Koh Lin Yee v Terrestrial Pte Ltd and another appeal

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 23 January 2015
• Neutral Citation: [2015] SGCA 6
• Plaintiff Counsel: Govindarajalu Asokan (Gabriel Law Corporation)
• Docket Number: Civil Appeals Nos 98 and 157 of 2013
• Date: 23 January 2015
• Hearing Date: 21 August 2014
• Subject Matter: Civil Procedure,Summary Judgment
• Published date: 27 January 2015
• Citation: [2015] SGCA 6
• Defendant Counsel: Thio Ying Ying and Tan Yi Yin Amy (Kelvin Chia Partnership)
• Court: Court of Appeal (Singapore)
• Year: 2015

Andrew Phang Boon Leong JA (delivering the grounds of decision of the court):

These were two appeals which arose from an application by the respondent, Terrestrial Pte Ltd (“Terrestrial”), for summary judgment against the appellants, Koh Lin Yee (“Koh”) and Allgo Marine Pte Ltd (“Allgo”) (collectively, “the Appellants”). The application was granted by an assistant registrar and was subsequently affirmed by the High Court Judge (“the Judge”) in Registrar’s Appeal No 101 of 2013 (“RA 101/2013”). The grounds of decision can be found at Terrestrial Pte Ltd v Allgo Marine Pte Ltd and another [2014] 1 SLR 985 (“the GD”).

Before us, the Appellants mounted the same four arguments it had presented before the Judge, and did so with equally little success: we dismissed the appeals for much the same reasons as the Judge, and fixed the costs of the appeals as well as two summonses at $28,000, including disbursements.

In disposing of the case below, however, the Judge made certain observations on an important point of law, viz, whether a contractual clause excluding a right of set-off is capable of being subject to the requirement of reasonableness in the Unfair Contract Terms Act (Cap 396, 1994 Rev Ed) (“the UCTA”). It had been held in the earlier Singapore High Court decision of Gao Bin v OCBC Securities Pte Ltd [2009] 1 SLR(R) 500 (“Gao Bin”) that such a clause would fall outside the ambit of the UCTA because it was not a clause that excluded or restricted liability, and therefore could not be subject to the reasonableness test; the Judge disagreed with Gao Bin on this point and thought that such a clause should in fact be subject to the UCTA. There was thus a difference of opinion on this point of law. Therefore, although this issue did not, strictly speaking, arise for decision before us as the appeals could be and were dismissed for other reasons, we thought it appropriate to not only amplify the reasons for our decision on the appeals but also, for the sake of clarity, set out our views on the aforementioned point of law.

Background

Koh is the sole director of, and owner of all but one share in, Allgo. By an agreement dated 25 May 2009, Allgo agreed to sell to Terrestrial a flat top barge for $1.2m. Terrestrial paid Allgo in full, but Allgo failed to deliver the barge as it had, in turn, failed to pay its barge builder an outstanding balance of $350,000. By an agreement dated 3 January 2011 (“the Loan Agreement”), Terrestrial agreed to make two short term loans to Allgo of $300,000 and $50,000 so as to enable Allgo to pay its builder the outstanding sum. Koh also agreed unconditionally to guarantee Allgo’s obligations to repay the two loans. Terrestrial later agreed to give a further loan of $56,000 (“the Additional Loan”) to Allgo in relation to another vessel purchased by Terrestrial from Allgo. These three loans were all expressed to have become due and payable by certain stipulated dates; and it was not disputed that Allgo failed to repay any of these monies when they became due and payable. On 1 July 2011, Terrestrial served a letter of demand upon Allgo for the payment of the monies due and payable pursuant to the Loan Agreement and the Additional Loan. On 11 July 2011, Terrestrial served a letter of demand upon Koh for payment pursuant to the guarantee given in the Loan Agreement. The loans and the guarantee remained unpaid.

In its pleadings, Allgo accepted that the loans had become due and payable, but were unpaid. In their case on appeal, counsel for the Appellants, Mr Govindarajalu Asokan (“Mr Asokan”) even went so far as to characterise Allgo’s failure to pay the $350,000 under the Loan Agreement as done “[w]rongfully and in breach” of it. The Appellants’ defence, instead, was that it was Terrestrial who had failed to pay monies owed under a separate contract with Allgo for the sale and purchase of a tug (“the Tug Contract”), and that this failure put the Appellants out of cash to repay the loans. The Appellants claimed that Terrestrial could not be permitted to benefit from its own breach of contract and that they were entitled to set off the monies due under the Loan Agreement and the Additional Loan against the sum owed to them for the Tug Contract.

The key obstacle to this argument, and which became the focus of the dispute in the present appeals, was cl 12.2 of the Loan Agreement (“cl 12.2”) which reads as follows:

All payments to be made by [Allgo or Koh] under the [Loan Agreement] shall be made without set-off, counterclaim or condition… [emphasis added]

Terrestrial subsequently took out Summons No 418 of 2013 for summary judgment against the Appellants for the outstanding monies. The claim for the monies due and payable under the Loan Agreement was against both the Appellants jointly and severally, whilst the claim for the monies owing under the Additional Loan was against Allgo. The assistant registrar granted summary judgment on 18 March 2013, and the Appellants appealed to the Judge vide RA 101/2013.

Decision below

The Judge was satisfied that Allgo had established a prima facie case for summary judgment as it was not disputed that the Appellants did not repay any part of the monies disbursed under the Loan Agreement or the Additional Loan. The Appellants thus had to establish a fair or reasonable probability that they had a real or bona fide defence, and this the Judge held they had failed to do.

The Appellants first argued that there was a right of equitable set-off arising from Allgo’s breach of the Tug Contract. The Judge was of the view that the relevant clause, cl 12.2 (reproduced above at [6]), explicitly excluded the right to raise a set-off or counterclaim through the words “without set-off”; and those words were broad enough to encompass both legal and equitable set-offs.

The Appellants’ second argument was that the defence of equitable set-off operated in the present proceedings as a rule of equity and therefore prevailed over any rule of the common law, pursuant to s 4(13) of the Civil Law Act (Cap 43, 1999 Rev Ed). The section states as follows:

Generally in all matters not particularly mentioned in this section, in which there is any conflict or variance between the rules of equity and the rules of the common law with reference to the same matter, the rules of equity shall prevail.

The Judge, however, found that there was no conflict between the rule of equity and common law such that s 4(13) had to be invoked, and that Mr Asokan had not in fact identified any such conflict. Section 4(13) also did not prohibit the contractual exclusion of the defence of equitable set-off.

The Appellants’ third argument was that cl 12.2 was an unfair contract term within the meaning of the UCTA. This is an English Act which applies in Singapore (see below at [30]). The Judge found that the UCTA did not apply as the Appellants had failed to fulfil the prerequisites stated in s 3(1) of the UCTA of either “dealing as consumer” (see below at [19]) or contracting on Allgo’s written standard terms of business. The Judge proceeded to observe that even if the UCTA did apply, cl 12.2 was a reasonable one and therefore did not fall foul of the UCTA.

Finally, the Appellants’ fourth argument was that Terrestrial had taken advantage of its own wrong in relation to the Tug Contract. Mr Asokan argued that the Appellant’s impecuniosity was caused by the failure of Terrestrial to take delivery of a tug pursuant to the Tug Contract, and hence Terrestrial could not rely on that wrong to pursue a claim under the Loan Agreement. The Judge, however, found that the Tug Contract was a separate agreement, and the principle which Mr Asokan had sought to rely upon applied only to obligations under the same contract. Further, Allgo was not relying on the alleged breach of the Tug Contract to escape its obligations under the Loan Agreement as well as the Additional Loan. In his view, there was also “considerable doubt” (see the GD at [25]) as to the validity and enforceability of the Tug Contract. Also, as the Tug Contract was allegedly breached before the Loan Agreement was signed, the Appellants would, in any event, have been cognisant of the breach before signing the Loan Agreement in its present form.

The Judge accordingly dismissed the appeal as he found that there had not been a fair or reasonable probability of a real or bona fide defence.

The Appellants’ arguments The first, second and fourth arguments

The Appellants appealed against the Judge’s decision and, effectively, made the same arguments they had mounted below again before us. For convenience, we will therefore refer to these arguments as numbered in the same order in which they were made before the Judge. From their submissions, we could only discern that further arguments were being made in relation to the third argument concerning the application of the UCTA. At the hearing, however, Mr Asokan focused on the first argument: that the equitable set-off had not been excluded by cl 12.2.

In respect of the first argument, we did not accept the Appellants’ position that there was a right of equitable set-off arising from Allgo’s breach of the Tug Contract. In accordance with the principle of the freedom of contract, it must be understood that parties can agree to contract out of the right of set-off and, if they intend to do so, clear words must be used. The defence of an equitable set-off can thus, equally, be contractually excluded. Whether or not the words in the contract amount to an exclusion of the right to set-off is thus a matter of interpretation, and much would turn on the actual wording and construction of the relevant clause itself (see generally Rory Derham, Derham On The Law of Set-Off (Oxford University Press, 2010) (“The Law of Set-Off”) at paras 5.95–5.96; Gilbert Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 at 717; Coca-Cola Financial Corp v...