 A jurisdiction or arbitration clause may be incorporated into the contract of carriage whereby the parties agree to a specific forum for the adjudication of disputes arising out of the contract Nonetheless parties may be tempted to breach such jurisdiction or arbitration clauses so as to take advantage of certain time bar defences or higher limits of liability that may be available in forums other than those agreed in the contract Where such breaches happen the defendant can apply for a stay of the proceedings 2 The court will prima facie give effect to a foreign jurisdiction clause but may refuse an application for stay where the facts and circumstances are exceptional 25 4 25 Where the contract contains a foreign jurisdiction clause the court will prima facie give effect to it but it has the discretion to refuse an application for a stay if the facts and circumstances are so exceptional as to amount to a strong cause to warrant such a refusal Amerco Timbers Pte Ltd v Chatsworth Timber Corp Pte Ltd 1977 1978 SLR R 112 The Jian He 1999 3 SLR R 432 The Singapore court will normally refuse a stay application if the underlying claim is one for delivery of cargo without presentation of bills of lading for which there is usually no defence see for example The Jian He 1999 3 SLR R 432 The Hung Vuong 2 2000 2 SLR R 11 Golden Shore Transportation Pte Ltd v UCO Bank 2004 1 SLR R 6 If a claim is essentially indefensible a court may look upon a stay application as a tactical or procedural ploy and decide to retain jurisdiction instead The Jian He 1999 3 SLR R 432 The Hyundai Fortune 2004 2 SLR R 548 3 The court retains discretion to stay proceedings in favour of domestic arbitration but must grant stay in favour of international arbitration 25 4 26 Where there is an arbitration clause the court will generally give effect to it In cases governed by the Arbitration Act generally domestic arbitrations the power to stay is discretionary a stay might be refused if for instance the claim is clearly indisputable However under the International Arbitration Act of Singapore which generally governs international arbitrations a stay of claims failing within the arbitration clause is mandatory the court has no discretion to refuse to stay the action Once the court is satisfied that there is an arbitration agreement between the parties and that the proceedings instituted in court are in respect of a matter that would be subject to that agreement the court will order a stay Tjong Very Sumito v Antig Investments Pte Ltd 2009 4 SLR R 732 A court is entitled to order retention of any vessel under arrest or any security furnished to facilitate release of a vessel or provision of equivalent security for the satisfaction of any award under s 7 of the International Arbitration Act if the action is stayed under s 6 Return to the top SECTION 5 ADMIRALTY LAW A Nature of an Admiralty Action in rem 25 5 1 An admiralty action in rem is an action against the res thing which is usually a ship but could also include other kinds of maritime properties like cargo and freight A ship includes her apparel tackle and stores The action in rem is characterised by service on and arrest of the res Although the defendant to an action in rem is the owner of the res the owner of the res will only be liable personally if he has entered an appearance in the action Kuo Fen Ching v Dauphin Offshore Engineering 1999 2 SLR R 793 The Engedi 2010 3 SLR 409 Unless released the res will in due course be judicially sold free of all encumbrances The proceeds of the judicial sale of the res are then used to satisfy the plaintiff s claim and the claims of other parties if any according to an established order of priorities 25 5 2 However frequently this procedure does not culminate in the judicial sale of the res as the owner of the res will furnish security for the claim after which the res is normally released When the owner elects to defend the action the action thereafter continues as a hybrid action i e as both an in rem and in personam action The Damavand 1993 2 SLR R The Fierbinti 1993 SGHC 319 The August 8 1983 2 AC 450 25 5 3 The subject matter of the Singapore High Court s admiralty jurisdiction is set out in limbs a to r of s 3 1 of the High Court Admiralty Jurisdiction Act hereinafter HC AJ A which is largely similar to s 20 2 a s of the UK Senior Courts Act 1981 B Invocation of Admiralty Jurisdiction 1 The res can only be arrested within territorial waters and port limits 25 5 4 In Singapore a res can only be arrested if it comes within the territorial waters as well as port limits of Singapore in adherence with the terms and conditions stipulated in the letter of authorisation granted by the Registrar for the arrest The Trade Resolve 1999 2 SLR R 107 2 The court s admiralty jurisdiction can be invoked in 3 situations when vessel is either arrested or served with the writ in rem 25 5 5 As far as the invocation of admiralty jurisdiction is concerned s 4 of the HC AJ A permits an action in rem to be brought in 3 situations an action in rem being brought against the ship or other property in respect of claims that come within s 3 1 a c and r of the HC AJ A an action in rem being brought against ship aircraft or other property encumbered with a maritime lien or other charge and an action in rem for claims that come within s 3 1 d q of the HC AJ A which permits an action to be brought against the ship in connection with which the claim arises provided that at the time the cause of action arose the person who would be liable in an action in personam the relevant person owned chartered or was in possession or in control of that ship and is at the time of commencement of the action i e issuance of the admiralty writ in rem the beneficial owner or demise charterer of that ship an action may also be brought against any ship beneficially owned but not chartered by demise by the relevant person Sister ship arrest is therefore permissible under s 4 4 of the HC AJ A Admiralty jurisdiction is invoked when the vessel is either arrested or served with the writ in rem whichever occurred first The Fierbinti 1994 3 SLR R 574 C Principle of One Claim One Ship Plaintiff cannot proceed against other ships named in writ for same claim after invoking admiralty jurisdiction against one ship 25 5 6 Given

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  • Ch.26 Building and Construction Law
    the best of his uninfluenced professional judgment Aoki Corporation v Lippoland Singapore Pte Ltd 1995 2 SLR 609 The duty to perform his duty or exercise his power with reasonable diligence and in accordance with the contract Lian Soon Construction v Guan Qian Realty Pte Ltd 1999 3 SLR R 518 at 22 The duty to act fairly and on a rational basis in making any determination Liew Ter Kwang v Hurry General Contractor Pte Ltd 2004 3 SLR R 59 2004 SGHC 97 The duty to apply professional skill and function but not to be an agent of the developer Hiap Hong Co Pte Ltd v Hong Huat Development Co Pte Ltd 2001 1 SLR R 458 2001 SGCA 17 26 3 27 The Architect and Quantity Surveyor ought to apply their mind s to the issue in the valuation of amounts when issuing instructions or certificates H P Construction Engineering Pte Ltd v Chin Ivan 2014 3 SLR 1318 HC at para 52 If there is proof of damage the Quantity Surveyor may also be liable in a claim for negligence Hyundai Engineering Construction Co Ltd v Rankine Hill Singapore Pte Ltd 2004 SGHC 178 26 3 28 An engineer cannot contract out of regulatory oversight of his professional conduct by the Professional Engineers Board PEB however the Professional Engineers Act allows but does not compel complaints to be made to the PEB That said parties should not seek to interfere with a professional engineer s independence or influence the professional engineer in his course of work Poh Cheng Chew v K P Koh Partners Pte Ltd and another 2014 2 SLR 573 at 81 and 95 Return to the top 4 PERFORMANCE BONDS 26 4 1 Performance bonds provide the employer with some security against non performance by the contractor see Wah Heng Glass Metal Products Pte Ltd v Gammon CCI Construction Ltd 1998 SGHC 48 for a brief description of the purpose and usage of a performance bond A Performance Bonds Issued in Singapore 26 4 2 In Singapore the bond is usually given by financial institutions such as banks and insurance companies who in turn act as sureties The amount secured is typically 5 to 10 of the value of the contract It is typically issued valid for one year and subject to annual renewals until the completion of the project or the expiry of the maintenance or defect liability period The extent and security provided by the bond depends on its nature and type and its terms and conditions The only standard form performance bond used in Singapore is found in the appendix of the PSSCOC 1 Nature and types 26 4 3 Confusion could arise as to the meaning to be attached to what is commonly referred to as a performance bond for four reasons It has been described by various labels including performance bond b performance guarantee c first demand bond or its American sibling the stand by letter of credit In its application or usage it could be used to secure various stages of the construction process The documentation concerned is often described with reference to that particular process For example tender or bid bond advance payment bond retention money bond or maintenance bond etc Conditions attached to the call on the bond can differ depending on whether it is payable on demand demand bonds or upon proof of default default bonds It could require the surety to either pay money or perform the works left undone by the contractor Such a bond is usually given by the parent company of the contractor However such a bond is not popular with local employers who prefer cash payment They are usually accepted by MNC employers operating in Singapore who have engaged contractors from their home country under arrangements and conditions similar to those found in the home country 26 4 4 Disputes typically involve whether the conditions attached to the call on the bond have been triggered and in particular whether an injunctions against the financial institution is justified 2 Demand bonds Only fraud or unconscionability will permit injunction against payment 26 4 5 It has been recognised that performance bonds particularly those expressed to be payable on demand stand on a similar footing as irrevocable letters of credit and that an injunction restraining a call or payment upon the bond will not be granted unless fraud or unconscionability is involved There is also no distinction between the principles to be applied in the cases dealing with attempts to restrain banks from making payment from those dealing with restraint of beneficiaries from calling upon the bond Bocotra Construction Pte Ltd Ors v Attorney General No 2 1995 2 SLR 733 CA 3 Clear case of fraud or unconscionability required for injunction 26 4 6 The sole consideration in the application for an injunction is whether there is fraud or unconscionability The party seeking the injunction would be required to establish a clear case of fraud or unconscionability in interlocutory proceedings It is not enough to raise mere allegations In the UK an interlocutory injunction will not therefore be granted against a bank which has given a bond or guarantee to restrain its payment since the bank must honour it according to its terms unless it has clear notice or evidence or fraud Edward Owen Engineering Ltd v Barclays Bank International Ltd 1978 1 All ER 976 As regards the standard of proof of fraud the courts have accepted for cases involving letters of credit what is known as the Ackner standard in assessing allegations of fraud in applications for interlocutory injunctions propounded by Ackner LJ in United Trading Corporation v Allied Arab Bank 1985 2 Lloyd s Rep 554 applied in Singapore in Korea Industry Co Ltd v Andoll Ltd 1989 3 MLJ 449 4 Unconscionability is distinct from fraud 26 4 7 There is a recent line of cases mostly in the High Court elaborating on the requirement of unconscionability as distinct from fraud thus departing from the UK position In the decision of the High Court in Min Thai Holdings Pte Ltd v Sunlabel Anor 1999 2 SLR 368 the court stated that the concept of unconscionability involves unfairness as distinct from dishonesty or fraud or conduct so reprehensible or lacking in good faith that a court of conscience would either restrain the party or refuse to assist the party The doctrine that unconscionability is a separate ground from fraud was reiterated by the Court of Appeal in Samwoh Asphalt Premix Pte Ltd v Sum Cheong Piling Pte Ltd 2002 1 SLR 1 see also JBE Properties v Gammon 2010 SGCA 46 26 4 8 More recently the Court of Appeal has noted that the letter of credit serves a different function from a performance bond hence a lower threshold of unconscionability instead of fraud applies in restraining a call on a performance bond JBE Properties v Gammon 2010 SGCA 46 5 Strong prima facie case of unconscionability for contractor to restrain employer as beneficiary 26 4 9 Nonetheless a contractor who seeks to restrain the employer as beneficiary of the performance bond from calling on it must establish a strong prima facie case of unconscionability Liang Huat Aluminium Industries Pte Ltd V Hi Tek Construction Pte Ltd 2001 SGHC 334 26 4 10 It has been suggested that the current conception of the ground of unconscionability by the Singapore courts may be disproportionately wide in light of the causes that have led to it being introduced as a disjunctive ground for injuncting a call on a performance bond see Injuncting Calls on Performance Bonds Reconstructing Unconscionability 2003 15 SAcLJ 30 The article contains a detailed discussion on this subject 26 4 11 More recently Quentin Loh J has pointed out on case precedent the call of the bond was considered unconscionable where either the beneficiary of the performance bond had by its own default contributed to the circumstances which founded the call or both parties were wholly innocent Ryobi Kiso S Pte Ltd v Lum Chang Building Contractors Pte Ltd 2013 SGHC 86 at 19 Return to the top 5 SUBCONTRACTS A Explanation of Subcontracts 1 Usual practice for contractors to engage subcontractors 26 5 1 In Singapore as is the case elsewhere it is usual for the contractor to engage sub contractors to whom he will owe and be entitled to contractual obligations according to the terms of the sub contract For larger projects sub contracts are also usually in standard forms that are mostly derivatives of the main contract forms There would be appropriate cross references between the main and sub contract forms and some provisions of the main contract may even be replicated in the sub contract The sub contractor will not normally owe any direct contractual obligations to the employer or consultants 2 Subcontracts can vary considerably in type 26 5 2 The type of contractual arrangements that can be arrived at in sub contracts can vary considerably They can involve the supply of labour only a supply of goods and materials only a supply and build arrangement or even a complete design and build arrangement Most of the principles of law applicable to a main contract would also be applicable to a sub contract B Employer s selection of sub contractors 1 Traditional system Employer selects specialist contractors who enter into sub contract with main contractor 26 5 3 In the traditional system it is usual to provide in the main contract terms that allow the employer to select for the main contractor certain specialist contractors whose participation in the project he desires The specialist contractor is then usually made to enter into a sub contract with the main contractor This process is usually described as a nomination 2 Two standard form nominated sub contracts widely used in Singapore 26 5 4Two standard form nominated sub contracts are in wide usage in Singapore They are the Standard Conditions of Nominated Sub Contract for use in conjunction with Public Sector Conditions of Contract for Construction Work 2008 now in its 5th edition and the SIA Conditions of Sub Contract for use in conjunction with the main contract now in its 4th edition C Incorporation of Main Contract Terms 1 Express terms and contra proferentum 26 5 5 As the sub contract obligations commonly mirror that of the main contract in a limited aspect the draftsman of sub contracts typically incorporates the terms of the main contract by reference As a general rule anything in the main contract that is not applicable or appropriate in the sub contract ought not to be impliedly incorporated Star Trans Far East Pte Ltd v Norske Tech Ltd 1996 2 SLR 409 CA 2 Whether or not a provision is incorporated depends on intention of parties 26 5 6 The relevant principle in ascertaining whether a provision or a document ought to be incorporated is to ascertain the intention of the parties Where the meaning of the provisions already in the sub contract is perfectly clear there can be no resort to other documents to give another meaning to it Where the draftsman had purposely left out any condition which he could without difficulty have put in then the contra proferentem rule may be applied to prevent the clause or document from forming part of the sub contract Union Workshop Construction Co v Ng Chew Ho Construction Co Sdn Bhd 1978 2 MLJ 22 Where the alleged clause incorporating terms of the main contract in the sub contract is unclear or ambiguous as where it merely provides that the sub contractor shall observe perform and comply with all the provisions of the main contract on the part of the contractor to be observed performed and complied with so far as they relate and apply to the sub contract works it is unlikely that the court will find that such a clause has the effect of incorporating the provisions of the main contract into the sub contract Kum Leng General Contractor v Hytech Builders Pte Ltd 1996 1 SLR 751 3 Incorporation via back to back provisions 26 5 7 Similarly incorporation solely via back to back provisions will not suffice Rather back to back provisions should be construed in light of the factual matrix known to the parties at the time they contracted However the right to payment may still persist on a back to back basis with the main contract if work had been accepted or certified for payment following an application for payment for such work having been made by the subcontractor per Menon JC as he then was in GIB Automation Pte Ltd v Deluge Fire Protection SEA Pte Ltd 2007 2 SLR R 918 2007 SGHC 48 at 49 4 Subcontract formed by conduct 26 5 8 A subcontract may also be concluded by conduct before the terms are wholly reduced to writing in United Eng Contractors Pte Ltd v L M Concrete Specialists Pte Ltd 2000 SGHC 74 OR 1999 SGHC 141 OR CS Bored Pile System Pte Ltd v Evan Lim Co Pte Ltd 2006 2 SLR R 1 2006 SGHC 11 5 Subcontract formed by oral agreement 26 5 9 In addition extrinsic proof of oral collateral contracts is admissible under proviso b of s 94 of the Evidence Act if its terms are not inconsistent with those contained in the main agreement D Pay When Paid Provisions now prohibited 1 Pay When Paid Provisions Sub contractor only entitled payment when main contractor receives payment 26 5 10 Pay when paid provisions stipulate that the sub contractor is only entitled to be paid when the main contractor has himself received payment Pay when paid provisions operate even if payments have been certified but not received yet by the main contractor or if payment has been withheld from the main contractor by the employer due to the main contractor s own default or breach and the default or breach was not caused or contributed to by the sub contractor Brightside Mechanical and Electrical Services Group Ltd v Hyundai Engineering and Construction Co Ltd 1988 SLR 186 Interpro Engineering Pte Ltd v Sin Heng Construction Co Pte Ltd 1998 1 SLR 694 2 Pay when paid clauses prohibited by statute 26 5 11 In Singapore pay when paid clauses are now prohibited by s 9 of the Building and Construction Industry Security of Payment Act 2004 SOPA for contracts that are governed by the legislation However while s 9 of the SOPA renders void unenforceable pay when paid payment structures it does not absolve a party of its payment obligations owed to the other SKK S Pte Ltd v Management Corporation Strata Title Plan No 1166 2013 SGHCR 11 at 23 E Direct and Indirect Claims 1 Generally sub contractor may not make direct claim against employer 26 5 12 As a general rule a sub contractor cannot make any claim against the employer for the price of work done or material supplied under the sub contract Henderick Engineering v Kansai Paint Singapore Pte Ltd 1992 SGHC 184 The existence of a direct payment clause permitting the employer to make direct payments to the sub contractor does not create a contractual relationship between the employer and the sub contractor A Vigers Sons Co Ltd v Swindell 1939 3 All ER 590 Similarly an employer cannot make any claim against the sub contractor directly Dawber Willamson Roofing Ltd v Humberside County Council 1979 14 BLR 70 2 CRTPA and exceptions to privity 26 5 13 With the enactment of the Contracts Rights of Third Parties Act 2001 that came into operation on 1 January 2002 it may be possible for a nominated sub contractor to assert rights as a third party against the employer even in the absence of a direct contract with the employer Section 2 3 of the Act provides that the third party should be expressly identified in the contract by name as a member of a class or as answering to a particular description It is possible that a wide category of persons can qualify as third parties under the Act 26 5 14 In the case of an undisclosed principal there remains controversy in Singapore as to whether the common law exceptions to privity apply 26 5 15 In what was referred to by the Court of Appeal as a leading decision Judith Prakash J held that in a disclosed principal situation Prosperland a developer of a condominium was entitled to sue the building contractor Civic and the architects collectively the defendants for substantial damages even though Prosperland had suffered no loss arising from the breach of contract Prosperland Pte Ltd v Civic Construction Pte Ltd 2004 4 SLR R 129 2004 SGHC 157 HC i Undisclosed principal 26 5 16 It is less certain as to whether an exception to privity could apply in an undisclosed principal situation as the Court of Appeal s observations on the matter have thus far been in obiter Nonetheless the undisclosed principal could be made a party to the proceedings as the court has the power to order joinder under O 15 r 6 2 b of the Rules of Court Family Food Court a firm v Seah Book Lock and anor 2008 4 SLR 272 2008 SGCA 31 CA at 63 see also the doctrine of the undisclosed principal M P Furmston in Cheshire Fifoot and Furmston s Law of Contract OUP 16th Ed 2012 3 Contractor s negligence liability owed to subcontractor 26 5 17 The main contractor may also be liable in negligence to the subcontractor if a duty of care is owed to the subcontractor Jurong Primewide v Moh Seng Cranes ors 2014 2 SLR 360 2014 SGCA 6 CA see also Spandeck test under Section 8 Construction and the Law of Negligence 4 Estoppel and unjust enrichment 26 5 18 Other indirect claims include estoppel and unjust enrichment see Laws of Singapore Chapter 19 Restitution Return to the top 6 TIME AND COMPLETION 26 6 1 This section will look at the issue of completion and extension of time in construction projects within the contractual framework of the SIA standard form as most of the case law has arisen in that context A Completion Criteria 1 Completion is determined by construing the standard form in question 26 6 2 Where standard form contracts are being used the issue of completion is often reduced to construing what is meant by completion in the standard form in question A number of standard form contracts including pre 1980 versions of the SIA Contract defined completion in terms of practical completion Usage had also been made of the term substantial completion in some other standard form contracts For the SIA Contract the term completion is used without the description practical or substantial B Time for Completion 1 Construction contracts should contain provisions relating to time absenting which the court will imply term to complete within a reasonable time 26 6 3 Construction contracts contain provisions relating to the commencement and completion of the works that the contractor is engaged to carry out If the contract is silent on this a reasonable time for completion would be implied Charnock v Liverpool Corp 1968 3 All ER 473 Lee Kai Corp Pte Ltd v Chong Gay Theatres Ltd 1992 2 SLR 68911 CA If in a standard form contract the time for completion in the schedule to a contract is left blank the court will imply a term to complete within a reasonable time Hick v Raymond and Reid 1893 AC 22 Shia Kian Eng trading as Forest Contractors v Nakano Singapore Pte Ltd 2001 SGHC 68 What is a reasonable time will be treated as a question of fact 2 SIA contract contains time extension and liquidated damages clauses 26 6 4 The SIA contract as with most building and infrastructure contracts contains extensions of time and liquidated damages clauses See SIA Clauses 23 and 24 respectively The liquidated damages clause gives the employer a remedy in pre agreed damages if the contractor fails to complete on time and caps the contractor s C Extension of Time Clauses 1 Contractor s work may be affected by acts of employer 26 6 5 The contractor s progress and completion may be affected by acts of the employer or his agents These employer related events can be found in SIA 7th Edition and 8th Edition Clauses 23 1 f g h i j k n o and p Clauses 23 1 a b c d e l m deal with neutral events mainly arising from circumstances not reasonably foreseeable 2 Neutral events and employer related events may render original date of completion inapplicable 26 6 6 The contract date for completion may be affected by neutral events and employer related events to such an extent that it is rendered inapplicable Without an applicable date for completion time will be set at large and the obligation to complete becomes assessable by normal common law principles of reasonableness instead of the agreed contractual framework With an extension of time on the other hand a new date may be set for completion and the right to liquidated damages preserved 3 Employer could potentially lose right to compensation where there is a nil for liquidated damages in the contract but the legal position is unclear 26 6 7 The employer could arguably lose his right to compensation where the express provision for liquidated damages is exhaustive of his rights and nil is inserted for the rate of liquidated and ascertained damages Temloc Ltd v Errill Properties Ltd 1987 39 BLR 34 However in the local decision of Shia Kian Eng trading as Forest Contractors v Nakano Singapore Pte Ltd 2001 SGHC 68 the parties agreed that there should be no liquidated damages Judith Prakash J found it difficult to accept the proposition that simply because it was agreed that there should be no liquidated damages clause no damages at all could be claimed if the plaintiff s delay had caused loss to the defendants D Contra Proferentem 1 Liquidated damages and extensions of time clauses construed by the courts against the employer unless the contract stipulates otherwise 26 6 8 Both liquidated damages and extensions of time clauses see Lian Soon Construction Pte Ltd v Guan Qian Realty Pte Ltd No 2 2000 1 SLR 495 per Warren Khoo J operate primarily for the employer in that the main contractor is sufficiently protected by the common law rules on impossibility and interference with performance Thus the attitude of the courts has been to construe them contra proferentem strictly against the employer Peak Construction Ltd v McKinney Foundations Ltd 1971 1 BLR 111 26 6 9 However it should be noted that Article 7 SIA 8th Edition excludes the application of the contra proferentem rule of construction E Requirements of Notice of Cause of Delay 1 Clause 23 2 has two aspects contractor s notice requirements and architect s in principle intimation 26 6 10 Clause 23 2 of SIA 7th Edition states that it is a condition precedent to the contractor s entitlement to an extension of time that he gives notice in writing within 28 days of the event entitling him to an extension of time However Clause 23 2 then contains the proviso unless the architect has already informed the contractor of his willingness to grant the extension of time 26 6 11 There are two aspects to Clause 23 2 the contractor s notice requirements and the architect s in principle intimation 2 Architect required to inform contractor within 1 month whether delay caused entitles contractor in principle to time extension 26 6 12 Once the contractor has given notice the architect is required to inform the contractor in writing within 1 month of receipt of the contractor s application for extension of time whether or not he considers the delay caused entitles the contractor in principle to the extension of time 26 6 13 In Assoland Construction Pte Ltd v Malayan Credit Properties Pte Ltd 1993 3 SLR 470 it was held inter alia that the architect s failure to comply with the procedural requirements in Clause 23 2 meant that the purported exercise of power to later grant an extension of time was invalid As such there was no date by which liquidated damages could be computed In contrast in Aoki Corporation v Lippoland Singapore Pte Ltd 1995 2 SLR 609 it was held inter alia that while the contractor s notification under Clause 23 2 is a condition precedent to his entitlement to an extension of time the architect s in principle intimation is not expressed as a condition precedent to the validity of his decision on the extension of time or the delay certificate 26 6 14 A detailed analysis of Clause 23 and its requirements can be found in the more recent decision of Lian Soon Construction Pte Ltd v Guan Qian Realty Pte Ltd No 2 2000 1 SLR 495 Generally the claim for liquidated damages is inextricably tied to the issue of the plaintiff s request for EOT extension of time for if the plaintiff succeeds in its claim for EOT the defendant will fail in its claim for liquidated damages and the converse applies Ho Pak Kim Realty Co Pte Ltd v Revitech Pte Ltd 2010 SGHC 106 at 53 3 No SIA forms after 1980 have a loss and expense clause for prolongation other than a limited entitlement under Clause 12 4 26 6 15 Most standard forms of contract provide for loss and expense to be certified by the architect where the contractor has been delayed by breaches or acts of prevention by the employer or his agent However none of the SIA forms after 1980 has a loss and expense clause for prolongation In fact Clause 31 14 expressly provides that the architect has no power to decide or certify any claim for breach of contract made against the Employer by the Contractor However one might consider that Clause 12 4 Valuation of Variations does provide a limited express entitlement under the contract to additional preliminaries costs which are associated with variations which in themselves do not amount to a breach of contract Return to the top 7 TERMINATION 26 7 1 A typical construction contract usually lasts for a fairly long period of time and the option to terminate the contract by an innocent party in the event of a breach by the defaulting party before the date of completion is an important remedy While every breach is entitled to a remedy in damages the innocent party is entitled to terminate a contract only if the breach constitutes a repudiatory breach A The General Position RDC Concrete v Sato Kogyo 1 Four situations in which innocent party may terminate contract 26 7 2 A repudiatory breach could arise under common law or pursuant to express provisions in the contract In RDC Concrete Pte Ltd v Sato Kogyo S Pte Ltd and anor appeal 2007 4 SLR 413 RDC the Court of Appeal summarised four situations in which an innocent party might be entitled to terminate at para 113 SITUATION CIRCUMSTANCES IN WHICH TERMINATION IS LEGALLY JUSTIFIED RELATIONSHIP TO OTHER SITUATIONS I EXPRESS REFERENCE TO THE RIGHT TO TERMINATED AND WHAT WILL ENTITLE THE INNOCENT PARTY TO TERMINATE THE CONTRACT 1 The contractual term breached clearly states that in the event of certain event or events occurring the innocent party is entitled to terminate the contract None it operates independently of all other situations In other words Situations 2 3 a and 3 b ie all the situations in II below are not relevant II NO EXPRESS REFERENCE TO THE RIGHT TO TERMINATED AND WHAT WILL ENTITLE THE INNOCENT PARTY TO TERMINATE THE CONTRACT 2 Party in breach renounces the contract by clearly conveying to the innocent party that it will not perform its contractual obligations at all Quaere whether the innocent party can terminate the contract if the party in breach deliberately chooses to perform its part of the contract in a manner that amounts to a substantial breach None it operates independently of all other situations In other words Situation 1 is not relevant Situations 3 a and 3 b are not relevant 3 a Condition warranty approach Party in breach has breached a condition of the contract as opposed to a warranty Should be applied before the Hongkong Fir Approach in Situation 3 b Situation 1 is not relevant Situation 2 is not relevant 3 b Hongkong Fir approach Party in breach which has committed a breach the consequences of which will deprive the innocent party of substantially the whole benefit which it was intended that the innocent party should obtain from the contract Should be applied only after the Condition warranty approach in Situation 3 a and if the term breached isnot found to be a condition Situation 1 is not relevant Situation 2 is not relevant i Situation 1 Where express term states innocent party entitled to terminate contract upon an event or certain events occurring 26 7 3 In the first situation Situation 1 there is an express contractual term which clearly and unambiguously states that the innocent party is entitled to terminate the contract upon an event or certain events occurring In effect the parties have agreed that a breach of such a nature is sufficiently serious to entitle the innocent party to bring the contract to an end This form of discharge therefore arises from the mutual agreement of the contracting parties ii Situation 2 Where party in breach renounces contract by conveying to innocent party that it will not perform contractual obligations 26 7 4 In the second situation Situation 2 the party in breach renounces the contract by clearly conveying to the innocent party that it will not perform its contractual obligations at all iii Situation 3 a Term breached is a condition 26 7 5 In the third situation Situation 3 a the term breached is a condition of the contract under the condition warranty approach To determine whether a term is a condition or warranty the focus is on the nature of the term breach not so much on the actual consequences of the breach iv Situation 3 b Breach is considered repudiatory 26 7 6 In the fourth situation Situation 3 b the breach is considered repudiatory as it deprives the innocent party of substantially the whole benefit which it intended to obtain from the contract In Situation 3 b the focus is on the nature and consequences of the breach This approach is commonly referred to as The Hongkong Fir approach following the seminal English Court of Appeal Decision of Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd 1962 2 QB 26 26 7 7 Following RDC the right to termination should thus be considered in line with the approach set out above B Termination in Construction Law 1 Employer entitled to withhold payment after accepting wrongful repudiation 26 7 8 Under Clause 32 10 of the SIA Main Contract an employer is entitled to withhold payment under the interim certificates if he accepts the wrongful repudiation of a contractor as terminating the contract SA Shee Co Pte Ltd v Kaki Bukit Industrial Park Pte Ltd 2000 2 SLR 12 2 Innocent party must unequivocally accept the breach as terminating contract 26 7 9 If an innocent party elects to terminate a contract it is vital that there is an unequivocal acceptance of the breach as terminating the contract Where the contract provides for a procedure and timing in which the termination is to be effected there must be strict compliance for the termination to be effective Failure to do so may result in wrongful repudiation 3 Contractual provisions prescribing termination procedures must be fully complied with 26 7 10 As termination also known as forfeiture clauses is construed strictly Roberts v Bury Commissioners 1870 LR 5 CP 310 the contractual provisions prescribing the procedures by which a contract may be determined must be properly and faithfully complied with for the termination to be effective Otherwise the termination may be wrongful and amount to a wrongful repudiation by the employer instead Lodder v Slowey 1904 AC 442 The contractor is then entitled to sue the employer for the actual value of the work done and materials supplied or damages or both 26 7 11 Typical grounds for termination by the employer include default of the contractor bankruptcy of the contractor failure to start work failure to proceed with the work failure to comply with architect s instructions failure to comply with the contract failure to complete the works and failure to remedy defects 4 Forfeiture clauses construed contra proferentum 26 7 12 Since forfeiture clauses have such serious consequences they are construed contra proferentem and the requirements for notices to be given need careful observation Central Provident Fund Board v Ho Bok Kee 1980 1981 SLR 180 AL Stainless Industries v Wei Sin Construction Pte Ltd 2001 SGHC 243 5 Contractor may contest ejection from site when contract does not contain termination clause by common law 26 7 13Where the contract does not contain a termination clause and the contractor disputes the alleged default he may contest or resist any attempt to eject him from the site London Borough of Hounslow v Twickenham Garden Developments Ltd 1971 Ch 233 See also Mayfield Holdings Ltd v Moana Reef Ltd 1973 1 NZLR 309 6 Deliver possession of site on receipt of Notice of Termination 26 7 14 Clauses 32 4 32 5 of the SIA Main Contracts however require the contractor to deliver possession of the site upon receipt of the Notice of Termination irrespective of the validity of the notice Return to the top 8 CONSTRUCTION AND THE LAW OF NEGLIGENCE 26 8 1 The law of negligence has a significant impact on construction projects Owners may find recourse in a claim in tort if they have no contractual relationship with the parties responsible for the negligent design or construction of their property or if the operation of the Contract Rights of Third Parties Act Cap 53 2002 Rev Ed is excluded by express contract terms 1 Duty of care under Spandeck Engineering v Defence Science and Technology Agency 26 8 2 Following the seminal decision by the Singapore Court of Appeal in Spandeck Engineering S Pte Ltd v Defence Science and Technology Agency 2007 4 SLR R 100 Spandeck there is now a single universal test for determining a duty of care in the law of negligence irrespective of the type of the damages claimed 26 8 3 In Spandeck the contractor claimed against the superintending officer for negligently under valuing and under certifying works carried out by the contractor There was no contractual relationship between the contractor and the superintending officer The Court of Appeal formulated and applied a two stage test preceded by a threshold test of factual foreseeability at 75 ff 2 Two stage test under Spandeck i First stage Legal proximity 26 8 4 In the first stage sufficient legal proximity must be established between the plaintiff and defendant viz on physical circumstantial and causal proximity and supported by a voluntary assumption of responsibility and reliance ii Second stage Policy considerations 26 8 5 If the threshold of factual foreseeability and the first stage are surmounted the second stage examines if there are policy considerations that ought to negate the prima facie case established in the first stage of the test 3 Application of Spandeck test 26 8 6 The Court of Appeal added that the Spandeck test should be applied incrementally with reference to prior cases in analogous situations Further the mere existence of statutory duty is not in itself conclusive of a common

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  • Ch.27 Competition Law
    non exhaustive list of abuses of dominance 27 3 7 Section 47 2 of the Act provides an illustrative but not exhaustive list of abuses of a dominant position a predatory behaviour towards competitors b limiting production markets or technical development to the prejudice of consumers c applying dissimilar conditions to equivalent transactions with other trading parties thereby placing them at a competitive disadvantage and d making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which by their nature or according to commercial usage have no connection with the subject of the contracts In establishing the abuse it is sufficient for the CCS to show a likely effect and it is not necessary to demonstrate an actual effect on the process of competition Re Abuse of a Dominant Position by SISTIC com Pte Ltd 2012 SGCAB 1 2 The CCS will consider dominant undertaking s ability to justify its conduct and if its behavior was proportionate 27 3 8 Once the CCS has established that an undertaking is dominant and that it has engaged in abusive conduct the burden of proof then falls on the dominant undertaking to put forward an objective justification that their practice is not anti competitive Re Abuse of a Dominant Position by SISTIC com Pte Ltd 2012 SGCAB 1 In so doing the dominant undertaking has to show that it has behaved in a proportionate manner in defending its legitimate commercial interest 3 Dominant position abuse and effects of abuse need not be in same market 27 3 9 It is not necessary for the dominant position the abuse and the effects of the abuse to be in the same market F Exclusions in Third Schedule 27 3 10 The Section 47 Prohibition does not apply to those matters specified in the Third Schedule and which have been discussed in Sections 27 2 15 and 27 2 18 It must be noted that the Section 47 Prohibition applies to vertical agreements G Block exemptions are inapplicable 27 3 11 The provision for block exemptions does not apply to the Section 47 Prohibition H Consequences for Infringement 1 Intentional or negligent infringement of the Section 47 Prohibition will result in a financial penalty 27 3 12 Where there is an intentional or negligent infringement of the Section 47 Prohibition a financial penalty not exceeding 10 of the turnover of the business of an undertaking in Singapore for each year of infringement may be imposed for a maximum period of three years In addition a party who has suffered any loss or damage directly as a result of an infringement of the Section 47 Prohibition has a right of action in civil proceedings but the right can only be exercised after the CCS has made a decision of infringement and the appeal process has been exhausted Return to the top SECTION 4 THE SECTION 54 PROHIBITION A Overview of Section 54 Prohibition 1 Section 54 prohibits mergers resulting in a substantial lessening of competition within any market in Singapore 27 4 1 Section 54 prohibits mergers that have resulted or may be expected to result in a substantial lessening of competition within any market in Singapore for goods or services unless the merger falls within an exclusion in the Fourth Schedule or is exempted by the Minister on the ground of any public interest consideration 2 Section 54 Prohibition applies so long as the substantial lessening of competition is within a market in Singapore 27 4 2 The Section 54 Prohibition may apply even where the merger takes place outside of Singapore or where any merger party is outside Singapore so long as the substantial lessening of competition is within any market in Singapore B When a Merger Occurs 1 Three ways for a merger to occur 27 4 3 A merger occurs when a 2 or more previously independent undertakings merge b direct or indirect control is acquired over the whole or part of an undertaking or c an undertaking acquires the assets of another undertaking or a substantial part thereof with the result that the first undertaking is placed in a position to either replace or substantially replace the second undertaking in the business in which the latter was engaged before the acquisition In relation to the acquisition of control under b it is sufficient of the transaction would result in a change in the quality of control such as a change from joint control by two undertakings to sole control by a single undertaking as a result of the transaction Re Acquisition by Heineken International B V of Asia Pacific Breweries Limited Notification 2012 SGCCS 6 2 Control over an undertaking exists if decisive influence can be exercised over that undertaking s activities 27 4 4 Control over an undertaking exists if decisive influence is capable of being exercised over that undertaking s activities whether by virtue of ownership of or the right to use that undertaking s assets or by virtue of rights or contracts which enable decisive influence to be exercised over the composition voting or decisions of that undertaking s organs This requires a case by case assessment of the entire relationship between the merging parties Generally the CCS deems decisive influence to exist if there is ownership of more than 50 of the voting rights of the undertaking Where there is ownership of between 30 to 50 of the voting rights of the undertaking the CCS is of the view that there is a rebuttable presumption of decisive influence Re Proposed Merger between Novartis AG of Alcon Inc 2010 SGCCS 2 3 Merger on creation of joint venture 27 4 5 A merger also occurs when a joint venture is created to perform on a lasting basis all the functions of an autonomous economic entity for an example of a joint venture amounting to a merger see Re Proposed Joint Venture between Greif International Holding B V and GEP Asia Holdings Pte Ltd Notification 2011 SGCCS 15 4 Categories of transactions specifically deemed not to constitute a merger for purposes of the Section 54 Prohibition 27 4 6 Certain categories of transactions are specifically deemed not to constitute a merger within the meaning of the Section 54 Prohibition These are a acquisitions of control by a person acting in his capacity as a receiver liquidator or underwriter b mergers between undertakings directly or indirectly controlled by the same undertaking c acquisitions of control resulting from a testamentary disposition intestacy or the right of survivorship in a joint tenancy and d acquisitions of control by parties whose normal activities include carrying out of transactions and dealing in securities for their own account or for the account of others The last category only applies where the securities in the acquired undertaking are held on a temporary basis and any exercise of the voting rights in respect of the securities is for the purpose of arranging the disposal of the acquired undertaking or its assets or securities and not for determining the strategic commercial behaviour of the acquired undertaking C Test for Whether A Merger Substantially Lessens Competition 1 Impact which merger has on competitive pressures within market reflected by changes in market structure 27 4 7 In assessing whether a merger substantially lessens competition the CCS will look at the impact which the merger has on the competitive pressures within the market This is in turn reflected by changes in market structure and concentration brought about by the merger The CCS is generally of the view that competition concerns are unlikely to arise unless the merger results in a a merged entity with a market share of 40 or more or b a merged entity with a market share of between 20 to 40 and a post merger CR3 ratio of 70 or more The CR3 is the concentration ratio measured by adding the market shares of the 3 biggest firms in the market 2 Market shares alone do not give rise to a presumption that merger substantially lessons conditions 27 4 8 These thresholds are merely indicators of potential competition concerns and are not determinative Market shares and concentration ratios exceeding these thresholds do not give rise to a presumption that the merger substantially lessens competition as there may be other countervailing factors that need to be considered Conversely market shares and concentration ratios below these thresholds may still raise competition concerns if there are other indications that competition has been substantially lessened Re Proposed Acquisition by United Parcel Service Inc of TNT Express N V Notification 2012 SGCCS 8 3 CCS is unlikely to investigate SME mergers 27 4 9 The CCS in the CCS Guidelines on Merger Procedures also stated that it is unlikely to investigate a merger situation that only involves small companies namely where the turnover in Singapore in the financial year preceding the transaction of each of the merging parties is below S 5 million and the combined worldwide turnover in the financial year preceding the transaction of all the merging parties is below S 50 million 4 Risk of non coordinated or coordinated affects assessed in horizontal mergers 27 4 10 In the case of horizontal mergers i e mergers between undertakings that are active or potentially active in the same economic market and at the same level of business the CCS will assess if the merger enhances the risk of non coordinated and coordinated effects Non coordinated effects arise if the merged entity finds it profitable to raise prices or reduce output or quality post merger due to a reduction in competition If customers regard the product of one merger party as a close substitute for the product of the other merger party any price increase in one product is likely to result in customers switching to the other product The sales which are lost as a result of a price increase in the first product are then more likely to be recaptured by increased sales in the other product thereby enhancing the merged entity s incentive to raise prices In this regard the term non coordinated effects is used because it refers to price increases by the merged entity without the need for coordination from other competitors in the market On the other hand coordinated effects arise if the reduction in the number of market players post merger increases the possibility that the firms may coordinate their behaviour to raise prices or reduce quality or output Certain market conditions may enhance coordinated effects e g transparency that enables firms to observe their competitors conduct or the potential for credible retaliatory measures in the event that a firm deviates from any coordinated course of action 5 Non horizontal mergers generally do not lead to substantial lessening of competition except under certain circumstances 27 4 11 Apart from horizontal mergers there are also vertical or conglomerate mergers Vertical mergers are mergers between undertakings operating at complementary levels of the production or distribution chain e g a merger between a retailer and its wholesaler Conglomerate mergers are mergers between undertakings in different markets where no vertical relationship exists between the merging parties While non horizontal mergers generally do not lead to a substantial lessening of competition they may raise competition concerns under certain circumstances if the merged entity has market power in at least one of the markets concerned 27 4 12 The competition concerns which may arise from a vertical merger can be illustrated by a merger between a wholesaler and retailer The wholesaler may post merger sell only to the retailer with which it has merged and refuse to sell to the retailer s competitors or sell to them only at uncompetitive prices If the wholesaler has market power such a course of action could mean that the other retailers are effectively foreclosed from a substantial part of the wholesale market Correspondingly a retailer with market power can foreclose a substantial part of the retail market by buying only from the wholesaler with which it has merged Similarly the competition concerns which may arise from a conglomerate merger can be illustrated by a merger which creates a merged entity with a portfolio of brands under its control Where the brands relate to products that share sufficient characteristics to be considered a discrete group customers may have an incentive to purchase the portfolio of brands from a single supplier to reduce their transaction costs If the merged entity plans to sell the portfolio of brands as a bundle and it has market power in at least one of the brands competition concerns may arise if the merged entity s competitors are unable to supply the same full range of brands and are consequently foreclosed from the market as a result of their inability to come up with a competing bundle 6 Prospect of entry by new rivals or expansion of existing rivals may offset competition concerns raised by merger 27 4 13 Any competition concerns that a merger whether horizontal or non horizontal might otherwise raise may be offset by certain countervailing factors that constrain any exercise of post merger market power One such factor would be the prospect of entry by new rivals or the expansion of existing rivals However for the threat of entry to be a sufficient competitive constraint the entry must be i sufficiently likely to occur in the event that the merged entity attempts to exercise its market power ii sufficient in scope to constrain any such attempt to exercise market power and iii sufficiently timely and sustainable to provide effective and lasting post merger competition Re Proposed Joint Venture between Greif International Holding B V and GEP Asia Holdings Pte Ltd Notification 2011 SGCCS 15 7 Existence of buying power also a countervailing factor 27 4 14 Another countervailing factor would be the existence of buying power e g where the customer is able to discipline supplier pricing by credibly threatening to switch to the supplier s competitors or by other measures e g delaying purchases or positioning the supplier s products in less attractive locations within the retail outlet Re Proposed Joint Venture between Greif International Holding B V and GEP Asia Holdings Pte Ltd Notification 2011 SGCCS 15 8 Failing firm defence 27 4 15 Where one of the parties to a merger is genuinely failing that failing firm may exit the market in the event that the merger does not occur In such cases the CCS will assess the merger by comparing the situation where the merger occurs as opposed to a situation where the merger does not occur but the failing party nevertheless exits the market For the defence to apply the failing merger party must be in such a dire situation that the party and its assets would exit the market in the near future if the merger does not proceed Furthermore the failing merger party must be unable to meet its financial obligations in the near future with no serious prospect or re organising Finally there must be no less anti competitive alternative to the merger The defence would thus not apply if there are other realistic buyers willing to purchase the failing merger party or its assets at a commercially reasonable price this includes situations where the price is lower than what the acquiring party is prepared to pay whose acquisition would produce a more competitive outcome The failing firm defence also applies with the necessary modifications to failing divisions 9 Creation of efficiencies that increase post merger rivalry may be a countervailing factor 27 4 16 Another possible countervailing factor would be if the merger creates efficiencies that increase post merger rivalry e g where a merger between 2 smaller competitors generates efficiencies that enable the merged entity to charge a lower price and compete more effectively with a larger player such that the conclusion is that there is no substantial lessening of competition Any claimed efficiencies must be demonstrable i e parties claiming these efficiencies must prove that the efficiencies are i clear and supported by detailed and verifiable evidence and ii likely to arise with the merger and within a reasonable period of time The claimed efficiencies must also be merger specific i e arising as a direct consequence of the merger Cost savings simply arising from lower output are not regarded as efficiencies 10 Merger may still fall under the net economies exclusion in the Fourth Schedule if it is found to substantially lessen competition 27 4 17 Even if the merger is found to substantially lessen competition it may still fall within the net economic efficiencies exclusion in paragraph 3 of the Fourth Schedule to the Act This exclusion applies if the merger generates efficiencies which outweigh the adverse effects due to any substantial lessening of competition which may result from the merger Examples of efficiencies which may satisfy the exclusion include those which bring about lower costs greater innovation greater choice or higher quality For the exclusion to apply these efficiencies must arise in markets within Singapore and must be sufficient to outweigh the detriments to competition in Singapore caused by the merger Furthermore the efficiencies must also satisfy the requirements of being demonstrable and merger specific as explained in the preceding paragraph D Cases where Section 54 Prohibition does not apply 1 Section 54 Prohibition does not apply to any merger approved by any Minister or regulatory authority 27 4 18 The Section 54 Prohibition does not apply to any merger subject to approval by any Minister or regulatory authority For this exclusion to apply the requirement for approval must be imposed by written law although in the case of the Monetary Authority of Singapore the exclusion will also apply if the requirement for approval is imposed by non legislative instruments such as licenses and directives issued under written law 2 Section 54 Prohibition does not apply to any merger under the jurisdiction of any regulatory authority or under any written law relating to competition 27 4 19 The Section 54 Prohibition also does not apply to any merger under the jurisdiction of any regulatory authority other than the CCS under any written law relating to competition or code of practice relating to competition issued under any written law 3 Section 54 Prohibition does not apply to any merger relating to certain activities which have been specified as being excluded 27 4 20 The Section 54 Prohibition also does not apply to any merger involving any undertaking relating to certain activities which have been specified as being excluded from the Section 34 Prohibition and the Section 47 Prohibition namely i the supply of ordinary letter and postcard services ii the supply of piped potable water iii the supply of wastewater management services iv the supply of scheduled bus services v the supply of rail services and vi cargo terminal operations E Commitments 1 CCS may accept commitments to remedy mitigate or prevent adverse effects of merger before making a decision 27 4 21 The CCS may accept commitments at any time before making a decision as to whether an anticipated merger will if carried into effect infringe or as to whether a merger has infringed the Section 54 Prohibition Commitments offered to the CCS must remedy mitigate or prevent the adverse effects of the anticipated merger or merger Upon accepting the commitment the CCS has to issue a decision that the Section 54 Prohibition in the case of an anticipated merger will not be or in the case of merger has not been infringed Such a decision may nevertheless be revoked if the CCS has reasonable grounds for suspecting that any information on the basis of which it accepted the commitment was incomplete false or misleading in a material particular or that any party who provided the commitment failed to adhere to one or more of the commitment terms 27 4 22 The CCS may review the effectiveness of commitments which it has accepted and may at any time accept a variation substitute or release of the commitment F Consequences for Infringement 1 CCS may require that merger does not proceed or if merger has happened may impose structural or behavioral directions 27 4 23 When the CCS has made a decision that an anticipated merger will if carried into effect infringe or that a merger has infringed the Section 54 Prohibition it may impose the appropriate directions In the case of anticipated mergers the direction may for example require that the merger parties not carry the anticipated merger into effect In the case of mergers the directions may either be structural e g divestment or behavioural in nature with a view to remedying mitigating or eliminating the adverse effects arising from the merger 2 Intentional or negligent infringement will result in a financial penalty 27 4 24 Where there has been an intentional or negligent infringement of the Section 54 Prohibition by a merger a financial penalty not exceeding 10 of the turnover of the business of the undertaking in Singapore for each year of infringement up to a maximum of three years may be imposed A party who has suffered loss or damage directly as a result of an infringement of the Section 54 Prohibition has a right of action in civil proceedings but that right can only be exercised after the CCS has made a decision of infringement and the appeal process has been exhausted Return to the top SECTION 5 MARKET DEFINITION A Importance of Market Definition 27 5 1 Market definition and the measurement of market shares are important in the process of determining whether agreements have as their object or effect an appreciable prevention restriction or distortion of competition in a market under the Section 34 Prohibition whether an undertaking with substantial market power amounting to a dominant position in a market has abused its market power under the Section 47 Prohibition or whether a merger has resulted or may be expected to result in a substantial lessening of competition in any market in Singapore Market definition is the first step in a full competition analysis and the key step in providing the framework for analysis through identifying the competitive constraints acting on a seller of a given product B Defining the Relevant Market 1 Essential task is to define all products on demand side that buyers regard as substitutes and sellers who supply or could potentially supply substitutes 27 5 2 The essential task in market definition is to define all the products on the demand side that buyers regard as reasonable substitutes for the product under investigation focal product and then to identify all the sellers who supply the focal and substitute products or who could potentially supply them This exercise of defining the relevant market includes defining its geographical reach which may extend beyond the area under investigation and in which the focal product is sold focal area C The Hypothetical Monopolist Test 1 Definition of Hypothetical Monopolist Test 27 5 3 The CCS Guidelines on Market Definition set out the hypothetical monopolist test as a conceptual approach used to define markets in cases falling under the Sections 34 and 47 Prohibitions In essence the test seeks to establish the relevant market as the smallest product group and geographical area such that a hypothetical monopolist controlling that product group in that area could profitably sustain prices that are at least a small but significant amount above competitive levels That product group and area is usually the relevant market for competition law purposes 2 Execution of Hypothetical Monopolist Test 27 5 4 The test starts with a narrow definition of the product and geographic market usually the focal product or focal area The following question is then asked will a significant number of buyers switch to other products or areas that are the next best substitutes if the price of the focal product is raised by a small but significant and non transitory amount above competitive levels An increase of 10 above the competitive price will generally be used for the test but the actual percentage used may vary depending on the particular facts of each case If the answer to the question is in the affirmative these other products or areas and their sellers are included in the definition of the market because they potentially constrain the exercise of market power The same question is asked again with this widened group of products or areas The question is repeated and the market widened until the point is reached when a significant number of buyers do not respond to the small but significant increase in price by switching to other products or areas A hypothetical monopolist controlling these products in these areas would be able to profitably raise the price of the product under investigation by a significant amount above competitive levels The relevant market containing the principal constraints on the exercise of market power is then used to assess the impact of that agreement or conduct under investigation or to assess whether an undertaking is dominant in that market 3 Test for cases under Section 54 Prohibition same as cases under Sections 34 and 47 Prohibition Cases except that test focuses on postulation of price increase over current instead of competitive levels 27 5 5 In cases under the Section 54 Prohibition the test for market definition is the same as that for cases under the Sections 34 and 47 Prohibition cases with the exception that the test focuses on postulating what happens if the price of the focal product is raised by a small but significant and non transitory amount above current as opposed to competitive levels The reason for this difference is that one of the primary concerns in merger control is whether the merger will result in an increase in prices above prevailing levels D Practical Issues 1 Where relevant market is one of several plausible definitions and competitive impact is largely unaffected in all cases it may not be necessary to define market uniquely 27 5 6 In practice it is rarely possible to define a market in strict accordance with the test s assumptions Even if the test could be conducted precisely the relevant market is no more than an appropriate frame of reference for competition analysis Where there is strong evidence that the relevant market is one of a few plausible market definitions and the assessment on competitive impact is shown to be largely unaffected whichever market definition is adopted it may not be necessary to define the market uniquely Return to the top SECTION 6 NOTIFICATIONS FOR GUIDANCE OR DECISIONS A Notifying Agreements and Conduct 1 Undertakings in doubt may apply to the CCS for guidance or a decision which grants a provisional immunity from financial penalty 27 6 1 Undertakings having serious concerns as to whether they are infringing the Section 34 Prohibition or the Section 47 Prohibition may apply to the CCS for guidance or a decision With respect to a notification in relation to the Section 34 Prohibition notification of an agreement to the CCS confers upon the agreement a provisional immunity from financial penalty which lasts from the date on which the notification was given to such date as may be specified by the CCS following a determination of the notification No provisional immunity from financial penalty is conferred for notification of conduct in relation to the Section 47 Prohibition 2 Where the CCS has given guidance that an agreement or conduct is unlikely to infringe the Prohibitions immunity is conferred 27 6 2 Guidance may indicate whether an agreement is likely to infringe the Section 34 Prohibition and if so whether it is likely to be exempt under a block exemption or otherwise Where the CCS has given guidance that an agreement is unlikely to infringe the Section 34 Prohibition or is likely to be exempt under a block exemption or that conduct is unlikely to infringe the Section 47 Prohibition immunity is conferred in that no further action may be taken with respect to the notified agreement in relation to the Section 34 Prohibition or with respect to the notified conduct in relation to the Section 47 Prohibition as the case may be This immunity cannot be removed unless a the CCS has reasonable grounds for believing that there has been a material change of circumstances since it gave its guidance b the CCS has reasonable grounds for suspecting that the information on which it based its guidance was incomplete false or misleading in a material particular c a complaint about the agreement or conduct has been made to the CCS in the case of agreements the complaint is to come from a person who is not a party to the agreement or d in the case of agreements one of the parties to the agreement applies to the CCS for a decision with respect to the agreement The CCS will have to consult by giving notice in writing to the notifying party and affording it an opportunity to make written representations before removing the immunity 3 Where the CCS has made a decision upon notification that an agreement or conduct has not infringed the Prohibitions immunity is conferred 27 6 3 Similarly where the CCS has made a decision upon a notification that an agreement has not infringed the Section 34 Prohibition or that conduct has not infringed the Section 47 Prohibition immunity is conferred in that no further action may be taken with respect to the notified agreement in relation to the Section 34 Prohibition or with respect to the notified conduct in relation to the Section 47 Prohibition as the case may be This immunity cannot be removed unless a the CCS has reasonable grounds for believing that there has been a material change of circumstances since it gave its decision or b the CCS has reasonable grounds for suspecting that the information on which it based its decision was incomplete false or misleading in a material particular The CCS will have to consult by giving notice in writing to the notifying party and other persons to the agreement or engaging in the conduct and affording them an opportunity to make written representations before removing the immunity B Notifying Anticipated Mergers and Mergers 1 Undertakings in doubt as to whether their merger will infringe the Section 54 Prohibition may apply to the CCS for a decision which will do a review in two phases 27 6 4 Undertakings having serious concerns as to whether their anticipated merger will if carried into effect infringe or that their merger has infringed the Section 54 Prohibition may apply to the CCS for a decision The CCS adopts a two phased approach when evaluating notified anticipated mergers and mergers Upon receiving the notification the CCS will carry out Phase 1 review which is expected to be completed within 30 working days from when the applicable Phase 1 filing requirements have been met Anticipated mergers and mergers that clearly do not raise any competition concerns under the Section 54 Prohibition will be cleared under Phase 1 If the CCS is unable based on the information submitted during Phase 1 review to conclude that the anticipated merger or merger does not raise any competition concerns it will proceed to Phase 2 review Phase 2 review entails a more detailed assessment and is expected to be completed within 120 working days from when the applicable Phase 2 filing requirements have been met The timeframes of 30 working days and 120 working days are administrative in nature and may be stopped if parties fail to comply with the CCS requests for further information or if commitments are being negotiated 2 Merging parties can seek confidential advice from CCS 27 6 5 Where merging parties are in the process of confidential pre merger negotiations but would like to seek guidance from the CCS on whether the anticipated merger is likely to give rise to competition concerns they may seek confidential advice from the CCS Generally the CCS will only provide confidential advice where a parties evidence to the CCS that there is a good faith intention to proceed with the anticipated merger but it has yet to be completed b the anticipated merger is not in the public domain c the anticipated merger raises a genuine issue in relation to the competitive assessment in Singapore and d the parties undertake to keep the CCS informed of significant developments in relation to the anticipated merger The CCS will generally provide the confidential advice to the parties within 14 working days of receipt of all the required information The advice from the CCS will inform the parties as to whether the anticipated merger is likely to raise competition concerns in Singapore and whether notification is advisable 3 Where the CCS has made a decision that a merger will not infringe the Section 54 Prohibition immunity is conferred 27 6 6 Where the CCS has made a decision upon a notification that an anticipated merger will if carried into effect not infringe or that a merger has not infringed the Section 54 Prohibition immunity is conferred in that no further action may be taken with respect to the notified anticipated merger or merger in relation to the Section 54 Prohibition This immunity cannot be removed unless a the CCS has reasonable grounds for suspecting that the information on which it based its decision including any information on the basis of which it accepted a commitment was incomplete false or misleading in a material particular or b the CCS has reasonable grounds for suspecting that a party who provided a commitment failed to adhere to one or more of the commitment terms The CCS will have to consult by giving notice in writing to the notifying party and all other parties to the merger or anticipated merger before removing the immunity A decision that an anticipated merger will if carried into effect not infringe the Section 54 Prohibition may be subject to a validity period in which case the immunity will apply only if the anticipated merger is carried into effect within the validity period 4 Where the CCS proposes to make a decision that the merger infringes the Section 54 Prohibition notice will be given to the part who may apply to the Minister for exemption 27 6 7 Where the CCS proposes upon a notification to make a decision that the notified anticipated merger will if carried into effect infringe or that the notified merger has infringed the Section 54 Prohibition it will give notice to the party who applied for the decision or where that party no longer exists the merged entity That party may within 14 days of the notice apply to the Minister for the anticipated merger or merger to be exempted from the Section 54 Prohibition on the ground of any public interest consideration In this regard public interest consideration means national or public security defence and such other considerations as the Minister may by order published in the Gazette prescribe Re Proposed Joint Venture between Greif International Holding B V and GEP Asia Holdings Pte Ltd Notification 2011 SGCCS 15 5 The CCS may issue interim directions prior to completing consideration of a merger which has been notified to the CCS 27 6 8 The CCS may issue interim directions prior to completing its investigation of an anticipated merger or merger which has been notified to the CCS for a decision if the CCS has reasonable grounds for suspecting that the Section 54 Prohibition will be infringed by the anticipated merger if carried into effect or has been infringed by the merger and it considers that it is necessary to act a as a matter of urgency for the purpose of preventing serious irreparable damage or of protecting the public interest or b for the purpose of preventing any action

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  • Ch.28 Singapore Income Taxation
    the operator as distinguished from an occupation which is substantially the production or sale or arrangement for the production or sale of commodities However where an individual exercises professional skills under the employment of another for example a doctor by a hospital the individual is considered an employee and should be taxed under section 10 1 b rather than section 10 1 a Vocation 28 3 8 The word vocation is not defined in the ITA According to Denman J in Patridge v Mallandaine 1886 2 TC 179 the word vocation is analogous to calling a word of wide significance meaning the way in which a person passes his life Therefore a bookmaker who accepts bets or an individual who habitually supplies racing forecasts to newspapers for reward is carrying on a vocation See Patridge v Mallandaine supra and Graham v Arnott 1941 24 TC 257 Employment 28 3 9 To qualify as an employee one must be rendering services under a contract of services rather than a contract for services In Ready Mix Concrete South East Ltd v Minister of Pensions and National Insurance 1968 2 QB 497 MacKenna J sitting in the English High Court stated that an employer is one who agrees to a contract of services and in such an arrangement the servant agrees that in consideration of a wage or other remuneration he will provide his own work and skill in the performance of some service for his master employer He agrees expressly or impliedly that in the performance of that service he will be subject to the other s control in a sufficient degree to make the other master The distinction between a contract of services and contract for services is important because bad debts capital allowances and losses cannot be claimed under a contract of services while the types of expenses that can be allowed to an employee are very restricted 28 3 10 A definition for employee was inserted in section 2 1 of the ITA in 1993 so that an employee in relation to a company includes a director of the company The legislative intent was to tax gains profits or perquisites which a director of a company obtains from that company even though no employment contract exists between the director and the company See RS and Another v Comptroller of Income Tax 2001 SGITBR 1 28 3 11 Gains or profits from employment include a wages salary leave pay fee commission bonus gratuity perquisite or allowance other than a subsistence travelling conveyance or entertainment allowance which is proved to the satisfaction of the Comptroller to have been expended for purposes other than those in respect of which no deduction is allowed under Section 15 paid or granted in respect of the employment whether in money or otherwise section 10 2 a b value of any food clothing or lodging provided or paid for by the employer section 10 2 b c annual value of any place of residence provided by the employer section 10 2 c d any sum standing to the account of any individual in any pension or provident fund or society which the individual is entitled to withdraw upon retirement or which is withdrawn therefrom section 10 2 d e gains or profits from share option schemes section 10 6 f Excess contributions to the Central Provident Fund CPF or other designated pension or provident funds section 10C In practice the Comptroller has made a number of concessions on the taxability of certain types of benefits in kind received by an employee The administrative practice of the Comptroller can be found on the IRAS website at the following URL http www iras gov sg irasHome page04 aspx id 2890 Section 10 1 g 28 3 12 Section 10 1 g acts as a very wide catch all provision which captures any other payments of an income nature which do not fall within any of the descriptions in paragraphs a to f of that subsection The words are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act the object of the Act and intention of Parliament See HZ v Comptroller of Income Tax 2004 SGITBR 8 Therefore gains from extraordinary isolated transactions may constitute income where the taxpayer had the requisite intention to make a profit or gain before entering into the transaction The means or mode of realizing the profit need not be specific or precisely determined at the outset See IB v Comptroller of Income Tax 2005 SGDC 50 Return to the top SECTION 4 SOURCE RULES 28 4 1 Singapore adopts a territorial basis of taxation Under section 10 1 of the Act income tax is levied only on income accruing in or derived from Singapore or received in Singapore from outside Singapore in respect of one of the charges set out under section 10 1 a to g In other words the source of the income must be in Singapore before it can be subject to Singapore income tax Source of Trade or Business Income 28 4 2 Ascertaining the actual source of income is a practical matter of fact See CH Pte Ltd v Comptroller of Income Tax 1988 1 MSTC 7 022 In CIR v Hang Seng Bank Ltd 1991 1 AC 306 Lord Bridge of Harwich proposed a broad guiding principle to determine the source of a trade or business income An inquiry on source should be based on a consideration of what the taxpayer has done to earn the profit in question This is affirmed by Lord Jauncey of Tullichettle in CIR v HK TVB International Ltd 1992 3 WLR 439 at 444 the question is to be addressed by reference to what the taxpayer has done to earn the profit in question and where he has done it 28 4 3 The Hang Seng Bank case was relied on by the ITBR in HM v Comptroller of Income Tax 1993 SGITBR 1 In that case it was held that incomes arising from the sale of securities by a Singapore incorporated subsidiary of an overseas company effected on an overseas exchange by way of instruction to an overseas broker by taxpayer s non resident director outside of Singapore are not incomes accruing in or derived from Singapore While the broad guiding principle is clear it is less obvious how it is to be applied For example in the case of HM the ITBR considered the place where whereby the contract was made and executed to be a relevant factor in its decision In contrast in the CH case interest on overdraft facilities procured by a Singapore incorporated company for disbursement to be made in Singapore and credited to its Singapore account is held to be sourced in Singapore even though both the execution of the loan agreement and the handing over of cheque took place in Malaysia 28 4 4 In ING Baring Securities Hong Kong Ltd v Commissioner of Inland Revenue 2007 HKCU 1666 Hong Kong Court of Final Appeal clarified that focus of the inquiry should be on establishing the geographical location of the taxpayer s profit producing transactions themselves as distinct from activities antecedent or incidental to those transactions Such antecedent activities will often be commercially essential to the operations and profitability of the taxpayer s business but they do not provide the legal test for ascertaining the geographical source of profits for the purposes of section 14 The focus is therefore on the profit producing transaction rather than the antecedent or incidental activities Source of Employment Income 28 4 5 There are several statutory exceptions and variations to the employment income source rule Section 12 4 of the ITA deems gains or profits from employment exercised in Singapore to be derived from Singapore for the purposes of section 10 1 regardless of whether it is a Singapore employment or a foreign employment It is a deeming provision not a charging provision It serves to remove any ambiguity caused by application of the charging provision under section 10 1 by deeming certain types of incomes to be Singapore sourced Section 13 6 provides for the exemption of income derived in Singapore by short term visiting employees In addition under the Not Ordinarily Resident NOR scheme section 13N an NOR individual can enjoy time apportionment of Singapore employment income if the individual has spent at least 90 days outside Singapore for business reasons and his total Singapore employment income must be at least 160 000 28 4 6 The leading case to date on the issue of source of income received by an employee is the Court of Appeal s decision in Comptroller of Income Tax v HY 2006 2 SLR 405 in which the majority considered the place where the activities which taxpayers had done which earned him the profits or gains were carried out to be a key factor in determining the source of employment income Yong Pung How CJ as he was then opined that I n deciding whether income was derived from or accruing in Singapore one must look to the originating source of those gains or profits This is essentially a question of fact to be determined based on a scrutiny of the circumstances in each individual case It is impossible to lay down fixed legal rules or tests and a practical approach based on what a practical man would regard as the real source of income is to be adopted The broad guiding principle is to focus on what the taxpayer had done which earned him the gains or profits in question and then to identify the location where those activities that he had engaged in or the work he had done took place This may be a difficult inquiry bearing in mind that the gains or profits may typically be derived from a series of activities which may take place in more than one country 28 4 7 The choice of the words broad guiding principle suggests that there may be situations where the location of where the employment is exercised may not correspond with the location of the originating source but the location where the employment is exercised is prima facie one of the key factors in deciding whether or not income from an employment is sourced in Singapore However as the case involved income under section 10 1 g and not section 10 1 b it is unclear whether this broad guiding principle also applies to section 10 1 b employment income Return to the top SECTION 5 COMPUTING TAXABLE PROFITS General formula 28 5 1 The general formula for computing taxable profits can be represented as follows A B C D E F whereA is the sum of income receipts accrued to the taxpayer B is the sum of expenses incurred by the taxpayer which are of an income nature C is the total allowances to be made to the taxpayer D is any loss relief to be accorded to the taxpayer E is any deductions for donations made by the taxpayer and F is any relief to which the taxpayer is entitled provided he is an individual taxpayer Receipts 28 5 2 As the Singapore income tax is a tax on income only gains of a capital nature are not taxable Similarly only revenue expenses are deductible whereas capital expenses are not although a capital allowance may be granted in certain cases see section 4 supra The ITA does not define what is meant by income Therefore the distinction between income and capital is an issue to be determined on a case by case basis by reference to common law On the characterization of receipts the court is not bound by accounting evidence rather it is for the court to decide whether a particular item should be regarded as accrued income for the purposes of tax liability See Pinetree Resort Pte Ltd v Comptroller of Income Tax 2000 4 SLR 1 and ABD Pte Ltd v Comptroller of Income Tax 2009 SGITBR 3 28 5 3 It is not easy to determine whether a particular payment constitutes an income receipt or a capital receipt Greene MR once bemoaned the extent of this difficult by claiming that in many cases it is almost true to say that the spin of a coin would decide the matter almost as satisfactorily as an attempt to find reason See Inland Revenue Commissioners v British Salmson Aero Engines Limited 1938 2 KB 492 at 498 The classic test to distinguish between capital and income receipts is to distinguish between sale of fixed capital of a business which produces capital receipt and sale of its circulating capital which produces income receipt Viscount Haldane summarized the classic economist s definitions of fixed and circulating capital in John Smith Son v Moore 1921 12 TC 266 Adam Smith described fixed capital as what the owner turns to profit by keeping it in his own possession circulating capital as what he makes profit of by parting with it and letting it change master The latter capital circulates in this sense It was not by selling these contracts of limited duration though they were it was not by parting with them to other masters but by retaining them that he was able to employ his circulating capital in buying under them they were nonetheless part of his fixed capital However this distinction may not be easy to apply in practice The classification of an asset depends upon the trade in question and this can prove to be quite difficult to determine For example a computer may be a fixed asset for a law firm but the same item will be the circulating asset of a computer manufacturer An alternative test is to distinguish between receipts which relate to assets forming part of the permanent structure of the business and those which do not This distinction is often helpful in cases where the receipt is compensation received by a trader in lieu of the destruction of certain contracts 28 5 4 There is no simple infallible test that can be applied to all cases and therefore it is essential that the decided cases be read and considered for guidance Although judges have generally been unsuccessful in establishing precise rules which can be applied to all situations to distinguish between income and capital receipts there are several general propositions that can be derived from case law These are summarized in Whiteman on Income Tax 3 The five basic propositions are a Payments received for sale of business assets are prima facie capital receipts b Payments received for destruction of recipient s profit making apparatus are capital receipts c Payments received in lieu of trading receipts are revenue receipts In ZT v Comptroller of Income Tax 2009 SGITBR 1 the ITBR held that compensation received by a property developer for delay in completion of sale of property to the developer was liquidated damages for loss of rental income during delay and is therefore a taxable receipt as it was payment made in lieu of trading receipts d Payments received in return for imposition of substantial restriction on the activities of the trader are capital receipts e Payments of a recurrent nature are more likely to be treated as revenue receipts 28 5 5 Besides the requirement that the receipt be of an income nature it must also have accrued to the recipient before it can be taxed in his hands The word accrue means to which any person has become entitled See Pinetree Resort Pte Ltd v Comptroller of Income Tax 2004 4 SLR 1 Where club constitution provides that entrance fees become due and payable at the time of membership to the club the entrance fee would accrue as income once a member is admitted to membership The fact that the entrance fee is to be paid in installments does not make a difference because the club would be legally entitled to the entrance fee at the point of admission to membership Expenses 28 5 6 The relevant business must have commenced before an expense is deductible since tax is payable only for whatever period of time a trade business profession or vocation may have been carried on or exercised under section 10 1 a For a business to commence the taxpayer must have in place an income generating asset or income earning structure See Mitsui Soko International Pte Ltd v Comptroller of Income Tax 1998 MSTC 7 The grant of the Temporary Occupation Permit TOP of a shopping mall is the point at which the operator of that shopping mall can be considered to have commenced business Any expenses incurred in respect of that business prior to granting of TOP i e before commencement of that business are therefore not deductible See T Ltd v Comptroller of Income Tax 2006 SGCA 13 Similarly the business of letting of premises could not have started until the date of TOP See IE v Comptroller of Income Tax 2005 SGITBR 1 28 5 7 In addition the expenditure must necessarily be incurred before a deduction may be taken One common problem is the situation where expenses are incurred in respect of a long term contract Where the completed contract method of accounting is adopted for a long term contract all receipts and expenses are recognized only upon completion of the project See TH Ltd v Comptroller of Income Tax 1981 2 MLJ 105 1982 1 MLJ 303 In the case of property development the full amount of receipts and expenses must be recognized at the point of grant of TOP even if less than 100 of the property development project is completed No apportionment of expenses is allowed See Comptroller of Income Tax v KE 2006 SGHC 140 28 5 8 Besides the threshold requirements of commencement of business and incurrence of expense there is a two tier test to be satisfied before expenditure may be deducted First an expense is prima facie deductible if it satisfies the general deduction formula under section 14 1 which provides for the deduction of outgoings and expenses wholly and exclusively incurred during that period in the production of the income or if it is otherwise specifically authorized pursuant to inter alia sections 14 1 a to h Second an expense is not deductible if it falls within the prohibitions set out in section 15 1 Section 15 1 c and d specifically prohibits the deduction of expenses and losses of a capital nature Therefore expenses are deductible if expended in the process of producing income but not if their expenditure is reflected as part of the continuing capital of the enterprise and capable of subsequent disposal 28 5 9 In HP v Comptroller of Income Tax 1996 SGITBR 1 the ITBR relied on Dixon J s exposition in Sun Newspapers and Associated Newspapers Ltd v FC of T 5 ATD 87 of the factors one should consider in deciding whether an amount spent was capital or revenue expenditure 1 the character of advantage sought from making the expenditure 2 the manner in which it is to be used relied upon or enjoyed and in this and under the former head recurrence may play its part and c the means adopted to obtain it that is by providing a periodical reward or outlay to cover its use or enjoyment for periods commensurate with the payment or by making a final provision or payment so as to secure future use or enjoyment Therefore license fees paid by a taxpayer for the use of a piece of land on which a warehouse is constructed constitutes capital expenditure Similarly geomancy fees incurred in relation to acquisition to land buildings and associated facilities which were of a capital nature and hence not deductible See ABD Pte Ltd v Comptroller of Income Tax supra Where the issue involves the deductibility of interest expenses the nature of the interest expenses depends on the purpose for which the loan was taken out If the loan was taken out to bring into existence an asset or an advantage for the enduring benefit of a trade or business then the loan and its interest expense are capital in nature and not deductible See JC v Comptroller of Income Tax 2004 SGDC 244 The words enduring benefit mean a benefit which endures in the way that fixed capital endures not a benefit that ensures in the sense that for a good number of years it relieves you of a revenue payment See Anglo Persian Oil Co Ltd v Dale HM Inspector of Taxes 1931 16 TC 253 Therefore a payment may be deductible even though it provides a long term advantage to the trade It may be deductible even if it relates to a capital asset provided that it was made for revenue benefit Considerable economy saving in working expenses and improved efficiency of business are considered revenue benefits in Comptroller of Income Tax v IA 2006 4 SLR 161 28 5 10 In addition the expense for which a deduction is sought must also be wholly and exclusively in the production of the income The words wholly and exclusively suggest that dual purpose expenses are not deductible Therefore expenditure incurred by a solicitor in purchasing a notebook computer and a briefcase are not deductible as these items are capable of other uses not connected to the production of his or her income See HR v Comptroller of Income Tax 1998 SGITBR 1 The burden of proving that the expenditure is wholly and exclusively incurred in the production of the income lies with the taxpayer In NE v Comptroller of Income Tax 2006 SGHC 199 the Singapore High Court adopted the following propositions as elucidated by Millet LJ in Vodafone Cellular Ltd v Shaw 1997 STC 734 on the application of the exclusivity test 1 The words for the purposes of the trade in the UK Income Tax Act which is in substance similar to for the production of the income in the ITA mean to serve the purposes of the trade not of the taxpayer 2 To ascertain whether the payment was made for the purposes of the taxpayer s trade it is necessary to discover his object in making the payment This involves an inquiry into the taxpayer s subjective intentions at the time of the payment 3 The object of the taxpayer in making the payment must be distinguished from the effect of the payment A payment may be made exclusively for the purpose of the trade even though it also secures a private benefit provided the securing of the private benefit was not the object of the payment but merely a consequential and incidental effect of the payment 4 Although the taxpayer s subjective intentions are determinative these are not limited to the conscious motives at the time of payment Some consequences are so inevitably and inextricably involved in the payment that unless merely incidental must be taken to be a purpose for which the payment was made 5 The question does not involve an inquiry on whether TP consciously intended to obtain a trade or personal advantage by the payment Rather the question is whether the particular object of the taxpayer was in making the payment Once ascertained its characterization as a trade or private purpose is a matter for the court and not the taxpayer In that case it was held that the Appellant taxpayer had failed to demonstrate that the expenditure incurred in engaging the services of a bodyguard for one of the directors of the appellant taxpayer company was wholly and exclusively incurred in the production of the income 28 5 11 In addition to the requirements that the expenditure be of an income nature and is wholly and exclusively incurred in the production of the income there must be a nexus between the incurrence of expenditure and the production of income In Pinetree Resort Pte Ltd v Comptroller of Income Tax 2000 4 SLR 1 Yong Pung How CJ considered the nexus between the incurrence of an expense and the production of income to be determined by looking at the business as a whole set of operations directed toward producing income in which case an expenditure which is not capital expenditure is usually considered as having been incurred in gaining or producing income This wider nexus test was adopted by the Court of Appeal in Comptroller of Income Tax v IA 2006 4 SLR 161 in which Andrew Phang JA noted that a holistic view that eschews artificiality and technicality ought to prevail in the application of the nexus test Therefore prepayment penalty and guarantee expenses incurred in relation to the early repayment of interest to a syndicated loan facility taken to fund the construction of a condominium project by the respondent property development company were deductible as they were incurred to obtain substantial interest savings for the respondent and could therefore be regarded as having been incurred in the production of income 28 5 12 There is also a requirement of direct nexus between the actual expenses incurred and the actual income produced In JD Ltd v Comptroller of Income Tax 2005 SGCA 52 the Singapore Court of Appeal held that investment must produce income for the interest expense on the investment to be deductible Therefore where interest expenses are incurred to maintain a portfolio of share investments in which some share investment counters do not yield dividend income then only the part of the interest expenses attributable to the income producing share investment counters are deductible This requirement is captured under section 10E of the ITA specifically in respect of taxpayers in the business of making investments Expenses incurred by a taxpayer in respect of non income producing investments made or held in the course of its business of making investments are not deductible On the other hand expenses incurred in respect of income producing investments are deductible only to the extent of income derived from such investments and any excess expenses will be disregarded Section 10E 2 defines business of making investments to include the business of letting immovable properties There is no requirement that the business of letting immovable properties had to be the whole or main business of the company Therefore in the case of a service apartment operator income derived from services provided to its tenants are ancillary to the business of letting immovable properties and are therefore part of the income derived from the business of letting the property See Comptroller of Income Tax v VJ 2009 2 SLR 91 Capital Allowances 28 5 13 Capital expenditure incurred on the provision of machinery or plant qualifies for capital allowances if such expenditure was incurred for the purpose of a trade business or profession 4 Therefore capital allowance will not be made to a recreational club for the cost of land buildings and other associated costs incurred in the construction of its club building and facilities See ABD Pte Ltd v Comptroller of Income Tax supra 28 5 14 The Act is silent on what is meant by machinery or plant The Privy Council s definition of machinery in a non tax case Corporation of Calcutta v Chariman Cossipore and Chitpore Municipality 1922 ILR 49 Cal is instructive machinery when used in ordinary language prima facie means some mechanical contrivances which by themselves or in combination with one or more other mechanical contrivances by the combined movement and interdependent operation of their respective parts generate power or evoke modify apply or direct natural forces with the object in each case of effecting so definite and a specific result 28 5 15 The classic case law definition of plant can be found in Lindley J s judgment in Yarmouth v France 1887 19 QBD 467 in its ordinary sense plant includes whatever apparatus is used by a businessman for carrying on his business not his stock in trade which he buys or makes for sale but all goods and chattels fixed or moveable live or dead which he keeps for permanent employment in his business 28 5 16 In considering whether a particular item constitutes plant one must do so by considering carefully the nature of the particular trade being carried on and the relation of the expenditure to the promotion of the trade Per Lord Wilberforce Inland Revenue Commissioners v Scottish Newcastle Breweries 1982 STC 296 at 299 and endorsed by the Income Tax Board of Review in IH v Comptroller of Income Tax 2005 SGITBR 2 and the Board of Review and the High Court respectively in ZF v Comptroller of Income Tax 2008 SGITBR 2 2010 SGHC 14 In Wimpy International Ltd v Warland Inspector of Taxes Associated Restaurants Ltd v Warland 1989 STC 273 Hoffman J commented that three types of items are excluded from the definition of plant based on Lindley J s classic exposition in Yarmouth v France supra namely anything not used for carrying on the business anything that is stock in trade and anything that is the premises or place in or upon which the business is conducted However in the Court of Appeal decision of ZF v Comptroller of Income Tax 2010 SGCA 48 it was held that premises refers to buildings proper On the facts of the case the demountable workers dormitories provided by a taxpayer in the business of providing accommodation to foreign workers are not buildings proper but are more properly regarded as plant rather than buildings as they were the very tools of trade without which the Appellant would not have been able to conduct its business at all 28 5 17 Under section 19 an initial allowance of 20 of the expenditure incurred in acquiring a capital asset is generally made to a taxpayer in respect of that asset on due claim and this allowance is normally made in the year of assessment relating to the basis period in which the expenditure was incurred An annual allowance is then to be made to the taxpayer in subsequent years of assessments where at the end of the basis period for that year of assessment the machinery or plant is in use by the taxpayer for the purpose of his trade profession or business The amount of annual allowance to be made is determined by dividing the qualifying cost after deducting any initial allowance granted by the statutory working life of the asset as defined under the Sixth Schedule Section 19A 1 allows capital allowances to be made at an accelerated rate of 33 1 3 per annum over a period of 3 years With effect from YA 2009 accelerated capital allowance under section 19A 1 is made on a claim basis and therefore taxpayers may choose to defer claiming capital allowances even after the 3 year period Section 19A 2 to 10 provides for 100 write off of any expenditure incurred in the provision of computers prescribed automation equipment and other specified items of plant and machinery Sections 19 and 19A are mutually exclusive therefore a taxpayer may not claim capital allowance under both sections for the same asset Once a taxpayer has elected to claim capital allowance under section 19A it may not claim under section 19 in subsequent years 28 5 18 Besides the difference in the rate at which capital allowance may be made section 19 also differs from section 19A in that the machinery or plant must be in use at the end of the basis period for a particular year of assessment in order for a capital allowance to be made under section 19 in that year of assessment In Comptroller of Income Tax v GE Pacific Pte Ltd 1994 2 SLR 690 the Singapore High Court held that the purpose and object of the capital allowances provisions in the Act is for capital allowances to be available to the person who still has the machinery in use and as such the buyer and not the seller would be entitled to the remaining capital allowances on the sale of the plant and machinery between related parties as if no sale had taken place In contrast section 19A 11 specifically disallows a claim for accelerated capital allowance to be barred for the sole reason that the person has not in use the machinery or plant at the end of the basis period for that year of assessment 28 5 19 Apart from section 19 and 19A capital allowances for expenditure incurred on machinery or plant the ITA also provides for other specific types of capital allowances such as the industrial building allowance see sections 16 to 18 which is available to a taxpayer who has incurred capital expenditure such as cost of acquisition of land architect s fees legal charges and stamp duties on the construction of an industrial building or structure within the meaning of section 18 1 and which is occupied for the purposes of a trade In order to claim industrial building capital allowance the taxpayer must have commenced its trade and the industrial building or structure must be used for the purposes of that trade See Mitsui Soko International Pte Ltd v Comptroller of Income Tax 1988 MSTC 7349 where the High Court held that industrial building allowance of a taxpayer cannot be used to set off against interest income derived by that taxpayer Other types of allowances include writing down allowances for intellectual property rights IPR under s19B and for approved cost sharing agreement for research and development activities under section 19C 28 5 20 Unabsorbed capital allowances industrial building allowances and writing down allowances can be utilized in the following order a set off against other income sources for the basis period of that year of assessment b transferred to a related company under the group relief framework see para 5 26 infra c carried back to a previous year of assessment under the capital allowance loss carryback scheme see paras 5 27 to 5 28 infra Balancing Allowances and Charges 28 5 21 A balancing allowance or a balancing charge generally arises where the fixed asset i e plant machinery building or structure etc a ceases to belong to the taxpayer b the trade is discontinued c in the case of machinery or plant provided for research and development and not for the purpose of the taxpayer s trade profession or business permanently ceases to be used for any research and development or d in all other cases the fixed asset is no longer used for the trade profession or business 28 5 22 A balancing charge is due where unutilized capital allowance exceeds the sales proceeds i e the sale insurance salvage or compensation money of the fixed assets whereas a balancing allowance is due where the sales proceeds exceed the unutilized capital allowances of the fixed assets In determining the balancing allowance or balancing charge expenditure incurred to dismantle or to dispose of the fixed assets can be deducted from the sales proceeds Compensation money to defray the costs of relocation of business however should not be taken into account See YE v Comptroller of Income Tax 2008 SGITBR 1 Losses 28 5 23 Just as capital gains are not taxable in Singapore capital losses are similarly not deductible for income tax purposes However losses arising from carrying on a trade business profession or vocation can be utilized in the following order see section 37 a within the first year of assessment after the year in which the loss was incurred i firstly against statutory income from the same trade business profession or vocation of the taxpayer ii secondly against statutory income from any other trade business profession or vocation of the taxpayer iii thirdly against statutory income from any other source b in the same manner described in subparagraphs a i to

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