Emjay Enterprises Pte Ltd v Skylift Consolidator (Pte) Ltd (Direct Services (HK) Ltd, Third Party)

• Jurisdiction: Singapore
• Judgment Date: 21 February 2006
• Date: 21 February 2006
• Docket Number: Magistrate's Court Suit No 16197 (Registrar's Appeal from the Subordinate Courts No 25 of 2005)
• Court: High Court (Singapore)

Emjay Enterprises Pte Ltd

Plaintiff

and

Skylift Consolidator (Pte) Ltd (Direct Services (HK) Ltd, third party)

Defendant

[2006] SGHC 28

Andrew Phang Boon Leong J

Magistrate's Court Suit No 16197 of 2003 (Registrar's Appeal from the Subordinate Courts No 25 of 2005)

High Court

Civil Procedure–Pleadings–Plaintiff obtaining interlocutory judgment with damages to be assessed against defendant–Defendant seeking to rely on exception clause limiting liability at stage of assessment of damages–Exception clause not pleaded by defendant in defence–Defendant arguing exception clause relating to quantum of damages and therefore need not be pleaded pursuant to O 18 r 13 (4) Rules of Court–Whether defendant precluded from relying on exception clause–Order 18 r 13 (4) Rules of Court (Cap 322, R 5, 2004 Rev Ed)–Contract–Contractual terms–Exclusion clauses–Types of exception clauses and limitation of liability clauses–Nature and purpose of exception clauses–Relevance of primary and secondary obligations to exception clauses–Whether limitation of liability clause dealt with the issue of liability or quantum of damages

The plaintiff had obtained interlocutory judgment against the defendant for breach of contract, with damages to be assessed. In the circumstances, the exception clause in question had not figured with regard to the issue of liability.

However, at the stage of assessment of damages, the defendant sought to introduce the exception clause. Counsel for the defendant took out an application to adduce new evidence (via an additional witness of fact) in order to rely on a defence based on a limitation of liability clause (which was in fact the exception clause in question). This defence had, in fact, never been pleaded. Additionally, the defence had not been raised at the hearing with respect to liability.

Counsel for the plaintiff resisted the attempted introduction of this clause at the stage of assessment of damages, on the basis that the exception clause concerned had not been pleaded. It argued that since such a clause went to the issue of liability, it ought to have been pleaded and canvassed at the stage when liability was assessed.

The deputy registrar found in the plaintiff's favour, and his decision was upheld on appeal by the district judge. The defendant appealed against the district judge's decision. Two related issues arose. The first was whether a limitation of liability clause (as opposed to a total exclusion of liability clause) went to liability and/or to the quantum of damages. This determined whether such a clause could be introduced without being pleaded pursuant to O 18 r 13 (4) of the Rules of Court (Cap 322, R 5, 2004 Rev Ed). The second issue related to the extent (if any) to which O 18 r 13 (4) applied to facts such as those which existed in the present proceedings in the first instance.

Held, dismissing the appeal:

(1) Both limitation of liability clauses as well as total exclusion of liability clauses fell within the generic terminology of “exception clauses”. Exception clauses were terms of the contract, which were intended either to modify the obligations under the contract and/or to act as a defence to any claim by the other party to the contract. They thus went toward liability as opposed to the assessment of the quantum of damages. However, the court would generally interpret a limitation of liability clause (such as the exception clause sought to be introduced in the present proceedings) less stringently than a total exclusion of liability clause: at [8], [11] and [12].

(2) Case law drew a distinction between primary and secondary obligations in the context of exception clauses. Thus, a fundamental breach of a contract did not necessarily and automatically destroy the efficacy of an exception clause because, whilst the primary obligations came to an end, the secondary obligation (to pay damages) remained and an exception clause could cover this last-mentioned liability. Whether or not the exception clause in question did in fact cover such liability was not an automatic rule of law but, rather, a matter of construction of the contract. This was because the intention of the parties was the touchstone: at [13] and [14].

(3) However, in the final analysis, both primary and secondary obligations dealt with issues of the respective contracting parties' obligations and were thus directly related to the issue of liability. It was also pertinent to note that secondary obligations dealt primarily with the obligation to pay damages, and that a further distinction must be drawn between the obligation to pay damages on the one hand and the quantum ultimately payable on the other: at [16].

(4) Admittedly, the issue of secondary obligations was linked to the assessment (and quantum) of damages. However, this was only so in the most extended and literal sense as every decision as to liability would, literally speaking, have a bearing on the quantum of damages payable. The crux of the issue was the primary nature and purpose of the exception clause, which was to govern the obligations of the respective parties to the contract: at [18] and [19].

(5) There were at least three further reasons why a limitation of liability clause dealt with the issue of liability, rather than the quantum of damages. First, the consideration of a limitation of liability clause was a logically prior inquiry to that of the assessment of damages. Second, allied issues of incorporation and construction were really issues relating to liability and were therefore dealt with prior to the assessment of damages proper. Third, allowing a limitation of liability clause to affect the amount of damages claimable would lead to excessive uncertainty and “legal hair-splitting”. This was because limitation of liability clauses could shade into the realm of total or the near-total exclusion of liability, and would require the courts to decide if a particular exception clause was, especially in marginal cases, truly a limitation clause or a total exclusion of liability clause “in disguise”: at [25] and [27].

(6) A liquidated damages clause was not similar to a limitation of liability clause as the former constituted a genuine attempt at fixing the quantum of loss, assuming that a breach had already occurred. It thus fell more appropriately in the sphere of assessment of damages. Further, even if the defendant had intended to raise mitigation of damages as a defence, this would have had to be pleaded: at [28] and [30].

(7) In any event, O 18 r 3 (4) did not permit a defendant to argue, without more, that issues as to the assessment of damages need not be pleaded. It merely permitted the defendant concerned to argue that any allegation as to, inter alia, the amount of damages put forward by the plaintiff was deemed to have been traversed. The onus remained on the defendant to specifically plead a particular argument, such as that proffered in the instant case: at [31].

(8) It would be substantively prejudicial to allow the defendant to amend its pleadings at this late stage when interlocutory judgment had already been entered on behalf of the plaintiff. To allow the defendant to introduce a limitation of liability clause at this late stage could, if the clause was found applicable, be to the irreparable prejudice of the plaintiff. The requirements of both procedural and substantive justice and fairness demanded that the plaintiff not be taken by surprise: at [32] and [33].

AA Valibhoy and Sons (1907) Pte Ltd v Banque Nationale de Paris [1994] 2 SLR (R) 14; [1994] 2 SLR 772 (refd)

Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 WLR 964 (refd)

Dunlop Pneumatic Tyre Company, Limited v New Garage and Motor Company, Limited [1915] AC 79 (distd)

Metro Pte Ltd v Wormald Security (SEA) Pte Ltd [1981-1982] SLR (R) 126; [1980-1981] SLR 539 (refd)

Moschi v Lep Air Services Ltd [1973] AC 331 (refd)

Parker Distributors (Singapore) Pte Ltd v A/S D/S Svenborg [1983-1984] SLR (R) 94; [1982-1983] SLR 153 (refd)

Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 (folld)

Plato Films Ltd v Speidel [1961] AC 1090 (refd)

Rapiscan Asia Pte Ltd v Global Container Freight Pte Ltd [2002] 1 SLR (R) 701; [2002] 2 SLR 325 (refd)

Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd [1959] AC 576; [1959] MLJ 200 (distd)

Weait v Jayanbee Joinery Ltd [1963] 1 QB 239 (refd)

Rules of Court (Cap 322, R 5, 2004 Rev Ed) O 18 r 13 (4) (consd);O 18 r 8

Unfair Contract Terms Act (Cap 396, 1994 Rev Ed)

Yeow Joo Yun and Vanessa Yeo (KhattarWong) for the plaintiff

Michael Moey Chin Woon (Moey & Yuen) for the defendant.

Andrew Phang Boon Leong J

Introduction and background

1 The present case raised an important issue of law and pleadings. In it, as we shall see, there is an interaction between the rules of pleading on the one hand and the law relating to exception clauses on the other. In particular, can a contracting party rely on an exception clause without having pleaded it by arguing that such a clause relates to the quantum of damages and that, pursuant to O 18 r 13 (4) of the Rules of Court (Cap 322, R 5, 2004 Rev Ed), issues relating to quantum of damages need not be pleaded? In order to place this particular provision in context, the whole of O 18 r 13 is set out, as follows:

1. (1) Subject to paragraph (4), any allegation of fact made by a party in his pleading is deemed to be admitted by the opposite party unless it is traversed by that party in his pleading or a joinder of issue under Rule 14 operates as a denial of it.

2. (2) A traverse may be made either by a denial or by a statement of non-admission and either expressly or by necessary implication.

3. (3) Subject to paragraph (4), every allegation of fact made in a statement of claim or counterclaim which the party on whom it is served does not intend to admit must be specifically traversed by him in his defence or defence...