archive-sg.com » SG » S » SINGAPORELAW.SG

Total: 820

Choose link from "Titles, links and description words view":

Or switch to "Titles and links view".
  • Comptroller of Income Tax v IA[2006] 4 SLR 161; [2006] SGCA 24
    subject loans was not to add permanently to its capital structure but was rather an attempt to tide itself over in the short term as it had a cash shortage It also found that there was very little prospect of the taxpayer being able to obtain permission to pay off the loans earlier Its summary is instructive 26 supra at 292 To summarise we find the loans to have been loans arranged to tide the taxpayer company over a short term problem namely the failure of the taxpayer company s trading activities to generate a sufficient cash flow to cover the taxpayer company s commitments and day to day needs We find that more efficient stock control and better trading results were expected within a short time to solve the problem emphasis added 33 This last mentioned point is also confirmed by Hoffmann J himself where the learned judge states thus 26 supra at 293 The money was raised because the taxpayer company needed additional cash for its business The purposes for which cash was required included both revenue items like financing stock and capital items like enlarging shops emphasis added 34 However Hoffmann J disagreed with the decision of the Special Commissioners The learned judge was of the view that n o one can describe a loan for a fixed term of five years as a mere temporary accommodation and that t he amount and the term were fixed and the loan was for a substantial period see ibid What then about the possibility of early repayment In this regard Hoffmann J was of the view see ibid that I do not think it matters that the taxpayer company was entitled to make earlier repayment if it was willing to pay a capital premium In practice it was not contemplated that the Bank of England would allow payment to be made much earlier than the five year term of the loan emphasis added 35 With respect the learned judge was not really addressing the important issue of the possibility of early repayment This is because the factor centring on a fixed term would be undermined And this is not an unimportant point simply because as we shall see the House of Lords also focused on the importance of the loan being for a fixed term 36 The following crucial passages from Hoffmann J s judgment also bear quoting 26 supra at 295 296 The terms of the loans in the case are in my judgment sufficient to make it clear that they constitute additions to the capital employed by the taxpayer company and it does not matter whether they were intended to be employed in the making of payments of a revenue or of a capital nature In this case evidence on that question would be of little help because it is clear from the evidence before the commissioners and the documents to which I have referred that the money was not intended to be used and nor was it actually used specifically for purposes of one character or the other It was simply an addition to the taxpayer company s general funds It follows that there are in my judgment no relevant factors pointing to the borrowing being a revenue receipt which can displace the inference to be drawn from the terms upon which the money was actually borrowed In deciding whether a loan is on revenue or capital account there can be no question of examining the nature of the asset or advantage gained by the company it is always the same namely money The only question is whether the terms of repayment or the circumstances in which it is likely to be repaid or the use to which it is put may throw some light make it appropriate to treat the money as a sufficiently permanent addition to the company s funds to be regarded as capital and both the authorities and the practice of the accountants seem to me to show that the loans in this case unquestionably came within that description emphasis added 37 It is clear and this is a point we have already stressed in this judgment that unlike the present case the loans in Beauchamp s case were intended for general use Indeed there was ample evidence that part of the loans was intended for a capital use That the loans were intended for general use did weigh heavily with Hoffmann J is evidenced in the passage from his judgment which we have just quoted Indeed if the funds from a loan can be utilised for any purpose then the concept of purpose in our view does become immaterial or irrelevant This is because something that can be used for anything is not only uninformative but is also and more importantly clearly marked out for one purpose only it is part of the general capital funding or structure of the taxpayer At this point it is true that there is literally speaking a purpose However in the nature of things there is no need for the court to ascertain the specific purpose as such The court can simply assume what is already obvious that there is no real specific purpose with the funds from the loan concerned being available for any purpose and as such constituting part of the capital structure of the company This we reiterate is clearly not the situation on the facts of the present appeal 38 It is also clear that even if we accept that a loan for a fixed term is an accretion to the capital structure of the taxpayer company without more this was not the situation here The respondent in the present proceedings desired to and did repay the Syndicated Loan earlier once sufficient funds had come in from purchasers of the units in the Condo Project In contrast in Beauchamp s case it was clear that although the loans could have been repaid earlier early repayment was owing to the existing circumstances unlikely 39 It is also important to note that Hoffmann J did not eschew the context and more importantly the purpose of the loans in Beauchamp s case This is particularly evident from the second paragraph quoted at 36 above We are of the view that Hoffmann J went no further than emphasising that the inquiry is in the final analysis an objective one In other words whilst the avowed purpose for the taking of a loan will be accorded due consideration by the court the purely subjective assertions by the taxpayer are not conclusive If in other words the objective facts tell a different story the court is then free to disregard such assertions reference may be made in this regard to the Privy Council decision on appeal from the Supreme Court of Ceylon of Lily Harriet Ram Iswera v Commissioner of Inland Revenue 1965 1 WLR 663 at 668 But does this mean that at this point the court no longer has regard to the purpose behind the loan concerned We are of the view that nothing could be further from the truth What would have transpired at this point is simply the fact that the purpose of the loan has been ascertained by the court having regard to the objective facts that in the circumstances differ and contradict the purely subjective intentions which have been raised by the taxpayer concerned 40 However in fairness to Mr Liu our analysis of Beauchamp s case cannot stop simply at Hoffmann J s decision although Mr Liu himself also relied heavily upon it Put simply is there anything in the decision of the House of Lords that contradicts the analysis that we have just set out 41 Turning then to the House of Lords decision in Beauchamp s case only one substantive judgment was in fact delivered and in which the remaining law lords concurred This was the judgment by Lord Templeman In the interests of clarity including clarity of analysis we set out first a key passage in the judgment of the learned law lord as follows 25 supra at 514 The temporary and fluctuating borrowings incurred in transacting business are revenue transactions On the other hand a trading company which borrows unconditionally a fixed amount for a definite period may use the money generally for the purposes of its business or for any other purpose authorised by its constitution and even when the money is employed in the business the money may be laid out on income expenditure or capital expenditure The taxpayer company could do as it pleased with 100m borrowed Swiss francs provided that the application of the money was intra vires the objects of the taxpayer company The commissioners found as a fact that the taxpayer company intended to use the 100m Swiss francs to overcome a difficulty which was hoped to be of short duration and which was caused by the fact that stocks were high and trade depressed But there was nothing to stop the taxpayer company spending the whole or part of the money on capital items and indeed part was spent on capital items For my part I do not attach any importance in the present circumstances to the intentions of the taxpayer company or to the actual use made of the money in the present circumstances The 100m Swiss francs worth some 10m were available to the taxpayer company as additional capital emphasis added 42 The passage just quoted speaks for itself It is even more explicit than the corresponding parts of Hoffmann J s judgment parts of which are also cited by Lord Templeman at 518 519 More importantly it supports the analysis we have set out above in no uncertain terms We reiterate that the situation which obtains in the present appeal is wholly distinguishable from that which existed in Beauchamp s case Put simply Beauchamp s case has no relevance to the present proceedings This is not to state that we reject without qualification the holdings in Beauchamp s case That would be beyond our present remit We will decide that issue when an appropriate case arises for the decision of this court 43 It is true that the last portion of Lord Templeman s judgment quoted above appears to support Mr Liu s argument that the purpose of the loan is immaterial Indeed the following passage from a later part of the law lord s judgment also appears to support Mr Liu s argument 25 supra at 515 The authorities do not support the proposition that a borrowing of a definite sum for a fixed term of five years can be an income transaction emphasis added 44 There is another similar passage 25 supra at 517 Counsel for the taxpayer company submitted that an asset or advantage which only endured for five years was not enduring although a loan which endured for 10 years would be sufficiently enduring But when a taxpayer borrows money for five years he obtains an asset or advantage which endures for five years and the authorities show that such a loan increases the capital of the taxpayer for that period A loan is only a revenue transaction if it is part of the ordinary day to day incidence of carrying on the business emphasis added 45 However it is our view that these isolated passages cannot be wrenched from the context of both the judgment as well as the factual matrix concerned When these passages are viewed in their proper context in the manner which we have sought to explicate above it will be seen that Beauchamp s case does not stand for the inflexible and blanket proposition advanced by Mr Liu in the present appeal to the effect that purpose is never relevant in ascertaining whether or not a loan is a revenue or a capital transaction Indeed the last mentioned passage quoted at 44 above is itself ambiguous On one reading it could be argued that the passage does refer to the purpose of the loan and that if the funds are borrowed for the purpose of the day to day running of the business it is a revenue transaction That is in fact the case in the present proceedings In this regard one might also note the following observations by Lord Templeman 25 supra at 518 are in fact consistent with the point just made A loan is not an ordinary incident of marketing unless as the authorities show the loan is temporary and fluctuating and is incurred in meeting the ordinary running expenses of the business In their stated case the Special Commissioners said the issue we have to decide is whether the borrowing took place in such circumstances that the borrowed monies are to be regarded as an addition to the taxpayer company s capital resources or whether the borrowing formed part of the day to day activities in the earning of profits in the business In my opinion that question only permitted one answer the borrowing itself did not form part of the day to day activities of the taxpayer in earning profits emphasis added 46 We also note that Lord Templeman referred to the various authorities In our view it is unnecessary to delve into these decisions in any detail simply because the focus ought to be and indeed has been on the facts and holdings in Beauchamp s case itself It will therefore suffice for the purposes of the present proceedings to mention in the briefest of fashions some of the more significant decisions 47 In the House of Lords decision of Farmer Surveyor of Taxes v Scottish North American Trust Limited 1912 AC 118 for example although the House of Lords did refer to the temporary and fluctuating manner in which the moneys concerned were borrowed the focus was really on the fact that the purpose of the loans was centred on revenue as opposed to capital purposes Again the purpose for which the loans concerned were taken was in our view the focus of the English High Court decision of Ascot Gas Water Heaters Ltd v Duff HM Inspector of Taxes 1942 24 TC 171 And in the English Court of Appeal decision of The European Investment Trust Company Limited v Jackson HM Inspector of Taxes 1932 18 TC 1 Finlay J at first instance and whose decision was affirmed on appeal did refer to the concept of temporary accommodation However the learned judge also referred at 12 to the contrasting situation where there is an accretion to the capital structure of the company inasmuch as the taxpayer obtains sums which are used as capital and nothing else emphasis added In short there is nothing in these and other decisions cited in Beauchamp s case that detracts from the fundamental proposition that the purpose of the loan concerned is of paramount importance 48 It is clear therefore that the facts in Beauchamp s case are not only distinguishable from those which obtain in the present proceedings but also that a close analysis of that case demonstrates that it does not stand for the inflexible and blanket proposition advanced by the appellant in the present proceedings to the effect that the purpose of the loan is immaterial when ascertaining whether or not the loan concerned is a revenue or a capital transaction 49 We turn now to the other main decision that figured prominently in the arguments of both counsel in the present proceedings the Wharf Properties case 16 supra That decision by the Judicial Committee of the Privy Council hearing an appeal from the Hong Kong Court of Appeal decided that the purpose of the loan was important Interestingly the decision of the Privy Council was delivered by Lord Hoffmann now a member of the House of Lords 50 In the Wharf Properties case the taxpayer was a Hong Kong property development company which entered into a contract to purchase an old tramway depot at Causeway Bay with a view to redeveloping it The depot was in fact ultimately redeveloped into a commercial complex known as Times Square In order to finance this project the taxpayer borrowed the necessary funds from various banks and financial institutions The various loans were for short periods ranging from a week to a month but were always renewed The issue before the Privy Council was whether or not the taxpayer was entitled to deduct the interest payments made in relation to these loans 51 The Privy Council held that the acquisition of the tramway depot and holding it pending its conversion by redevelopment into an income earning capital asset was made for a capital purpose and that the payments of interest were therefore also made for a capital purpose The key concept in the Wharf Properties case was that relating to purpose Indeed the reference to the concept of purpose is both repeated and more importantly central Agreeing with Litton VP s view which was laid down at the Hong Kong Court of Appeal stage the Privy Council stated at 11 028 that T here is no other way in which the nature of the interest payment can be discovered The immediate consideration for each payment of interest is of course the use of money during the period in respect of which the interest has been paid but since money is no more than a medium of exchange which may be expended for either capital or revenue purposes the question can be answered only by ascertaining the purpose for which the loan was required during the relevant period emphasis added Reference may also be made in this regard to the Transvaal Provisional Division decision of Commissioner for Inland Revenue v General Motors SA Pty Ltd 1981 43 SATC 249 at 254 per McCreath J with whom Irving Steyn and Le Grange JJ concurred 52 Lord Hoffmann in the Wharf Properties case at 11 028 11 029 did in fact also deal with Beauchamp s case He did not consider the case to be relevant because It Beauchamp s case is directed to a different question namely whether the sum borrowed constitutes an addition to the company s capital or is a revenue receipt In other words it looks at the nature of the loan in the hands of the recipient rather than the question of whether a payment of interest is a capital or revenue expense It is unusual for a loan of money to constitute a revenue receipt but this can be the case if borrowing money is part of the ordinary day to day incidence of carrying on the business Lord Templeman in Beauchamp which may be the case in businesses of banking financing or otherwise dealing in money Ordinarily however a loan to a trading company whatever the purpose for which it is intended to be used will be an addition to that company s capital Mr Gardiner counsel for the taxpayer company did submit that the shortness of the successive terms of the loans in this case was enough to make them revenue receipts but their Lordships do not agree The borrowing did not form part of the company s trading activities While it or a replacement loan remained in place it was an addition to Wharf s viz the taxpayer company s capital Thus while the question of whether money is intended to be used for a capital or revenue purpose is inconclusive as to whether its receipt is a revenue receipt or an addition to the company s capital the purpose of the loan during the period for which the interest payment was made is critical to whether it counts as a capital or revenue expense In the present case during the whole of the two years in question the loan was clearly being applied for the purpose of acquiring and creating a capital asset rather than holding it as an income producing investment It follows that the interest was being expended for a capital purpose emphasis added in bold italics 53 With respect the distinction just drawn between receipt and expenditure is somewhat artificial As we have already argued the stronger distinction lies in the precise purpose for which the loan was taken and that in itself furnishes the requisite criterion as well as justification for drawing the line between a transaction in the nature of capital on the one hand and one in the nature of revenue on the other There is in fact a hint that such an approach ought to be adopted in the very judgment of Lord Hoffmann himself in the Wharf Properties case where the learned law lord observed thus 16 supra at 11 029 In cases like Beauchamp v FW Woolworth plc where the borrowings are for the general purposes of the company and are spent on both capital and revenue account it will be much more difficult to say whether a given interest payment is an expenditure of a capital or revenue nature emphasis added 54 Unfortunately however Lord Hoffmann then immediately proceeded to observe further as follows see ibid But this question did not arise in the Beauchamp case and there is no such difficulty in this one Their Lordships think that in the present case a true and fair view of the taxpayer s transactions required the interest to be treated as an expense of the development 55 With respect it is unfortunate that the Privy Council in the Wharf Properties case did not distinguish Beauchamp s case in a more satisfactory fashion To the extent however that we are constrained to choose between both decisions without more we would respectfully decline to follow Beauchamp s case However as we have emphasised we do not think that we need to go so far In our view an application of the purpose test to the facts of Beauchamp s case would have yielded the same result as that arrived at by both Hoffmann J as well as the House of Lords Further the decision in the Wharf Properties case does in fact support our view expressed below that the purpose test is not only relevant but is also to be accorded primacy 56 We note further that support for our view is to be found in the Eleventh Cumulative Supplement by Michael Sherry of one of the foremost treatises in the field Peter G Whiteman et al Whiteman on Income Tax Sweet Maxwell 3rd Ed 2001 as follows at para 7 58 Whether or not a facility is in a given case fluctuating and temporary is surely a question of fact However Lord Templeman went further The authorities do not support the proposition that a borrowing of a definite sum for a fixed term of five years can be an income transaction While it may very well be the case that a five year facility will be revenue in nature only in the rarest of circumstances and that the loans under consideration could not be so described by any reasonable body of Commissioners it is submitted that these last dicta go too far Surely the question of whether or not a transaction is on income or capital account depends upon its circumstances and it must be possible that in the myriad of complex transactions that take place in the commercial world one will arise where as a matter of commercial reality a five year term loan is on revenue account To hold as Lord Templeman has effectively done that as a matter of law such a loan is always on capital account is it is submitted to burden our jurisprudence with an unnecessary rule emphasis added 57 Finally it must also be reiterated that the taxpayer in the present proceedings entered into the Syndicated Loan in order to acquire trading stock 58 The principle that loans used to acquire trading stock are regarded as revenue in nature is derived from the Australian Federal Court decision of Federal Commissioner of Taxation v Hunter Douglas Limited 1983 83 ATC 4 562 Lockhart J explained as follows at 4 576 Borrowing money to carry on business must prima facie be treated as augmenting the capital employed in the business Borrowings by finance companies to then lend to their customers and borrowings by trading companies to finance the purchase of trading stock are exceptions to this general rule Such borrowings are an integral part of the ordinary conduct of the company s business and are thus revenue not capital items Moneys borrowed by a trading company for the purpose of financing the purchase of trading stock are borrowed with a view to disposal of the stock at a profit They are in each case part of the company s circulating capital 59 Mr Liu submitted that the trading stock exception is unique to the Australian tax regime which has a distinct statutory regime for trading stock However we note that the Singapore Master Tax Guide Manual CCH Tax eds 1989 2001 release also refers to expenditure on trading stock as being deductible and an English case is cited for this proposition This particular work states at p 2803 para 1010 d Expenditure relating to fixed capital if the expenditure relates to circulating capital ie stock in trade it will rank for deduction It will not if it relates to fixed capital ie fixed assets The distinction between fixed and circulating capital is that fixed capital is what the owner turns to profit by keeping it in his possession circulating capital is capital which is turned over and in the process of being turned over yields profit or loss John Smith Sons v Moore 12 TC 266 Our decision the primacy of the purpose test and the concept of complementarity 60 Looking closely at the abovementioned decisions both parties had with respect therefore missed the point in presenting a picture of irreconcilable difference between these two tests viz the purpose test and the temporary and fluctuating test respectively The present proceedings raised in our view not the question as to which test was to be preferred but rather how the tests can be reconciled with each other and which was to have primacy especially in a situation of direct conflict We hasten to add that on our analysis of the leading cases above especially Beauchamp s case we find nothing in those cases that detracts from such an approach 61 Admittedly both these tests are not the same However they are not incompatible with each other Indeed in our view they complement each other although primacy must be given to the purpose test This would be a fortiori the case in situations of conflict between the purpose test and the temporary and fluctuating test As we shall see the temporary and fluctuating test is arguably itself ambiguous Let us elaborate 62 It is our view that the purpose test is of the first importance inasmuch as given the significant difficulties in distinguishing revenue from capital transactions as stated at the outset of this judgment this particular test provides an eminently appropriate starting point for any inquiry of this nature In other words the purpose of the taxpayer in entering into the transaction here loan concerned must surely be of vital importance Put simply did the taxpayer intend to enter into a transaction having the character of revenue or did it instead intend to enter into a transaction having the character of capital As alluded to in 39 above however the purely subjective assertions by the taxpayers are not conclusive and the court will not be oblivious to the objective facts if they tell a different story 63 Notwithstanding this it remains the case that without taking into account the purpose of the taxpayer in entering into the transaction in question a position argued for forcefully by Mr Liu we would necessarily enter into the rarefied and abstract sphere which wholly disables us from ascertaining whether or not the transaction has the character of revenue or of capital 64 The corollary of any approach that disregards the purpose of the loan is that in the specific context of loans all loans and the accompanying expenses would almost never be considered to be revenue transactions for the very simple reason that without taking into account the purpose of the taxpayer in entering into the transaction concerned any and all funds from any loan would clearly amount to an addition or accretion to the capital structure of the taxpayer However such an approach advocated by Mr Liu is both excessively literal as well as too blunt and sweeping More importantly it is inconsistent with legal principle which looks not merely at a factual approach but rather one which can be justified on a normative level as well 65 However might it not be argued that the purpose test is in a sense circular We suggest that such an argument is misconceived inasmuch as the purpose of the transaction concerned here the Syndicated Loan cannot be divorced from its context in particular its factual context This is why the distinction between capital and revenue has often been described as being a factual inquiry However it will not do in our view to simply leave it at that It is an abdication of judicial responsibility to merely state that it all depends on the facts when it is possible to furnish some further if only rough guidelines As Choo Han Teck J put it in the Singapore High Court decision of Ngee Ann Development Pte Ltd v Nova Leisure Pte Ltd 2003 SGHC 168 at 6 7 In construing a contractual document the only immutable principle is that the court should extract such meaning from the words that the parties had chosen to reflect their intention at the time of the contract It is wrong to give to the words a meaning that counsel thinks the words ought to mean or even what the court thinks they ought to mean Semantic interpretation is very often a very difficult exercise What the words say and what the parties mean by the words they say may not be the same thing One great fundamental in the application of the law is consistency because consistency is the alloy of predictability In this regard the courts ought to consistently adopt the approach that the meaning to be given to written words must first be that as appears from the text The context becomes an aide in interpretation only if the words are vague or ambiguous and only to the extent that a reasonable application of the context would easily bring out the meaning intended by both sides For the above reason the phrase it all depends on the facts of the case can so easily become the anthem of inconsistency The phrase has such a magical ring to it It seems that whenever this incantation is made the court is at liberty to do as it pleases because there is no case like the present That is the temptation we must all resist emphasis added 66 Although the words italicised in the above quotation were espoused in a slightly different context the general principle contained therein is germane to the point we have made in the preceding paragraph In the circumstances we proceed to attempt to furnish a couple of rough guidelines that are not only of assistance to the present court but which may also be of some assistance to courts in future cases relating to a similar type of transaction and or set of facts And we hope to demonstrate in the process that the temporary and fluctuating test does on occasion at least have a role to play in complementing the all important purpose test 67 One guideline in so far as the present and specific context of loans are concerned is to ascertain whether or not there is a sufficient relationship or linkage between the loan in question and the main transaction or project for which the loan has ostensibly at least been taken If there is no or an insufficient linkage then it must be assumed that the sole purpose of the loan is to augment or add to the capital structure of the taxpayer If so then the loan itself must be of a capital nature A clear illustration of a situation where there is no linkage to the main transaction is where the taxpayer takes out the loan without stipulating what it is to be used for 68 On the other hand if there is a linkage such linkage must nevertheless be sufficient This is undoubtedly a question of fact and we might add commonsense For the avoidance of doubt however we are of the view that a sufficient linkage would clearly be present if the evidence demonstrates that the loan was taken in order to finance the main transaction or project Indeed this would be the position in the standard situation 69 If it is ascertained that there is a sufficient relationship or linkage in the manner set out in the preceding two paragraphs then the next question to ask is whether or not the main transaction or project itself is of a capital nature or of a revenue nature This constitutes in effect the second and closely related guideline If the project itself is of a capital nature then it must follow given the satisfaction of the requirement of linkage that the loan linked to it cannot possibly be of a revenue nature This is because the funds from the loan would ex hypothesi be intended to augment or add to the capital structure of the taxpayer given the capital nature of the project itself Put simply these funds would be sunk into the taxpayer s capital structure when viewed from the long term perspective If on the other hand the loan is linked to a project which is of a revenue nature the converse result would ensue inasmuch as the loan would be of a revenue nature as well 70 We are of the view that at this particular juncture the temporary and fluctuating test could be usefully introduced or employed We have in mind in particular the use of this test in demonstrating the absence of a link between the loan and the main transaction For example in the present proceedings the broadbrush approach which we alluded to above at 22 might as we have mentioned have been substituted with a more nuanced examination of the precise elements and purposes of the Syndicated Loan itself Certain of these elements or parts might for instance have been proved through inter alia an interpretation of the material terms of the loan concerned to have been intended for some other purpose unrelated to the main transaction and which actually adds to the capital structure of the taxpayer itself in which case those elements or parts would not be temporary and fluctuating and therefore would be of the character of capital In contrast where the elements or parts of the loan have been proved to have been intended for a purpose related to the main transaction the latter of which is revenue in nature then those elements or parts would conversely be of the character of revenue It therefore follows that where as here the appellant has admitted that the purpose of the Syndicated Loan itself was to acquire trading stock it follows a fortiori that it the loan is revenue in nature If so the temporary and fluctuating test is in effect redundant because by virtue of the appellant s admission the linkage between the Syndicated Loan and the main transaction centring here on the Condo Project has ex hypothesi been established If however there had been no such admission the temporary and fluctuating test might well have been significant in enabling the parties such as the appellant in the present proceedings to demonstrate that at least part of the loan might not have a linkage

    Original URL path: http://www.singaporelaw.sg/sglaw/laws-of-singapore/case-law/cases-in-articles/income-taxation/1544-comptroller-of-income-tax-v-ia-2006-4-slr-161-2006-sgca-24 (2016-01-30)
    Open archived version from archive

  • T Ltd v Comptroller of Income Tax[2006] 2 SLR 618; [2006] SGCA 13
    Act 5 The judge agreed with the ITBR on the pre commencement issue but disagreed with its decision on the capital expenditure issue He was of the opinion that the interest incurred was of a revenue nature and would therefore have been deductible if not for his decision on the pre commencement issue However since the taxpayer had to succeed on both issues the judge dismissed the appeal accordingly The appeal 6 Before us the taxpayer contended that the judge had erred in his determination of the pre commencement issue The taxpayer also submitted that even if its appeal failed before us each party should bear its own costs here and below as this was a test case and the Comptroller had succeeded on only one of the two issues in contention 7 The Comptroller did not file a cross appeal but urged us to dismiss the taxpayer s appeal on the pre commencement issue and to overturn the judge s ruling on the capital expenditure issue He sought the second order on the basis of O 57 r 9A 5 of the Rules of Court Cap 322 R 5 2004 Rev Ed which permits a respondent in an appeal who not having appealed from the decision of the High Court but desiring to contend on appeal that the said decision should be affirmed on grounds other than those relied upon by that court to do so by stating the grounds of that contention in its Case The Comptroller also submitted that there was no good reason why the costs order sought by the taxpayer should be made in this case The decision of the Court of Appeal Issue 1 The pre commencement issue 8 The judge framed this issue in the following manner see 2005 4 SLR 285 at 10 Was the appellant carrying on business at the time it incurred the said expenses If it was not the expenses are not allowable being pre commencement expenses In our view in order to ascertain whether the taxpayer had commenced business we have to enquire what that business was Esso Australia Resources Ltd v Commissioner of Taxation 1998 84 FCR 541 at 557 Both the taxpayer and the Comptroller agreed that the taxpayer s business included the management of the shopping mall and the generating of rental income from letting out the various units therein Their positions diverged on the issue of whether the business extended to matters that had occurred at any time before the grant of the TOP 9 The taxpayer argued that its business extended to the acquisition of the land on which the shopping mall was subsequently built as well as the construction of the shopping mall If that was the correct position the taxpayer s business would have commenced from the time it committed itself financially It accepted that a mere mental commitment to purchase the land was not sufficient On 4 July 1992 it paid 25 of the price for the land and on 4 September 1992 it paid the balance It was seeking to deduct only the expenses incurred after the superstructure works had commenced and not the costs of construction 10 The taxpayer sought to characterise its business by reference to the objects enumerated in its memorandum of association see para 2 of the Agreed Statement of Facts Relying on the words of Pollock MR in Inland Revenue Commissioners v Westleigh Estates Company Limited 1924 1 KB 390 at 409 it argued that if a company s objects were business objects and were in fact carried out then the company should be regarded as carrying on business Since its objects encompassed the purchase of land and the construction of the shopping mall the very things that it proceeded to carry out it submitted that its business must extend to such purchase and construction 11 While the objects clause in a company s memorandum of association could provide some useful guide as to the nature of its business it has to be noted that many companies have very broadly defined objects in a wide range of businesses in their memoranda Indeed some may seek to have invisible boundaries by having all encompassing clauses such as and such other lawful businesses and activities as may be decided by the directors from time to time It was therefore for good reason that Lord Diplock in American Leaf Blending Co Sdn Bhd v Director General of Inland Revenue 1979 AC 676 at 683 observed that Pollock MR s words in the case cited above should be read in the context of a company carrying out one of its principal objects and that not every isolated act authorised by its memorandum of association necessarily qualified as the carrying on of a business Similarly in Mitsui Soko International Pte Ltd v The Comptroller of Income Tax 1998 MSTC 7 349 at 7 352 7 353 Mitsui Soko Warren Khoo J in the High Court cautioned against adopting Pollock MR s words as a statement of a rule or principle because the practice of having widely worded memoranda of association often obfuscated the purpose for which a particular company was formed and a literal application of Pollock MR s dictum might result in almost every economic activity undertaken by a company as constituting the carrying on of business 12 The inquiry should therefore focus on what a company actually carries on rather than what it professes to carry on in order to know what its true business is The Commissioners of Inland Revenue v The Hyndland Investment Company Limited 1929 14 TC 694 at 699 Mount Elizabeth Pte Ltd v Comptroller of Income Tax 1986 SLR 421 The facts of each case should then be examined to determine whether the activities in issue are merely preparatory acts or whether they constitute the carrying on of that business We agree that a commonsensical and pragmatic approach as advocated in Mitsui Soko ought to be adopted We also agree with the following observation made by the judge below 8 supra at 18 In tax cases where the issue was whether the taxpayer company was either investing or dealing in property the courts have not been timorous to disregard objects which they considered to be self serving and to look instead at the operations of the company to determine what its true business was It should be no different where the enquiry is into the date of commencement of a company s business as such enquiry will bring in tow the question what the business of the company is Each case will have to be examined on its facts 13 As found by the judge the letting out of the shopping mall was the only regular activity and the primary source of the taxpayer s income The business of the taxpayer was therefore the letting out of the shopping mall Since this was the business of the taxpayer it followed that its business could not have commenced before the TOP was granted for the shopping mall as it would not have been able to embark on its income generating activity which was the taking in of tenants It was only upon the grant of the TOP that the shopping mall was capable of producing income and the taxpayer company was ready to begin its ordinary business operations The purchase of the land and the construction works were preparatory steps taken towards the ultimate object of wning managing and operating the business of letting out Although this court said in Pinetree Resort Pte Ltd v Comptroller of Income Tax 2000 4 SLR 1 at 47 that in determining whether the nexus between the incurrence of an expense and the production of income in s 14 is present the business has to be looked at 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 emphasis added that statement was made in the context of a business which had already commenced and was producing income It was not meant to be a statement on when a business could be said to have commenced 14 The Indian decision in Commissioner of Income Tax Gujarat I v Saurashtra Cement and Chemical Industries Ltd 1973 91 ITR 170 does not assist the taxpayer as the facts there were exceptional apart from the peculiarities of Indian revenue law pointed out by the judge below at 41 of his judgment that there was a distinction between setting up of a business and commencement of business in Indian revenue law In that case the taxpayer was in the business of manufacturing and selling cement The three activities in issue were the extraction of limestone the manufacture of cement and the sale thereof The parties there agreed that the extraction of limestone did not constitute a distinct and independent business of the taxpayer The court there concluded that the business commenced when the company started to quarry limestone and not at the later time when it commenced the manufacture of cement It was held that all three activities constituted the business of the taxpayer and that the business could not be carried out without any one of them The extraction of limestone although not forming the core of the business was a regular or continuous exercise in the day to day operations and was such an indivisible or intrinsic part of the business that it could be said that the business commenced with the extraction of limestone In the present appeal the taxpayer s purchase and development of the land was a one off activity and as we have indicated its business could not have commenced before it was in a position to let out the various spaces available in the shopping mall 15 The judge s decision certainly did not imply that a business could never commence unless it turned in profits If it were otherwise s 37 2 a of the Act would be rendered otiose Indeed it is common for many a business to be making losses in the initial stages of its operations However this is different from a business which produces no income because it is not yet in a position to generate any For a business to commence in a situation like the present case the taxpayer must have established an income generating asset or income earning structure In this case that would be the shopping mall upon the grant of the TOP The taxpayer could not invoke s 37 2 a because it was unable to show that the expenses constituted a loss incurred in any trade business profession or vocation It was unable to do that as it did not have in place at the material time the business of letting out of the shopping mall and therefore could not come within the terms of s 14 1 16 We therefore agree with the judge s decision on the pre commencement issue and like him would hold that the expenses in issue were not deductible under s 14 of the Act On this ground alone the appeal ought to be dismissed Issue 2 The capital expenditure issue 17 In this case there was no dispute that the loans taken out were applied to the purchase of the land and that such loans were capital expenditure The issue was whether the interest incurred on such loans was deductible Applying ss 14 1 a and 15 1 c to the facts of this case the Comptroller argued that interest on the loans before the grant of the TOP was of a capital nature or was in respect of any sum employed as capital and should therefore be disallowed as a deduction The taxpayer contended that interest was inherently of a revenue nature and that the interest incurred was not caught by the prohibition in s 15 1 c 18 On this capital expenditure issue the judge was of the view that s 15 1 c was worded differently from its equivalent in the UK tax legislation and that case law on the latter which held that the nature of interest depended on the nature of the underlying loan was therefore inapplicable here He reasoned as follows 8 supra at 54 to 58 54 In the UK the provision corresponding to our s 15 1 c prescribes that N o sum shall be deducted in respect of any sum employed or intended to be employed as capital In The European Investment Trust Co Ltd v Jackson Inspector of Taxes 1932 18 TC 1 European Investment Trust the Court of Appeal in England apparently decided that whether or not interest was of a revenue or capital nature depended on whether the loan itself which gave rise to the interest was employed as capital in the business This view was widely criticised and subsequently abrogated by legislation In Beauchamp Inspector of Taxes v F W Woolworth plc 1988 STC 714 Woolworth the English Court of Appeal had occasion to consider its earlier decision in the European Investment Trust case Nourse LJ who delivered the judgment of the court described it as a very curious case He then went on to say at 717 718 Having read and re read the report of The European Investment Trust Co Ltd v Jackson several times I have come to a clear conclusion that it can only be explained on the footing that it was conceded throughout that the status of the interest as a deductible item was governed by the status of the advances and that that concession was made because it was assumed that the words in respect of were the equivalent of in connection with or the like Perhaps the words of the 1842 Act had been forgotten If that assumption is made I can well see that it can be said that the interest on the advances would be sums in respect of the advances and thus no more deductible than the advances themselves However a concession on that point is not the equivalent of a binding decision Indeed it is no decision at all So I think that we are free to disregard that case so far as it related to interest although its authority would no doubt be unimpeachable in regard to the advances themselves Although the decision of the Court of Appeal in the Woolworth case was reversed by the House of Lords there is nothing in the House of Lords judgment delivered by Lord Templeman which detracts from the Court of Appeal s criticism of this aspect of the European Investment Trust case 54 supra 55 So much then as to how the UK provision was construed in the European Investment Trust case Should the Singapore provision be interpreted likewise Although counsel for the appellant argued cogently why it ought not be likewise construed he may have been a little generous in conceding that the language of the Singapore provision is close to its UK counterpart As noted the UK provision prescribes that N o sum shall be deducted in respect of any sum employed or intended to be employed as capital In other words no sum in respect of any sum employed as capital is to be deducted 56 As framed it is possible to construe the sum first referred to as separate and distinct from the second On this basis it did no violence to the language of the UK provision for the European Investment Trust case 54 supra to construe the first sum as being referable to interest while the second referred to the principal amount on which the interest accrued 57 The Singapore provision is differently worded It states N o deduction shall be allowed in respect of any sum employed or intended to be employed as capital The provision makes no mention of any sum other than the sum employed or intended to be employed as capital Whereas the words in respect of in the UK provision could be read to mean in connection with without doing violence to the statutory provision the same words in connection with could not in my view comfortably substitute for in respect of in the Singapore provision It would immediately invite the question Deduction of what To my mind the words in respect of in the Singapore provision is the equivalent of for or on account of Thus what is prohibited is the deduction of the sum employed or intended to be employed as capital 58 It is inconceivable that the legislature would provide in unambiguous terms in s 14 1 a for the deduction of interest upon any money borrowed where the interest was payable on capital employed in acquiring the income and then in the very next section prescribe in s 15 1 c that interest on any sum employed as capital is not deductible Neither was this the position taken by Revenue before the decision in Wharf Properties Ltd v Commissioner of Inland Revenue Hong Kong 1997 STC 351 Wharf 19 The judge then went on to consider Wharf a Hong Kong tax case which went before the Privy Council and the High Court of Australia s decision in Steele v DFC of T 99 ATC 4242 Steele He concluded that Steele which held by a 4 1 majority that interest outgoings were not of a capital nature accorded more with the conventional and well known distinction between revenue and capital expenditure and was to be preferred to the reasoning in Wharf In Wharf the issue before the Privy Council was whether interest on loans taken out for the purchase of a train depot to redevelop it as a commercial complex was deductible for tax purposes The judge reasoned in the following manner before arriving at his conclusion that s 15 1 c was never intended to apply to interest on loans 8 supra at 58 to 70

    Original URL path: http://www.singaporelaw.sg/sglaw/laws-of-singapore/case-law/cases-in-articles/income-taxation/1543-t-ltd-v-comptroller-of-income-tax-2006-2-slr-618-2006-sgca-13 (2016-01-30)
    Open archived version from archive

  • Pinetree Resort Pte Ltd v Comptroller of Income Tax
    in point of law But without any such misconception appearing ex facie it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal In those circumstances too the court must intervene It has no option but to assume that there has been some misconception of the law and that this has been responsible for the determination 17 We were of the view that the appellants criticism of the learned judge s comments was misconceived It was apparent from his comments that he did not base his decision on an error in his perceived role as an appellate judge His reference to the cases above showed that he was well aware of the principles governing appeals to the Board Were the initiation deposits interest free loans 18 The crux of the matter in the appeal before us was whether the initiation deposits were interest free loans made by the members to the club and the appellants In this respect the appellants highlighted several issues to show that the learned judge was wrong in approving the Board s decision that the initiation deposits amounted to income accruing to the appellants 19 First the appellants contended that the judge had placed an inaccurate and incorrect emphasis on the conditions which would have to be complied with before a member could obtain a refund of his initiation deposit In particular the judge had considered the clause requiring a member of the club to resign before being entitled to obtain a refund The judge also noted the circumstances whereby a member of the club would lose his membership and viewed these as forfeitures of the initiation deposits 20 The appellants on the other hand argued that the initiation deposits were loans as the club did not receive such deposits free of any persisting legal obligations The initiation deposits could not be said to have come home to the appellants when first paid upon joining the club and had to be free of any persisting obligations before they became taxable The money collected had to be repaid to the member after 30 years The reasons behind the creation of this scheme were to finance the borrowing for capital investment in the club and the notion that an overall reduction of the entrance fees through the subsequent return of the deposits would make club membership more attractive and marketable At the same time the moneys represented by the loan could still be applied by the appellants to the running of the club and the maintenance of its facilities 21 The appellants further submitted that a proper interpretation of rr 20A and B in the Constitution which were freely agreed to by the members of the club clearly indicated to a reasonable person that the club was under an obligation and liability to return the deposits should members choose to ask for them The operation of r 20B which states that a member will cease to be a member of the club after he claims his deposit did not militate against classifying the initiation deposit as a loan from the member to the club as if the member chooses not to reclaim the deposit this would then serve as consideration for continued membership in the club 22 Section 10 of the Income Tax Act Cap 134 provides that income tax is payable upon the income of the appellants accruing in or derived from Singapore In deciding that this provision was satisfied the learned judge considered the conditions imposed on the reclaiming of the deposits and the circumstances under which the deposits would be forfeited He also considered the accounting treatment given to the deposits and compared this scheme to the similar arrangements made by Raffles Marina Club and Laguna National Golf and Country Club 23 Now according to the cases of Lategan v CIR 1926 2 SATC 16 and CIR v People s Stores Walvis Bay Pty Ltd 1990 52 SATC 9 Supreme Court of South Africa the word accrue has been interpreted to mean to which any person has become entitled Although some other cases have ascribed the meaning of due and payable to the term accrue we were of the view that entitlement was a more suitable meaning in the context of transactions in this day and age In any event the parties did not seriously contest the meaning of the term 24 With this in mind we turned to the substantive arguments raised The appellants claimed that the initiation deposits were not taxable income at the time they were paid as the payments were not free of persisting legal obligations as they were loans from the members of the club In support of this the appellants cited C v Commissioner of Taxes 46 SATC 57 a Zimbabwean case and an English case Exeter Golf Country Club v Customs Excise Commissioners 1980 STC 162 In the former case the appellant who carried on a business of fuel selling and a service station arranged for a scheme whereby regular customers could opt for a monthly payment for fuel upon the payment of a deposit The appellant was not required to return the deposit at a later date but a customer who terminated the credit arrangement was entitled at any time to demand repayment of the deposit The Supreme Court of Zimbabwe held that the deposits were loans for consumption and were of a capital nature not attracting tax 25 It was noted by Gubbay JA who delivered the leading judgment that the appellant s accountant had testified that in making the proposal to its customers the appellant s intention was that any money so advanced to it would be in the nature of a loan As such it was apparent that prior thought had been given to whether the appellant should borrow the sums required from a bank or to raise the cash by way of loans from customers Furthermore the learned judge felt that the manner in which the appellant dealt with the moneys provided confirmation of this intention He said at p 61 Although deposited into the appellant s banking account together with the other receipts of the business the appellant entered a credit into its books of account against the name of each customer in the amount of the deposit payment made the level of that credit remaining unaltered by the subsequent purchases of fuel from the appellant The deposit payment was not shown as an ongoing credit These features accord far more with the moneys being treated by the appellant as loans rather than in the nature of payments received in advance for fuel to be supplied Nor did the customers treat their payments any differently They regarded the appellant as indebted to them for the full amount of the money provided which would become due for repayment immediately upon the termination of the credit facility The judge dismissed the arguments raised in support of the tax authorities position First the customers who made the payments did not really do so in order to secure the facility of purchasing fuel on credit but did it so that the convenient facility of obtaining their fuel on credit would continue to be available Secondly although the appellant was not obliged to return the money at a specified future date a customer who terminated the credit arrangement was entitled at any time to demand repayment of the deposit Finally even though there was no liability to pay interest the customers secured the benefit of not paying any interest in the value of their purchases for fuel for a period of 30 days 26 The appellants also relied on Exeter Golf Country Club v Customs Excise Commissioners which dealt with the question of whether certain payments made by members of a golf and country club to finance the development of the club were exigible to value added tax These payments were expressed by the club to be interest free Members Loans These loans were only repayable when a member died or reached the age of 65 or ceased to be a full member The commissioners felt that the value of the interest free loans provided by the members of the club was part of the consideration for the facilities supplied by the company running the club As such this amount was taken into consideration when assessing the open market value of the facilities and the value added tax to be imposed The court held that the loan formed part of the consideration paid by members for the supply of facilities by the club and was part of the open market value of the facilities for the purposes of assessing value added tax The appellants in the present case said that the decision was useful for the purposes of determining the different types of consideration received by a club In particular the appellants argued that in respect of an interest free loan the consideration given by the members of the club lies in the use of the money not the amount per se The appellants therefore submitted that the initiation deposits while amounting as part of the consideration given to the appellants by members of the club for use of the facilities remained interest free loans and did not constitute income for the purposes of income tax assessment 27 The appellants added that the scheme of initiation deposits was very similar to the arrangements at Raffles Marina Club and Laguna National Golf and Country Club and that the learned judge was wrong to place emphasis on the differences between the schemes operated by the appellants and by the other two clubs These two clubs took loans from their members which were repayable at a fixed date The date for repayment was fixed as a consequence of the fact that they were both situated on leasehold land as compared to the appellants club which was situated on freehold land A trust deed was made between these two clubs and a trustee corporation which agreed to act for the benefit of the holders of unsecured notes issued in respect of the loans The trust deed contained clauses relating to the ranking of the holders of the unsecured notes vis à vis holders of secured notes issued by the respective companies as well as stringent safeguards that ensured that members would be repaid their loans 28 The problem with the appellants arguments was that in the two cases cited as well as the arrangements set up by Raffles Marina Club and Laguna National Golf and Country Club there was evidence that the moneys paid were intended to be loans to the taxpaying entities In C v Commissioner of Taxes the judge noted the intentions of the appellant that the payments were intended to be loans This was borne out by the structure of the scheme As for Exeter Golf Country Club v Customs Excise Commissioners it was stated at the outset by the club that these were Members Loans There were also many differences between the schemes at Raffles Marina Club and Laguna National Golf and Country Club and at the appellants club Apart from the factors mentioned above we also noted that the members of the other two clubs had up to six years after the fixed date of repayment to reclaim their money whereas the club s members had only six months to do so 29 The appellants had additionally submitted that the learned judge erred in interpreting the club s rules to mean that the initiation deposits were unlikely to be paid back to the members Moreover the rules had been freely agreed to by the members In our view these assertions were erroneous and irrelevant respectively The learned judge had at no time interpreted the rules to mean this He made it clear that as long as rr 20A and B were fulfilled a member could reclaim the initiation deposit after 30 years of membership The judge also correctly noted that once a claim for the refund was made a member would lose his membership in the club Whether the rules were freely agreed to by the members or not was irrelevant to the issue of whether the initiation deposits were taxable at the time of payment The judge was entitled to look at the rules as factors to determine the character of the initiation deposits Clearly the court would not rely simply on a labelling exercise to determine whether the payments made were for the purposes of a loan or not but in all the circumstances of the case and the effect of the rules on the forfeiture a term used by the appellants themselves in the agreed statement of facts of the initiation deposits which made the initiation deposits incompatible with the concept of a loan Accounting treatment of the initiation deposits 30 A related issue to the question of whether the initiation deposits were loans from the members was the treatment given to the deposits by the appellants accountants The accountants had classified the initiation deposits in the appellants accounts as deferred liabilities as compared to the entrance fees which were classified as income The appellants were free to use the initiation deposits in any way they pleased The judge felt that the classification of the initiation deposits was without more inconclusive of the matter of whether the initiation deposits were loans 31 Both the appellants and respondents highlighted the dictum of Lord Denning MR in Heather Inspector of Taxes v PE Consulting Group Ltd 1973 Ch 189 1973 1 All ER 8 where he made the following remark in relation to the evidence of accountants in tax cases The learned Master of the Rolls said at 1973 Ch 189 217 1973 1 All ER 8 13 I have no doubt that the commissioners were influenced considerably by the evidence of a distinguished accountant Mr Bailey of Messrs Price Waterhouse The commissioners were entitled to give weight to that evidence of Mr Bailey but the judge went further He seems to have thought that as a result of the decision of this court in Odeon Associated Theatres Ltd v Jones Inspector of Taxes the evidence of accountants should be treated as conclusive and that all the commissioners or the court would have to do would be to evaluate their evidence And counsel for the taxpayer company submitted to us that the Odeon case had upgraded the evidence of accountants so that the commissioners and the courts were bound by their evidence to a greater degree than they had been in the past I cannot agree with that for a moment It seems to me that that case does not add to or detract from the value of accountancy evidence The courts have always been assisted greatly by the evidence of accountants Their practice should be given due weight but the courts have never regarded themselves as being bound by it It would be wrong to do so The question of what is capital and what is revenue is a question of law for the courts They are not to be deflected from their true course by the evidence of accountants however eminent On the basis of the general principle set out above both the learned judge and the respondents took the view that the courts are not bound by the evidence of accountants 32 The appellants pointed out however that in Heather Inspector of Taxes v PE Consulting Group Ltd the issue was whether to accept accounting evidence for the purpose of deciding whether a particular entry should be classified as capital or revenue In other situations the appellants submitted that the courts have placed considerable weight on the practice of accountants in so far as they do not conflict with any positive rule of law Where there is only one treatment by the accountants this should be given due weight and should not be disregarded in the absence of any positive rule of tax law or accountancy to the contrary As such they said that the principle in Heather Inspector of Taxes v PE Consulting Group Ltd was not applicable to the present case 33 We disagreed with the appellants view of the matter The editors of Whiteman on Income Tax 3rd Ed 1988 point out that in general if accounts are prepared in a normal commercial manner and in accordance with current accountancy practice the profit shown by those accounts will be taken as the taxable profit subject to any specific statutory provisions and to the overriding power of the court to disregard accountancy practice where that practice appears to be based on a mistaken view of the law This spells out the fact that regardless of how persuasive accounting evidence is the prerogative still lies with the court to decide whether a particular item should be regarded as income that has accrued for the purposes of liability to tax Lord Denning s dictum in Heather Inspector of Taxes v PE Consulting Group Ltd was a particular instance where accountancy evidence was of even more limited relevance in determining whether receipts or expenditure were of a capital or revenue nature However this does not detract from the general principle that a court has an overriding power to form its own conclusions This is so particularly when the issue at hand has been accepted by the appellants to be a question of law as the facts are not in dispute The court is entitled to look at the undisputed facts most of which have been dealt with above and then make a decision as to the character of the initiation deposits at the time of payment The evidence of the accountants while relevant is not overwhelmingly persuasive as the appellants have strenuously argued 34 Finally the appellants argument based on Minister of National Revenue v Anaconda American Brass Ltd 1956 AC 85 that the

    Original URL path: http://www.singaporelaw.sg/sglaw/laws-of-singapore/case-law/cases-in-articles/income-taxation/1542-pinetree-resort-pte-ltd-v-comptroller-of-income-tax (2016-01-30)
    Open archived version from archive

  • Comptroller of Income Tax v GE Pacific Pte Ltd[1994] 2 SLR 690; [1994] SGCA 73
    in the year in which the asset is purchased Section 19 2 then provides that an annual allowance may be claimed in subsequent years but only on the additional condition that the taxpayer has the machinery or plant in use at the end of that basis period 8 In 1966 another set of capital expenditure allowances was introduced in s 19A which provides inter alia 1 Notwithstanding section 19 where a person carrying on a trade profession or business incurs capital expenditure during or after the basis period for the year of assessment 1985 on the provision of machinery or plant for the purposes of that trade profession or business he shall in lieu of the allowances provided by section 19 be entitled for a period of 3 years to an annual allowance of 331 3 in respect of the capital expenditure incurred 1A Notwithstanding section 19 where a person proves to the satisfaction of the Comptroller that he has installed a computer or other prescribed automation equipment for the purposes of a trade business or profession carried on by him he shall in lieu of the allowances provided by subsection 1 or in section 19 be entitled if he so elects to an allowance of 100 in respect of the capital expenditure incurred during or after the basis period for the year of assessment 1985 on the provision of that computer or automation equipment 9 Section 19A 1 allows the cost of plant and machinery to be written off in three years and s 19A 1A provides for the cost of computers and automation to be written off in one year These provisions of s 19A only expressly state the requirement that capital expenditure must have been incurred on the machinery for the purposes of the business However both ss 19A 1 and 19A 1A are stated to be in lieu of s 19 and that necessarily means that a taxpayer only qualifies for s 19A allowances if the requirements for s 19 allowances are fulfilled see Re Boddington Boddington v Clairat for this interpretation of the phrase in lieu of This means that the additional requirement in s 19 2 that the machinery be in use at the end of the basis period must also be satisfied for a successful claim under s 19A to be made 10 Thus if a taxpayer 1 incurred capital expenditure on plant or machinery for the purposes of his business and 2 has the machinery in use at the end of the basis period for a particular year of assessment that taxpayer would be entitled to choose between s 19 allowances and s 19A allowances In the present case the respondent elected for the accelerated allowances under s 19A 11 However entitlement to capital expenditure allowances was complicated in this case because the equipment in question was subsequently sold Ordinarily s 20 deals with this situation It provides 1 Except as provided in this section where at any time after the setting up and on or before the permanent discontinuance of a trade profession or business any event occurs whereby machinery or plant in respect of which allowances under section 19 or 19A have been made to a person carrying on a trade profession or business ceases to belong to that person whether on a sale of the machinery or plant or in any other circumstances of any description an allowance or charge to be known as a balancing allowance or a balancing charge shall in the circumstances mentioned in this section be made to or as the case may be on that person for the year of assessment in the basis period for which that event occurs Provided that where the property in machinery or plant passes at less than the open market price then for the purpose of determining the amount of any balancing allowance or balancing charge the event shall be treated as if it had given rise to sale moneys of an amount equal to the open market price of the machinery or plant 2 Where there are no sale moneys or where the amount of the capital expenditure of the person in question on the provision of the plant or machinery still unallowed as at the time of the event exceeds those moneys a balancing allowance shall be made and the amount thereof shall be the amount of the expenditure still unallowed as aforesaid or as the case may be the excess thereof over those moneys 3 If the sale moneys exceed the amount if any of the said expenditure still unallowed as at the time of the event a balancing charge shall be made and the amount on which it is made shall be an amount equal to the excess or where the said amount still unallowed is nil to those moneys 12 In any given year of assessment the ss 19 or 19A allowances already granted are deducted from the purchase price of an asset to determine its written down tax value If the asset is subsequently sold for less than the last written down tax value s 20 2 clearly provides for a balancing allowance equal to the difference between the written down tax value and the sale price Presumably this additional allowance is a recognition that the asset has depreciated faster than anticipated by the scheme of capital allowances in ss 19 and 19A Conversely where the sale was for a price above the written down tax value s 20 3 imposes a balancing charge for the difference 13 We come now to s 24 This section provides for a special situation where the buyer and seller of plant and machinery are related In so far as material s 24 provides 1 This section shall have effect in relation to any sale of any property where the buyer is a body of persons over whom the seller has control and the sale is not one to which section 33 applies 2 Where the parties to the sale by notice in writing to the Comptroller so elect a the like consequences shall ensue for the purposes of sections 16 to 21 as would have ensued if the property had been sold i ii in the case of machinery or plant for a sum equal to the amount of the expenditure on the provision thereof still unallowed immediately before the sale computed in accordance with section 20 Provided that no such election may be made unless before the sale in the case of the seller and after the sale in the case of the buyer the property is used in the production of income chargeable under the provisions of this Act and unless the machinery or plant was not leased by the seller to the buyer before the sale b notwithstanding anything in section 19 where the sale is a sale of machinery or plant no initial allowance shall be made to the buyer c notwithstanding anything in section 19A where the sale is a sale of machinery or plant the special allowances provided under that section shall continue to be available as if no sale had taken place and d notwithstanding anything in the preceding provisions of this section or in sections 17 and 20 such balancing charge if any shall be made on the buyer on any event occurring after the date of the sale as would have fallen to be made on the seller if the seller had continued to own the property and had done all such things and been allowed all such allowances and deductions in connection therewith as were done by or allowed to the buyer 14 In defining the ambit of s 24 sub s 1 says that the section should have effect inter alia where the buyer is under the seller s control In the present case s 24 clearly applies as HS the buyer was a wholly owned subsidiary of the respondent the seller This entitled the respondent and HS to jointly elect for the special tax treatment under s 24 In the event they did so elect The principal effect of such an election is set out in sub s 2 a ii which provides that the consequences of ss 16 to 21 would have effect between related buyers and sellers as if the machinery had been sold at a price equal to the last written down tax value of the seller In the present case this means first that the buyer would be entitled under s 19A to allowances as if the purchase price was the last written down tax value of the seller and secondly under s 20 the seller would have no balancing allowance or charge to contend with 15 Up to this point the parties are not in dispute They agree that this is the way the Act operates vis à vis capital expenditure allowances However they part company when we come to s 24 2 c and the question of who in the light of this provision is entitled to the remaining capital expenditure allowances on sale of the plant and machinery between related parties The issue 16 The dispute between the Comptroller and the respondent is a result of differing interpretations of s 24 2 c On the one hand the Comptroller is of the view that the effect of this provision is to allow the related buyer in a s 24 election situation to step into the shoes of the related seller as far as entitlement to capital expenditure allowances is concerned It is their submission that when s 24 2 c says that the special allowances provided for by s 19A shall continue to be available as if no sale had taken place it means that the balance of the s 19A allowances that would have been claimed by the seller may now be claimed by the buyer at the same rate as would have been available to the seller if there had been no sale For example if the seller had purchased the machinery in the basis period 1990 he would enjoy 331 3 capital expenditure allowance for the year of assessment 1991 If he then sells it in 1991 the buyer would be entitled to the remaining two 331 3 capital expenditure allowances ie for the years of assessment 1992 and 1993 17 On the other hand the respondent s submission is that s 24 2 c provides for the remaining s 19A allowances to continue to be available to the seller as if no sale had taken place Thus using the same example as above a seller who purchased machinery in the basis period 1990 would be entitled to claim capital expenditure allowances for the years of assessment 1991 1992 and 1993 regardless of any sale within this period 18 In essence the parties dispute is over the question of who is entitled to any remaining capital expenditure allowances on the sale of plant and machinery between a related buyer and a related seller The Comptroller contends that s 24 2 c provides for the remaining capital expenditure allowances to continue to be available to the related buyer whilst the respondent argues that these allowances are to continue to be available to the related seller The Income Tax Board of Review 19 As already stated the Board held in favour of the Comptroller In their judgment they said that s 24 2 c did not deal with the question of who was entitled to claim the capital expenditure allowances To their mind the entitlement to such allowances was dealt with by s 19A and not by s 24 They said that s 24 2 c only dealt with the quantum of special allowances which may be claimed They ascribed this interpretation of the provisions to the clear and unambiguous words of s 24 refusing to construe s 24 2 c in the manner contended for by the respondents as they said that would be tantamount to reading the words to the seller immediately after the words continue to be available in s 24 2 c The High Court 20 On appeal to the High Court the learned judicial commissioner held in favour of the respondents In his judgment he agreed with the Income Tax Board of Review that it was s 19A and not s 24 which governed a taxpayer s entitlement to capital allowances But looking specifically at s 24 2 c he felt bound to apply the legal fiction therein that there had been no sale to its logical conclusion He said that under s 19A the taxpayer would not be entitled to the special allowances if he sold the qualifying machinery or plant If no sale had taken place then there would have been no event occurring whereby the machinery or plant would have ceased to be used for the purpose of the seller s trade profession or business In other words the plant or machinery was deemed not to have been sold and therefore to be still in use by the related seller thus preserving his entitlement under s 19A This he felt was the only possible construction of the words in s 24 2 c 21 The learned judicial commissioner felt unable to agree with the Board when they said that s 24 2 c only dealt with the quantum of the allowance to be claimed He felt that this provision had in fact nothing to do with the question of quantum at all He also said that if it was the buyer who was to be entitled to the allowances there would have been no need for s 24 2 c at all as the buyer was already entitled under s 19A Finally he pointed out that the Comptroller s interpretation would in practical terms have caused a break in the period of three years stipulated by s 19A and would also allow the buyer to write off his own deemed expenditure in less than three years These consequences he felt were contrary to the scheme of the Act Thus he held that the respondent s interpretation of s 24 2 c was correct The appeal 22 This case then came before us when the Comptroller appealed against the decision of the High Court We agree with the learned judicial commissioner below and with the Board that the dispute between the parties revolves around the singular question of the proper construction to be afforded s 24 2 c 23 In any question of statutory interpretation the first and most important factor is the literal meaning of the words of the provision Before us it was the respondent who argued more forcefully that the literal interpretation of s 24 2 c was in its favour The respondent argued that the words shall continue to be available contemplated an existing state of affairs that was to be perpetuated Thus the respondent said since the s 19A allowances were available to the seller before the sale they should continue to be available to the seller after sale Of course the respondent is correct to say that the words of s 24 2 c contemplate the continuance of an existing state of affairs However this does not necessarily mean that each and every circumstance that existed before a sale should be continued The word continue might envisage the continuance of the entitlement to s 19A allowances ie that the seller continues to be entitled to the allowances or it could equally refer merely to the continued availability of the allowances whilst saying nothing about the question of entitlement Looking only at the words of the provision itself it seems unclear to us which circumstance entitlement or availability s 24 2 c seeks to perpetuate 24 The Comptroller also sought to argue that the literal interpretation of s 24 2 c was in his favour He said that the natural construction of the words clearly indicated that the capital allowances were to continue to be available to the buyer He said that to hold otherwise would be to read the words to the seller into s 24 2 c after the word available in contravention of the rule that words which are not present should not be too readily read into a statutory provision It is interesting to note that the respondent argued similarly saying that the Comptroller s interpretation required the court to read the words to the buyer into s 24 2 c Neither of these arguments seem particularly strong to us To our mind the actual words of s 24 2 c clearly stipulate the continued availability of s 19A allowances but are ambiguous as to who is to be entitled to these allowances The provision itself would be clearer if it said whether the allowances should continue to be available to the buyer or to the seller But it does not The learned judicial commissioner felt that the words as if no sale had taken place created a legal fiction which had to be carried to its logical end However it is our opinion that s 24 2 c does not specify which circumstance the legal fiction is in respect of ie which state of affairs is to continue as if no sale had taken place 25 Since the words of the provision itself are equivocal as to who should be entitled to the capital expenditure allowances it is necessary to search elsewhere for the intention of Parliament Section 9A 1 of the Interpretation Act Cap 1 says In the interpretation of a provision of a written law an interpretation that would promote the purpose or object underlying the written law whether that purpose or object is expressly stated in the written law or not shall be preferred to an interpretation that would not promote that purpose or object 26 Although s 9A of the Interpretation Act only came into effect after the commencement of these proceedings in the

    Original URL path: http://www.singaporelaw.sg/sglaw/laws-of-singapore/case-law/cases-in-articles/income-taxation/1541-comptroller-of-income-tax-v-ge-pacific-pte-ltd-1994-2-slr-690-1994-sgca-73 (2016-01-30)
    Open archived version from archive

  • Mount Elizabeth (Pte) Ltd v Comptroller of Income Tax [1986] SLR 421; [1986] SGHC 35
    appellant could not sell them He said that flats 30A B and C which had the worst views had been sold and that after the sales office was closed there were people badgering the appellant to sell When asked whether if the appellant had wanted to retain the flats for rental it would have made more sense to choose the better flats AW1 replied No it does not because the rental difference between an apartment with a better than poorer view is very small a couple of hundred dollars at most Since Darmadi did not specify whether he wanted to retain the apartments with the best views and left the discretion to me I was of the view that we should sell off the most expensive flats in order to make a bigger profit for the company AW1 denied a suggestion that the eight flats were not retained for long term investment but were let out pending the time they could fetch better prices He insisted that his instructions were not to sell the eight flats at all He went on to say The profits at that time were not very great from this development Darmadi was at that time making a lot of money in Indonesia and he was not interested in making a few thousand dollars here and there In fact the profits he made from this development he never draw at all He instead pumped more money into the company AW1 admitted that neither the appellant nor its directors had pasted any corporate resolution to retain the eight flats or to sell them He admitted that the appellant had used a sales brochure in the marketing of the Highpoint flats He admitted that he understood the directors reports before he signed them and when asked whether the statements therein were accurate statements of the appellant s intention and activities at that time AW1 said the directors reports could not set out every intention of the appellant and that ideally and theoretically a directors report should have been more comprehensive AW1 also said that the expression for investment purposes meant to let out and earn a rental income for an unspecified period of time and in this case Darmadi had wanted to keep the flats forever 6 Before the Board counsel for the appellant contended that the surplus on the sale of the six flats was a capital accretion on the ground that the appellant s intention from the start was to develop some flats for sale and to retain some flats for investment and that the appellant was carrying on two activities 1 the principal activity of property development for sale which came to an end in 1973 and 2 a subsidiary activity of letting out flats It was contended that the appellant s intention was borne out by the following facts a the appellant had little external borrowing and therefore was under no financial pressure to sell b the appellant did not have any trading activity from 1973 to 1980 and even though many subsales of the other flats were transacted during this period c the categorical statements consistently made to the Controller of Housing that the eight flats were being retained as investment long before any tax ramifications arose d the appellant had furnished the flats at considerable cost e the flats were consistently treated as fixed assets in the audited accounts of the appellant since 1974 and taxed as such 7 The following cases were cited by counsel for the appellant to the Board CIR v Reinhold 34 TC 389 Bradshaw v Blunder 36 TC 397 Harvey v Caulcott 33 TC 159 West v Phillips 38 TC 203 Seaward v Varty 40 TC 523 International Investments v Controller General of Inland Revenue 1975 2 MLJ 208 1979 1MLJ 4 8 Counsel for the Comptroller contended that the surplus arising from the sale of the six flats was a trading receipt on the ground that the appellant was carrying on business of property development that property development meant property development for sale and that the Highpoint flats were constructed in the course of such business She contended that such a conclusion was supported by the following facts a the appellant by a letter dated 4 January 1971 informed the Comptroller that the business conducted by the appellant was property development b each of the directors reports from 1971 to 1974 stated that the development and construction of luxury apartments for sale was either its principal activity or sole activity c there was no corporate resolution to retain the eight flats as investment d during the construction of the flats no distinction was made in the appellant s accounts between those units to be sold and those to be retained e the eight flats were builder s remainders as they could not be sold on account of their poor location or alternatively the appellant s intention was to sell them at a later but more favourable opportunity f the classification of the eight flats as fixed assets in the appellant s balance sheets as from 1974 was not conclusive against the Comptroller and was selfserving g the letting of the flats for six years before sale was irrelevant in the case of a property developer and did not change their character as trading stock h the Comptroller had always treated the rents as part of trading receipts of property development without any objection from the appellant 9 Counsel also contended that the onus of proof was on the appellant to show that the profits arising from the sale of the flats were profits from the sale of investments and that such onus was greater on a company than on an individual 10 The following cases were cited by counsel for the Comptroller to the Board Harvey v Caulcott 33 TC 159 Granville Building Co v Oxby 35 TC 245 James Hobson Sons v Newall 37 TC 609 Shadford v H Fairweather Co 43 TC 291 Bowie v Reg Dunn Builders 49 TC 469 Gray Gillitt v Tiley 26 TC 80 Turner v Last 42 TC 517 Oliver v Farnsworth 37 TC 51 WM Robb v Page 47 TC 465 Orchard Parks v Pogson 1964 42 TC 442 Gloucester Railway Carriage and Wagon Co v CIR 12 TC 720 11 After receiving written submissions from both counsel on the cases cited by each of them the Board delivered its written judgment on 8 April 1985 The Board found that the appellant was carrying on the business of property development for sale and that the Highpoint flats were constructed for sale in the course of such business The grounds on which the Board supported its finding were a the appellant had been incorporated solely for the purpose of purchasing the property at Mount Elizabeth and developing the flats thereon in question b the absence of any resolution regarding the retention of the flats in question c Darmadi had intended to retain the eight flats until such time as they could fetch a better price the grounds for this finding being that i AW1 had said that the profits from the development were not very great and that Darmadi was making a lot of money in Indonesia and was not interested in making a few thousand dollars here and there and ii otherwise Darmadi would have purchased the eight flats in the same way as he had purchased the two penthouses d the appellant s acceptance of the Comptroller s treatment of its rental income as trading profits and all the other evidence showed that the treatment by the appellant of the eight flats as fixed assets from 1974 onwards and the retention of and letting out of the flats for six years did not indicate the true nature of their retention e all the circumstances surrounding the development of the Highpoint flats 12 The Board was of the view that the appellant had not discharged the onus of proving that the profits in question arose from the sale of an investment and not from trading stock Accordingly the Board dismissed the appeal 13 The appellant now appeals against the decision of the Board on the ground that the Board was wrong in law and in fact in holding that the six retained flats were trading stock and that the surplus derived on their disposal was part of the trading profits of the appellant Counsel for the appellant submitted that the Board s finding was made without any or adequate evidence to support it or if there was evidence the finding was an inference from primary facts and as such an appellate court could in an appropriate case draw a contrary inference and he urged me to do so It was said that the primary facts relied on which the Board were equally capable of supporting a finding of and the Board should have found a dual or composite intention on the part of the appellant He referred to the locus classicus on this point of law ie the judgment of Lord Radcliffe in Edwards v Bairstow Harrison 1955 36 TC 207 and also the judgment of Lord Wilberforce in Simmons v IRC 1982 1 MLJ 112 Counsel also said that the Board had also failed to deal specifically with other relevant facts before them which were favourable to the appellant s case 14 It was contended that the Board failed to give any or inadequate consideration or insufficient weight to or draw the correct inferences from the facts set out in para 6 of this judgment and from the following facts a the expression Property Development used to describe the appellant s business in its letter dated 14 April 1971 was neutral as the purpose of development could be for sale or for investment or for both likewise the expression the construction of a block of luxury flats as used in the directors report for the financial year 1970 b also the use of the adjective principal to qualify the activity of the appellant in the directors report for the financial years 1971 to 1973 implied or was not inconsistent with the appellant carrying on a subsidiary activity of holding property for investment c that it was neither realistic nor practicable for the appellant to specifically distinguish in its audited accounts those flats for sale and those for investment until the flats had been completed whereupon the appellant had aptly classified them as fixed assets and that the expression Development Project a neutral expression was also an apt description of the development at that stage d that the classification of the eight flats as fixed assets in the balance sheets from 1974 onwards negatived any adverse inference that could be drawn from the absence of any corporate resolution regarding their retention e that the appellant s omission to object to the assessments of rental income as part of its trading receipts might have been due firstly to the futility of so doing since the Comptroller was not under the law required to specify the sources of income in his notice of assessment see ABC v The Comptroller of Income Tax 1959 MLJ 162 or secondly to the superfluity of so doing since the rate of tax for investment income and trading income was the same 15 It was further contended that the Board s omnibus reference to circumstances surrounding the development was clear and therefore unsatisfactory that their finding that if Darmadi had intended to retain the flats as investment he would have purchased them from the appellant was an incorrect hypothesis and that the Board s finding that the flats had been retained until such time when they could fetch a better price since according to Lim the property market started to move after 1974 made no sense because if I understood the argument correctly it was not possible to say what a better price was and what such time in the future was for determining such better price 16 Finally counsel contended that as the evidence adduced by the appellant was not seriously challenged or controverted by the Comptroller the appellant had discharged the onus which he conceded was higher on it than on an individual of proving that the profit in question was a capital receipt 17 In the context of Lord Radcliffe s speech in Edwards v Bairstow Harrison 1955 36 TC 207 and the Court of Appeal s decision in CBH v Comptroller of Income Tax 1982 1 MLJ 112 CA as to the test an appellate body must apply in hearing an appeal of this nature the submissions of counsel for the applicant can be distilled and encapsulated into one contention and that is the Board erred in law in that no reasonable body of members constituting an Income Tax Review Board could have reached the findings reached by the Board in this instance When the appellant s appeal is reduced to this dimension it becomes apparent that in this appeal the appellant has a heavy burden to discharge before achieving lift off Clearly the Board had ample evidence before them to make the findings they did Although in their written judgment the Board might not have addressed each of the appellant s submissions they have dealt specifically with the main points and pointedly said they had taken into account all the other circumstances Whilst counsel for the appellant may justifiably criticise the Board s faulty reasoning that if Darmadi had intended to retain the eight flats as an investment he would have purchased them in his own name it could not be said that the finding itself ie of Darmadi s intention was wrong as it was supported by an alternative but valid ground ie Darmadi s disinterest in making small money from the development which ground the Board in fact also relied upon Again the Board might not have made a microscopic appraisal of AWl s evidence on the original intention of Darmadi but their primary finding was an implicit rejection of AW1 s evidence on this point 18 What was the tenor of the undisputed facts relied on by the appellant Except for the oral evidence of AW1 on Darmadi s intention substantially all the other material facts that were garnered in aid of the appellant s case were colourless facts There facts were 1 the retention of eight flats for six years see Oliver v Farnsworth 37 TC 51 sale proceeds of house built by builder in 1929 and sold in 1953 held to be trading receipt James Hobson Sons v Newall where houses built by company were not saleable and let for almost 24 years held that houses were part of trading stock 2 the statements to the Controller of Housing that eight flats were retained as investments and the classification of eight flats as Fixed Assets in balance sheets of appellant from 1974 to 1981 see Shadford v Fairweather Co 43 TC 291 land purchased in 1958 by company and described as fixed asset in its accounts sold in 1960 held a trading transaction Bowie HM Taxes v Reg Dunn Builders 49 TC 469 property held by company a builder since date of purchase in 1958 as a fixed asset in its accounts until 1966 when it was sold held a trading asset WM Robb v Page 47 TC 465 property shown in accounts as a fixed asset for the years 1952 to 1962 held a trading asset 3 the statements in directors reports for the financial years 1976 to 1981 that the appellant s activities were property development and the holding of property for rental see authorities referred to in 2 above 4 the memorandum of association had as one of its objects the business of proprietors of flats see WM Robb v Page where there was a similar object clause and Commissioners of Inland Revenue v Hyndland Investment Co 14 TC 694 where Lord President Clyde said in relation to a memorandum of association which had as one of its objects the acquisition of land and the holding of the same as an investment that the question was not what business the taxpayer professed to carry on but what business he actually carried on 5 the furnishing of the seven flats at considerable expense for letting see West v Phillips 38 TC 203 207 where Wynn Parry J said at p 214 in relation to houses built for investment that redecoration making ready for sale and advertising for sale were colourless facts in that they do not change the character of such houses to stock in trade 6 the appellant did not have external borrowings for the Highpoint development and therefore was under no financial pressure to sell the eight flats 19 In contrast there was a considerable body of evidence before the Board which pointed in the direction of the appellant being a property developer for sale ie 1 the incorporation of a company to purchase the property for development of luxury flats and the appellant applying for a developer s licence for sale 2 the appellant describing its business as property development itself as a property developer and describing its principal activity from 1971 to 1973 and its only activity from 1974 to 1975 as being the development and construction of luxury apartments for sale 3 the omission of the appellant to document in its records as soon as practicable its alleged intention to retain part of the Highpoint development for investment 4 the omission of the appellant to distinguish in its accounts or its sales brochure between the flats to be sold and the eight flats to be retained for investment until after the other 51 units had already been sold 5 the omission of the appellant to object to rental income of the eight flats being assessed as part of its trading profits 20 These facts were prima facie in favour of the Comptroller s case and it is not

    Original URL path: http://www.singaporelaw.sg/sglaw/laws-of-singapore/case-law/cases-in-articles/income-taxation/1540-mount-elizabeth-pte-ltd-v-comptroller-of-income-tax-1986-slr-421-1986-sghc-35 (2016-01-30)
    Open archived version from archive

  • Intellectual Property
    Statutes Singapore Law Watch Headline News Commentaries Judgments Legislation Notices Directions Continuing Legal Education Resources Media Press Releases Speeches Publications Online References Sample Clauses Directory of Law Practices Latest Singapore Rankings Events Upcoming Events Archive Events Archive 2013 Events Archive 2012 Intellectual Property Display By Year select 2009 2008 2007 2005 2004 2003 2001 2000 1999 1998 1994 1993 1991 1985 Wing Joo Loong Ginseng Hong Singapore Co Pte Ltd v Qinghai Xinyuan Foreign Trade Co Ltd and Another and Another Appeal 2009 2 SLR 814 2009 SGCA 9 Decision Date March 2 2009 Louis Vuitton Malletier v City Chain Stores S Pte Ltd and Another Matter 2009 2 SLR 684 2009 SGHC 24 Decision Date January 29 2009 Virtual Map Singapore Pte Ltd v Singapore Land Authority and another application 2009 2 SLR R 558 2009 SGCA 2 Decision Date January 6 2009 Obegi Melissa and Others v Vestwin Trading Pte Ltd and Another 2008 2 SLR 540 2008 SGCA 4 Decision Date January 28 2008 Man Financial S Pte Ltd formerly known as E D F Man International S Pte Ltd v Wong Bark Chuan David 2008 1 SLR 663 2007 SGCA 53 Decision Date November 29 2007 Amanresorts Limited and Another v Novelty Pte Ltd 2008 2 SLR 32 2007 SGHC 201 Decision Date November 27 2007 Nagasima Electronic Engineering Pte Ltd v APH Trading Pte Ltd 2005 2 SLR 641 2005 SGHC 59 Decision Date March 29 2005 McDonald 039 s Corp v Future Enterprises Pte Ltd 2005 1 SLR 177 2004 SGCA 50 Decision Date November 3 2004 Ong Ah Tiong v Public Prosecutor 2004 1 SLR 587 2004 SGHC 11 Decision Date January 27 2004 Asia Business Forum Pte Ltd v Long Ai Sin and Another 2003 4 SLR 658 2003 SGHC 187 Decision

    Original URL path: http://www.singaporelaw.sg/sglaw/laws-of-singapore/case-law/cases-in-articles/intellectual-property?font-size=smaller (2016-01-30)
    Open archived version from archive

  • Louis Vuitton Malletier v City Chain Stores (S) Pte Ltd and Another Matter[2009] 2 SLR 684; [2009] SGHC 24
    witness Mr Daniel Roland Plane Plane averred that the plaintiff s enormous goodwill and reputation in its name its products and its brand resides largely in the Monogram 11 The Monogram was first registered as a trade mark in France in 1905 since then it has been registered in many countries In Singapore the Monogram is registered as a trade mark in a number of classes 12 The Monogram consists of four constituent elements set in a repeating pattern Two of the constituent elements are particularly relevant in this action a the Flower Quatrefoil which is registered in Singapore under Trade Mark No T0514535D and b the Flower Quatrefoil Diamond which is registered in Singapore under Trade Mark No T0512683Z The Singapore registrations of the Flower Quatrefoil and the Flower Quatrefoil Diamond the Trade Marks were valid and subsisting at all material times 13 The other two constituent elements of the Monogram are a a monogram of the letters L and V being the initials of the founder Louis Vuitton and b a graphical motif known as the Circular Flower The four constituent elements of the Monogram are themselves registered in numerous countries including Singapore 14 The plaintiff has applied the Trade Marks to its watches since 2002 and since 2004 has been selling watches that bear the Trade Marks in Singapore The Trade Marks are used on the faces and the straps of the plaintiff s watches The plaintiff estimated that its annual sales in Singapore of watches bearing the Trade Marks were Year S 2005 1 9m 2006 1 7m 2007 June 800 000 15 In November 2006 the defendant launched a range of watches bearing the Solvil trade mark and a flower device the Solvil watch es in Singapore The plaintiff claimed that the flower device on the Solvil watches the Solvil flower device is identical or similar to the Trade Marks 16 Plane is a solicitor based in Hong Kong He was employed as a senior anti counterfeiting manager in the Hong Kong offices of Louis Vuitton Pacific Ltd from 4 January 2006 to 31 August 2007 and was requested by the plaintiff to testify on its behalf in these proceedings At the material time Plane had responsibility for the design and management of the intellectual property enforcement programmes for the LVMH Fashion Group in the Asia Pacific region 17 When Plane discovered in 2007 that the alleged infringing watches were being offered at City Chain outlets in China he instructed his company s lawyers and investigators to visit City Chain outlets in Hong Kong and a number of cities in China including Shanghai Beijing Shenzhen and Guangzhou Similar action was taken in Kuala Lumpur and Singapore Trap purchases were made Plane then instructed that coordinated enforcement raids be conducted against the City Chain outlets in China Malaysia and Singapore that had been found to be selling the Solvil watches 18 Infinitus Law Corporation Infinitus is the plaintiff s legal counsel in Singapore on trade mark enforcement matters Acting on Infinitus instructions a private investigator Mr Ng Chui Guan Ng from the firm HS Intellectual Property Services HS visited the defendant s outlets at The Central Marina Square Suntec City Mall and Plaza Singapura between 4 and 9 May 2007 and bought one Solvil watch from each outlet Ng also deposed that between 9 May 2007 and 13 May 2007 he and other HS investigators visited 22 City Chain outlets other than the four abovementioned outlets and observed that the Solvil watches were available or on display at these outlets Commencement of criminal proceedings 19 The plaintiff proceeded to file four complaints against the defendant on 15 May 200 the Complaints alleging that there were goods in the defendant s stores that were the subject of an offence under s 49 of the Trade Marks Act Cap 332 2005 Rev Ed the Act The Complaints sought the seizure of all goods that falsely applied the Trade Marks or bore marks so identical or calculated to look like or so nearly resembling the Trade Marks The Complaints were signed by Ms Teh Ee Von Ms Teh a solicitor in the employ of Infinitus Annexed to the complaints was Ng s statutory declaration SD concerning the trap purchases that he made on behalf on the plaintiff and an examination report on the Solvil watches by Ms Nalini Menon Ms Menon a senior legal executive with Infinitus 20 The Magistrate issued four search warrants Nos 64 2007 to 67 2007 against the defendants and the searches were executed at the four above mentioned outlets on 16 May 2007 by officers from the Intellectual Property Rights Branch of the Criminal Investigation Department A total of 24 Solvil watches were seized at these raids 21 On 16 November 2007 four charges in Private Summons Nos 2246 2007 to 2249 2007 the Charges were issued against the defendant for breaching s 49 c of the Act The defendant was charged with falsely applying the Flower Quatrefoil trade mark Unlike the Complaints none of the Charges referred to the Flower Quatrefoil Diamond trade mark Criminal Revision No 2 of 2008 22 The defendant applied by way of the CR for the search warrants issued by the Magistrate to be quashed for convenience the applicant in the CR is referred to as the defendant which is its position in the Suit The grounds for the CR were a when Ms Teh applied for the search warrants she did not provide any or any sufficient information to the Magistrate that there was reasonable cause for suspecting that the four City Chain outlets stored goods that were the subject of an offence under s 49 of the Act and b the Charges did not disclose the commission of any offence under s 49 c of the Act in respect of the Flower Quatrefoil 23 In respect of ground a the defendant pointed out that each of the complaints exhibited Ng s SD and Ms Menon s examination report but not the Solvil watches The defendant further questioned whether the Magistrate had inspected the Solvil watches prior to issuing the search warrants 24 On ground b the defendant took issue with the contents of Ng s SD and Ms Menon s examination report which it alleged did not deal with nor establish the elements of the offence to the requisite or any standard of proof Ng s SD stated that the Solvil watches were imprinted with parts of Louis Vuitton trade marks devices only which according to the defendant fell short of establishing that the defendant had improperly used the plaintiff s registered trade marks such that they could be mistaken for the real trade marks As for Ms Menon s examination report the defendant submitted that she had cited irrelevant considerations that did not give rise to reasonable cause under s 49 of the Act for suspecting that the seized Solvil watches were the subject of a criminal offence The irrelevant considerations according to the defendant were that a genuine Louis Vuitton articles were only sold at Louis Vuitton boutique shops b the metal materials used on the Solvil watches were of inferior quality and such metal materials were not used by Louis Vuitton c the workmanship used on the defendant s watches was inconsistent with genuine Louis Vuitton articles and d Louis Vuitton articles were never sold at 130 each 25 In its submissions the defendant also took issue with the mistaken name under which the complaints had been taken out viz Louis Vuitton Malletier A Paris This entity was no longer in existence 26 Ms Teh deposed in her affidavit filed on 22 February 2008 in respect of the CR that she did show the Solvil watches that were obtained through Ng s trap purchases to the Magistrate when she appeared before the latter to swear the complaints In her experience the magistrate usually issued the search warrant only after seeing the trap purchase Ms Teh added that she also showed the plaintiff s watch catalogues depicting its watches bearing the Flower Quatrefoil to the Magistrate Commencement of the Suit 27 Shortly after the Charges were filed against the defendant the plaintiff filed the writ of summons in the present action on 13 December 2007 In summary the plaintiff sought the following relief in the Suit a an injunction to restrain the defendant from doing any acts that would infringe the Trade Marks pass off the defendant s watches as the plaintiff s as a result of the use of flower devices identical with similar to or colourably imitative of the plaintiff s flower devices in the Trade Marks or cause confusion or indicate a connection between the defendant s goods and the plaintiff s b a declaration that the plaintiff s Trade Marks were well known marks within the definition of s 2 1 of the Trade Marks Act c an inquiry into damages suffered by the plaintiff or at its option an account of profits by the defendant or in the alternative and at the election of the plaintiff statutory damages under s 31 5 of the Act d delivery up within seven days of the judgment in the Suit of all watches and other articles within the control of the defendant that used flower devices identical with similar to or colourably imitative of the plaintiff s flower devices in the Trade Marks e full discovery of all the defendant s acts of trade mark infringement and passing off f costs and g interest 28 The thrust of the defence was a each of the Solvil flower devices was not used as a trade mark on the Solvil watches but as a mere decorative embellishment or element b the use of the Solvil flower device was not a misrepresentation that was likely to deceive the public as there was no likelihood of confusion on the part of the relevant public in Singapore as a result of such use and it did not cause and was not likely to cause damage to the plaintiff c the Trade Marks were not well known to the relevant sector of the public or the public at large and d the Solvil watches did not infringe s 55 of the Act The plaintiff s allegations Trade mark infringement 29 Pursuant to s 27 of the Act a trade mark is infringed if without the consent of the trade mark proprietor a a person uses a sign in the course of trade that is identical with the trade mark in relation to goods or services which are identical with those for which it is registered s 27 1 or b a person uses a sign in the course of trade that i is identical with the trade mark and is used in relation to goods or services similar to those for which the trade mark is registered or ii is similar to the trade mark and is used in relation to goods or services identical with or similar to those for which the trade mark is registered such that there exists a likelihood of confusion on the part of the public s 27 2 30 The plaintiff submitted that conceptually and visually the Solvil flower device was identical to the Flower Quatrefoil The defendant had therefore used signs that were identical with or similar to the Trade Marks on identical goods namely watches Although the Solvil flower devices on the watch faces of the Solvil watches were incomplete they had four pointed petal signs that were equal in length and which converged at the centre The interior of the outline star or flower contained little diamantes with a larger diamante set in the middle This larger diamante in the centre the plaintiff asserted had an equivalent function as the circle in the centre of the Flower Quatrefoil Even if the stark difference in workmanship would be discernible when a Louis Vuitton watch and a Solvil watch were placed side by side the plaintiff insisted that the Solvil flower device was a copy or a counterfeit of the Flower Quatrefoil Should the court find that the Solvil flower devices were not identical with the Trade Marks the plaintiff contended that the differences are minor and the defendant s signs are therefore similar to the Trade Marks and are likely to cause confusion on the part of the public 31 The plaintiff further sought to demonstrate to the court that by employing the Solvil flower device on the watch faces and bracelets the defendant employed its flower device in an identical or similar manner as the plaintiff This would cause unwary members of the public to believe that the Infringing Watches originate from the Plaintiff because the Solvil flower device is utilised in entirely the same way that the Plaintiff uses the Trade Marks on its genuine watches A person looking at the Solvil watch from afar would only see the quatrefoil flowers which appeared to be the Trade Marks and not the word Solvil printed in small font on the watch face 32 To support its assertion the plaintiff exhibited its Tambour Lovely White model which comprised a number of Flower Quatrefoils on its watch face a Flower Quatrefoil Diamond on its strap above the dial and a LV logo on its strap below the dial The plaintiff pointed out that one of the Solvil watches that Chu KW exhibited in his affidavit of evidence in chief AEIC with model number 48 0067 003 was also designed with quatrefoil flowers on its face and on the top and bottom of the strap 33 In his AEIC Plane elaborated on the plaintiff s claims about the possibility of confusion 39 the Plaintiff employs the three floral motifs of the Monogram including the Trade Marks on the watches in such a way that the motifs function as trade marks and provide aesthetic appeal on the watch faces and bracelets 40 Therefore whilst the words LOUIS VUITTON are found on the watch face in smaller letters it is the larger floral marks including where used the Trade Marks that are most prominent and visible visual elements from afar and which readily and clearly identify and set apart the watches as originating from the plaintiff 41 the use of the Trade Marks on the Plaintiff s watches will enable and cause anyone looking at the Plaintiff s watches to immediately identify the same as originating from the Plaintiff without the need to see the words LOUIS VUITTON on the watch face from up close 34 Plane further deposed that it was an accepted practice in the watch trade that secondary trade marks could be used under licensing authorisation or sponsorship arrangements This could confuse the public into thinking that the Solvil watches had been authorised by or were somehow associated with the plaintiff even if they examined the watches up close and noticed the Solvil brand name He stated in his AEIC at para 112 These customers who see the Trade Marks on the watch faces and bracelets of the Solvil watches may be tempted to buy them in the belief that there may be some association or that they are second line products the customers may have cause to wonder whether they are in fact getting a product that had been authorized by the plaintiff The moment the consumers have to wonder there is a likelihood of confusion or deception 35 The defendant however asserted that the Solvil watches were not identical with or similar to the plaintiff s watches because compared with the Flower Quatrefoil the Solvil flower device a did not comprise any empty circle shape at the centre b was different in shape from the Trade Marks c was decorated with inter locking diamantes and d was an incomplete design formed by irregular stitching In contrast with the Flower Quatrefoil Diamond the Solvil flower device did not have any diamond shape 36 The defendant contended that the quatrefoil flower has been used as an ornament embellishment or a decorative device for various objects for several centuries and it does not inherently or automatically act as a trade mark indicating the trade origin of goods In his AEIC Chu KW exhibited photographs of jewellery pieces using the quatrefoil flower design which had been purchased from Perlini s Silver Mintmark Co and Citigems in Singapore and the Alhambra collection by Van Cleef Arpels The defendant also showed the use of the quatrefoil flower design in several architectural works namely the Doge s Palace in Venice Italy the Milan Cathedral in Milan Italy and the spire of the Houses of Parliament London United Kingdom as well as in artistic works such as the Santa Maria Polyptych painting In the same way the Solvil flower device was used on the Solvil watches for ornamental and decorative purposes only 37 When Plane was shown the photographs of the above mentioned jewellery pieces purchased from Perlini s Silver Mintmark Co and Citigems during cross examination he said that if he were still in charge of the plaintiff s anti counterfeiting enforcement programme in Asia Pacific he would have pursued enforcement action against these proprietors because the quatrefoil flower patterns were being used as trade marks He also intimated that the plaintiff had been in discussion with Van Cleef Arpels for some time about the alleged similarity between Van Cleef Arpels design for its Alhambra collection and the plaintiff s Circular Flower 38 The plaintiff alleged that Stelux did not refrain from using the Trade Marks on the Solvil watches because it regarded itself as being entitled to do so this followed from the defendant s argument that the quatrefoil flower was a common sign in the trade The plaintiff submitted that the proper course of action would have been for the defendant to apply for the Trade Marks to be expunged and not to use the Trade Marks illegally 39 Chu KW stated categorically that the trade mark on the Solvil watches was Solvil and he reiterated that the Solvil watches used quatrefoil flower patterns for decoration and embellishment in order to achieve a look that fitted the image that Stelux was cultivating for the Solvil brand Chu KW testified that Stelux took a firm stance against counterfeiting and trade mark infringement Its strategy for growing its brands was through advertising celebrity endorsements well decorated stores and well trained staff as well as heavy investments in its own brands Solvil et Titus being a good example It would be detrimental to City Chain s excellent reputation as a leading multi brand watch retailer in Asia if it rode on the goodwill of other watch manufacturers be they high end or mass market brands The Solvil watches were designed by a third party and manufactured in China If Stelux had thought that the design of the Solvil watches infringed any trade marks it would not have approved the design 40 The defendant s third witness Ms Chu Suk Yee Ms Chu unrelated to Chu KW a Brand Manager at City Chain Company Ltd in Hong Kong deposed that the defendant s Operations Team was responsible for approving watch designs To ensure that the designs were not identical or similar to watches that were already in the market the Operations Team would visit other watch stores Similar to the evidence given by Chu KW Ms Chu averred that the Operations Team did not visit Louis Vuitton boutiques to learn more about the plaintiff s watches Nevertheless Ms Chu maintained that the Solvil watches were distinct from the plaintiff s watches She added that since the Solvil watches were launched in Hong Kong and Singapore in November 2006 she had not received any feedback or comment about any identity or similarity between both parties watches 41 The defendant asserted that the Flower Quatrefoil was not in fact used as a trade mark on the plaintiff s watches Mere registration did not render the Flower Quatrefoil distinctive as a trade mark The Polo Lauren Co LP v Shop In Department Store Pte Ltd 2006 2 SLR 690 at 26 Citing R v Johnstone 2003 FSR 42 the defendant argued that the average consumer would consider a flower or floral design on a piece of jewellery such as a watch as a decorative element It could not be said that the public had been sufficiently educated about the plaintiff s trade marks by substantial sales or advertisements to associate watches bearing flower quatrefoils with the plaintiff Since the famous LV logo was imprinted on the plaintiff s watches the average consumer would consider the LV logo to be the trade mark and the Flower Quatrefoils to be ornaments or decorations 42 The defendant disagreed that the Flower Quatrefoil was used as a trade mark since it had been used in various ways and forms that differed from the form shown in its trade mark registration If the individual constituents of the Monogram were not used in a consistent manner the average consumer would not consider them as trade marks During cross examination Plane did not concede that the scant evidence before the court of use of a single Flower Quatrefoil on the plaintiff s products meant that the plaintiff did not manufacture more of such items He insisted that as the trade mark proprietor the plaintiff was at liberty to use it in any combination and in any way it wished The defendant submitted that given the disparity in prices between the parties watches the plaintiffs practice of not permitting other retailers to sell Louis Vuitton goods except on rare occasions and never marking down its prices and the manner in which the defendant sold its Solvil watches there was no likelihood of confusion In addition consumers usually examined a watch closely before purchase This would be more so in the case of the plaintiff s Tambour Bijou model which had a 18 mm dial 43 Chu KW deposed in his 2nd affidavit filed on 30 April 2008 in respect of the CR that the raids in several cities in China did not result in legal action against Stelux In Shenzhen the Administration for Industry and Commerce AIC returned the seized watches to the defendant Louis Vuitton commenced court action against Stelux and that case is currently pending before the Shenzhen Intermediate People s Court The AIC in Beijing Dongcheng District closed the case on 1 June 2007 without finding trade mark infringement on the part of the defendant to whom the seized watches were returned The respective AICs in the Liwan and Yuexiu districts of Guangzhou also returned the confiscated watches to the defendant In Chongqing the AIC issued a decision of non infringement of Louis Vuitton s trade mark rights Louis Vuitton commenced an action with the Intermediate People s Court for a review of the decision of the Chongqing AIC but it was unsuccessful It then filed an appeal with the Chongqing Higher People s Court which is pending The courts in Malaysia had also not taken further action following the raids 44 Plane said under cross examination that he had no evidence to dispute Chu KW s claims about the above mentioned raids He claimed that raids were also attempted in Shanghai but they were unsuccessful because the City Chain employees there were notified beforehand by City Chain employees in Hong Kong When asked by the plaintiff s counsel Plane said that the AIC s decisions were administrative in nature and subject to challenge in the courts Passing off 45 To succeed against the defendant in passing off the plaintiff would have to satisfy three requirements goodwill misrepresentation and damage or likelihood of damage Goodwill 46 As proof of the substantial goodwill that the plaintiff s Trade Marks enjoyed the plaintiff adduced evidence of inter alia the appearance of its fashion products in fashion and women s magazines including Singapore publications Cita Bella Icon Style Elle and Her World coverage of social events organised by the plaintiff in society magazines such as Singapore Tatler and Prestige and extensive coverage of its products in business magazines such as Time Newsweek Forbes Fortune and BusinessWeek 47 The plaintiff cited Caterpillar Inc v Ong Eng Peng 2006 2 SLR 669 for the proposition that sales advertisements and promotion expenditure were evidence of goodwill and reputation Plane deposed that he was informed by LVMH Fashion S that it spent the following amounts in advertising and promoting the plaintiff s watches in Singapore in the years 2003 to 2007 2003 S 703 251 2004 S 218 740 2005 S 90 035 2006 S 131 121 48 The defendant submitted that since by the plaintiff s own admission its goodwill was concentrated in the Monogram it would be inherently difficult for the quatrefoil marks to acquire their own goodwill or reputation where bags and luggage were concerned No evidence was adduced by the plaintiff that a single quatrefoil mark without an accompanying Louis Vuitton mark or the Monogram had been used in the design of its bags and luggage the mainstay of its luxury goods business Specifically with respect to watches the plaintiff had exhibited only three full page newspaper advertisements of watches that employed a single Flower Quatrefoil on their faces which were published in Singapore prior to November 2006 and it had not adduced evidence of sales of any watch bearing one or more quatrefoil marks before November 2006 49 It could not be denied however that these watches were currently available at the plaintiff s stores in Singapore At the defendant s request during the trial the plaintiff exhibited two of its watches bearing the Flower Quatrefoil that were obtained from its store in Singapore Misrepresentation 50 The plaintiff alleged that the defendant had deliberately copied the plaintiff s designs ie there was intentional misrepresentation The plaintiff postulated that in a bid to improve its performance in China where its business was making a loss the defendant deliberately designed a range of watches that were look alikes with the plaintiff s watches in order to attract middle class young Chinese consumers who were brand conscious and aspired to own the plaintiff s products but might not be able to afford them yet The defendant refrained from selling these watches in Hong Kong because of the presence of the plaintiff s Asia Pacific headquarters there Notwithstanding Chu KW s assertion on the witness stand that the trade mark on the Solvil watches was Solvil the plaintiff noted that the defendant only registered the trade mark for Solvil in Singapore on 26 December 2007 after these proceedings had commenced This was some three to four years after the defendant spun off Solvil as a separate brand from Solvil et Titus 51 The defendant insisted that customers of Solvil watches would not be misled regarding the brand or origin of those watches on account of the defendant s policy and processes in relation to the display sale and handing over of watches to customers Chu KW averred that a Solvil watches in the defendant s stores were displayed in individual compartments that prominently featured the Solvil mark b the watch s brand code was stated on its price tag and the invoice that was issued to a customer c a City Chain warranty card stating the brand name and model number of the watch or the brand s own warranty card would be issued to the customer and d the watch would be packaged in a City Chain box or a box bearing a brand name of the watch and packed into a City Chain bag 52 Furthermore it could not be disputed that the defendant s watches were targeted at a different market segment Chu KW deposed that t he City Chain Group sells affordable and trendy lifestyle watches for a broad middle class base of consumers generally between the ages of 18 and 45 As for watches under the Solvil brand Ms Chu stated that these watches were directed at the young and trendy particularly those in the 15 to 25 age group and the image that City Chain sought to project of this line of watches was fashionable feminine and trendy Chu KW also said during cross examination that he did not seek to find out more about the plaintiff s range of watches after he became aware that such products were available and he did not instruct Stelux s Operation Team or its marketing director to undertake market research concerning the same because City Chain and the plaintiff were clearly not competitors with each other Damage or likelihood of damage 53 The plaintiff submitted that it only manufactured and sold a relatively small number of watches Its brand of luxury lifestyle meant that its products had to be very exclusive and this image of exclusivity which its customers valued highly would be diminished by the availability of look alikes 54 The defendant countered that if the sales figures of the plaintiff s watches in Singapore as adduced in Plane s AEIC were assumed to be true and correct it appeared that the launch and sales of the Solvil watches had no impact on the plaintiff s watch sales The defendant referred to Nation Fittings M Sdn Bhd v Oystertec Plc 2006 1 SLR 712 at 176 where Andrew Phang Boon Leong J cited H P Bulmer Ltd and Showerings Ltd v J Bollinger SA and Champagne Lanson Peres et Fils 1978 RPC 79 at 95 for the principle that proof of damage must be established as a matter of probability not mere possibility Dilution 55 The plaintiff claimed that the Trade Marks were well known marks under s 2 of the Act and that they were protected against dilution by s 55 of the Act specifically s 55 3 b and s 55 4 b 56 To bolster its argument that the plaintiff and its Trade Marks were well known the plaintiff cited decisions of the Administration Panel of the WIPO Arbitration Mediation Centre as well as courts in the United States and Australia In Louis Vuitton v Lee doing business as K Econo Merchandise 875 F 2d 584 LV v Lee the court held at 8 Vuitton and Gucci are international status symbols known to everyone whether or not proficient in the English language who sells handbags and luggage and to most people who buy them It is inconceivable that Ms Lee had never heard of these firms nor did she testify that she had never heard of them 57 In Louis Vuitton Malletier SA v D L Design Pty Ltd 2003 FCA 475 LVMH v D L Design the Federal Court of Australia stated at 29 The evidence of the applicants disclosed an extensive long standing and well established reputation in their names and their products and I do not consider it credible that persons engaged in the wholesale importation and sale of fashion garments albeit at the cheaper end of the fashion garment trade would not be aware of the names of the applicants the nature of their trade marks and the nature of the style get up and display of their products 58 To protect its extensive intellectual property rights the plaintiff employed a full time team of about 50 persons to engage in anti counterfeiting and brand protection and a network of 250 agents investigators and external counsel In Singapore the plaintiff took the following enforcement actions between 2005 and 2008 in co operation with the police Year No of raids by plaintiff No of raids by police on own initiative 2005 104 16 2006 84 27 2007 121 16 2008 at 30 June 38 12 Of these raids several related specifically to the Trade Marks Year No of raids 2004 4 2005 19 2006 8 2008 at 30 June 2 59 The defendant s rebuttal was that the enforcement decisions that Plane cited in his AEIC did not relate to the Trade Marks at all In LV v Lee for example the trade marks in question were Vuitton and Louis Vuitton while LVMH v D L Design concerned the Damier trade mark The evidence of the plaintiff s enforcement efforts in Singapore also did not assist its argument that the Trade Marks had become well known in Singapore The trade marks in question in Louis Vuitton Malletier A Paris v Tan Tong Khai Suit No 686 of 2003 were the Louis Vuitton and the LV marks while the dispute in Public Prosecutor v Jong Li Li Deborah 2006 SGDC 299 related to the Louis Vuitton Stars Flowers trade mark 60 While it was undisputed that the Monogram was a well known mark for the purposes of the Suit the defendant did not accept that the individual elements of the Monogram were likewise well known It claimed that no evidence was adduced on the value of the Trade Marks in Singapore Instead the plaintiff had submitted the figure for the turnover of its Singapore subsidiary which conceivably was due to the alleged allure of the Plaintiff s handbags luggage and leather goods bearing the Monogram mark Tarnishment and blurring 61 Just as it pleaded the tort of passing off the plaintiff alleged that the availability in the mass market of the Solvil watches using the Solvil flower device as a trade mark would tarnish the plaintiff s image and give rise to a likelihood of confusion Therefore the elements of dilution had been made out viz the availability of the Solvil watches would lessen the capacity of the Flower Quatrefoil to identify and distinguish the plaintiff s watches 62 The defendant s counter argument was that tarnishment occurred where a conflicting mark was used in relation to goods or services that were unwholesome unsavoury immoral or obscene which the Solvil watches were not There was also no evidence that the defendant took unfair advantage of the alleged distinctive character of the Trade Marks or that the defendant s customers would purchase the Solvil watches because they thought they were associated with the plaintiff In any case the defendant maintained that the Solvil watches were not look alikes of the plaintiff s watches 63 As for blurring the defendant asserted that there was no evidence that the Solvil flower device would cause any member of the purchasing public in Singapore to think that the Solvil watches originated from or were connected to the plaintiff 64 Finally the defendant noted that s 55 4 of the Act requires that the infringing product to have used the well known mark as a business identifier This was not the function of the Solvil flower device which was meant for decorative purposes only The decision of the court 65 On the issue of infringement there can be no dispute that the goods in question are identical ie watches and that the plaintiff as the proprietor had not consented expressly or impliedly to any use of its Trade Marks by the defendant 66 Section 2 of the Act defines a sign to include any letter word name signature numeral device brand heading label ticket shape colour aspect of packaging or any combination thereof Clearly the Solvil flower device is a sign within the meaning of s 2 and s 27 of the Act This is notwithstanding the fact that the sign was used in a manner which did not show the complete flower It would be obvious to anyone looking at the pattern on the Solvil watch face and strap that the complete sign is a stylised four pointed flower To hold otherwise would be to allow a person to use LV in a repeat pattern on goods identical or similar to those of the plaintiff so long as the letters fade off at the start the end the top or the bottom and are never displayed as a complete pair This cannot be correct as it would make

    Original URL path: http://www.singaporelaw.sg/sglaw/laws-of-singapore/case-law/cases-in-articles/intellectual-property/1573-louis-vuitton-malletier-v-city-chain-stores-s-pte-ltd-and-another-matter-2009-2-slr-684-2009-sghc-24 (2016-01-30)
    Open archived version from archive

  • Virtual Map (Singapore) Pte Ltd v Singapore Land Authority and another application[2009] 2 SLR(R) 558; [2009] SGCA 2
    Judge s decision the Notice of Appeal SLA in turn applied via Summons No 2056 of 2008 SUM 2056 to strike out the Notice of Appeal on the basis that VM had not obtained the requisite leave of the court to appeal pursuant to s 34 2 a of the Supreme Court of Judicature Act Cap 322 2007 Rev Ed SCJA VM s position is that no leave of the court is required in order for it to appeal against the Judge s decision However without prejudice to its position VM has filed Originating Summons No 561 of 2008 OS 561 seeking leave from this court to appeal against the Judge s decision VM had previously applied on 1 April 2008 to the Judge via Summons No 1491 of 2008 SUM 1491 for leave to appeal but that application was dismissed by the Judge on 21 April 2008 2 What is before us in the present instance is therefore not the substantive appeal against the Judge s decision but rather two applications ie SUM 2056 and OS 561 concerning the striking out of the Notice of Appeal and the grant of leave by this court for VM to appeal against the Judge s decision respectively The background 3 The detailed facts of this case have already been comprehensively set out in the judgment of the District Judge see 2 13 of the DC decision We thus propose to set out only the salient facts which are necessary for the resolution of the present two applications 4 Prior to the copyright suit SLA and VM were parties to seven licensing agreements collectively the licence agreements five of which were in respect of SLA s street directory data of Singapore in vector format street directory vector data and two of which were in respect of SLA s address point data of Singapore in vector format address point vector data By way of a letter dated 10 June 2004 SLA wrote to VM giving it 30 days notice to terminate the licence agreements all the licence agreements provided for termination by either party with not less than 30 days notice The reason for the termination of the licence agreements is unclear VM contended that the licence agreements were terminated in anticipation of the launch of SLA s own online map search service at www map gov sg while SLA explained that the licence agreements were terminated because it had become aware that VM had taken legal action against several different parties for unauthorised reproduction of VM s online maps and had demanded large payments in exchange for settling those copyright infringement suits even in cases where the unauthorised reproduction had been minor and had already been removed What is undisputed however is that the licence agreements duly came to an end as at 10 July 2004 and VM does not contend that SLA terminated the licence agreements wrongfully see the DC decision at 9 and the HC decision at 4 5 After the termination of the licence agreements SLA s solicitors wrote to VM on 20 July 2005 to demand that the latter cease using materials that contained reproductions of SLA s works VM denied having breached SLA s copyright A flurry of correspondence between the parties followed which eventually culminated in SLA commencing the copyright suit SLA s claim in the copyright suit is that VM had infringed its copyright by virtue of the fact that VM s online maps were reproductions of a the maps in the Singapore Street Directory 1 st Edition 1954 until the 21 st Edition 2002 2003 current e dition for ease of reference we shall use the term the Singapore Street Directory to denote these various editions b SLA s street directory vector data and c SLA s address point vector data The above items will hereafter be referred to collectively as the works 6 At first instance the District Judge found that SLA was the owner of the copyright in the works as the requirement of originality laid down in s 27 of the Copyright Act Cap 63 1999 Rev Ed for copyright to subsist in the works had been met see the DC decision at 41 and 44 She also found that there had been widespread or wholesale copying id at 91 by VM of SLA s street directory vector data and address point vector data collectively these two sets of data will be referred to as the copyright works in VM s online maps given especially the numerous fingerprints of copying found in those maps These fingerprints consisted of inter alia deliberate errors inserted by SLA in the copyright works see generally the DC decision at 76 85 The District Judge however found that there was insufficient evidence id at 87 to demonstrate that VM had copied the maps in the Singapore Street Directory since the evidence of copying advanced by SLA had primarily been in respect of the copyright works 7 The District Judge rejected VM s contention that its online maps were the result of independent creation using global positioning system GPS data and high resolution satellite imagery which was then validated on the ground and continuously revised and updated the GPS survey and not the result of copying the copyright works This was because in addition to the fact that no cogent explanation was proffered by VM for the presence of the fingerprints in its online maps see the DC decision at 119 she found crucially that VM s map making process was very much based on the copyright works id at 116 I n reality VM s map making process was heavily dependent on the raster maps in VM Space the origins of which was SLA s vector data and VM s vector data which again was derived from SLA s vector data Vincent VM s expert witness spoke about the advent of new age mapping using GIS geographic information systems software I had no qualms with all the facets of map making in the new age Unfortunately however dynamic such new mapping methods are the truth which VM simply could not escape from was that its actual map making process was heavily dependent ultimately on SLA s vector data to provide the backbone or skeleton of its own online maps emphasis added emphasis in original omitted 8 In the final analysis the District Judge held that VM had clearly modelled its online maps on SLA s vector data id at 122 and the nature of the copying done by VM constituted a substantial reproduction of the copyright works Accordingly VM had infringed SLA s copyright in the copyright works ibid 9 With regard to VM s defence that the licence agreements expressly and impliedly entitled VM to use the works in the creation of its VM s online maps including subsequent versions of those maps the District Judge held that on a construction of the express terms of the said agreements there was nothing which gave VM the contractual right to retain and continue using its online maps irrespective of whether those maps infringed SLA s copyright id at 134 She also held that the alleged implied term that VM was allowed to keep any maps created under the licence agreements as well as subsequent versions of the same and to continue to maintain and market distribute sell or offer to sell or otherwise deal with the same id at 137 as contended by VM flew in the face of the express terms of the licence agreements ibid and there was simply no business efficacy to speak of ibid that could justify implying such a term which would effectively undermine SLA s legal right to have its intellectual property rights protected in accordance with the law and which would be contrary to the expressed intentions of the parties to the contract ibid The District Judge also dismissed VM s defence based on estoppel on the ground that t here was no evidence that SLA had lulled VM into a false sense of security or into thinking that SLA had abandoned any intention to pursue a claim against it see the DC decision at 145 10 In the light of her findings the District Judge granted all the reliefs asked for by SLA save the prayer for full discovery of certain information and documents including an injunction to restrain VM from infringing SLA s copyright in the copyright works and an order for the delivery up and or destruction of all of VM s documents the continued retention and or use of which would be a breach of the injunction id at 148 149 11 VM appealed to the High Court against the whole of the District Judge s decision At the hearing of the appeal VM informed the Judge that it was prepared to accept that SLA had copyright in the copyright works but maintained that there had been no copying or substantial reproduction of those works see the HC decision at 6 The Judge eventually dismissed the appeal He agreed with the findings made by the District Judge at first instance as well as her reasons as to why copyright infringement had been established in the instant case id at 62 Effectively the Judge affirmed the District Judge s decision not just on the point of copying and substantial reproduction but also on the construction of the licence agreements as well as the issue of estoppel The issues before us 12 As mentioned at the outset of this judgment see 1 above SLA applied in SUM 2056 to strike out the Notice of Appeal on the basis that the court s leave to appeal was required pursuant to s 34 2 a of the SCJA which provides that the court s leave is required if the amount or value of the subject matter at the trial is 250 000 or less see further 15 below and that such leave had not been obtained by VM prior to the filing of the Notice of Appeal SLA s primary contention was that since the copyright suit had been commenced in the District Court where the civil jurisdiction of the court is capped at 250 000 see ss 19 21 read with s 2 of the Subordinate Courts Act Cap 321 1999 Rev Ed which was the applicable edition of that Act at the time the copyright suit was commenced the amount or value of the subject matter at the trial per s 34 2 a of the SCJA was less than 250 000 in the present case and therefore leave of the court was required before VM could appeal to the Court of Appeal Counsel for SLA Mr Dedar Singh Gill also argued at the hearing before us that s 34 2 a of the SCJA should be read together with those provisions of the Subordinate Courts Act which delineated the upper limit of the District Court s civil jurisdiction and that effect must be given to the parliamentary intention behind s 34 2 a of the SCJA viz that there should only be one tier of appeal as of right ie without the need to obtain the court s leave to appeal 13 In contrast for reasons that will be elaborated in full later see 21 below VM contended that no leave of the court pursuant to s 34 2 a of the SCJA was required for its appeal against the Judge s decision However as mentioned see 1 above VM also applied via OS 561 without prejudice to its position that no leave of Court was required in order to appeal to this court for leave to appeal VM further argued that even if the court s leave were required such leave should be granted as the requirements for obtaining the court s leave to appeal had been met in the present case 14 Following from the parties arguments there are two issues for our consideration a whether the court s leave under s 34 2 a of the SCJA is required for VM to appeal to the Court of Appeal against the Judge s decision if this question is answered in the affirmative a corollary issue would arise as to whether the Notice of Appeal should be struck out in the given circumstances and b if leave to appeal must indeed be obtained from the court whether such leave should be granted to VM Whether leave to appeal under section 34 2 a of the Supreme Court of Judicature Act is required General principles 15 We will start by examining s 34 2 a of the SCJA which provides as follows 2 Except with the leave of the Court of Appeal or a Judge ie a Judge of the High Court per s 2 of the SCJA no appeal shall be brought to the Court of Appeal in any of the following cases a where the amount or value of the subject matter at the trial is 250 000 or such other amount as may be specified by an order made under subsection 3 or less emphasis added 16 The operative phrase in s 34 2 a of the SCJA is the amount or value of the subject matter at the trial In Tan Chiang Brother s Marble S Pte Ltd v Permasteelisa Pacific Holdings Ltd 2002 1 SLR R 633 Tan Chiang Brother s Marble this court interpreted the corresponding phrase in s 34 2 a of the Supreme Court of Judicature Act Cap 322 1999 Rev Ed the 1999 SCJA which is in pari materia with s 34 2 a of the SCJA to mean the entire claim of the plaintiff at the trial regardless of the actual amount awarded by the trial judge or the part s of the trial judge s decision appealed against by the appellant see also the decision of this court in Teo Eng Chuan v Nirumalan V Kanapathi Pillay 2003 4 SLR R 442 Teo Eng Chuan at 20 23 Singapore Civil Procedure 2007 G P Selvam chief ed Sweet Maxwell Asia 2007 at para 57 16 8 and Singapore Court Practice 2006 Jeffrey Pinsler gen ed LexisNexis 2006 at para 56 3 9 Thus in Tan Chiang Brother s Marble although the appellant appealed in respect of only that part of the claim in which it had not succeeded and the counterclaim the total monetary value of which taken together did not exceed 250 000 it was held that no leave of the court to appeal under s 34 2 a of the 1999 SCJA was required given that the total amount of the appellant s claim at the trial well exceeded 250 000 id at 14 and 25 In the subsequent case of Teo Eng Chuan this court reiterated that it was not the amount in dispute on appeal which would determine whether the leave of the court under s 34 2 a of the 1999 SCJA was required id at 20 21 20 The approach of only looking at the quantum which a party would be disputing before the Court of Appeal to determine if leave is required not only ignores the plain words of s 34 2 a and our ruling in Tan Chiang Brother s Marble but will also give rise to anomalies 21 Take a case like the present commenced in the High Court where apart from special damages the quantum of general damages which the injured would be entitled to would be at large Of course at the trial itself the plaintiff would have to state how much he is claiming for general damages That together with the special damages would be the value of the subject matter Assuming that altogether it is more than 250 000 and supposing the High Court whether it be a decision of the High Court itself or a decision on appeal from the Registrar on assessment awards the plaintiff a total sum of 200 000 as damages isn t the plaintiff entitled as of right to appeal to the Court of Appeal for a sum claimed which is in excess of 250 000 We do not think such an appeal would require the leave of the court emphasis added 17 On the same basis that it was the quantum of the entire claim of the plaintiff at the trial that mattered it was held in Teo Eng Chuan at 23 that Even if the plaintiff had exaggerated his claim and the High Court had only awarded him less than 250 000 there is no reason why the defendant who had no hand in the action being instituted in the High Court should be denied an opportunity to appeal if he is dissatisfied with even that lower award emphasis added However a plaintiff who unreasonably inflates his claim and commences his action in the High Court when it could very well have been commenced in the Subordinate Courts instead may be penalised in costs see Tan Chiang Brother s Marble at 24 see also the Singapore High Court decision of Cheong Ghim Fah v Murugian s o Rangasamy 2004 3 SLR R 193 at 12 18 The decided cases have also clarified the scope of s 34 2 a of the SCJA as follows a The phrase the amount or value of the subject matter at the trial in s 34 2 a of the SCJA does not include non contractual interest and costs as these are merely consequential matters see Abdul Rahman bin Shariff v Abdul Salim bin Syed 1999 3 SLR R 138 which actually concerns the words the amount in dispute or the value of the subject matter in s 21 1 of the Supreme Court of Judicature Act Cap 322 1985 Rev Ed 1993 Reprint but which in our opinion is equally applicable to s 34 2 a of the SCJA b The expression trial includes any judicial hearing whether in open court or in chambers see Tan Chiang Brother s Marble at 20 and Spandeck Engineering S Pte Ltd v Yong Qiang Construction 1999 3 SLR R 338 Spandeck Engineering at 17 Further vis à vis an appeal to the Court of Appeal against the order of a High Court judge in a registrar s appeal the hearing before the registrar and the appeal to the judge against the registrar s decision effectively constitute one hearing given that the judge hears the matter de novo for the purposes of the word trial see Teo Eng Chuan at 10 14 and Hailisen Shipping Co Ltd v Pan United Shipyard Pte Ltd 2004 1 SLR R 148 Hailisen Shipping Co Ltd at 14 One tier of appeal as of right for civil cases 19 In Tan Chiang Brother s Marble 16 supra this court explained that s 34 2 a of the 1999 SCJA was a process to screen appeals to the Court of Appeal as the legislative intention was to allow only one tier of appeal as of right for civil claims up to a certain amount or value in this case the limit of 250 000 At 13 of Tan Chiang Brother s Marble this court explained Decisions of the High Court can either be in relation to an action commenced in the High Court or in relation to an action commenced in the Subordinate Courts which comes on appeal before the High Court The jurisdictional limit of the District Court is 250 000 or less A claim exceeding that limit must be commenced in the High Court Implicit in the scheme of things is that there should as a rule be only one tier of appeal In 1998 when the figure in s 34 2 a of the SCJA ie the Supreme Court of Judicature Act Cap 322 1985 Rev Ed 1993 Reprint was raised to make it fall in line with the enhanced civil jurisdiction of the District Court the Minister for Law Prof S Jayakumar in his second reading speech in Parliament when moving an amendment Bill to the SCJA said In view of the enhanced District Courts jurisdiction of 250 000 in civil matters the Chief Justice has proposed that the existing 30 000 limit in section 34 2 a be raised to 250 000 In other words bring its limit in line with the enhancement If the limit is not raised to 250 000 District Court cases of less than 250 000 can first go on appeal to the High Court and then the Court of Appeal This would strain the limited resources of the Court of Appeal emphasis added Referring to its earlier decision in Spandeck Engineering this court proceeded to observe as follows see 19 of Tan Chiang Brother s Marble A s the limit of 250 000 in s 34 2 a was also the upper limit of the District Court s jurisdiction the objective of s 34 2 a was to ensure that where appeals from the decision of the District Court had been heard and disposed of by the High Court there should be no further appeals therefrom to the Court of Appeal unless on sufficient grounds being shown leave of either the High Court or this court ie the Court of Appeal was obtained The provision provide d for a process to screen appeals to be brought to this court thus preventing the clogging up of this court by all kinds of appeals What was contemplated by the Legislature in relation to an action commenced in the District Court was that there should be only two tiers of hearing the first instance hearing and an appeal A further appeal to the Court of Appeal was only possible with leave emphasis added In a similar vein this court reiterated in Teo Eng Chuan 16 supra that id at 23 It is vitally important to bear in mind the scheme of things for civil appeals under the 1999 SCJA Generally there should be one tier of appeal whether it is a case from the District Court or from the High Court emphasis added 20 Nonetheless some including VM in the present case have suggested that this court s decision in Hailisen Shipping Co Ltd which we will elaborate in detail below at 26 30 has laid down a general rule or an exception that where no monetary value can be placed on the subject matter of the trial or where the issue on appeal does not involve a monetary value the matter does not come under the purview of s 34 2 a of the 1999 SCJA and likewise s 34 2 a of the SCJA and no leave of the court is required see Singapore Civil Procedure 2007 16 supra at para 57 16 8 and Singapore Court Practice 2006 16 supra at para 56 3 9 As will be demonstrated shortly a proper reading of Hailisen Shipping Co Ltd does not in fact support this unqualified proposition Our decision on whether leave to appeal is required 21 VM s reply to SLA s application in SUM 2056 to strike out the Notice of Appeal was twofold First VM argued that as it was appealing inter alia against the District Judge s order that it deliver up to SLA and or destroy among other items all its maps and products containing its maps those maps and those products were part of the subject matter of the copyright suit In this connection VM contended that it had spent millions of dollars developing its maps the actual value of which far exceeded 250 000 and thus the monetary value of the subject matter at the trial before the District Judge exceeded 250 000 as far as VM s appeal to the Court of Appeal was concerned Hence no leave of the court under s 34 2 a of the SCJA was required Second VM argued relying on this court s decision in Hailisen Shipping Co Ltd 18 supra that no specific monetary value could be placed on the subject matter at the trial in the context of the present proceedings and accordingly no leave of the court to appeal was required 22 With respect to the second argument we should point out that in VM s application to the Judge for leave to appeal against his decision ie SUM 1491 see 1 above VM had argued that the following matters were the subject matter at the trial in the context of the present proceedings a whether an injunction should be granted to SLA b whether VM would have to deliver up to SLA or destroy all its ie VM s maps and products containing its maps and c whether damages payable by VM to SLA should be assessed Before us VM repeated this argument It submitted that t he subject matter of the trial when viewed in totality must refer to all of the relief that SLA sought emphasis in original and since no monetary value could be placed on such relief no leave of the court was required for an appeal to the Court of Appeal 23 In so far as VM s first argument at 21 above is concerned we find as a matter of fact that it is without merit There is no evidence before the court save for a bare assertion that VM has expended millions of dollars developing its maps VM s only evidence in this regard was a reference to Virtual Map Singapore Pte Ltd v Suncool International Pte Ltd 2005 2 SLR R 157 where Lai Kew Chai J Lai J had referred at 8 to the District Court s decision in Virtual Map Singapore Pte Ltd v Suncool International Pte Ltd 2004 SGDC 190 in which the District Court had in turn referred at 9 to the fact that VM had said that it had spent 3m developing creating and maintaining its online map provision services No evidence was adduced before Lai J or in the present proceedings on the amount of money which VM had actually spent in that regard 24 In any event we are of the view that it is not open to VM to now argue that the monetary value of the subject matter of the trial in the present case exceeded 250 000 since it had proceeded to trial on the basis of SLA s claim being within and limited to the jurisdiction of the District Court By accepting that the District Court had jurisdiction of the matter VM is now estopped from asserting that the monetary value of the said subject matter exceeded 250 000 At the time of the trial as far as SLA was concerned VM s maps had no value because they were counterfeit whereas as far as VM was concerned the maps had substantial value because they were not counterfeit and therefore could be used for commercial purposes Be that as it may if VM considered its maps to be worth an amount in excess of the jurisdictional limit of the District Court it should have applied to have the entire action transferred to the High Court That was not done VM cannot be allowed to blow hot and cold in the same action by now asserting that its maps have a monetary value in excess of 250 000 25 In contrast VM s second argument that leave of the court to appeal under s 34 2 a of the SCJA is not required because the subject matter at the trial in the present case has no specific monetary value see 21 above cannot be dismissed out of hand and it is necessary for us to examine the decision in Hailisen Shipping Co Ltd 18 supra in some detail 26 In that case Pan United Shipyard PUS contracted with Castle Shipping Company Castle to repair and supply equipment to Castle s vessel Dilmun Fulmar the vessel Castle failed to pay part of the bill and PUS arrested the vessel A settlement agreement the settlement agreement was subsequently reached under which Castle agreed to pay PUS in three instalments a total of 310 000 in full and final settlement of the debt which it owed to the latter The vessel was released after the first instalment of 140 000 was paid Castle then sold the vessel to Hailisen Shipping Co Ltd Hailisen After the sale Castle failed to make the remaining instalment payments under the settlement agreement PUS thus commenced an in rem action for the balance sum of 170 000 the in rem action and arrested the vessel once again Hailisen applied as an intervener to the in rem action to set aside the warrant of arrest and sought damages for wrongful arrest Subsequently the assistant registrar set aside the warrant of arrest but did not award Hailisen any damages for wrongful arrest On appeal by both PUS against the setting aside of the warrant of arrest and Hailisen against the assistant registrar s refusal to award damages Belinda Ang Saw Ean J Ang J affirmed the assistant registrar s decision to set aside the warrant of arrest see The Dilmun Fulmar 2004 1 SLR R 140 she also allowed Hailisen s appeal and held that Hailisen was entitled to damages to be assessed PUS in turn appealed against Ang J s decision Hailisen argued that PUS was not entitled as of right ie without first obtaining the leave of the court to appeal against Ang J s decision since the claim in the in rem action was only for 170 000 Hailisen thus applied to have PUS s appeal struck out on the ground that PUS had failed to apply for the court s leave as required by s 34 2 a of the 1999 SCJA 27 Chao Hick Tin JA delivering the judgment of this court held that the subject matter of the in rem action was not PUS s claim of 170 000 He explained at 15 of Hailisen Shipping Co Ltd T he question to ask is what was the subject matter before Ang J Here we must observe that while PUS was only claiming for 170 000 which ordinarily should have been claimed by way of an action commenced in a District Court PUS s claim had to be commenced in the Singapore High Court because it was an in rem action What was before Ang J was not the claim of 170 000 of PUS but the questions of whether the warrant of arrest of the vessel should be set aside and if so whether there should be an order for an assessment of damages Both these questions were the subject matter before Ang J which she answered in the affirmative Neither of them bore any specific value Indeed the damages to be assessed were wholly at large The claim of PUS in the main action ie the in rem action could in no way limit the damages suffered by Hailisen due to the wrongful arrest Therefore the matter did not fall within s 34 2 a of the 1999 SCJA and no leave was required emphasis added 28 At face value it is difficult for us to disagree that VM s characterisation of the subject matter in the present case which is essentially an unquantified claim for damages as well as for the non monetary remedies of an injunction and an order for the delivery up and or destruction of infringing materials in respect of breach of copyright is supported by the decision of this court in Hailisen Shipping Co Ltd However it does not in our view necessarily follow that Hailisen Shipping Co Ltd is applicable to the present case There is a material difference between the jurisdictional context in which the claim in Hailisen Shipping Co Ltd was brought and that in which SLA s claim in the copyright suit was brought In the present case SLA made its claim in and within the jurisdiction of the District Court thereby limiting its damages to 250 000 and no more In contrast in Hailisen Shipping Co Ltd the claims ie PUS s claim for the balance sum of 170 000 and Hailisen s claim for damages for wrongful arrest were made in the High Court which has unlimited jurisdiction and Hailisen was not obliged to limit its claim for damages to a particular quantum In our view the decision in Hailisen Shipping Co Ltd cannot be used as authority to found an argument that no leave of the court is required for an appeal to the Court of Appeal where the subject matter of the trial from which the appeal stems does not have a specific monetary value The answer to VM s second argument as set out at 21 above is that the subject matter of the copyright suit in the present case did have a monetary value that was fixed by the jurisdiction of the District Court viz a monetary value not exceeding 250 000 29 In our view there is a simpler answer to the problems associated with characterising the subject matter of an action and then trying to put a monetary value on it for the purposes of determining whether s 34 2 a of the SCJA applies In the District Courts the monetary value of the subject matter of an action is limited by the jurisdictional limit of 250 000 In the High Court there is no such limit Therefore the question arises as to whether s 34 2 a of the SCJA was ever intended to deal with admiralty claims such as that arising in Hailisen Shipping Co Ltd 18 supra which because of the special nature of their subject matter are governed by a special statute viz the High Court Admiralty Jurisdiction Act Cap 123 2001 Rev Ed HCAJA and have to be pursued in the High Court Prior to the enactment of s 34 2 a of the SCJA in its present form to limit appeals as of right to the Court of Appeal in relation to claims which do not exceed 250 000 in value in a legislative framework intended to provide only one tier of appeal as of right any admiralty action regardless of the monetary value of the claim therein could form the basis of an appeal to the Court of Appeal as of right Given the legislative policy of having only one tier of appeal as of right for civil cases and in particular of limiting appeals as of right from the District Courts to only the High Court see the speech by the Minister for Law Prof S Jayakumar Prof Jayakumar during the second reading of the Supreme Court of Judicature Amendment Bill 1998 Bill 40 of 1998 Singapore Parliamentary Debates Official Report 26 November 1998 vol 69 at col 1629 see also 19 above where 13 of Tan Chiang Brother s Marble 16 supra which sets out the relevant part of Prof Jayakumar s speech is quoted in full it is difficult to imagine that Parliament had intended s 34 2 a of the SCJA to cut down the one tier right of appeal in admiralty actions without expressly providing for that Moreover there could conceivably be no reason for Parliament to do so Other examples of actions in which there is a vested statutory right of appeal to the Court of Appeal which entitlement would be affected by a literal reading of s 34 2 a of the SCJA would be proceedings under the Companies Act Cap 50 2006 Rev Ed and the Trade Marks Act Cap 332 2005 Rev Ed that are required to be commenced in the High Court There is no reason why we should interpret s 34 2 a of the SCJA so as to blow away by a side wind a party s statutory right to appeal without first obtaining the court s leave to the Court

    Original URL path: http://www.singaporelaw.sg/sglaw/laws-of-singapore/case-law/cases-in-articles/intellectual-property/1571-virtual-map-singapore-pte-ltd-v-singapore-land-authority-and-another-application-2009-2-slr-r-558-2009-sgca-2 (2016-01-30)
    Open archived version from archive



  •