THE COURT‘S RESPONSE TO COUNTERCLAIMS IN PROCEEDINGS FOR SUMMARY JUDGMENT

• Date: 01 December 2011
• Published date: 01 December 2011
• Author: Jeffrey PINSLER SC LLB (Liverpool), LLM (Cambridge), LLD (Liverpool); Barrister (Middle Temple), Advocate and Solicitor (Singapore); Professor, Faculty of Law, National University of Singapore.

One of the more difficult tasks of a court when hearing an application for summary judgment is to assess the impact of a counterclaim. A variety of outcomes are possible as there is a broad range of legal and factual issues to be considered. The purpose of this article is to examine the state of law (which has become unnecessarily obscure in certain instances) with a view to proposing a clearer and more logical approach for considering the relief which ought to be granted.

I. Issues for consideration

1 One of the more common considerations in proceedings for summary judgment is the effect of the defendant‘s counterclaim on the plaintiff ‘s claim and the resulting order which the court should make. As the state of the law is not as clear as one might hope, the purpose of this article is to examine the developments in this area of practice and to propose a more certain and systematic approach in the interest of justice. The effect of a counterclaim on an application for summary judgment depends on a variety of important considerations.

2 In England, United Overseas Ltd v Peter Robinson1 (“Peter Robinson”) was the leading case on the approach of the court to counterclaims until the Rules of the Supreme Court were replaced by the Civil Procedure Rules in 1999.2 As Peter Robinson has been applied in Singapore on several occasions in recent years,3 it is apposite to examine its significance and impact. Bingham LJ, in the leading judgment of the Court of Appeal,4 advocated a fourfold classification of circumstances which require different outcomes primarily according to the nature of

the cross-claim and its relationship to the claim (“Bingham LJ‘s classification”):

The first class of case is that in which the defendant can show an arguable set-off, whether equitable or otherwise. To the extent of such set-off the defendant is entitled to unconditional leave to defend. It is for the judge to decide whether such an arguable set-off is shown or not. If he decides that it is, he has no further discretion as to the order he makes. …

The second class of case is where the defendant sets up a bona fide counterclaim arising out of the same subject-matter as the action and connected with the grounds of defence. In this class of case … the order should not be for judgment on the claim, subject to a stay of execution pending the trial of the counterclaim, but should be for unconditional leave to defend even if the defendant admits the whole or part of the claim. …

The third class of case … is where the defendant has no defence to the plaintiff ‘s claim so that the plaintiff should not be put to the trouble and expense of proving it, but the defendant sets up a plausible counterclaim for an amount not less than the plaintiff ‘s claim. In such a case the order should not be for leave to defend, but should be for judgment for the plaintiff on the claim and costs until the trial of the counterclaim.[5]

The fourth class of case is where the counterclaim arises out of quite a separate and distinct transaction or is wholly foreign to the claim or there is no connection between the claim and the counterclaim. The proper order should then be for judgment for the plaintiff with costs without a stay pending the trial of the counterclaim.

3 Bingham LJ‘s classification was founded on a series of statements in the English Supreme Court Practice 19916 (“Supreme Court Practice 1991 commentary”), which conveniently summarise the case law concerning the effect of set-offs and non-set-off counterclaims in various factual situations. It appears from a literal reading of the Supreme Court Practice 1991 commentary (as well as previous and successive editions of this work) that the editors merely intended to set out the effect of the case law in the form of convenient propositions rather than offer a fixed or circumscribed categorisation of principles. It will be suggested in the course of this article that Bingham LJ‘s transmutation of the commentary into four distinct classes has the potential to cause uncertainty.7

4 Furthermore there are difficulties with the terminology within the classes. It is not surprising that May LJ, as the general editor of The White Book Service 2001: Civil Procedure (which superseded the Supreme Court Practice (concerning the former Rules of the Supreme Court) pursuant to the introduction of the Civil Procedure Rules in England in 1999), observed that the case law concerning the approach to counterclaims under the former Rules “was not coherent”.8 Bingham LJ himself raised a doubt about his own classification by questioning whether the Supreme Court Practice 1991 commentary was “the practice which one would have devised if starting with a blank sheet of paper”.9 And Sir Nicholas Browne-Wilkinson thought that the current practice might be “a matter which the Rules Committee might like to consider”.

5 Various questions arise from the Bingham LJ‘s classification, including the relationship between classes (1) and (2) (whether, in fact these categories should be separate), the terminology in classes (2) and (3), the nature of the connection necessary for a stay, the significance of the Singapore Court of Appeal‘s observations in earlier case law concerning such issues,10 and other considerations such as whether the court should consider the respective circumstances of the parties and balance the merits of their respective cases, the strength of the counterclaim, the plaintiff ‘s ability to satisfy any judgment which the defendant might obtain, and the determination of what terms (if any) should be imposed when a stay of execution is ordered pursuant to O 14 r 3(2) of the Rules of Court.11 These and other issues will be considered after a review of Peter Robinson and the series of cases in which Peter Robinson was applied. Following this, the scope of the doctrine of equitable set-off will be examined in the light of recent instructive observations by the High Court on the distinction between granting leave to defend and awarding judgment subject to a stay of execution pending the trial of the counterclaim. Finally, it will be suggested that a more precise model for determining the effect of counterclaims on applications for summary judgment may promote clarity in this complex area of the law.

at para 24.2.6.

II. Background summary of court‘s approach

6 The following summary of the court‘s approach to counterclaims in proceedings for summary judgment is intended to set the background for the specific issues raised by the case law. Normally, the first consideration for the court is whether the counterclaim constitutes a set-off, which is a defence to the claim. The defendant will obtain unconditional leave to defend if the facts he presents establish an arguable set-off. A set-off is a claim for an ascertained or unascertained sum of money which constitutes a defence to the whole or part of the plaintiff‘s own claim for money. It only operates in response to the plaintiff ‘s claim so that, if it is successful, it will extinguish or reduce the plaintiff ‘s claim. The main forms of set-off which arise in proceedings for summary judgment include the independent or legal set-off, set-off by abatement and equitable set-off.12 The first category of set-off is essentially concerned with mutual debts: the defendant alleges that the plaintiff owes him a debt or liquidated sum of money so that the plaintiff ‘s liquidated claim is reduced by the defendant‘s liquidated claim. This is referred to as an independent set-off because the debts (the liquidated claims) may arise from wholly unconnected circumstances. It is also referred to as a legal set-off because the principle is traceable to statutory law centuries ago.13 Abatement concerns a cross-claim which arises from the same circumstances as the claim and directly impugns the latter by asserting its diminution in value.14 This defence is a common law development pertaining to contracts of sale15 and for the provision of services.16

7 The third and broadest category is the equitable set-off.17 Unlike independent (legal) set-off and set-off by abatement, it is not restricted to specific situations. Rather, it is governed by a general principle of

justice rooted in equity. The Singapore Court of Appeal in Pacific Rim Investment v Lam Seng Tiong18 (“Pacific Rim”) endorsed Lord Denning MR‘s pronouncement concerning the equitable set-off in Federal Commerce and Navigation Co Ltd v Molena Alpha Inc19 (“The Nanfri”): “… only cross-claims which go directly to impeach the plaintiff ‘s demands, that is, so closely connected with his demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim.”20 The nub of the principle is that the connection between the claim and counterclaim must be significant enough to justify the conclusion that it would be obviously unjust to grant summary judgment without taking into account the cross-claim.21 In contrast to the independent set-off, the equitable set-off may operate when neither the claim nor the cross-claim are liquidated sums.22 The doctrine of equitable set-off is examined more closely in a subsequent part of this article.23

8 If the defendant is unable to persuade the court that he is entitled to leave to defend, the court may grant summary judgment unconditionally or subject to a stay of execution. Order 14 r 3(2) of the Rules of Court states: “The Court may by order, and subject to such conditions, if any, as may be just, stay execution of any judgment given against a defendant under this Rule until after the trial of any counterclaim made or raised by the defendant in the action.” Whether the court stays the execution of the judgment depends on various considerations including, in particular, the nature of the counterclaim and its relationship with the claim. In the course of this article, it will be necessary to examine the degree of connection...