Bailment & The Carriage of Goods: A Proprietary and Contractual Examination

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Bailments & The carriage of goods by sea: A PROPRIETARY AND CONTRACTUAL EXAMINATION

 

Russell Adam Whang Rushi*

 

I. INTRODUCTION

 

The basic aim of this essay is to demonstrate that bailment can—and should—occupy a continuing role in the resolution of cargo disputes by (i) identifying the foundational theories governing the bailment of cargo; and (ii) examining how some aspects of current bailment doctrine should be modified in keeping with those principles.

This essay proceeds in three parts following this introduction. Part II focuses on the creation of bailment relationships—specifically, it focuses on developing a case for recognising the essentially proprietary nature of bailor-bailee relationships. Part III proceeds to consider the content of a bailment obligations. The argument advanced is that although bailor-bailee relationships are essentially proprietary, its constituent obligations are essentially consensual (if not contractual) in nature. Concluding remarks on the subject are offered in Part IV.

 

II. THE FORMATION OF A BAILMENT RELATIONSHIP

 

In determining if bailment law should continue to supply the basis for cargo claims, the starting point is a consideration of how bailment relationships arise. In this regard, there are two dominant theories, the first—which will be referred to in this essay as the ‘contractual/consensual view’—holding that a bailment requires some element of consent apart from the bailee’s voluntary assumption of possession. Different ideas have been articulated as to what that additional element of consent is, examples including: the bailor’s consent to the bailee’s assumption of possession;[1] the bailee’s assumption of responsibility to a particular bailor;[2] a contract—or agreement short of a contract—between the bailor and bailee.[3] These conceptions are, nevertheless, unified in holding that the voluntary assumption of possession is a necessary but insufficient step towards the bailment of chattels.

The second—which will be referred to in this essay as the ‘proprietary view’—regards the bailee’s voluntary possession of another’s goods as all that is needed for a bailment to arise. On this view, “[it] is by entering into a relationship with a thing, and not by entering into a relationship with a person, that the defendant becomes subject to duties”.[4] It is this view that has judicial currency at present. As Mance LJ explains it, “[w]hat is fundamental is not contract, but the bailee's consent. The duties of a bailee arise out of the voluntary assumption of possession of another's goods”.[5]

 

A.    Rights of suit against a bailee

 

A recognised corollary of the proprietary view is that a bailee may owe duties not only to the bailor, but to third parties having a sufficient interest in the goods irrespective of whether contractual relations exist between the bailee and that third party.[6] This makes eminent sense: if a bailee comes under legal obligations because s/he has voluntarily entered into a relationship with some res, the corresponding rights in personam must reside in those persons interested in the res. The question of what constitutes a sufficient interest is more vexed, but it generally includes an immediate right to possession—which may not coincide with a contractual right to delivery under a bill of lading—or any other reversionary interest that may be injured by damage to or loss of the bailed goods.[7]

It is against this theoretical backdrop that the doctrine of attornment becomes anomalous. Bailment orthodoxy holds that a bailee only owes duties to someone other than the original bailor if the bailee attorns to that other party, viz., the bailee “[acknowledges] that someone other than the original bailor now has title to the goods and is entitled to delivery of them”.[8] In the context of the carriage of goods by sea, the carrier will only owe duties to a consignee who is not also the original bailor if there is an attornment in favour of the consignee.[9] In The Berge Sisar, Lord Hobhouse observed that “[t]he contribution of the law merchant had been to recognise the attornment as transferable and therefore the indorsement and delivery of the bill of lading as capable of transferring the endorser's right to the possession of the goods to the endorsee”.[10] This feature of bills of lading was regarded as a ‘contribution’ presumably because it explains how a carrier may be attorned to parties not within its contemplation at the time the bills of lading were issued.

The emphasis on attornment cuts across the proprietary character of a bailment relationship as described earlier. If a carrier owes duties in bailment to a consignee by virtue of the consignee’s interest in the goods—and because of any agreement between them—then parity of reasoning dictates that the carrier’s obligation to any subsequent bill of lading holder depends entirely on whether that holder has a sufficient proprietary interest in the goods. Whether the carrier recognises the holder’s interest must be irrelevant.

Furthermore, where there is a sub-bailment of chattels, this theory of the bill of lading as a ‘transferable attornment’ stumbles in explaining why the sub-bailee owes concurrent duties to the bailor even in the absence of any contractual dealings between them. In this connection, it was decided in Gilchrist Watts that “although there was no contract or attornment between the plaintiffs and the defendants, the defendants by voluntarily taking possession of the plaintiffs’ goods in the circumstances assumed an obligation to take due care of them and are liable to the plaintiffs for their failure to do so”.[11] It is submitted that the aforementioned passage correctly identifies the voluntary assumption of possession as the basis upon which a sub-bailee’s obligations are grounded. There is no defensible reason for treating a bailee’s obligations any differently. Indorsement and delivery of a transferable bill of lading will (ordinarily) be sufficient to vest in the indorsee a possessory interest that simultaneously creates rights in bailment against the carrier. However, that is only one method of arriving at such an outcome. More importantly, it is the possessory interest acquired—and not any fictitious attornment—that establishes a legal relationship between bailor and bailee. The time is ripe for a re-examination of attornment, which reflects and reinforces an age-old misunderstanding as to the essentially proprietary character of how bailment relationships are formed (as opposed to the content of those relationships, which are consensual/contractual in nature).

There is a residual problem arising from The Pioneer Container, where their Lordships expressed themselves as:

[inclined] to the opinion that a sub-bailee can only be said … to have voluntarily taken into his possession the goods of another if he has sufficient notice that a person other than the bailee is interested in the goods so that it can properly be said that (in addition to his duties to the bailee) he has, by taking the goods into his custody, assumed towards that other person the responsibility for the goods which is characteristic of a bailee.[12]

In practical terms, it is highly improbable that a sub-bailee of cargoes carried by sea will succeed in pleading ignorance as to third party interests given the nature of the trade. That aside, why should the voluntariness of a sub-bailee’s possession be vitiated by such ignorance? Lord Goff’s reference to an assumption of responsibility “towards that other person” is, again, inconsistent with the principle that bailment obligations attach by virtue of the sub-bailee’s relationship with the res. It may be argued that it would be unfair for third parties to hold sub-bailees liable for breach of bailment in circumstances where the sub-bailee, being ignorant as to those third parties’ interests, omitted to extract contractual protections against such claims from the head bailee. But this puts the cart before the horse: it would undercut the principle that bailment obligations do not depend on the existence of parallel contractual obligations if the bailment obligations were contingent on a reasonable opportunity to make such parallel arrangements.

 

B.    Who is the bailee?

 

The proprietary view of bailment relationships—specifically, its emphasis on possession—also offers a method for rationalising the configuration of bailment relationships where goods are shipped on board chartered vessels. The conceptual difficulties may be stated in the following way. Where the master of a vessel issues bills of lading on behalf of the charterer (i.e., charterer’s bills) so that the contract of carriage evidenced therein is between the consignee and charterer, the view preferred in The Starsin is that the charterer will be regarded as a full bailee who sub-bailed the cargo to the shipowner despite the charterer not having actual possession of the goods at any point in time.[13] On the other hand, there is also authority for the proposition that the only bailment relationship that arises is one between the shipper and shipowner.[14] Which view is to be preferred? Furthermore, where does the charterer stand in the bailment analysis (if at all) where owner’s bills of lading are issued?

It is submitted that the preference articulated in The Starsin is defensible if the focus is placed squarely on the charterer’s possessory interest in the cargo (or lack thereof). If, taking the arrangements in the round, the charterer has a right to possession of the cargo exigible against the shipowner (e.g, under the terms of the charterparty), it follows that the shipowner is a bailee vis-à-vis the charterer.

If the charterer’s possessory title is subordinate to a third party’s title—which will ordinarily be the case, leaving aside instances where the charterer is also the owner of the bailed goods—then prima facie the charterer is a bailee vis-à-vis that third party. One might object at this juncture that a charterer who never took possession of the goods cannot be regarded as a bailee, even if s/he stands as a bailor in relation to the shipowner. But this objection fades away on grounds that constructive possession is also a form of possession sufficient for the purposes of forming a bailment relationship.[15]

 

III. THE CONTENT OF A BAILMENT RELATIONSHIP

 

Notwithstanding the essentially proprietary foundations of a bailment relationship, it is clear that the content of the relationship’s constituent rights and obligations are bound up with the law of contract. Specifically, the law of bailment only provides a default menu of obligations that parties can modify through contractual means. The obvious attraction to this interface between bailment and contract lies in the fact that contractual terms can be recognised and given effect under the law of bailment shorn of the doctrinal fetters that would otherwise operate if those terms were sought to be enforced in a contractual action. This gives rise to the unsurprising charge that bailment law, by encroaching on the province of contract in that way, is apt to produce uncertainty and inconsistency across the law of obligations as a whole.

Nowhere is this contest more apparent than in what Treitel describes as the ‘battle over privity’.[16] It is a foundational rule of contract law that a contract cannot confer rights or impose obligations on any person except the parties to it; put another way, only parties privy to a contract can sue (and be sued) on it. Whether the law of bailment should permit divergent outcomes is a hugely involved and contested question. However, if a case is to be made in defence of the law of bailment as it stands, one must at least be able to demonstrate that it permits divergent results in a consistent and principled manner.

It was decided in Morris v C. W. Martin & Sons Ltd that a bailee or sub-bailee’s obligations may be modified by terms in a contract to which the bailor is not privy if the bailor expressly or impliedly consented to the goods being bailed on those terms.[17] It is less clear if those obligations may be modified by an undertaking by the bailor contained in a contract to which the bailee or sub-bailee is not privy is less clear.

In the context of a direct bailment, there is authority for the proposition that the bailee may rely on such terms if the bailee took possession of the bailed goods on those terms. In Elder Dempster, a shipowner was permitted to rely on a limitation clause in bills of lading it signed qua charterer’s agent. Various grounds were put forth by their Lordships in that decision, but it is Lord Sumner’s theory that has gained subsequent judicial support:

[In] such a case, the master having signed the bill of lading, the proper inference is that the shipowner, when he receives the goods into his possession, receives them on the terms of the bill of lading. The same inference might perhaps be drawn in some cases even if the charterer himself signed the bill of lading, but it is unnecessary to consider any such question.[18]

It appears that the touchstone in these situations is whether the bailor’s contractual undertaking was a term upon which the bailee voluntarily assumed possession of the goods. Whether this rule obtains in the context of sub-bailments is even more obscure. In The Makhutai, the House of Lords dismissed a shipowner’s reliance on an exclusive jurisdiction clause contained in bills of lading issued by a sub-charterer on grounds that the exclusive jurisdiction clause, being inconsistent with a ‘Himalaya’ clause conferring specific benefits to the shipowner, could not be regarded as a term of the sub-bailment. The analysis implies, however, that the principles articulated in Elder Dempster applies equally to sub-bailees.[19]

What is the golden thread that unifies Morris (which looks to the bailor’s consent) and Elder Dempster (which looks to the bailee/sub-bailee’s assumption of possession on terms)? It is submitted that both approaches are consistent insofar as they focus on whether there is a bilateral consensus that the bailee/sub-bailee’s obligations should be qualified by the term in question. In Morris-type situations, the bailee/sub-bailee personally contracted for the term in question and so plainly intended for its obligations to be qualified in that way. The question, therefore, is whether the bailor consented to its rights being qualified to that extent. The reverse is reflected in Elder Dempster-type situations. There, the bailor must have intended for his rights to be qualified by contractual undertakings personally made in favour of the bailee/sub-bailee. The only question is whether the bailee/sub-bailee intended for its obligations to be undertaken on those terms at the time it took possession of the goods. In this way, the law of bailment adopts an approach that is akin to—but more flexible than—the formation of a collateral contract. The crux is whether there was a meeting of the minds, even if non-contemporaneous.

 

IV. CONCLUSION

 

There are more fundamental questions striking at the heart of bailment law than those considered in this essay. For example, Treitel has questioned why bailment relationships should be treated any differently from relationships that “do not depend on contract but are nevertheless recognized by law as giving rise to a relationship in which there is a duty of care”.[20] Indeed, why should persons who voluntarily assume physical custody of chattels (e.g., stevedores or subcontractors in construction projects) not be placed on the same footing as persons who voluntarily assume possession of the same? Such questions must undoubtedly be addressed if one is to undertake a root-and-branch examination of bailment law in general. This essay only reflects a modest attempt at working upwards from uncontroverted principles so that the application of bailment principles to cargo claims is at least defensible on grounds of certainty and consistency.



* LL.B., National University of Singapore, Class of 2023. My gratitude goes to MPA Professor of Maritime Law Stephen D. Girvin for inspiring me to explore this topic. All errors are entirely my own.

[1] Thomas Atkin Street, The Foundations of Legal Liability, Vol. 2: A Presentation of the Theory and Development of the Common Law (Northport, NY: Edward Thompson Co, 1906) at 252.

[2] Alice Erh-Soon Tay, “The Essence of a Bailment: Contract, Agreement or Possession?” (1965-1967) 5 Sydney L. Rev. 239 at 249 [Tay, “The Essence of a Bailment”].

[3] Ibid at 239.

[4] Ibid at 244.

[5] East West Corpn v DKBS AF 1912 A/S [2003] QB 1509 (CA) at para 24 [DKBS].

[6] Ibid at para 25.

[7] Ibid at paras 36-48.

[8] Mitsui & Co. Ltd. v Novorossiysk Shipping Co. (The “Gudermes”) [1993] 1 Lloyd’s Rep. 311 at 324 [The Gudermes]

[9] Leigh & Sillavan Ltd v Aliakmon Shipping Co Ltd (The Aliakmon) [1986] AC 785 (HL) at 818.

[10] Borealis AB v Stargas Ltd (The Berge Sisar) [2002] 2 AC 205 at para 18.

[11] Gilchrist Watt and Sanderson Pty Ltd v York Products Pty Ltd [1970] 1 WLR 1262 (PC) at 1270 [Gilchrist Watt]; cited in The Pioneer Container [1994] 2 AC 324 (PC) at 337 [The Pioneer Container].

[12] The Pioneer Container, supra note 11 at 342.

[13] Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2004] 1 AC 715 (HL) at para 133 [The Starsin].

[14] Elder Dempster & Co Ltd v Paterson, Zochonis & Co Ltd [1924] AC 552 (HL).

[15] See, e.g., Forsythe International (UK) Ltd v Silver Shipping Co Ltd (The Saetta) [1994] 1 WLR 1334, where oil bunkers in the possession of the shipowners were held to be in the charterer’s constructive possession.

[16] G. H . Treitel, Some Landmarks of Twentieth Century Contract Law (Oxford: Clarendon, 2002) at ch 2 [Treitel, “Landmarks of Contract Law”].

[17] Morris v C. W. Martin & Sons Ltd. [1966] 1 Q.B. 716 at 730 [Morris].

[18] Wilson v Darling Island Stevedoring and Lighterage Co. Ltd. (1956) 95 CLR 43 at 78; cited with approval in The Makhutai [1996] AC 650 at 660 [The Makhutai].

[19] The Makhutai, supra note 18 at 668.

[20] Treitel, “Landmarks of Contract Law”, supra note 16 at 78.

Review of the Law Reform Committee's Report on Transnational Issue Estoppel

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REVIEW OF THE Law Reform Committee’s Report on Transnational Issue Estoppel

 

TAN Suan kai*

 

I.               Introduction

 

The Law Reform Committee of the Singapore Academy of Law has published a new report on transnational issue estoppel, which explores the framework and margins of the concept of transnational issue estoppel in Singapore.[1] The Committee hopes that the report will aid in the development of transnational issue estoppel by the Singapore courts in the future.

Globally, courts have had to grapple with the preclusive effects of foreign judgements in pending legal proceedings. This is especially true for Singapore, a leading international dispute resolution hub.

 

II.            Framework underpinning transnational issue estoppel

 

While the starting premise for the test for whether transnational issue estoppel arises from a foreign judgement is the test for whether domestic issue estoppel arises from a local judgement, this is subject to modifications due to considerations of transnational significance. “The more sophisticated analysis involved when applying transnational issue estoppel stems principally from the interplay between the concepts of state sovereignty and international comity.”[2]

The report divides the concept of transnational issue estoppel into its ‘extrinsic’ and ‘intrinsic’ elements. Before transnational issue estoppel can arise from a foreign judgement, a threshold requirement is that the judgement must be capable of being recognised by the Singapore courts. The report rationalises this requirement as the ‘extrinsic’ element of transnational issue estoppel because the “principles on the recognition of foreign judgments are of general application and not within the exclusive province of the doctrine of transnational issue estoppel”.[3]

After the foreign judgement has been recognised, two additional elements must be met out: “there must be identity of parties and identity of subject matter (ie, issue) in both the proceedings before the ‘originating’ court and the court addressed”.[4] The report labels these two elements as the ‘intrinsic’ elements of transnational issue estoppel because they are “of more specific peculiarity […] to the substantive doctrine of transnational issue estoppel”.[5]

 

III.           Outer limits of transnational issue estoppel

 

The Singapore Court of Appeal in Merck Sharp & Dohme Corp (formerly known as Merck & Co, Inc) v Merck KGaA (formerly known as E Merck) (“Merck”) expressed a need for caution on the potential “outer limits” on the doctrine of transnational issue estoppel, citing the “tension between transnational comity and a local court’s role as custodian of the rule of law within the domestic legal regime”.[6] The report considers and discusses several potential outer limits of transnational issue estoppel such as the territoriality of the foreign judgement[7] and forum mandatory rules.[8]

One of the potential limits on transnational issue estoppel discussed by the report and raised by the Court of Appeal in Merck is public policy. “If an issue before the court addressed engages the fundamental public policy of the forum, transnational issue estoppel […] may not arise from the foreign judgement in question.”[9] Similar to other potential limitations discussed in the report, the Court of Appeal in Merck considered this as an issue that “the court of the forum ought to determine for itself under its own law”.[10]

The report suggests that the issue of public policy can be regarded from two angles: first, “public policy engaged by virtue of it being embedded as an essential test or analysis that the court addressed must undertake in the domestic proceedings”[11]; and second, citing the Court of Appeal in Merck, the court addressed fulfilling its “constitutional role […] in overseeing the administration of justice and safeguarding the rule of law within its jurisdiction”.[12]

 

IV.           Conclusion

 

The report does an admirable job of comprehensively canvassing the framework of transnational issue estoppel and provides insightful suggestions on its potential outer limits. It is a most useful addition to the literature on transnational issue estoppel.

The report is published online at https://store.lawnet.com/report-on-the-framework-and-margins-of-transnational-issue-estoppel.html.

 



* LL.B., National University of Singapore, Class of 2025.

[1] Singapore, Law Reform Committee of the Singapore Academy of Law, Report on the Framework and Margins of Transnational Issue Estoppel (Singapore: Singapore Academy of Law, 2023) [Report]. The Report can be found online at https://store.lawnet.com/report-on-the-framework-and-margins-of-transnational-issue-estoppel.html.

[2] Ibid at para 6.

[3] Ibid at para 8.

[4] Ibid at para 14.

[5] Ibid.

[6] [2021] 1 SLR 1102, [2021] SGCA 14 at para 52 [Merck].

[7] Report, supra note 1 at para 23.

[8] Ibid at paras 26-28.

[9] Ibid at para 35.

[10] Merck, supra note 6.

[11] Report, supra note 1 at para 36.

[12] Ibid.


Determining the Law Governing the Arbitration Agreement: Anupam Mittal v Westbridge

A PDF version of the article can be found here.


determining the law GOVERNING the arbitration agreement: Anupam Mittal v westbridge

 

Chua kang Le*

 

I.                    Introduction

 

Under the doctrine of separability, the arbitration agreement is considered a separate agreement from the main contract, and the law governing the arbitration agreement may be distinct from the law governing the main contract itself.[1] In this regard, the validity of the arbitration agreement would be construed based on the law governing the arbitration agreement – if the law governing the arbitration agreement does not permit the formation of such arbitration agreements, the arbitration agreement would be invalid.

The main issue facing the courts is determining the law governing the arbitration agreement, where no express choice of law was made. Typically, the law governing the overall agreement is presumed to apply to the arbitration agreement. However, ambiguity arises when the parties stipulate a governing law for the overall agreement which would invalidate the arbitration agreement, but do not expressly and specifically stipulate a governing law for the arbitration agreement. The invalidating effect of the governing law may rebut its applicability to the arbitration agreement, but cases differ in requiring awareness of this effect. This issue has been the subject of several local decisions, namely, BCY v BCZ[2], BNA v BNB[3] and the recent Singapore Court of Appeal (SGCA) case of Anupam Mittal v Westbridge.[4]

This article will critically examine the SGCA’s decision of Anupam Mittal and assess it in light of case authority. First, it is humbly submitted that the SGCA’s attempt at distinguishing the facts of Anupam Mittal from BNA is unconvincing. Secondly, the approach of Anupam Mittal, following the law in BNA, is problematic. The courts ought to dispense with the need for awareness of the invalidating effect as outlined in BNA.

 

II.                 applicable framework

 

To determine the law governing the arbitration agreement, local courts have adopted the three-stage test laid down in BCY v BCZ,[5] based on the U.K. case of Sulamérica.[6] Under the first stage, the court will consider if the parties had expressly chosen the law governing the arbitration agreement.[7]

If there is no express choice, under the second stage, the court will determine if the parties had made an implied choice as to the law governing the arbitration agreement.[8] There is a presumption that the law governing the main contract will also be the law governing the arbitration agreement, unless “the consequences of choosing it as the governing law of the arbitration agreement would negate the arbitration agreement even though the parties have themselves evinced a clear intention to be bound to arbitrate their disputes”.[9]

Under the third stage, if the court finds that there is neither an express nor an implied choice, the court will then determine “the system of law with which the arbitration agreement has its closest and most real connection”.[10] Typically, the arbitration agreement will have the closest and most real connection with the law of the seat of the arbitration.[11]

 

III.              Anupam Mittal v westbridge

 

In Anupam Mittal, the dispute was over the management of a company. The appellant, a shareholder of People Interactive (India) Private Limited (the “Company”), had commenced proceedings before the National Company Law Tribunal (“NCLT”) in India.[12] The respondent was also a shareholder of the Company, and the arbitration agreement, which was part of a larger shareholders’ agreement, stipulated that any dispute relating to the management of the Company must be referred to arbitration, with Singapore as the seat of arbitration, under the International Chamber of Commerce Rules.[13] One issue before the SGCA was whether a valid arbitration agreement was formed under the governing law of the arbitration agreement, such that the anti-suit injunction, granted by the High Court of Singapore (SGHC), should be sustained.[14]

The SGCA found that under the first stage, although the shareholders’ agreement was stated to be governed by Indian law, this did not ipso facto constitute an express choice of the law governing the arbitration agreement.[15] The SGCA emphasized that there must be “explicit language stating so in no uncertain terms”, which was not present on the facts.[16]

Under the second stage of the framework, the SGCA examined whether Indian law should be viewed as the implied choice of law governing the arbitration agreement. The SGCA held that there is a presumption that Indian law, as the law governing the main shareholders’ agreement, applies as the law governing the arbitration agreement.[17]

The SGCA then considered whether the presumption should be rebutted. The SGCA accepted the respondent’s argument that the presumption should be rebutted as the appellant’s case centred around minority oppression, which is non-arbitrable in India as the NCLT is empowered with exclusive jurisdiction over management disputes.[18] On the facts of the case, the SGCA reasoned that there were sufficient indicators to rebut the presumption that the law governing the arbitration agreement was intended to be Indian law.[19]

Moving on to the third stage of the framework, the SGCA held that Singapore law, as the law of the seat of the arbitration, had the closest and most real connection with the arbitration agreement, and would apply as the law of the arbitration agreement.[20] Hence, the court found that the arbitration agreement was valid under its governing law.

 

IV.              Reasoning and CONSISTENCY with Bna v Bnb

 

With respect, the SGCA’s attempt at distinguishing Anupam Mittal and BNA on the facts is unconvincing. In BNA, an issue was whether the implied choice of PRC law as the governing law of the arbitration agreement was rebutted under the BCY framework.[21] It was argued that a foreign arbitral institution such as the Singapore International Arbitration Centre was not permitted by PRC law to administer an arbitration agreement, with the PRC as its seat.[22] As such, the invalidating effect of PRC law should rebut the presumption of its applicability as the law governing the arbitration agreement.

The SGCA in BNA rejected this argument, finding that for such an argument to be advanced, it must be shown that “the parties were, at the very least, aware that the choice of proper law of the arbitration agreement could have an impact upon the validity of the arbitration agreement”.[23] The SGCA in BNA thus required awareness of the potential invalidating effect of the choice of law, although the court did not elaborate on the degree of awareness required – knowledge of its invalidating effect or mere consideration of some legal consequence. On the facts of BNA, the SGCA found that this consideration was not operative on the parties, and thus cannot be part of the context in determining the choice of law.[24] This requirement of awareness has been characterised to be “a far more restrained approach towards any pro-validation rule”.[25] In contrast, the UK approach in Enka v Chubb[26] and Sulamérica is based on the “rational assumption that parties would prefer to have an agreement upheld than not”.[27] The UK approach is an application of a broad validation principle, and no awareness is required.

It is humbly suggested that the SGCA’s decision in Anupam Mittal fails to adequately address this requirement of awareness in BNA. In Anupam Mittal, the SGCA reasoned that the instant case could be distinguished from BNA on the basis that the parties’ intention for all disputes to be resolved by arbitration was demonstrated “much more strongly”.[28] By distinguishing BNA and Anupam Mittal solely on the facts, the SGCA impliedly reaffirmed BNA’s strict requirement of awareness. On the facts, the SGCA highlighted two main differentiating factors between the cases.

First, the SGCA highlighted that “[i]t is impossible to contend that as shareholders they were not aware that disputes arising under the SHA and also in connection with the management of the Company would give rise to questions of Indian company law that would generally fall to be determined by the Indian courts (at the time of the agreement”.[29] The SGCA appeared to be drawing an inference that parties were aware of the invalidating effect of the choice of law. However, the basis for this inference is unclear. One interpretation of the SGCA’s statement could be that the appellant and respondent, as shareholders, are assumed to be aware of the laws governing management disputes in India. However, this line of reasoning can be equally applied to BNA – as businesspeople, it could equally be assumed that businesspeople would exercise due diligence and be aware of the laws governing the subject matter of the arbitration.

Furthermore, while it may be possible that the shareholders were aware that such questions are generally under the jurisdiction of the Indian courts, the shareholders may not be aware that the Indian courts possessed exclusive jurisdiction. While the court appeared to infer that the phrase “relating to the management of the Company” in the arbitration clause evinced an awareness of the potential invalidating effect of Indian law , such an inference was drawn too easily.[30] The phrase could simply have been added for the benefit of doubt. If the parties were truly aware of the invalidating effect of Indian law, the parties would probably have included a “notwithstanding” clause, which would be a far more unequivocal indication of awareness of the invalidating effect. The court’s approach here suggests that a lower degree of awareness – that the arbitration agreement could possibly be invalidated - would suffice. However, as argued above, there is no principled basis for this inference.

Although the SGCA took into account the fact that the parties “chose to arbitrate under Singapore law in Singapore and according to the rules of the ICC, thereby choosing a seat and an arbitral body the common feature of which was that neither had any connection with India”[31], the relevance of these considerations are unclear. The parties in BNA had also chosen an arbitral body (the SIAC) which did not have any connection with the seat of arbitration (the PRC) – thus, the choice of arbitral bodies were of little relevance in BNA. It may be possible that the choice of Singapore as the seat could indicate awareness of the invalidating effect. Parties may have had the mistaken belief that the law of the seat, Singapore, would immediately apply instead of Indian law as the law governing the arbitration agreement, or may have (correctly) believed that the invalidating effect of Indian law would lead to a finding that the law of the seat would apply. However, the SGCA did not expressly elucidate how the choice of seat is indicative of the parties’ awareness of the invalidating effect, drawing such an inference without further explanation. Instead, the choice of Singapore as the seat appeared to be because it was an “Asian arbitration-friendly jurisdiction where an ICC arbitration could be held” [32], and not because the parties were aware of the invalidating effect of Indian law.

Second, the SGCA considered that the parties had “paid some amount of attention to the mechanics of the arbitration”, citing several clauses in which interim relief and enforcement measures were agreed upon.[33] The SGCA interpreted these clauses to evince an intention for the dispute to be settled by arbitration, which would be inconsistent with the choice of Indian law as the law governing the arbitration agreement. [34] However, this line of reasoning is flawed. The absence of such clauses should not indicate a lack of serious intention to arbitrate, as the subject matter of these clauses would typically be covered under the stipulated arbitration rules and the relevant statutes of the seat. For instance, in BNA, the SIAC Rules stipulated in the arbitration agreement would similarly cover interim relief and enforcement. While it may be argued the presence of these express clauses could still evince a stronger intention to arbitrate, a mere reference to default arbitral rules should not be given any less weight, given that there is no real need to draft such detailed clauses if parties find the default arbitration rules suffice for their purposes, and instead choose to incorporate them into the terms of the arbitration agreement by reference.[35] There is no principled basis to draw a distinction between a detailed arbitration clause and an incorporation of default arbitral rules. Thus, the court should not draw inferences based on how detailed an arbitration clause is drafted. It should not be the case that more detailed arbitration clauses would ipso facto evince a clearer intention for the dispute to be resolved by arbitration.

Hence, with respect, the SGCA’s decision in Anupam Mittal fails to convincingly distinguish BNA on the facts. A strict application of the problematic requirement of awareness from BNA should have led to a finding that the presumption was not rebutted. Reliance on contractual interpretation to draw inferences as to the parties’ awareness at the time of drafting may be unprincipled and lead to inconsistent outcomes. This highlights that the requirement of awareness is inherently problematic due to its difficulty of proof and reliance on inferences.

 

V.                 Rationalising the cases

 

The SGCA should adopt the approach preferred by the UK Supreme Court in Enka, and clarify that parties need not have awareness of the potential invalidating effect for the presumption of an implied choice of law to be rebutted. Awareness of the potential invalidating effect should only be one factor that the court takes into account in determining whether the parties have impliedly chosen the governing law of the main contract to operate as the governing law of the arbitration agreement, instead of a threshold requirement as conceived of in BNA. There are three main reasons.

 

A.     Case Authority

 

First, as a matter of authority and case law, there should not be such a requirement. The line of cases from Sulamérica to BCY and the UKSC case of Enka all lacked this requirement. In Sulamérica, Brazilian law was stipulated to be the law governing the main contract. Under Brazilian law, the insured must provide consent to refer the dispute to arbitration. The England and Wales Court of Appeal found that this requirement of consent undermined the efficacy of the arbitration clause (which provided that either party could refer a dispute to arbitration), and thus the potential invalidating effect of Brazilian law suggested that the parties did not intend for the arbitration agreement to be governed by Brazilian law.[36] Notably, the EWCA did not examine or take into account whether the parties knew of this potential invalidating effect. Instead, the EWCA reasoned that the intention to arbitrate as evinced by the arbitration clause itself indicated that there should not be an implied choice of law with invalidating effect.[37] The formulation in Sulamérica was endorsed by the UKSC in Enka as an application of the validation principle, on the basis that rational commercial parties, as a matter of purposive interpretation, are assumed not to have intended a choice of law that would undermine the arbitration agreement.[38] If the requirement of awareness in BNA was applied in Sulamérica, a different outcome may have been reached.[39] While the Singapore courts are not bound by decisions by the UK courts, the courts have not provided a clear acknowledgement of and justification for this divergence in law.

Furthermore, in BCY, the SGHC’s emphasis was on whether the consequences of the implied choice of governing law would negate the arbitration agreement despite a clear intention to be bound to arbitrate. The court did not require awareness of the invalidating effect.[40] This requirement was first introduced in BNA without detailed judicial reasoning, undermining the decision’s persuasiveness.[41] Thus, as a matter of authority, the original formulation of BCY should be returned to.

 

B.      Difficulty of proof

 

Second, it is difficult to determine if the parties were indeed aware of the invalidating effect at the time of drafting. Absent contemporary documentary evidence, the court would have to infer from the phraseology of the arbitration clause itself, which was the approach taken in Anupam Mittal. This runs the risk of being arbitrary, as the detail and phraseology of the arbitration clause may not directly indicate the parties’ intention, as argued above. If parties truly were aware of the invalidating effect of the choice of law, parties would likely have chosen to expressly indicate the governing law of the arbitration agreement to avoid any ambiguity. Additionally, the parol evidence rule may bar the admission of pre-contractual negotiations as evidence.[42] Any proof of awareness would thus be subject to the strict requirements set out in Zurich Insurance[43], such that the evidence must be “relevant, reasonably available to all the contracting parties, and relates to a clear or obvious context”.[44] Hence, the ability of parties to prove their subjective intention behind the phraseology is limited.

 

C.     Public Policy Considerations

 

Third, Singapore adopts a strong public policy in favour of arbitration, which supports dispensing with the need for awareness of the invalidating effect.[45] Indeed, it was noted in Anupam Mittal itself that courts ought to give effect to the public policy unless there is a “good reason not to”.[46] Thus, this public policy in favour of arbitration should mean that “[t]he parties’ true and authentic intentions regarding their agreement to arbitrate”, as indicated by the arbitration clause, should prevail over an invalidating choice of law, regardless of the awareness of the parties.[47]

While it may be argued that parties ought to bear the consequences of their agreement, such that “the parties’ manifest intention to arbitrate is not to be given effect at all costs”,[48] the requirement of awareness is too difficult to apply, leading to uncertainty. Removing the requirement would promote certainty in arbitration clauses and is consistent with the pro-enforcement objective of the New York Convention, which Singapore is a signatory to.[49]

Furthermore, since the purpose of arbitration is often to ensure neutrality of the forum and avoid the jurisdiction of the national courts,[50] a “rescued” arbitration agreement with differing terms would still hew closer to the intention of the parties than an invalid arbitration agreement and dispute resolution via litigation. For instance, in the context of pathological clauses, the Singapore courts have “disregard[ed] meaningless words in arbitration clauses in order to construe such clauses in a workable manner”.[51] This approach has been interpreted to be one where the primary intention to arbitrate is given primacy over secondary procedural rules.[52] Drawing a parallel, the requirement of awareness of the invalidating effect ought to be dispensed with. The presence of the invalidating effect should suffice to rebut the presumption that the law governing the main agreement applies to the arbitration agreement, to give proper effect to the primary intention to arbitrate.

Indeed, even without the need for awareness of the invalidating effect, the SGCA in BNA would have reached the same outcome in finding PRC law to be the governing law of the arbitration agreement.[53] The SGCA could have found that the potential invalidating effect rebutted the implied choice of PRC law as the governing law of the arbitration agreement. There was no choice, whether express or implied, of law for the governing law of the arbitration agreement. Moving on to the third stage of the test, the court would then determine the system of law with the closest connection. On the facts of BNA, PRC law would still be the system of law with the closest connection, and thus would be the governing law, as the seat of the arbitration was specified to be Shanghai.[54]

 

VI.              Conclusion

 

In summary, it is respectfully submitted that the SGCA did not convincingly distinguish Anupam Mittal from BNA on its facts, and its attempt to do so impliedly affirms the problematic requirement of awareness in BNA. The courts ought to return to the initial formulation in BCY, based on the authority of Sulamérica and Enka, and focus its analysis on the invalidating effect of the choice of law rather than the parties’ awareness of it. Such an analysis would better ensure certainty in determining the law governing the arbitration agreement and avoid potential subjectivity in interpretation, furthering the public policy in favour of arbitration.



* LLB Candidate, National University of Singapore, Class of 2024. All errors remain my own. This article was last updated on 26 March 2023.

[1] Gary Born, International Commercial Arbitration, 3rd ed (Alphen aan den Rijn: Kluwer Law International B.V., 2021) at 510-512 [Born]. Some commentators have argued for a narrow conception of separability in that the arbitration agreement is separate only with regard to the determination of validity and not to its choice of law: see Ian Glick & Niranjan Venkatesan, “Chapter 9: Choosing the Law Governing the Arbitration Agreement” in Neil Kaplan & Michael Moser, eds, Jurisdiction, Admissibility & Choice of Law in International Arbitration: Liber Amicorum Michael Pryles (Alphen aan de Rijn: Kluwer Law International B.V., 2018) 132 at 136-139. However, the position in Singapore has followed the broader definition of separability articulated by Born (see e.g. BNA v BNB [2019] SGHC 142 at paras 17(e), 67-77. On appeal, the SGCA did not find it necessary to decide on the point; see BNA v BNB [2020] 1 SLR 456 (SGCA) at para 95 [BNA]).

[2] [2017] 3 SLR 357 (SGHC) [BCY].

[3] BNA, supra note 1.

[4] [2023] SGCA 1 (SGCA) [Anupam Mittal].

[5] BCY , supra note 2 at paras 59-67, BNA, supra note 1 at paras 44-5.

[6] Sulamérica Cia Nacional de Seguros SA and others v Enesa Engelharia SA and others [2013] 1 WLR 102 [Sulamérica].

[7] BNA, supra note 1 at para 46.

[8] Ibid at para 47.

[9] BCY, supra note 2 at para 74, as affirmed in Anupam Mittal, supra note 4 at paras 69-70.

[10] BNA, supra note 1 at para 48.

[11] BCY, supra note 2 at para 45, 54, affirming Sulamerica, supra note 6 at para 32.

[12] Anupam Mittal, supra note 4 at para 15.

[13] Ibid at para 6.

[14] Ibid at paras 61-62.

[15] Ibid at paras 64-66.

[16] Ibid at para 66.

[17] Ibid at para 68-70.

[18] Ibid at para 74.

[19] Ibid.

[20] Ibid at para 75.

[21] BNA, supra note 1 at paras 62-3.

[22] Ibid at para 89.

[23] Ibid at para 90.

[24] Ibid.

[25] Darius Chan & Jim Yang Teo, “Re-formulating the test for ascertaining the proper law of an arbitration agreement: a comparative common law analysis” (2021) 17:3 J. Priv. Int. Law 439 at 462.

[26] Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] 1 WLR 4117 [Enka]

[27] Ibid at para 198.

[28] Anupam Mittal, supra note 4 at para 72.

[29] Ibid at para 72.

[30] Ibid.

[31] Ibid.

[32] Ibid.

[33] Ibid.

[34] Ibid at para 73.

[35] Lao Holdings NV v Government of the Lao People’s Democratic Republic [2022] SGCA(I) 9 at para 53.

[36] Sulamérica, supra note 6 at paras 30-2.

[37] Ibid.

[38] Enka, supra note 26 at para 106-7.

[39] Chan & Teo, supra note 25 at 462.

[40] BCY, supra note 2 at para 74.

[41] BNA, supra note 1 at para 90.

[42] As codified under section 94 of the Evidence Act 1893.

[43] Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] 3 SLR(R) 1029 at paras 125-129.

[44] BNA, supra note 1 at para 81.

[45] Anupam Mittal, supra note 4 at para 74

[46] Ibid.

[47] Born, supra note 1 at 617.

[48] BNA, supra note 1 at para 104.

[49] Born, supra note 1 at 615.

[50] Margaret Moses, The Principles and Practice of International Commercial Arbitration, 3rd ed (Cambridge: Cambridge University Press, 2017) at 3.

[51] KVC Rice Intertrade Co v Asian Mineral Resources Pte Ltd [2017] 4 SLR 182 (SGHC) at para 53; but see Insigma Technology v Alstom [2009] 3 SLR(R) 936 (SGCA) at para 31, where the SGCA caveated that giving effect to an intention to settle any dispute by arbitration should not “result in an arbitration that is not within the contemplation of either party”.

[52] Morten Frank, “Interpretation of Pathological Arbitration Agreements: Non-existing and Inaccessible Elements” (2020) 20:3 Pepperdine Disp. Resol. L.J. 298 at 330. In this article, the author also finds that in U.S case law, the primary intention to arbitrate is given primacy over the procedural rules, and the pathological procedural rules would be severed. See also Born, supra note 1 at 814-819.

[53] Chan & Teo, supra note 25 at 462.

[54] BNA, supra note 1 at para 94. The issue before the court was on the identification of the proper law of the arbitration agreement; once the proper law of the arbitration agreement was identified to be PRC law and the seat of arbitration was Shanghai, the issue of jurisdiction was left to the PRC courts to decide (at para 99).

Questioning the Strength of Protective Clauses in Wealth Management Contracts

A PDF version of the article can be found here.


QUESTIONING THE STRENGTH OF PROTECTIVE CLAUSES IN WEALTH MANAGEMENT CONTRACTS

 

Desmond Chye*

 

I.        INTRODUCTION

 

Wealth management contracts often contain protective clauses attempting to shield the wealth manager from liability arising from their wrongful conduct, such as negligence and misrepresentation. It is often claimed that these clauses continue to present clients with ‘insuperable difficulties’ in litigating claims at common law and otherwise. While this was true under Singapore law, it is no longer so. Today, it is possible for clients to challenge these clauses under common law or to outflank them by using statutory remedies. However, even though litigating claims is no longer insuperable, it remains admittedly difficult to do so. Ultimately, an unsophisticated retail client would stand a better chance of successful litigation and obtain an adequate remedy than a corporate or sophisticated one. In the final analysis, the difficulty faced by clients in litigating their claims is inappropriate. The law is too biased towards the wealth manager and needs reform.

 

II.     TYPES OF PROTECTIVE CLAUSES

 

Protective clauses in wealth management contracts fall broadly into two types: entire agreement clauses (‘EAC’) and non-reliance clauses (‘NRC’). EACs restrict the parties’ contractual relationship to the confines of the written document so as to prevent term implication and incorporation of collateral oral agreements unfavourable to the wealth manager. It is also to prevent tortious duties from arising as contractual disclaimers deny the requisite proximity with the client. NRCs, on the other hand, protect the wealth manager from misrepresentation liability by basically rewriting history using contract to say that the client did not rely on pre-contractual representations. It is therefore necessary for the client to invalidate these two clauses otherwise his claim for breach of duty is doomed.

 

III.  CHALLENGING PROTECTIVE CLAUSES AT COMMON LAW

 

Unfortunately for the client, the common law would generally uphold EACs and NRCs.[1] Starting with EACs, courts uphold them due to the parol evidence rule.[2] This rule basically stipulates that where a contract is recorded in a written document, no extrinsic evidence may be adduced to vary or contradict the terms recorded. An EAC in the written contract therefore cannot be refuted to find collateral oral terms.

The common law’s logic is however flawed. The parol evidence rule first requires parties to use a ‘written contract’ but not all written documents, such as receipts, qualify.[3] Parties are also free to construct their contract part written, part oral.[4] These factors must mean that a ‘written contract’ arises only when the parties intended a contractual instrument to contain their entire contract, if not then the parol evidence rule is inapplicable.[5] An EAC should therefore be ineffective if the parties did not actually intend the written document to comprise the entire contract.[6] Consequently, the parol evidence rule should only create a rebuttable presumption of fact that a written document is the whole contract and so a client should be allowed to adduce extrinsic evidence to prove that there were collateral oral terms.[7] This is especially desirable for EACs as these are normally boilerplate clauses that the parties do not pay much attention to.[8]

Notwithstanding the parol evidence rule, there are also some limits on EACs to potentially assist clients. Terms normally implied by usage or course of dealing can be implied into the contract[9] and terms can still be added through rectification.[10] Unfortunately, these exceptions are not particularly useful to clients. It is not considered customary for wealth managers to owe fiduciary or advisory duties to clients and so courts are unwilling to imply such duties.[11] Wealth management contracts are also normally comprehensively drafted with no gaps left for term implication.[12] Rectification is also difficult as the client must show that the parties made a mistake in expressing their true agreement which infected the EAC.[13] This is further restrictively construed to cover only situations where an errant term is corrected and not situations where extra terms are inserted.[14] Rectification is thus only available where the parties wrote an inaccurate clause and not where they intended to be bound by that clause and another one.[15] Although the standard wealth management contract expressly disclaims many duties that clients would like the wealth manager to owe, wealth managers generally do not intend to owe any duties whatsoever at all times and thus rectification is not possible.

Alternatively, the client may use contra proferentum to restrict the protective clauses’ scope[16] but this is not possible if the wealth manager stipulated their exclusions thoroughly, which is often so.

For NRCs, there are two possible common law methods to enforce the clause: estoppel by representation and contractual estoppel.[17] Although the former is useless, the latter presents an insuperable difficulty to clients claiming misrepresentation.

Estoppel by representation first requires an unequivocal representation by party B that he did not rely on any statements, which B intended party A to act on. A must then have believed it to be true and acted in reliance of it.[18] It is however virtually impossible for A to prove he believed B’s declaration of non-reliance.[19] Estoppel by representation is thus impotent in practice.

Contractual estoppel can however effectively shield the wealth manager from misrepresentation liability. Under English law, NRCs would be enforced simply to uphold the parties’ agreement, notwithstanding that the client actually relied on the misrepresentations.[20] Singapore follows this harsh expression of documentary fundamentalism.[21] The Singapore High Court (‘SGHC’) however recently opined that it can be relaxed if an unsophisticated client was persuaded to sign the clause in ignorance of its nature.[22] Unfortunately, the Singapore Court of Appeal (‘SGCA’) declined to decide on whether the suggestion was acceptable.[23]

However, assuming that the SGHC’s position is adopted, since it was not overturned,[24] there still remains the potential conflict with an earlier case[25] where contractual estoppel was applied without qualification. It is suggested that the two cases can be distinguished based on the client’s sophistication: the client in the earlier case[26] was found to be sophisticated while the client in the latter case was arguably not.[27] If so, then an unsophisticated client would now have a higher chance of invalidating NRCs.

It is submitted that contractual estoppel is unsound and should be abandoned completely. Firstly, the cases[28] establishing it were arguably decided per incuriam. The English Court of Appeal already rejected the doctrine in an earlier case.[29] As English courts are bound by the past decisions of same-level courts, the subsequent cases that established contractual estoppel[30] violated the doctrine of precedent and were hence wrongly decided.[31] Although Singapore is not bound by English cases, their illegitimacy under English law should still diminish its persuasiveness.

Secondly, contractual estoppel is fundamentally incongruous with established estoppel principles.[32] Traditionally, “estoppels at root require detriment”[33] because they are treated as independent sources of rights outside of the contract and so extra-contractual factors such as reliance and unconscionability are required to justify its invocation.[34] Contractual estoppel, however, lacks these requirements of detriment and is moreover practically indistinguishable from just enforcing the contract’s terms.[35] The doctrine, being a black sheep, is thus heretical[36] and superfluous.[37]

Thirdly, just because a clause appears in a written contract does not necessarily mean that the parties actually agreed to it.[38] Without true agreement, it is merely a non-promissory statement of past fact.[39] This is especially pertinent to the wealth management context where the parties’ close relationship makes it likely that protective clauses were not truly agreed to. Unlike the banking sector which is becoming increasingly de-personalised and hence treated more cautiously by clients, the wealth management sector is becoming increasingly personalised. The close ‘familial’ relationships created with clients give rise to a relationship of trust and confidence in the wealth manager which encourages clients to have blind trust in the wealth manager’s intentions. Protective clauses contradicting earlier assurances are thus likely to be treated lightly or ignored completely.[40] While this is less relevant to institutional clients who might have legal advisers to fall back on to caution them,[41] it would be for retail clients who do not have such safety nets. Nevertheless, contractual estoppel should be eschewed for all client types since its monolithic nature completely fails to consider the nuances of the client’s especial relationship with the wealth manager.

For both EACs and NRCs, it is claimed that contractual estoppel applies to them on the basis of the signature rule. This rule stipulates that, aside from situations of fraud, misrepresentation or non est factum, a person who signs a contractual document is bound by it, even if it was not read or understood.[42] A client failing to understand or read the protective clauses (not uncommon)[43] will therefore not render the clauses invalid.

The signature rule reason is however unconvincing as it contravenes the fundamental contract principle that there must first be an objective meeting of the minds to incorporate a term.[44] The rule essentially allows a mere signature to substitute for an objective mutual agreement to contract which cannot be right doctrinally.[45] A term should only be conclusive if the parties truly intended it so.[46]

Furthermore, the signature rule’s locus classicus[47] is weak authority for the principle. It did not consider whether an EAC could exclude collateral oral agreements as it was not alleged that there were unrecorded terms, only that the document could not exclude implied terms.[48] It was therefore not held that a signed EAC conclusively proves the parties’ intention for it to embody the whole contract.[49] A signed document is thus no more than strong evidence of contract conclusiveness[50] and so clients should be allowed to prove collateral oral agreements and to challenge the validity of signed terms.

Although abandoning contractual estoppel undermines commercial certainty and would hence affect Singapore’s status as a leading financial hub, the price paid for good industry practices is worthwhile. As protective clauses shield wealth managers from the consequences of their wrongdoing, a dangerous moral hazard is created: wealth managers would not be deterred from acting irresponsibly but their incentive to seek as many clients as possible to earn commissions remains. While such harm may be outweighed by the benefit of promoting economic growth through providing contractual certainty, it is only so where the protective clauses were genuinely agreed to. Unfortunately, protective clauses are frequently foisted on clients through standard forms that clients have little say over. Applying contractual estoppel would therefore licence wealth managers to act irresponsibly in the financial market which can potentially damage the economy significantly[51] and ultimately undermine Singapore’s position as a leading financial hub. It is thus better to use a rebuttable presumption that protective clauses were not truly agreed to by clients, which applies to unsophisticated but not sophisticated clients.[52]

 

IV.  CHALLENGING PROTECTIVE CLAUSES USING STATUTE

 

Notwithstanding the client’s litigation difficulties at common law, there are still statutory methods to obtain remedies. These statutory avenues are however all unsatisfactory in one way or another.

 

A.     UCTA & MA

 

The Unfair Contract Terms Act 1977[53] (‘UCTA’) and Misrepresentation Act 1967[54] (‘MA’) may assist the client to invalidate EACs and NRCs, but only in limited circumstances.

UCTA section 2(2) prevents wealth managers from contractually excluding or restricting liability for their negligence if it is unreasonable within the meaning in section 11. EACs have however been treated as falling outside UCTA’s purview under English law. This is as protective clauses have been interpreted as not exempting liability but instead as merely defining the parties’ relationship (ie. acting as a ‘basis clause’) and so UCTA is inapplicable.[55] Basically, the court ignores the substantive effect of a clause exempting liability in favour of what the clause claims to be.

MA section 3 invalidates any term excluding or restricting liability for misrepresentation if it is unreasonable within the meaning in UCTA section 11. Unfortunately, NRCs are rarely treated as exemption clauses. Under English law, the key requirement for invoking section 3 is whether the NRC sought to ‘rewrite history’ (ie. to retrospectively alter the ‘character and effect’ of pre-NRC representations).[56] This criterion was however butchered by subsequent cases[57] where there was an overemphasis on whether the contract states there was no reliance, as opposed to looking at what the client understood at the time of the misrepresentation.[58] Consequently, whether a NRC survives section 3 depends on whether contractual estoppel applies – which it would in most cases. Singapore unfortunately followed this English law for both types of protective clauses.[59]

English law is however becoming more pro-client. A recent English Court of Appeal case[60] favoured a substance over form approach, albeit in a non-financial context. The court held that if the party subject to a NRC relied upon what they reasonably considered to be a representation before the NRC was incorporated, then the NRC is an exclusion clause under MA section 3.[61] The ‘basis clause’ and contractual estoppel arguments thus no longer apply to pre-NRC representations unless the client was actually aware that they should not be relied upon.[62] Presumably this approach also extends to EACs. While no Singapore case has decided on the new English position, the SGCA’s past statements suggest future approval: they opined that courts should focus on the substantive effect and not form of a clause to determine if it is an exemption clause under UCTA.[63] If so, clients can now use the MA and UCTA to challenge protective clauses.

Ultimately the ‘basis clause’ reasoning misconstrues the MA and UCTA’s true scope and should be rejected. Although the statutes’ plain words confine their effect to only ‘exemption’ and ‘restriction’ of liability clauses, a purposive interpretation[64] reveals that parliament actually intended them to apply broadly to any clause which has the effect of preventing a duty of care from arising.[65] This means duty defining clauses would be captured as well.[66] While this would severely restrict the wealth manager’s freedom to contractually define the scope of its obligations,[67] it is justifiable on the basis that the statutes only bite where the duty exclusion is unreasonable.

Notwithstanding UCTA and the MA applying to protective clauses, proving the requisite unreasonableness under UCTA section 11 is still difficult for clients. This is as courts generally assume that the parties desire commercial certainty and already reflected the risk allocation in the price paid.[68] Unreasonableness has thus been confined to exceptional situations where the clause was not clearly drafted[69] or poorly explained to the client,[70] even where the client is unsophisticated.[71]

While the assumptions are true for sophisticated clients, especially where the client is more knowledgeable than the wealth manager,[72] it is not for unsophisticated ones. Unsophisticated clients often lack equal bargaining power and so struggle to avoid such draconian clauses from being imposed on them. They also frequently lack access to professional advice to fully understand the protective clauses’ nature. The court’s fear of unjustly allowing clients to escape a bad bargain here is thus misplaced.

However, not all unsophisticated clients deserve the same protection. ‘Sophistication’ is a nebulous concept under common law which can encompass transaction familiarity,[73] financial expertise[74] or whether the client was institutional.[75] Amongst such clients, institutional investors[76] who lack transaction familiarity or financial expertise should generally remain bound to protective clauses since they have equal bargaining power and can access professional advice.

 

B.      FAA

 

The Financial Advisers Act 2001[77] (‘FAA’) may assist clients in obtaining remedies. Section 34(1) obliges financial advisors[78] to disclose all material information relating to the financial product recommended to a client. Section 35(1) prohibits the financial adviser from making misrepresentations whether fraudulently, recklessly or negligently. This applies broadly as all statements “in connection with the provision of any financial advisory service” are included. Section 36(1) requires financial advisers who make recommendations relating to any investment product, where a client would reasonably expect to rely on the adviser’s recommendation, to have a reasonable basis for the recommendation. This arguably includes considering the client’s suitability for the product per MAS Notice FAA-N16 and Financial Advisers Regulations[79] Reg 18B.[80] As the FAA now allows one to obtain statutory damages from a financial adviser’s breach of the aforementioned sections, clients can obtain remedies in those situations (if there was reasonable reliance).[81]

However, the FAA may be practically ineffectual. Firstly, unlike UCTA or the MA, the FAA neither expressly provides that terms inconsistent with it are void nor gives any guidance for such situations.[82] It is thus possible that protective clauses would exclude the operation of the FAA.[83] Secondly, the FAA does not cover all client types. It only covers individuals and not corporate clients. Thirdly, not all individuals enjoy similar protection. ‘Accredited investors’ and ‘High Net Worth Individuals’ (essentially, individuals with high net worth or income) are excluded from sections 34, 36 and Reg 18B’s protections. This is problematic because wealth is not a reliable proxy for financial expertise. Although an opt-in regime was instituted in 2019 to allow such investors to choose their preferred classification,[84] protection might still be lacking in practice. This is as wealth managers often restrict the sale of lucrative financial products to only investors of a certain classification and so investors are strongly incentivised to choose a higher classification despite the risks involved.[85]

 

C.     CPFTA

 

Since 2009, financial services fall under the Consumer Protection (Fair Trading) Act 2003[86] (‘CPFTA’) and so clients can now use it to challenge protective terms. As the CPFTA invalidates any term inconsistent with it,[87] terms inserted through sharp practice[88] (such as by pressure selling or misrepresentation) and terms unconscionably restricting the wealth manager’s liability can be invalidated.[89]

However, the CPFTA is not particularly useful to clients in reality. Firstly, only consumers are protected.[90] Secondly, it only applies to individuals and not corporate consumers. Thirdly, CPFTA claims are limited to only SGD 30,000 which is far too low for virtually all wealth management contracts. Thus, while getting a claim under CPFTA may be better than nothing, it is a hollow victory for the client.

The CPFTA should therefore have its claim limits increased for financial services. This is especially necessary amidst the increase in consumer investment participation. Recently, online investment services have become ubiquitous amongst everyday Singaporeans, enabled by the aggressive marketing of ‘one-stop’ investment smartphone applications.[91] The market is however crowded and rival applications intensely compete against each other.[92] This cutthroat business environment, combined with the business model of such tech products typically requiring a sufficiently large number of trades by users to be profitable,[93] creates a real temptation for sharp practice (such as deceptive marketing).[94] The CPFTA, being specialised in tackling sharp practice, and is more protective of consumers than the other statutes,[95] is thus needed to handle this emerging situation. Unfortunately, its low claim cap renders it impotent. Although these investment applications are ostensibly only for small trades, it is easy to see how repeated usage can spiral into larger trades as the applications are structured like games to promote increasing, and intense user participation. A larger cap is therefore necessary to protect consumers adequately.

 

V.     OTHER REMEDIES

 

Despite the protective clauses, the client may still get relief at the damages stage by pleading contributory negligence. Essentially, the client pleads contributory negligence on the part of the wealth manager to reduce the damages claimed against him. This method prima facie appears useful because wealth management litigation often arises from the bank suing the client to obtain compensation for losses incurred during trading.[96] It is however of limited effectiveness in reality. First, the wealth manager must have been negligent but this is difficult to make out in light of the court’s general reluctance to find duties of care (both in tort and contract) owed by the wealth manager.[97] Second, the client must not have broken the chain of causation and so the client must not have continued to trade anyway or acted unreasonably post-breach.[98] More problematically, contributory negligence only operates as a shield and not a sword and so the client cannot make a claim independently of the lawsuit against him or to obtain damages from the wealth manager.

Alternatively, the client may use extra-judicial remedies. The Financial Industry Disputes Resolution Centre Limited (‘FIDReC’) was set up in Singapore to provide a low-cost consumer-friendly dispute settlement mechanism. FIDReC offers to mediate and then adjudicate disputes. The process is simple, fast and cheap. No external lawyers are allowed at hearings. FIDReC is very helpful in situations where the client faces practical difficulties in litigating his claims. This is likely where a low net worth, unsophisticated retail client challenges a big institutional wealth manager as the resource and legal talent imbalance between the two might make it practically insuperable for the client to litigate. The pro-consumer features of FIDReC thus helpfully level the playing field between a financially and legally challenged client and their wealth manager.

 

VI.  DO WEALTH MANAGERS NEED STRONG PROTECTION?

 

It is feared that without strong protective clauses, wealth managers might be unjustly liable for extreme losses arising from an intervening unforeseen event, such as a financial crisis, that was not particularly related to their wrongdoing.[99] This fear is however misplaced as there are already adequate safeguards present to protect wealth managers from unfair liability.

Without NRCs and EACs, a contractual duty of care may be implied into the contract or it may be possible to find sufficient proximity to establish a tortious duty of care in executing the wealth account or advising the client.[100] A contractual duty to act as a fiduciary might also be implied. Although breaching these duties can potentially impose substantial liability on the wealth manager, it would not be to an unjust extent.

In tortious and contractual negligence cases, a client can potentially claim the entire loss but it is subject to the client proving causation and remoteness. Although causation uses the ‘but for’ test which has a low threshold, it can still provide fair and effective protection. There is no causation where the client would have still made the loss-making trades anyway,[101] would have used their independent judgement instead, or acted unreasonably post-breach as those would break the chain of causation.[102] Moreover, causation shields the wealth manager from liability where the loss was due to poor market conditions not of their own making (such as by selling defective products).[103] Remoteness also provides fair protection. In contract, a loss is remote if it does not arise ‘naturally’ from the breach in question and is not one that could have been reasonably contemplated by the parties.[104] In tort, a loss is remote if it was of a type not reasonably foreseeable by the tortfeasor,[105] with courts being more stringent in applying remoteness for such ‘pure economic loss’ cases.[106] Moreover, any losses claimable are limited to only those arising from the tortfeasor’s scope of duty.[107] Although the MA might grant excessive remedies for negligent misrepresentation by adopting the ‘fiction of fraud’ approach (where even remote losses are claimable) this is only applicable to English and not Singapore law.[108] The wealth manager’s liability, when imposed, is therefore proportionate.

Breaches of fiduciary duties do not impose unfair liabilities on wealth managers. This is as the breach must have caused the losses claimed (a safeguard present in Singapore,[109] unlike the UK).[110] Although the remoteness and mitigation rules do not apply[111] and so the liability here may exceed that for negligence breaches, it is justifiable on the basis of giving effect to the strong public interest in deterring fiduciaries from acting in their own self-interests.[112]

Even if we assume that the liability imposed is excessive, wealth managers can still avoid them easily. To avoid misrepresentation, wealth managers can just avoid making representations they do not wish to be liable for. To avoid liability from collateral terms or implied duties, the wealth manager can just avoid making collateral oral agreements and not act in a way that attracts fiduciary or tortious duties. These are not difficult asks. There is therefore no injustice in making wealth managers liable for unnecessarily causing loss to clients.

 

VII. CONCLUSION

 

While it is not insuperable for clients to litigate their claims against wealth managers when there are protective clauses, it is still difficult to do so. Ultimately, the enforceability of protective clauses should not be treated dogmatically such that they are either insuperable or powerless. To strike the right balance, the circumstances of each case, in particular client’s sophistication and the parties’ intentions, should be used to decide whether protective clauses are enforceable.

 



* LLB (Candidate), National University of Singapore, Class of 2023. All errors and views expressed in this article remain my own. An earlier version of this article was submitted for the NUS Law Module LL4191 Wealth Management Law.

[1] See e.g. Deutsche Bank AG v Chang Tse Wen [2013] 4 SLR 886 (SGCA) [Deutsche Bank AG SGCA]; Springwell Navigation Corp v JP Morgan Chase Bank [2010] EWCA Civ 1221 [Springwell Navigation]; AXA Sun Life Services Plc v Campbell Martin Ltd [2011] EWCA Civ 133 [AXA Sun Life].

[2] Shogun Finance Ltd v Hudson [2004] 1 A.C. 919; Common law position codified in Singapore in Evidence Act 1893 (2020 Rev Ed Sing), ss 93–102.

[3] D McLauchlin, “The Entire Agreement Clause: Conclusive or a Question of Weight?” (2012) 128 Law Q. Rev 521 at 527 [McLauchlin].

[4] Ibid.

[5] Ibid.

[6] Ibid.

[7] McLauchlin, supra note 3 at 528; Edwin Peel, Treitel: The Law of Contract, 15th ed (London, UK: Sweet & Maxwell, 2020) at para 6-022.

[8] McLauchlin, supra note 3 at 523, 531.

[9] Novoship (UK) Ltd v Mikhaylyuk [2015] EWHC 992 (Comm) at para 32.

[10] JJ Huber (Investments) Ltd v Private DIY Co Ltd [1995] NPC 102 (Ch).

[11] Go Dante Yap v Bank Austria Creditanstalt AG [2011] 4 SLR 559 (SGCA); S Booysen, “Financial Advice and the Duty to Advise”, in S Booysen, ed, Financial Advice and Investor Protection (UK: Edward Elgar, 2021) at para 4.04 [Booysen].

[12] See e.g. UBS AG v Ng Kok Qua [2010] SGDC 509, Orient Centre Investments v Société Generale [2007] 3 SLR 566 (SGCA) [Orient Centre Investments] (for examples of no gaps); See e.g. Go Dante Yap v Bank Austria Creditanstalt AG [2011] 4 SLR 559 (SGCA) (for rare example of a gap present due to shoddy contract drafting).

[13] Surgicraft Ltd v Paradigm Biodevices Inc [2010] EWHC 1291 (Ch) at para 75.

[14] Procter & Gamble Co v Svenska Cellulosa Aktiebolaget SCA [2012] EWHC 498 (Ch).

[15] McLauchlin, supra note 3 at 528.

[16] See e.g. Jiang Ou v EFG Bank AG [2011] 4 SLR 246 (SGHC).

[17] L Mason, “Precluding Liability for Pre-contractual Misrepresentation: the Function and Validity of Non-reliance Clauses” (2014) J Bus L 313 at 314.

[18] E A Grimstead & Son Ltd v McGarrigan [1999] EWCA Civ 3029.

[19] Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317.

[20] Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] EWCA Civ 386 [Peekay Intermark]; affirmed by Springwell Navigation, supra note 1 & AXA Sun Life, supra note 1.

[21] Orient Centre Investments, supra note 12; Tradewaves Ltd v Standard Chartered Bank [2017] SGHC 93 [Tradewaves].

[22] Als Memasa v UBS AG [2012] SGCA 43 at para 29; Deutsche Bank AG v Chang Tse Wen [2013] 1 SLR 1310 (SGHC) [Deutsche Bank AG SGHC].

[23] Deutsche Bank AG SGHC, supra note 22.

[24] The SGHC decided to eschew contractual estoppel in Deutsche Bank SGHC, supra note 22 on the basis of the client’s unsophistication. This decision was overturned on appeal by the SGCA in Deutsche Bank AG SGCA, supra note 1 as they found Dr Chang to be sophisticated. The SGHC’s approach of no contractual estoppel when the client is unsophisticated was however not addressed by the SGCA.

[25] Orient Centre Investments, supra note 12.

[26] See Orient Centre Investments, ibid (case involved a corporate client).

[27] Deutsche Bank AG SGHC, supra note 22.

[28] Peekay Intermark Ltd, supra note 20; Springwell Navigation, supra note 1.

[29] Lowe v Lombank Ltd [1960] 1 WLR 196 (CA).

[30] Peekay Intermark, supra note 20 , Springwell Navigation, supra note 1.

[31] G McMeel, “Documentary Fundamentalism in the Senior Courts: The Myth of Contractual Estoppel” (2011) LMCLQ 185 at 191 [McMeel].

[32] Ibid.

[33] Wilken & Ghaly, The Law of Waiver, Variation, and Estoppel, 3rd ed (Oxford: Oxford University Press, 2012) at para 13.22.

[34] McMeel, supra note 31 at 206.

[35] Kelry CF Loi, “Contractual estoppel and non-reliance clauses” [2015] LMCLQ 265 at 366 [Loi].

[36] McMeel, supra note 31 at 206.

[37] Loi, supra note 35 at 357.

[38] McLauchlin, supra note 3 at 536.

[39] Loi, supra note 35 at 351-353.

[40] This occurred in Deutsche Bank AG SGCA, supra note 1.

[41] See Springwell Navigation, supra note 1 (where even corporate clients can occasionally be too trusting and not read the contract carefully).

[42] L’Estrange v F Graucob Ltd [1934] 2 K.B. 394 [L’Estrange].

[43] See e.g. Deutsche Bank AG SGHC, supra note 22.

[44] McLauchlin, supra note 3 at 532; JR Spencer, “Signature, Consent, and the Rule in L’Estrange v Graucob” (1973) 32(1) Cambridge LJ 104 at 117.

[45] Ibid.

[46] Ibid.

[47] L’Estrange, supra note 42.

[48] McLauchlin, supra note 3 at 533.

[49] Ibid.

[50] Ibid.

[51] See e.g. European Systemic Risk Board, “Report on misconduct risk in the banking sector” (June 2015) at 6 (redress costs for bank mis-selling amounted to EUR 100 billion globally from 2010 to 2015).

[52] Adopting a suggestion made in Booysen, supra note 11 at paras 4.45–4.46.

[53] Unfair Contract Terms Act (2020 Rev Ed Sing).

[54] Misrepresentation Act (2020 Rev Ed Sing).

[55] IFE Fund SA v Goldman Sachs International [2006] EWHC 2887 (Comm) [IFE Fund SA]; Crestsign Ltd v National Westminster Bank plc [2014] EWHC 3043 (Ch) [Crestsign].

[56] IFE Fund SA, supra note 55; Raiffeisen Zentral Bank v Royal Bank of Scotland plc [2010] EWHC 1392 (Comm); Springwell Navigation Corp, supra note 1; H Beale and G Palmer, “Non-reliance Clauses, Entire Agreement Clauses and Contractual Estoppel” in Booysen, supra note 11 at paras 5.38–5.42 [Beale & Palmer].

[57] Crestsign, supra note 55 at para 106108; Thornbridge Ltd v Barclays Bank plc [2015] EWHC 3430 (QB) at para 109; Beale & Palmer, supra note 56 at paras 5.42–5.43.

[58] Beale & Palmer, supra note 56 at paras 5.43–5.45.

[59] Orient Centre Investments, supra note 12; Tradewaves, supra note 21..

[60] First Tower Trustees Ltd v CDS (Superstores International) Ltd [2018] EWCA Civ 1396 [First Tower].

[61] Ibid.

[62] Beale & Palmer, supra note 56 at para 5.48.

[63] See Deutsche Bank AG SGCA, supra note 1 at para 63 (for obiter dicta supporting Smith v Eric S Bush [1990] 1 A.C. 831 & Phillips Products Ltd v Hyland [1987] 1 W.L.R. 659)

[64] UK, Law Commission, Exemption Clauses Second Report (London: Her Majesty’s Stationery Office, 1975) at paras 36, 139; First Tower, supra note 60 at para 51.

[65] L Ho & T Mathias, “Basis Clauses and the Unfair Contract Terms Act 1977” (2014) 130 Law Q. Rev 377 at 380.

[66] Ibid.

[67] Norman Palmer & David Yates, “The Future of the Unfair Contract Terms Act 1977” (1981) 40(1) Cambridge LJ 108 at 127–128.

[68] National Westminster Bank Plc v Utrecht-America Finance Company [2001] 3 All ER 733 (CA).

[69] Camerata Property Inc v Credit Suisse Securities (Europe) Ltd [2011] 2 BCLC 54 (Com Ct).

[70] Crestsign, supra note 55.

[71] Cassa di Risparmio della Repubblica di San Marino SpA v Barclays Bank Ltd [2011] EWHC 484 (Comm); AXA Sun Life, supra note 1.

[72] See e.g. Springwell Navigation, supra note 1.

[73] Wingecarribee Shire Council v Lehman Brothers Australia Ltd [2012] FCA 1028 [Wingecarribee].

[74] Deutsche Bank AG SGCA, supra note 1; Springwell Navigation, supra note 1.

[75] Australian Securities and Investments Commission v Citigroup Global Markets Australia (No 4) [2007] FCA 963.

[76] See e.g. Wingecarrihee, supra note 73.

[77] Financial Advisors Act (2020 Rev Ed Sing) [FAA].

[78] Ibid, s 2(1) (“financial adviser” means a person who carries on a business of providing any financial advisory service, but does not include any person specified in the First Schedule).

[79] Financial Advisors Regulations (Cap 110, Reg 2, 2004 Rev Ed Sing)

[80] D Neo, “Singapore: Boosting Regulation to Protect Vulnerable Investors” in Booysen, supra note 11 at para 11.10 [Neo].

[81] FAA, supra note 77, ss 34(6), 35(3), 36(3).

[82] Neo, supra note 80 at para 11.56.

[83] Ibid.

[84] Securities and Futures (Classes of Investors) Regulations 2018 (S 665/2018, Sing), regs 3(2)–3(3).

[85] See e.g. Deutsche Bank AG SGCA, supra note 1.

[86] Consumer Protection (Fair Trading) Act 2003 (2020 Rev Ed Sing).

[87] Ibid, s 35.

[88] Ibid, s 4.

[89] Ibid, Second Schedule.

[90] Ibid, s 3.

[91] Yahoo News, “Super-app, moomoo, is the only investment platform to break through top five most downloaded finance apps in Singapore in 2021 since its launch” (March 8, 2022) , online: <https://finance.yahoo.com/news/super-app-moomoo-only-investment-060000424.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAHsCPBDVzFGtIhHvpTNnDm4K3xRridHHv5Jda6JlFhvYtWQZopfo-wDweJCujr-srCIqwMBtWL-CrGeyUZ5btZ_UtKwj8wu-XaOIIGvhoQAi_VLjaYTSGgQT-ikAPaGZAF-9WQ_je1Akr4FSapghSFFauFl9k5HTb_jcRy1AIZ0C>.

[92] Ibid (for moomoo’s fight to be the top five most downloaded finance app in Singapore in 2021).

[93] See e.g. for the United States: Robinhood’s business model. See Investopedia, “How Does Robinhood Make Money?” (08 October 2022), online: <https://www.investopedia.com/articles/active-trading/020515/how-robinhood-makes-money.asp> .

[94] See e.g. for the United States: Robinhood. See CNBC, “Robinhood to pay $70 million for outages and misleading customers, the largest-ever FINRA penalty” (30 June 2021), online: <https://www.cnbc.com/2021/06/30/robinhood-to-pay-70-million-for-misleading-customers-and-outages-the-largest-finra-penalty-ever.html>.

[95] See the discussion on the UCTA, MA and FAA in the earlier sections.

[96] See e.g. JP Morgan Chase Bank v Springwell Navigation Corp [2008] EWHC 1186 (Comm) ; Deutsche Bank AG SGCA, supra note 1.

[97] Ibid.

[98] Bank Leumi (UK) plc v Wachner [2011] EWHC 656 (Comm) [Bank Leumi].

[99] Elise Bant & Jeannie Paterson, “Limitations on Defendant Liability for Misleading or Deceptive Conduct Under Statute: Some Insights from Negligent Misstatement” in K Barker, R Grantham & W Swain, eds, The Law of Misstatements: 50 Years on from Hedley Byrne v Heller (London, UK: Hart Publishing, 2015) at 162; K Barnett, “Causation, Remoteness and Calculation of Damages for Financial Mis-Selling” in Booysen, supra note 11 at para 7.065 [Barnett].

[100] See comments by judges in Deutsche Bank AG SGCA, supra note 1.

[101] Bank Leumi, supra note 98.

[102] Elders Trustee and Executor Co Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193 (FCA); Barnett, supra note 99 at para 7.084.

[103] Bank Leumi, supra note 98; Zaki v Credit Suisse (UK) Ltd [2011] 2 CLC 523 (Com Ct). Compare Wingecarribee, supra note 73; Rubenstein v HSBC Bank [2012] EWCA Civ 1184 [Rubenstein].

[104] Hadley v Baxendale (1854) 9 Ex 341; Note Transfield Shipping v Mercator Shipping Inc (The Achilleas) [2009] 1 AC 61 (HL) was rejected in Out of the Box Pte Ltd v Wanin Industries Pte Ltd [2013] 2 SLR 363 (SGCA).

[105] Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagon Mound (No 1)) [1961] AC 388 (PC); Overseas Tankship (UK) Ltd v The Miller Steamship Co Pty Ltd (The Wagon Mound (No 2)) [1967] 1 AC 617 (PC).

[106] Barnett, supra note 99 at para 7.076.

[107] South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191; Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20; Rubenstein, supra note 103.

[108] Royscot Trust Ltd v Rogerson [1991] 2 QB 297 (CA) was rejected in RBC Properties Pte Ltd v Defu Furniture Pte Ltd [2015] 1 SLR 997 (SGCA).

[109] Sim Poh Ping v Winsta Holding Pte Ltd [2020] 1 SLR 1199 (SGCA) at para 238.

[110] See Brickenden v London Loan & Savings Company of Canada [1934] 3 DLR 465 (PC) (for the Brickenden rule’).

[111] Hodgkinson v Simms [1994] 3 SCR 377 (SCC).

[112] Ibid; Peter Millett, “Equity’s Place in the Law of Commerce” (1998) 114(2) Law Q. Rev 214 at 225.

Does Copyright Last for Too Long in Singapore?

A PDF version of the article can be found here.

Does Copyright Last For Too Long In Singapore?

Desmond Chye*

ABSTRACT

It is conventionally accepted that copyright needs to last beyond the death of the author in order to incentivise authors to create works, and that the lengthy protection period is but just a small price to pay to promote greater creativity. This orthodox logic is however riddled with flaws. Principally, copyright actually provides very little economic incentives for the author to create to begin with. Moreover, an author’s non-monetary desire to publicly associate with his or her work does not readily apply after the author’s death. Times have also changed such that public policy concerns now militate against having an extensive copyright duration. Finally, copyright law as-a-whole has not sufficiently mitigated the impact of a long copyright on the public’s access to the work to the point where the long duration can be justified. This article therefore submits that the right duration should not exceed the life of the author.

I.                    INTRODUCTION

The conventional narrative is that copyright for authorial works should last a long time to economically incentivise authors to create creative works that would ultimately benefit society. In fact, so persuasive is this view that the global trend over the last two hundred years, of which Singapore is of no exception,[1] is to dramatically increase the length of the copyright term to truly biblical proportions: the life of the author plus 70 years after his or her death.[2] If we consider the average global life expectancy of a human today, at 72 years,[3] the average copyright term over an authorial work would easily exceed a hundred years! While this is a very good thing for the owner of the copyright and his or her heirs, the same cannot be said of the public at large as a generation of people would be deprived of the work’s benefits. The question is thus whether such an extensive copyright term strikes the right balance between promoting intellectual creation and society’s need for a free flow of information. This article finds that the current copyright duration does not achieve the right balance at all. To permit copyright to extend beyond the death of the author, let alone for another 70 years, is excessive. It is therefore proposed that copyright should be shortened to the life of the author at most.

II. EVOLUTION OF THE COPYRIGHT TERM

To understand how Singapore got to the point where the copyright term for authorial works is ‘life plus 70 years’, we need to look at the evolution of copyright in the common law world, starting from its origins in the United Kingdom (“UK”). It was not always the case that the copyright duration was very lengthy, or even pegged to the life of the author. In fact, when copyright began life as a creature of statute in the UK with the passing of the Statute of Anne 1709, it only lasted for a very short copyright period of time: a maximum of 28 years.[4] It was only in 1814 that the 28 year term was substituted for the life of the author. This lasted for a while until the Copyright Act 1842 which lengthened the term to 42 years from publication or until 7 years after the death of the author, whichever is longer. The 42 years period remained the status quo until the enactment of the Copyright Act 1911 (and then in Singapore through a proclamation made by the Governor of Singapore) which then extended the copyright term to ‘life plus 50 years’. This British duration then became the universally accepted minimum period across the world via the Berne Convention of 1948 (“Berne Convention”). The Berne Convention period was subsequently extended by another 20 years through the TRIPS Agreement of 1995.[5] Singapore adopted this 20 year extension on 1 July 2004 which has been retained in the new Copyright Act 2021.[6]

III. ANALYTICAL FRAMEWORK FOR THIS ARTICLE

As there are a myriad of arguments that may favour the current length of copyright, this article will split the analysis into four parts. The first part will deal with the economic arguments for the current copyright term. Here, the article will disprove the conventional narrative that authors are predominantly money-minded and thus need a copyright term that lasts beyond their deaths to economically incentivise them to create. The second part will explore the possible non-economic arguments for a long copyright and find that these are not sufficiently compelling to justify a multi-generational copyright. The third part will then argue that the policy arguments for the long copyright duration are outdated and unsound. In the final part, this article will posit that copyright law as-a-whole (subsistence, infringement and defences) has not sufficiently mitigated the impact of a long copyright on the public’s access to the work to the point where the long duration can be justified.

IV. ANALYSIS OF THE ECONOMIC ARGUMENTS

The argument here is that copyright “provides the economic incentive that is essential to the creation of new works”.[7] It goes like this: copyright grants authors exclusive rights in their works,  allowing them to gain financial rewards by monetising those rights.[8] A longer copyright term would thus mean a greater incentive to create.[9] If so, then the copyright term should last until the incentive value of a longer term diminishes to insignificance. To the world at large, this ‘vanishing point’ of marginal utility is determined to be somewhere between one to two generations after the author’s death.[10] The ‘economic incentive’ theory however rests on several flawed assumptions, which will be elaborated on below.

A.                 Creators are not ‘rational profit maximisers’

It is conventionally assumed that authors are ‘rational profit maximisers’ who would only be willing to expend time, energy and resources in proportion to the expected monetary gains from their work. This is however false as creators can be motivated by reasons besides money.[11] Examples of creators working for free would be those in the open source movement where programmers create and share software for free and Wikipedia where anonymous volunteers contribute content pro bono.[12] Closer to home, Singaporeans creators from all kinds of backgrounds have worked for free. Former Prime Minister Lee Kuan Yew donated royalties from his bestselling books to charitable causes.[13] Local artist Peter Kiew sketches strangers on the MRT without charge and would vehemently reject any attempt by contented recipients to pay him for his work.[14] In perhaps the most extreme example, vandals Andreas Von Knorre and Elton Hinz sprayed graffiti on Singapore’s MRT trains despite knowing full well that it would have meant hefty fines (and lengthy imprisonment).[15] These examples show that the call to create need not be from monetary incentives only. The desire to do a good deed, self-satisfaction from creating something or garnering social reputation (good or bad) may be just as incentivising as a pot of gold to the author.

B.                  Copyright gives too little economic incentives to create

Even if we buy the ‘rational profit maximisers’ theory, any money to be gained from a multi-generational copyright is too uncertain to be sufficiently consequential in incentivising people to create. The biggest issue is that the chance of a creative work being successful is not very high to begin with.[16] A writer’s odds of success are dismal. According to the Huffington Post, only 2% of all books will sell beyond 5,000 copies.[17] Digitalisation has also enabled many to be self-publishers, saturating the market and putting success out of reach of all but the lucky few.[18] A similar story is also unfolding for artists. Only 19% of US artists made over $50,000 USD a year in 2016, well below the median US household income of $58,000 USD. This is likely to be worse in Singapore as our society does not regard art as particularly essential.[19] On the music front, songwriters are also being pummelled. In a recent article by the UK’s Guardian newspaper, it was estimated that only one in 10 artists who sign to labels go on to achieve commercial success.[20] The research sector also does not appear to give much profit to its authors. The famous economist Joseph Stiglitz observed that the bulk of important research originated from non-profit governmental or educational institutions, which pay researchers a salary to continue researching, rather than from commercial entities who compensate the researchers with intellectual property instead.[21] While YouTube content creators appear to be earning substantial coin from their work,[22] this is likely an illusion. A recent German study found that 96.5% of aspiring YouTubers fail to earn enough money to pass the US poverty line.[23] These examples illustrate that a long copyright would be hardly motivational for creators when their works can barely support themselves, let alone their successors.

C.                 The lottery theory fails to justify a long copyright

Perhaps the ‘economic incentive’ from copyright is not from assured returns but rather from the hope of getting great rewards. Under the ‘lottery’ theory, creators are willing to toil away despite the low chances of financial success because they seek the chance to strike the proverbial pot of gold at the end of the rainbow.[24] Copyright would be instrumental here as it protects the chance of winning the lottery. The longer the term, the more chances the creator will get to win big.[25] While this may be a plausible reason in more risk-taking nations, it is unlikely to be so for Singapore because we are notoriously risk-adverse.[26] In fact, a key concern for anyone joining the Singapore art industry is the lack of a stable income to offset the considerable time and monetary investment required to join it.[27]

Aside from whether the lottery theory adequately explains why authors create, there are also serious doubts as to whether copyright law should promote risk-taking when the chances of success are so low.[28] This is because people who gravitate towards this kind of risk taking may be afflicted by an ‘optimism bias’ that clouds their ability to weigh the pros and cons of their actions properly and ultimately encourages them to make unwise decisions or act imprudently.[29] It is thus submitted that copyright should not be too long as it would pander to such dangerous behaviour.

D.                Copyrighted works generate most of their income at the start of their term

Another problem with the conventional narrative is the assumption that a copyrighted work would generate earnings throughout its entire copyright term, which is false for the vast majority of works. The bulk of the income from a copyrighted work actually comes from the immediate years post publication. For books, how long it stays on the shelf is up to the ‘vagaries of popular taste’.[30] If a book is no longer popular, the publisher would stop selling it to make way for more in-demand books.[31] The same applies to other works like art, music and movies in today’s consumerist society. This phenomenon is especially problematic for the author because we live in an era of short attention spans where the purchasing public’s interest in a work can surge rapidly but also fade at a similar pace.[32] In essence, the author’s work must be in demand now or it may never be so. While research articles may be more evergreen,[33] it is often the case that their contents cannot be monetised for a significant amount of time post publication,[34] if they can even be monetised at all.[35]

E.                  Authors do not necessarily benefit from the copyright

There are also numerous situations where an author may not benefit from the copyright in his or her work at all. Although the default position in the Copyright Act 2021 is that the author is the first owner of the copyright in his or her work,[36] the exceptions to this rule can encompass a large proportion of copyright work creators. An example is the employer-employee exception. Unless one is lucky, we will all be employees at some point in our lives, and in predominantly white-collar Singapore,[37] this means we will write many literary works for the organisation we are serving. These works may be commercially valuable to us, the white-collared author, but the copyright would be almost always vested in the employer as the default position is that the employer automatically acquires the copyright in the employee’s works if the works were done in the course of the author’s employment.[38] This is made worse by how ‘course of employment’ is liberally interpreted to also include things that the author ought to have created for the employer and not the employer’s rivals.[39] It is thus rare for the public at large to ever benefit from the copyright in their work despite contributing so disproportionately to the overall volume of copyrighted works.

F.                  More monetary rewards do not equal more creativity

Lastly, the conventional narrative’s assumption that there is a causal link between monetary rewards and greater creativity is also suspect. Dangling monetary rewards may instead undermine the quality of works produced.[40] To explain why this is so, we need to understand how creators are motivated to create. A creator has two sources of motivation: the first is an intrinsic one to get self-satisfaction from expressing one’s creativity, and the second is an external one to create for some rewards, usually monetary.[41] While having an excess of the first is not problematic, having too much of the second is. If the extrinsic motivator becomes so strong that the creator perceives it as controlling, then creativity drops.[42] This is because the creator would treat the creative activity as “a means to an end rather than an end in itself”, making him less personally invested in the work at hand, resulting in a less creative product.[43] It is thus said that [t]ruly creative people respond most strongly to some innate drive to solve problems or to produce art and are unlikely to be encouraged to make a greater effort by the promise of profit if their work is successful” .[44]

The correlation between lower creativity and higher monetary incentives is backed by empirical evidence. Experiments by various psychologists have shown that “higher monetary incentives [lead] to worse performance” when cognitive work is being done.[45] Outside of the university context, we see this play out regularly in the arts scene, especially in the movie sector. Some of the most commercially successful movies have been slammed for being ‘unimaginative’. Take the famously panned yet commercially successful third movie of the third trilogy of the popular Star Wars genre as an example. A quick look at the influential movie review aggregation website Rotten Tomatoes reveals that the plot was generally criticised as ‘bland’ and ‘derivative’ by the audience, with much of the problem caused by the studio’s desire to stick to tried and tested tropes to maximise sales.[46] Such are the perils of using money to encourage more creative works.

V. ANALYSIS OF THE NON-ECONOMIC ARGUMENTS

There are two possible non-economic arguments for a long copyright duration: to protect the creator’s moral rights, and to cater to the creator’s familial instincts to provide for his or her family. This section will look at each in turn and conclude that both are weak justifications for a long copyright term.

A.                 The ‘moral rights’ argument is weak

The moral rights argument goes like this: authors have a personal connection with their work. Thus, they want to protect their personality as expressed in it.[47] Conferring on authors ‘moral rights’ in their work, such as the rights of disclosure, attribution and integrity, enable them to remain publicly associated with their work.[48] Without such rights, authors would not be motivated to create new works as their expression would just be appropriated by someone else post publication.[49] In the context of the copyright duration, moral rights enable the author (and his or her immediate successors) to continue to require attribution as a condition precedent to further reproduction of his or her work. This would then allay the author’s concerns that his or her work would be passed off by someone else, thereby encouraging the author to create more works.

However, the moral rights rationale does not justify copyright lasting beyond the author’s death. As perceptively observed by Ricketson, the “authors’ natural concern to protect their moral rights during their lifetime becomes less natural after the author’s death”.[50] Moreover, there are also no practical benefits to be gained by authors from the way their work is treated post death.[51] Perhaps the preservation of one’s legacy after death is more compelling on those who believe in the existence of an afterlife. To these authors, the prospect of looking down from above to see their work still being attributed to them might be the motivation to create while they still mingle with the living. This kind of motivation is however unlikely to be prevalent amongst Singaporean authors as only 34.5%[52] of the population subscribes to a religion that believes in an afterlife.

B.                  Copyright’s appeal to the author’s familial instincts is minimal

The next oft-cited reason for why copyright has to last so long is the need to appeal to the author’s natural instincts to provide for his or her spouse and children. While this can be a strong emotional pull on individuals to create, it simply does not apply to the vast majority of creators. As explained previously, the financial incentives from creating copyrighted works are not usually high enough to be even capable of sustaining the author during his life, let alone his or her next generation and spouse. This theory also does not adequately explain why some of the most creative people did not have any family to leave their works behind for. Leonardo da Vinci, John Locke and Ludwig van Beethoven were all single throughout their life but yet they each produced some of the world’s most influential and timeless works. In Singapore, the iconic singer-songwriter and film director Dick Lee and legal academic cum accomplished playwright Eleanor Wong are also similarly without any offspring to leave their influential works to. Even if we do recognise the power of familial instincts as a core driver of creative content, its relevance to Singapore is diminishing as more and more Singaporeans are shunning children and even marriage.[53]

VI. ANALYSIS OF THE POLICY ARGUMENTS

A.                 A multi-generational copyright fails to advance Singapore’s societal objectives

It is often said that the primary policy reason why copyright lasts beyond the death of the author is to achieve the societal objective of enabling authors to provide for their family after their death,[54] presumably so that the government does not have to pick up the tab. This reason is however flawed on many levels. The most obvious flaw is that this view is hopelessly out of date. While it is true that copyright was necessary to support the immediate descendants of the author when the copyright term was extended to life plus 50 years in 1911, we no longer live in that bygone era. Back then, most families relied on a single breadwinner for income[55]. An author who spent many unpaid years creating his work but perished not long after its publication would have led to his family becoming destitute, and this was not a remote possibility as a person’s life in that era was often brutish, nasty and short.[56] Authors and their families no longer face such a predicament these days as single income families are now the minority in Singapore.[57] When you add in the extra facts that household incomes have ballooned[58] and education levels have skyrocketed,[59] it would be even more ludicrous to think that an inheritable copyright is necessary to stave off family poverty. The reality today is that an author’s premature death and corresponding demise of the copyright would not condemn the author’s family to crippling poverty because the surviving family members would likely be rich enough to care for themselves and highly employable in their own right. Moreover, as the average lifespan has increased dramatically in the last hundred years,[60] there would now be more than enough time for authors to earn enough money to bequeath to their family by producing more works, eliminating the need to rely on continued copyright royalties from any one particular work after the author’s death.

Another flaw with an inheritable copyright is that it goes against the principles of a meritocratic society. This is especially problematic for Singapore because we strongly aspire to achieve such a society.[61] A meritocracy is a social system where people get ahead in life based on their own accomplishments rather than on extraneous factors, such as their parents’ social class or wealth. As such, the core aspect of a meritocratic society is that one must have earned what he has received – an individual’s wealth or status must have been ‘merited’ by his deeds. Inheriting the fruits of someone else’s labour would thus be incongruous with such a society. Unfortunately, this is exactly what an inheritable copyright does. The descendants played no part in the creation of the author’s work but yet are allowed to benefit from it. In short, they did not deserve the copyright proceeds at all.

While this article recognises that the meritocracy argument can be extended to include the banning of all forms of inheritance, it makes no comment on it.[62] It would however suffice to say that an inheritable copyright poses more problems than other kinds of inheritable property because, unlike those, copyright can have a very detrimental impact on society’s technological development if it lasts for too long. Property rights are inherently ‘selfish’ as they deliberately create zones of exclusivity.[63] This is problematic when the property that is fenced up is potentially useful information for society. If society cannot access the information freely for multiple generations, this can produce a significant drag on its technological progress. It is therefore imperative that we treat an inheritable copyright as much more than just a mere bequest to one man.

Conferring upon the descendants of the author a windfall would also have the perverse impact of discouraging them to be as motivated to create their own intellectual property. In a capitalistic society like Singapore’s, the enticement to produce is the core driver of productivity in the economy so the most effective way of enticing people to produce would be to distribute income and wealth according to the productivity of each person.[64] This is however absent in the case of an inheritable copyright because the copyright which is inherited by the author’s successor would be divorced from the successor’s own productivity. As a result, since the author’s successor would be richly rewarded without the need to work anyway, the successor would be naturally discouraged from creating his or her own works.

Furthermore, permitting long copyrights would entrench the dominance of the reigning intellectual property giants of the world at the expense of global economic development. It is a common criticism of intellectual property rights that they are truncheons wielded by the more developed world to club the less developed into delaying their rise up the economic value chain. Although one would no longer think of Singapore as a developing nation these days, we are apparently still being clubbed by more developed nations. Despite the shift towards a knowledge based economy, we remain a significant net importer of intellectual property.[65] To preserve the copyright term would thus perpetuate the imbalanced trade relationship between the intellectual property giants and us. Moreover, as Singapore has itself gained quite a fair repertoire of intellectual property, there is now the moral issue of whether we should also partake in the same clubbing of less developed nations for our own selfish gains.

B.                     A long copyright term is superfluous to protect the author’s privacy

A potentially more convincing policy reason for a long copyright may be that it serves an important role in protecting the author’s privacy. This would be especially pertinent to Singapore as we do not have a statutory or common law right to privacy per se.[66] It might appear odd to use copyright to protect one’s privacy but it can be a powerful tool if the right conditions are met. How it does so is by permitting the copyright owner to restrain any unauthorised reproduction of the copyrighted material which then indirectly prevents its dissemination to the public. An example of how this would work in practice is the fact scenario in Lee Wei Ling v Attorney-General.[67] The dispute there revolved around a contractual arrangement between the Singapore Government and former Prime Minister Lee Kuan Yew regarding the rights in some transcripts of interviews of the latter by the former. Under the arrangement, the former Prime Minister was to have the copyright over the transcripts while the Government was to have only the physical right to possession to them. This legal construct had the effect of restraining the government from reproducing the transcripts without the former Prime Minister’s consent, effectively granting him the right to privacy in those documents.[68]

Interestingly, the previous iteration of the Copyright Act[69] also facilitated this need for greater privacy safeguards in Singapore by enabling copyright to be perpetual in unpublished works.[70] This was possible because the copyright term in an authorial work was pegged to the time when the work is first published or made publicly available.[71] The relevant provisions were however repealed in the Copyright Act 2021 as Parliament found that the need for a bigger pool of works in the public domain outweighed the justifications for privacy.[72]

However, privacy is ultimately not a strong justification for a long copyright. For one, there is a much better way to protect one’s privacy: through the breach of confidence tort. Under this better method, the protection offered would be more comprehensive, there is no need for the information to be fixed in some material form,[73] more types of information can be protected,[74] and there are also fewer ways for a defendant to defend his reproduction of information.[75] Another more fundamental reason is that protecting the author’s privacy is not the purpose of copyright law. Copyright in Singapore has always been viewed as a means to an end – the end being the creation of works for the public to eventually enjoy.[76] It would thus be illogical to increase the copyright term so as to protect works from ever being seen by the public.

C.                 A long copyright term is impractical

Even if we ignore the policy arguments raised thus far, there is still the issue of impracticality arising from copyright lasting multiple generations, in particular, the problem with orphan works. Orphan works are copyrighted works whose owner cannot be identified or located because too much time has elapsed since the author’s death.[77] Such works are highly detrimental to society because “[t]he inability to request for permission to use the work means that it cannot be legally used, even if the prospective user has spent much time and effort to find the owner”.[78] Unfortunately, no adequate solution has been found for this pressing problem. An ‘orphan works registry’ was floated as a possible addition to the Copyright Act 2021 but it was shot down by the law reform committee because it was deemed too administratively costly for the government to operate and would have also added litigation costs for the parties should they fail to come to an agreement.[79] Aside from this copyright registry idea, other methods involving the government or a court determining the appropriate copyright fee were also proposed[80]. These proposals were similarly rejected, on the basis that they would  either lead to undue market interference, would be too costly for the government to administer or insufficient to prevent costly litigation between the copyright owner and the copyright user.[81]

In light of the foregoing, it is submitted that we have made life unnecessarily difficult for ourselves. The ‘Gordian’s knot’ can be easily untied if we just reduce the copyright term to only the author’s life. There would no longer be any orphan works to worry about as it would become very easy to know when the copyright has expired – when the author’s obituary appears in the newspapers.

VII. IS THERE SUFFICIENT MITIGATION?

Notwithstanding the points raised thus far, some may still argue that the nature of copyright as a limited monopoly right can still accommodate the longer ‘life plus 70 years’ copyright term without overly compromising the public’s free access to the work. The thrust of such an argument would be that the legal requirements to find copyright subsistence and infringement are broad enough such that the public can still make use of the copyrighted work freely for useful purposes. It is however submitted that the legal exceptions to copyright’s exclusive power are actually insufficient and even if they may be, they are built on pillars of sand.

To establish copyright infringement, the owner must prove that, firstly, copyright exists in the work allegedly infringed; secondly, there was a substantial taking of the owner’s work; and, thirdly, the alleged infringer does not have any defences that can be raised. This article will look at each step in turn.

A.                 Copyright subsistence

Beginning with the first step, finding copyright subsistence, the key criterion that the copyright owner needs to prove is that the copyrighted work in question had sufficient ‘originality’. This is found when the author applied intellectual effort towards the creation of the work.[82] As a result, only expressions of facts and ideas can give rise to copyright. This requirement per se is however not particularly impactful as anything other than an unorganised dump of raw facts or ideas would have sufficient originality to find copyright. The common law therefore created the additional de minimis threshold which the work must pass to have copyright.[83] Under this rule, the work must be sufficiently ‘consequential’,[84] which is when the work is not ‘commonplace or banal’.[85]

One may argue that it is through this de minimis threshold that the effects of a long copyright can be mitigated. If common phrases could be the subject of copyright then the free flow of information in society would be greatly constricted. It could even go as far as undermining the “evolution of a language and hence the culture of a society”.[86] As such, by providing courts with a legal mechanism to exclude certain kinds of works from falling under the protection of copyright based on how banal or commonplace they are, the law can avoid the problem of allowing such works to have copyright.

However, it would appear that the de minimis threshold is incongruous with the Copyright Act 2021. To see whether an authorial work is sufficiently consequential to enjoy copyright would amount to evaluating the work on its merits but that is not permitted under the Act – as per a plain and purposive reading of it.[87] The common law de minimis requirement was therefore introduced per incuriam and would likely crumble in the face of a direct challenge to its validity.

Moreover, even if some legal witchcraft can be conjured up to keep it consistent with the statute, the effect of the de minimis threshold is rather minimal. Only the most banal and commonplace works appear to be deprived of copyright. This is as very basic things such as ‘rudimentary drawings’ of fire doors[88] and telephone directories[89] have been found sufficiently consequential to have copyright. If such common and useful things can remain locked behind a copyright paywall, then it is hard to say whether the de minimis threshold has a more than de minimis impact on preventing works from being unduly fenced up from the public domain.

B. Copyright infringement

Moving on to the next step, the question is whether there was a ‘substantial taking’ of the copyright owner’s work. The legal test to establish this is quite lenient to the copyright owner and thus fails to mitigate the negative impact of a long copyright. Although the test appears difficult to make out as the alleged infringer must have overly appropriated the benefit of another’s skill and labour,[90] it may not actually be so as the copyright owner can avail himself to multiple legal doctrines to make it much easier to find a substantial taking. The first is the prima facie presumption of copying which would arise whenever the defendant’s work is substantially similar to the plaintiff’s work and the defendant had prior access to it.[91] This would then shift the burden of proof to the defendant to then show that he did not copy the plaintiff’s work. As we all know, whoever who bears the burden of proof would be at a disadvantage in court. This is further compounded by the fact that the defendant’s intentions are irrelevant and even subconscious copying would amount to an infringement.[92]

The second stone around the defendant’s neck is the potential for infringement to be found even though the defendant’s work did not share any identical portions with the plaintiff’s work – the ‘altered copying’ situation. In such cases, the defendant’s work did not directly lift any portion of the plaintiff’s work into his, but rather, incorporated the plaintiff’s work with modifications. Intuitively, one would expect no finding of infringement since what is appropriated would be the plaintiff’s idea and not his expression of the idea. Case law however disagrees and finds that an idea can be protected so long as the idea taken was a ‘detailed’ one.[93] In the English case of Designers Guild Ltd v Russell Williams (Textiles) Ltd,[94] the plaintiff claimed that her fabric design, which comprised flowers superimposed onto a red and white striped background, was infringed by the defendant. Both designs however did not share any identical elements: the flowers were of a different type and the stripes were of a different thickness. Only the overall impression was similar. The plaintiff therefore claimed that the defendant appropriated her idea of using ‘flowers superimposed on a red and white striped background’. The House of Lords held that this was sufficient to find infringement by the defendant. In their Lordships’ opinion, there was no need for any identifiable part of the defendant’s work to be the same as the plaintiff’s for there to be infringement as having sufficient similarity between the two would suffice. As such, since the defendant’s and plaintiff’s works were similar, there was infringement. [95] In so holding, the court permitted ideas to be protected. Recognising altered copying poses a big problem for copyright law because it blurs the line between ideas and expressions. Should copyright start protecting the former then the pool of information that the public can use freely would be significantly decreased and this would be greatly exacerbated if the copyright term was biblically long.

C. Defences to copyright infringement

We shall now turn to the last step – whether the defendant can avail himself of any defences to excuse his act of infringement. Numerous permitted uses in the Copyright Act 2021 would excuse an act of infringement.[96] Except for the open-ended general fair use defence in section 190[97] where the only condition to satisfy is that the defendant’s use must be fair, which is to be assessed by reference to all factors, including the Statutory Factors,[98] the other defences are all narrowly defined. The general fair use defence is therefore the only plausible means to mitigate the effects of a long copyright sufficiently, but as will be shown below, it fails to do so.

It is submitted that the most important thing needed to mitigate the effect of a long copyright for the general fair use defence is to permit the public to freely use the copyrighted work so long as the purpose of doing so is to build upon it. This would be possible if the ‘transformative use’ doctrine is used to find fair use. Under the doctrine, fair use would be found if the defendant’s work does not “merely supersede the objects of the original creation” but rather “adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message”.[99] Such an approach would provide the right balance between the protecting the copyright holder’s interests and the public’s because the copyright user would be allowed to benefit society using the author’s works so long as he does not directly compete with the author by using his works for the same purposes as the author.

However, the open-ended general fair use defence is a surprisingly narrowly circumscribed one that has no room for the transformative use doctrine. It remains to be seen whether the local courts would embrace the transformative use doctrine[100] but it is unlikely that they would. For one, Singapore has retreated from a purely utilitarian approach to copyright[101] which would encourage courts to support the doctrine. We are now placing greater emphasis on the ‘moral’ aspects of the copyright, as evidenced by how the new Copyright Act 2021 has an entire section devoted to the author’s moral rights, which include, amongst others, the ‘right to be identified’.[102] Apart from this, the Singapore Government is also trying to brand copyright infringement as an act of ‘stealing’ in the minds of the public.[103] Another reason is that the structure of the Copyright Act 2021 is at odds with the transformative use doctrine. The Statutory Factors expressly require the courts to consider not just the purpose of the infringement, but also the effect the infringement has on the copyright owner’s income and the nature of the work taken[104] which must necessarily mean that the transformative use doctrine by itself, which looks only at the purposes of the works, cannot be decisive.

Notwithstanding the above, even if we treat the general fair use doctrine as sufficient mitigation, there is still the possibility that an open-ended fair use doctrine is incongruent with Singapore’s treaty obligations under the TRIPS Agreement. Article 13 of TRIPS sets out a three-step test to evaluate the legitimacy of any exceptions to copyright: the exception must be confined to certain special cases, the exception must not conflict with the normal exploitation of the work, and the exception does not unreasonably prejudice the legitimate interests of the right holder.[105] A local court has yet to interpret Article 13 but a very persuasive body, The World Trade Organisation (“WTO”), has done so. A WTO panel in the United States interpreted Article 13 strictly: each criterion acts on a cumulative basis, with each step constituting a separate and independent requirement.[106] As Article 13 begins with the criterion that the exceptions to the copyright owner’s rights must be confined to ‘certain special cases’, the overriding obligation imposed by TRIPS on member states must be to ensure that any exceptions to the copyright owner’s rights are narrow in scope and clearly defined – in short, no open-ended exceptions are permitted.[107]

VIII. A COMPROMISE SOLUTION?

Even if we were to ignore all the arguments above and decide to keep the ‘life plus X years’ formulation, the length should still be shortened to the original Berne Convention duration. This is as the recent extension to 70 years from 50 appears to have been made on dubious grounds. Rather disturbingly, the 20 year extension was primarily driven by administrative convenience rather than a rigorous assessment of whether the extension was justified from the standpoint of the author or the public. As observed by Dworkin, the main reason for the harmonisation of the copyright term to 70 years from 50 years is that it was more “convenient to harmonise upwards than downwards”.[108] This was as the European Union (“EU”), a major proponent of the TRIPS Agreement, feared that the process of making ‘70 year’ member states reduce their term to 50 years would have entailed too many transitional provisions and would have set back the EU’s objective of creating a single market by the dawn of the 21st century.[109] It is thus submitted that the TRIPS copyright extension was an act of a politician’s wants overruling the public’s needs which cannot be justified.

IX. CONCLUSION

Gripes with copyright have existed since the beginning of copyright itself. Achieving the right balance has always been difficult and will continue to be so. It is however worrying that the trend in the last 100 years is to blindly adhere to a mantra of continuous extensions to the copyright term which is increasingly divorced from the reality on the ground. Copyright holders are now akin to ‘dynastic kings’ who control a rapidly expanding domain of intellectual property that they can pass down to multiple heirs before entering the commons. Unfortunately, the great irony is that this system helps neither the author nor the public. We therefore need to shake off our rose-tinted glasses and see the conventional narrative of ‘long copyrights equal great benefits to society’ for what it really is – outdated and unsound reasoning. Ultimately, it is hoped that the points raised in this short article can prod policymakers to pare back the unduly long copyright duration to a more reasonable one that lasts no longer than the life of the author.



*  LLB (Candidate), National University of Singapore, Class of 2023. All errors in this article remain my own.

[1] Singapore adopts the ‘life plus 70 years’ duration in the Copyright Act 2021, s 114 [Copyright Act 2021].

[2] Agreement on Trade-Related Aspects of Intellectual Property Rights, 15 April 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, 1869 UNTS 299, 33 ILM 1197 (1994) art 9(1) (entered into force 1 January 1995, as amended 23 January 2017) [TRIPS Agreement].

[3]The World Bank, “Life expectancy at birth, total (years)”, online: <https://data.worldbank.org/indicator/SP.DYN.LE00.IN> (last accessed 9 Dec 2021).

[4] There was an initial term of 14 years with an additional 14 years if the author was still alive after the initial term’s expiry.

[5] TRIPS Agreement, supra note 2, art 9(1).

[6] Copyright Act 2021, supra note 1, s 114.

[7] Stanley M. Besen & Leo J. Raskind, “An Introduction to the Law and Economics of Intellectual Property” (1991) 5:1 J. Econ. Persp. 3, 5.

[8] Ibid.

[9] Ibid.

[10] 164 countries have signed the TRIPS Agreement which mandates that the necessary copyright duration should be the length of the author’s life plus 70 years after the author’s death. This duration is likely to encompass the life of the author’s immediate successor and the generation after that, depending on the age of the immediate successor when the author created the work.

[11] Diane Leenheer Zimmerman, “Copyrights as Incentives: Did We Just Imagine That” (2011) 12:1 Theoretical Inq L 29, at 43 [Diane Leenheer Zimmerman].

[12] Ibid.

[13] Mary Kwang, “Royalties will go to education in China and Singapore” (9 Oct 1998), Singapore Press Holdings online:<http://www.vrijmetselaarsgilde.eu/Maconnieke%20Encyclopedie/FMAP~1/REFORM/reform3/lee2_1009.html> (last accessed 9 Dec 2021).

[14] Justin Ong, “‘No use for money’: 72-year-old artist sketches strangers on the MRT for free” (29 Dec 2020), The Today online: <https://www.todayonline.com/singapore/no-use-money-72-year-old-artist-sketches-strangers-mrt-free> (last accessed 9 Dec 2021).

[15] Elena Chong, “Two Germans who vandalised MRT train in Bishan depot get 9 months, 3 strokes each” (5 Mar 2015), The Straits Times online <https://www.straitstimes.com/singapore/courts-crime/two-germans-who-vandalised-mrt-train-in-bishan-depot-get-9-months-3-strokes> (last accessed 9 Dec 2021).

[16] Diane Leenheer Zimmerman, supra note 11, at 38.

[17] William Dietrichhe, “The Writer's Odds of Success” (4 Mar 2013), The Huffington Post online: <https://www.huffpost.com/entry/the-writers-odds-of-succe_b_2806611> (last accessed 9 Dec 2021).

[18] Ibid.

[19] Prisca Ang & Chelsea Kiew, “Artists defend value of creative work to society after survey sparks debate” (16 Jun 2020), The Straits Times online: <https://www.straitstimes.com/lifestyle/arts/artists-defend-value-of-creative-work-to-society-after-survey-sparks-debate> (last accessed 9 Dec 2021).

[20] Rhian Jones, “Songwriters fight to be heard in streaming revenues debate” (12 Feb 2021), The Guardian online: <https://www.theguardian.com/music/2021/feb/12/songwriters-fight-to-be-heard-in-streaming-revenues-debate> (last accessed 9 Dec 2021).

[21] Joseph E. Stiglitz, “Economic Foundations of Intellectual Property Rights” (2008) 57 DUKE L.J. 1693, at 1697.

[22] Amanda Perelli, “How much money YouTubers make, according to dozens of creators”, Business Insider online: <https://www.businessinsider.com/how-much-money-youtube-creators-influencers-earn-real-examples-2021-6> (last accessed 9 Dec 2021).

[23] Bloomberg, “Why ‘Success’ on YouTube Still Means a Life of Poverty” (27 Feb 2018), Fortune online: <https://fortune.com/2018/02/27/youtube-success-poverty-wages/> (last accessed 9 Dec 2021).

[24] F.M. Scherer, “The Innovation Lottery”, in Rochelle Dreyfuss et al., eds., Expanding The Boundaries Of Intellectual Property: Innovation Policy For The Knowledge Society 3 (Oxford: Oxford University Press, 2001).

[25] Ibid.

[26] Sharon Ong, “Risk aversion among Singaporean youth, survey reveals” (20 Sep 2019), ASEAN Economist online: <https://www.aseaneconomist.com/risk-aversion-among-singaporean-youth-survey-reveals/> (last accessed 9 Dec 2021).

[27] Sandra Davie, “askST: My daughters want to study fine arts. Should I worry?” (18 Apr 2021), The Straits Times online: <https://www.straitstimes.com/singapore/parenting-education/askst-my-daughters-want-to-study-fine-arts-should-i-worry> (last accessed 9 Dec 2021).

[28] Diane Leenheer Zimmerman, supra note 11, at 42.

[29] Diane Leenheer Zimmerman, supra note 11, at footnote 55 citing Christine Jolls, “Behavioral Law and Economics” in Peter Diamond & Hannu Vartiainen, eds, Behavioral Economics And Its Applications (Princeton: Princeton University Press, 2007) 115 and Peter R. Harris, Dale W. Griffin, & Sandra Murray, “Testing the Limits of Optimistic Bias: Event and Person Moderators in a Multilevel Framework” (2008) 95:5 J. Pers & Soc Psychol 1225.

[30] Ian Kilbey, “Copyright duration? Too long!” (2003) 25:3 E.I.P.R. 105 [Ian Kilbey].

[31] Ibid.

[32] Dream McClinton, “Global attention span is narrowing and trends don't last as long, study reveals” (17 Apr 2019), The Guardian online: <https://www.theguardian.com/society/2019/apr/16/got-a-minute-global-attention-span-is-narrowing-study-reveals> (last accessed 9 Dec 2021).

[33] Ibid.

[34] OLR Research Report, “R&D life cycles” <https://www.cga.ct.gov/2015/rpt/2015-R-0207.htm> (last accessed 9 Dec 2021): The length of time between the research & development phase and the monetisation of the intellectual property varies from industry to industry. However, what is common to all research works is that there is usually a significant length of time between the creation of the intellectual property and its commercialisation.

[35] Not all kinds of research can give rise to a valuable copyright. Copyright only protects the expression and not the ideas of the author so the nature of the copyright in a research work can be useless from a commercial standpoint. A case in point is the copyright in a telephone book. Only the selection and arrangement of the telephone numbers listed in the book would be protected and not the numbers per se. This is despite the latter likely taking the most time to compile and is the most valuable aspect of the book. As a result, a rival company can just take the numbers and use them in their book so long as the selection and arrangement are sufficiently different. See Global Yellow Pages Ltd v Promedia Directories Pte Ltd [2016] 2 SLR 165 [Global Yellow Pages Ltd].

[36] Copyright Act 2021, supra note 1, s 133(1)(a).

[37] Ministry of Manpower Singapore, “Labour Force In Singapore 2017” <https://stats.mom.gov.sg/iMAS_PdfLibrary/mrsd_2017LabourForce_survey_findings.pdf> (last accessed 9 Dec 2021) at Chart 19.

[38] Copyright Act 2021, supra note 1, s 134(3).

[39] See Nanoflim Technologies International Pte Ltd v Semivac International Pte Ltd [2018] 5 SLR 956.

[40] Diane Leenheer Zimmerman, supra note 11, at 49.

[41] Edward L. Deci & Richard M. Ryan, Intrinsic Motivation and Self-determination in Human Behavior (Springer, 1985) at 66, 149, 310.

[42] Ibid.

[43] Ibid.

[44] Diane Leenheer Zimmerman, supra note 11, at 54.

[45] Dan Ariely, Uri Gneezy, George Loewenstein & Nina Mazar, “Large Stakes and Big Mistakes” (2008) 76 Rev. Econ. Stud. 451.

[46]Rotten Tomatoes, “Star Wars: The Rise of Skywalker” <https://www.rottentomatoes.com/m/star_wars_the_rise_of_skywalker> (last accessed 9 Dec 2021).

[47] Sam Ricketson, “The Copyright Term” (1992) 23 International Review of Intellectual Property & Competition Law 753 at 771-772 [Ricketson].

[48] Cornish, “Authors in Law” (1995) 58 Modern Law Review 1 at 8-11.

[49] Ricketson, supra note 47, at 771-772.

[50] Ibid, at 773.

[51] Ian Kilbey, supra note 30.

[52] Singapore Department of Statistics, “Singapore Census of Population 2020” <https://www.singstat.gov.sg/-/media/files/publications/cop2020/sr1/findings.pdf> (last accessed 9 Dec 2021) at Chapter 5: Religions that believe in an afterlife are Christianity, Judaism and Islam.

[53] Grace Ho, “Fewer S'poreans marrying and having children: Population census” (16 Jun 2021), The Straits Times online: <https://www.straitstimes.com/singapore/politics/fewer-sporeans-marrying-and-having-children-population-census> (last accessed 9 Dec 2021).

[54] Gerald Dworkin, “Intellectual Property Rights: What Are Appropriate Terms of Protection” (1997) 18 Sing L Rev 553 at 563 [Gerald Dworkin].

[55] Pundarik Mukhopadhaya, “Changing labor-force gender composition and male-female income diversity in Singapore” (2001) 12:4 Journal of Asian Economics 547 at 552, DOI: <10.1016/S1049-0078(01)00102-6>; There is no data for Singapore prior to 1975. However, the data from that point onwards shows a massive increase in female participation in the workforce while male participation remained largely the same which equates to a demise in single income families.

[56] Ministry of National Development Singapore, “Our Early Struggles” <https://www.mnd.gov.sg/our-city-our-home/our-early-struggles> (last accessed 9 Dec 2021).

[57] Justin Ong, “Rising household incomes, more working couples in Singapore over past decade: Census” (18 Jun 2021), The Straits Times online: <https://www.straitstimes.com/singapore/rising-household-incomes-more-working-couples-in-singapore-over-past-decade-census> (last accessed 9 Dec 2021).

[58] Since independence, Singaporeans have become some of the richest people in the world. In 2020, the Gross Domestic Product per capita was $59,797, and that was notwithstanding the COVID-19 pandemic’s catastrophic effect on the local economy (See The World Bank, “GDP per capita (current US$) – Singapore” <https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=SG&most_recent_value_desc=true> (last accessed 9 Dec 2021)).

[59] Goh, C. B., & Gopinathan, S., “Education in Singapore: Development since 1965” in B. Fredriksen & J. P. Tan, eds, An African Exploration of the East Asian Education (Washington, DC: The World Bank, 2008) 80-108.

[60] Singapore’s life expectancy for men and women were 81.4 years and 85.7 respectively in 2019 (See Channel NewsAsia, “Singaporeans' life expectancy among highest in the world: Public sector report” <https://www.channelnewsasia.com/singapore/public-sector-report-life-expectancy-spor-covid-19-570646> (last accessed 9 Dec 2021)). There is no data for Singapore’s average life expectancy pre-1950. However it is unlikely to be more than the UK’s which was 51 years for men and 55 years for women in 1910 (See Jane Kirby, “Life expectancy in Britain almost 30 years higher than a century ago” (1 Sep 2015), The Independent online: <https://www.independent.co.uk/life-style/health-and-families/health-news/life-expectancy-in-britain-almost-30-years-higher-than-a-century-ago-10481491.html> (last accessed 9 Dec 2021)). This would mean a 30-year increase for both men and women’s life expectancy since the Copyright Act 1911.

[61] Although there has been some public dissatisfaction of late with the concept of a meritocracy in Singapore, chiefly because it can ironically promote social ossification and elitism, the political leadership still supports the meritocratic ideal (See, Melissa Heng, “Meritocracy still key principle for recognising individuals in Singapore, says Ong Ye Kung” (27 Jul 2019), The Straits Times online: <https://www.straitstimes.com/singapore/meritocracy-still-key-principle-for-recognising-individuals-in-singapore-says-ong-ye-kung> (last accessed 9 Dec 2021)).

[62] If you are interested, this article talks about whether inheritance is justified: Haslett, D. W. “Is Inheritance Justified?” (1986) 15:2 Philosophy & Public Affairs 122.

[63] George Wei, “A Look Back at Public Policy, the Legislature, the Courts and the Development of Copyright Law in Singapore: Twenty-Five Years on” (2012) 24:Special Issue SAcLJ 867 at para 32 [George Wei].

[64] Milton Friedman, Capitalism & Freedom (Chicago: University of Chicago Press, 1962) at 161-162.

[65] Singapore exported S$11.4B worth of local intellectual property and imported S$23.2B of foreign intellectual property in 2020 (see Singapore Department of Statistics, “Overall Exports and Imports Of Services, 2016-2020” <https://www.singstat.gov.sg/modules/infographics/singapore-international-trade> (last accessed 9 Dec 2021)).

[66] Ng-Loy Wee Loon, Law of Intellectual Property of Singapore, 3rd ed (Sweet & Maxwell, 2021) at para 8.0.4 [Ng-Loy Wee Loon].

[67] [2017] 2 SLR 786.

[68] Ibid at para 49.

[69] Copyright Act 1987, ss 28(3) and 28(6).

[70] Ng-Loy Wee Loon, supra note 66, at para 8.0.4.

[71] Ibid.

[72] Ministry of Law and Intellectual Property Office of Singapore, Singapore Copyright Review Report (17 January 2019) at paras 2.3.5 and 2.3.6 [Singapore Copyright Review Report 2019].

[73] The fixation requirement is a condition precedent for copyright to subsist in any authorial work. This is as copyright, unlike confidential information in breach of confidence, is a property right which requires that the boundaries of the property holder’s rights can be delineated by third parties (See Ng-Loy Wee Loon, supra note 66, at para 6.3.16).

[74] Copyright only protects expressions and not ideas or facts, hence any confidential information that pertains to the latter two cannot be protected at all. This is unlike in breach of confidence where what is termed as ‘confidential information’ does not turn on whether the information is an ‘expression’ or a fact or idea.

[75] Copyright only confers a limited monopoly right. There is a need to prove that there was a substantial taking of the plaintiff’s work by the defendant which is a concept not found in breach of confidence. Moreover, notwithstanding infringement being made out, the defendant may also rely on a copyright defence, such as fair use, to excuse the defendant’s breach. Whether the fair use defences can be made out depends a lot on the policy dimension. Thus, confidential information that enjoys copyright but is of interest to society would be much less protected than those that only concern the individual. This is unlike the breach of confidence protections where the defences are much more narrowly defined to only protect situations where it is against the public interest to enable the plaintiff to succeed.

[76] Ng-Loy Wee Loon, supra note 66, at paras 5.1.2 to 5.1.3.

[77] This problem arises because copyrighted works do not have a registry for the public to view in one compendium to determine which works belong to whom. A voluntary registry was proposed in the public consultations for the Copyright Act 2021 but it was rejected by the committee (See Annex A of the Singapore Copyright Review Report 2019, supra note 72, at 6-8).

[78] Singapore Copyright Review Report 2019, supra note 72, at Annex A pages 29-31.

[79] Ibid.

[80] Ibid at 29: The other proposals made to the law reform committee were: (a) Limitation of remedies to a reasonable fee in a subsequent court case or case brought by the copyright owner before a tribunal; (b) Payment of a government-determined fee to a government body, which will be held on behalf of the copyright owner and paid to the owner upon application to the body; and (c) Payment of a government-determined fee directly to the copyright owner if and when the owner approaches the user.

[81] Singapore Copyright Review Report 2019, supra note 72, at Annex A pages 29-31.

[82] Global Yellow Pages Ltd, supra note 35, at para 24.

[83] Tay Long Kee Impex Pte Ltd v Tan Beng Huwah [2000] 1 SLR(R) 786 at para 44 [Tay Long Kee Impex Pte Ltd].

[84] Ibid.

[85] The Singapore Court of Appeal in Tay Long Kee Impex Pte Ltd did not elaborate on what it would take for a work to pass the threshold requirement, only that the modified warranty in the case did not meet this threshold. However, it has been persuasively argued by Prof David Llewelyn that it should be when the work is ‘banal or commonplace’ (See David Llewelyn, Ng Hui Ming & Nicole Oh, Cases, Materials & Commentary on Singapore Intellectual Property Law (Academy Publishing, 2018) at para 04.025).

[86] Ng-Loy Wee Loon, supra note 66, at para 6.1.12.

[87] Save for section 20(1)(a)(iii) of the Copyright Act 2021, where whether a work is one of ‘artistic craftsmanship’ requires an evaluation of artistic merit by the judge (Ng-Loy Wee Loon, supra note 66, at para 6.1.30), there is no requirement to find that an authorial work has sufficient merit. The Singapore Court of Appeal has affirmed this interpretation in Asia Pacific Publishing Pte Ltd v Pioneers & Leaders (Publishers) Pte Ltd [2011] 4 SLR 381.

[88] Flamelite (S) Pte Ltd v Lam Heng Chung [2001] 3 SLR(R) 610 [Flamelite].

[89] Global Yellow Pages Ltd, supra note 35.

[90] Designers Guild Ltd v Russell Williams (Textiles) Ltd [2000] 1 WLR 2416; endorsed by the Singapore High Court in Virtual Map (Singapore) Pte Ltd v Singapore Land Authority [2008] 3 SLR(R) 86 at para 14. This usually requires that the plaintiff prove that the defendant copied a quantitatively or qualitatively significant portion of the plaintiff’s work (see Creative Technology Ltd v Aztech Systems Pte Ltd [1996] 3 SLR(R) 673).

[91] Flamelite, supra note 88, at para 28.

[92] Ibid at para 31.

[93] Ng-Loy Wee Loon, supra note 66, at paras 10.1.34-10.1.35: The line between what is a ‘general idea’, which is not protected by copyright, and a ‘detailed idea’, which is protected, is not clear. A suggested rough guide is whether the defendant ‘over-borrowed’ the skill, labour and judgement that went into the creation of the work.

[94] [2000] 1 WLR 2416.

[95] Lord Hoffman and Lord Millet found infringement on the basis that the similarities between the plaintiff’s and defendant’s works established that there was copying and those copied parts amounted to a substantial taking of the plaintiff’s work. Lord Scott used a different test where the reference should be how similar, holistically, the plaintiff’s work was to the defendant’s. If there was a substantial similarity between the works, then the infringer incorporated a substantial part of the independent skill and labour contributed by the original author in creating the copyright work and therefore there was infringement. As both works were extensively similar overall, his lordship found infringement. Although the Singapore High Court in Virtual Map (Singapore) Pte Ltd v Singapore Land Authority [2008] 3 SLR(R) 86 did not decide which test is to be preferred, it is likely that Lord Scott’s would be used going forward since the District Court in that case voiced support for his test (Singapore Land Authority v Virtual Map (Singapore) Pte Ltd [2007] SGDC 216 at para 54).

[96] Copyright Act 2021, supra note 1, Part 5.

[97] Copyright Act 2021, supra note 1.

[98] Copyright Act 2021, , supra note 1, s 191; The Statutory Factors are: (a) the purpose and character of the use, including whether the use is of a commercial nature or is for nonprofit educational purposes; (b) the nature of the work or performance; (c) the amount and substantiality of the portion used in relation to the whole work or performance; and (d) the effect of the use upon the potential market for, or value of, the work or performance.

[99] Google v Perfect 10 487 F (3d) 701 (9th Cir 2007).

[100] See Global Yellow Pages Ltd, supra note 35, at paras 77 to 81: The Singapore Court of Appeal cited the transformative use doctrine but did not voice any opinion on whether it should be applied locally.

[101] George Wei, supra note 63 at paras 23-24.

[102] Copyright Act 2021, supra note 1, Part 7.

[103] Ng-Loy Wee Loon, supra note 66, at para 2.2.3.

[104] Factor (c) in the Copyright Act 2021, supra note 1, s 191.

[105] TRIPS Agreement, supra note 2, art 13: “Members shall confine limitations or exceptions to exclusive rights to certain special cases which do not conflict with a normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the right holder.”

[106] WTO, WTO Analytical Index: TRIPS Agreement – Article 13 (Jurisprudence) at para 5.

[107] Ibid at para 6.

[108] Gerald Dworkin, supra note 54, at 565.

[109] Ibid.

Assessing the Applicability of Issue Estoppel arising from a Foreign Enforcement Judgement in International Commercial Arbitration

A PDF version of the article can be found here


ASSESSING THE APPLICABILITY OF ISSUE ESTOPPEL ARISING FROM A FOREIGN ENFORCEMENT JUDGEMENT IN INTERNATIONAL COMMERCIAL ARBITRATION

 

Desmond Chye*

 

ABSTRACT

 

The recent Singapore High Court case of BAZ v BBA provided some clarity as to when and where issue estoppel can apply in seat and enforcement court proceedings. However, the court was not entirely correct. A closer inspection of the Model Law, New York Convention and the International Arbitration Act reveals that issue estoppel can actually only arise from a foreign enforcement judgement in situations where the estoppel would be in favour of enforcement or against setting aside of the award. Notwithstanding, it is better for a future court to avoid applying issue estoppel completely for a host of cogent policy reasons. The case also erred in holding that issue estoppel can never arise under the public policy and arbitrability grounds for refusing enforcement or setting aside. It would be possible (though not recommended) for issue estoppel to apply if the foreign enforcement jurisdiction considered the instant jurisdiction’s public policy.

 

I.                    INTRODUCTION

 

Issue estoppel is a doctrine that prevents issues of fact or law that have already been raised and decided on in an earlier proceeding from being submitted again for decision in subsequent proceedings between the same parties.[1] In the international commercial arbitration context, the question is whether this doctrine can apply to bar the instant court (seat or enforcement) from re-evaluating issues raised at a prior seat or enforcement court. Although it is clear that issue estoppel can arise from a seat court judgement in enforcement court proceedings, it is less clear whether an enforcement judgement can have the same effect on another jurisdiction’s enforcement court. It is also unclear whether a foreign enforcement judgement can trigger issue estoppel in the seat court. Such ambiguity festered in Singapore until the recent Singapore High Court (“SGHC”) case of BAZ v BBA[2] which appears to have injected some much needed clarity. Although the SGHC stopped short of unequivocally holding that issue estoppel cannot arise at all from a foreign enforcement judgement in setting aside proceedings, the court strongly indicated that the non-applicability of issue estoppel would at least be the general position going forward. In addition, the SGHC helpfully opined that issue estoppel can arise in enforcement proceedings. As a separate matter, the SGHC also held that foreign enforcement judgements decided on public policy grounds cannot give rise to issue estoppel in the seat and enforcement courts.

A number of issues however plague the court’s reasoning such that BAZ v BBA can only be said to have been partially correct as to whether and when issue estoppel can arise. First, the court failed to realise that issue estoppel can operate either for or against enforcement, and that while the former is permitted under the New York Convention, the latter is not. Notwithstanding this, issue estoppel should not be applied in enforcement proceedings because of strong policy reasons. Second, the court’s holding that issue estoppel cannot arise in setting aside proceedings was only partially right. It can in fact arise, if it operates against setting aside. A future court should however not apply it because of practical and doctrinal concerns with doing so. Third, the court’s finding that issue estoppel cannot apply to the public policy grounds for setting aside and refusing enforcement of the award is only correct as a general proposition. It omitted to consider the situation where the foreign judgement had considered the public policy of the instant jurisdiction. Issue estoppel can potentially arise in such a situation as there would be identity of subject matter but it is advisable for a seat court to avoid doing so for practical reasons.

This article is structured as follows: section II will start off by providing the case details of BAZ v BBA. The subsequent sections will then proceed to analyse the various facets of the court’s reasoning for the various situations that may potentially involve issue estoppel arising from a foreign enforcement judgement. Section III will first examine the applicability of issue estoppel arising in an enforcement court from a foreign enforcement court judgement. Section IV will then consider the applicability of issue estoppel arising from a foreign enforcement court judgement in setting aside proceedings at the seat court. Finally, section V will assess whether issue estoppel can or should arise under the public policy and arbitrability grounds for refusing enforcement or setting aside.

 

II.                 CASE DETAILS OF BAZ V BBA

 

In BAZ v BBA, the case revolved around a sale and purchase agreement of shares in an Indian company (“the Company”). The family members of the Company’s founder and several companies controlled by them (“the Sellers”) entered into a share purchase and share subscription agreement (“SPSSA”) with BAZ (“the Buyer”). The Sellers were led by BBA and five of them were minors (“the Minors”). The SPSSA was governed by Indian law and had an arbitration clause providing for disputes arising out of the agreement to be resolved via arbitration held in Singapore as the seat.

A dispute subsequently broke out between the parties regarding the circumstances under which the SPSSA was entered into. The Buyer then commenced arbitration proceedings against the Sellers in Singapore. The arbitral tribunal (“the Tribunal”) ruled in favour of the Buyer and granted an award of damages payable by the Sellers (including the Minors) on a joint and severally liability basis (“the Award”).

Simultaneous proceedings for leave to enforce the Award were then commenced by the Buyer in the New Delhi and Singapore High Court. The New Delhi High Court (“DHC”) was the first to give judgement. It allowed enforcement of the Award against the Sellers, but not the Minors on the ground of public policy (“the DHC Judgement”). In the SGHC, which was the seat court, the Sellers’ contended that the Award should not be enforced because it ought to be set aside for being awarded outside the scope of the Tribunal’s jurisdiction: the Tribunal was not allowed to grant an award against the Minors. The Buyer responded by arguing that the Sellers were precluded from litigating the jurisdictional challenges to the award on the basis of issue estoppel as those same issues were already canvassed before and decided by the DHC in the DHC Judgement. The SGHC ultimately dismissed the Seller’s points on the merits and enforced the award against the Sellers sans the Minors.

The Buyer’s claim of issue estoppel raised two issues. The first is whether a foreign enforcement court judgement can give rise to issue estoppel at the seat court and the second is whether a foreign enforcement judgement ruling on arbitrability or public policy can give rise to issue estoppel. The SGHC answered in the negative for both. As an aside, the court also dealt with an issue unrelated to this case: whether the judgements in one enforcement jurisdiction can create issue estoppel in another enforcement jurisdiction. It was the court’s opinion that issue estoppel can arise in such a situation. The rest of this article shall explore whether the SGHC was correct to make these findings.

 

III.              ENFORCEMENT COURT & FOREIGN ENFORCEMENT COURT JUDGEMENT

 

The issue here is whether issue estoppel can or should arise from a foreign enforcement judgement in an enforcement proceeding. As a preliminary, it should be pointed out that there are two types of enforcement situations that the Singapore court can face: enforcing a domestic international award (i.e. tribunal’s seat was Singapore) and enforcing a foreign international award (i.e. tribunal’s seat was not in Singapore). The latter is governed by the International Arbitration Act[3] (“IAA”) while the former is governed by the UNCITRAL Model Law[4] (“Model Law”). This is an important distinction as it would impact whether issue estoppel can apply at the enforcement court. We shall now look at each type of award in turn.

 

A.     Foreign awards

 

A foreign court judgement can give rise to two different issue estoppel situations: (1) an estoppel operating in favour of enforcement, which is usually when the judgement enforced the award, and (2) an estoppel that operates against enforcement, which is usually when the judgement refused to enforce the award.[5] BAZ v BBA suggests that both kinds of foreign enforcement judgements can give rise to issue estoppel but the IAA and New York Convention[6] (“NYC”) actually only allows situation (1). Notwithstanding this, issue estoppel should not be applied at all for policy reasons.

 

B.      Current case law position

 

BAZ v BBA opined that issue estoppel can arise in situations (1) and (2) because it is an implied ground for refusing enforcement under IAA section 31(2). When enforcing international foreign awards, the Singapore court applies IAA sections 31(1) and 31(2) which are in pari materia with NYC Article V.[7] Even though there is no express section for issue estoppel in the IAA and NYC, the court found that it exists as an implied ground for refusal.[8] This is as Article V(1)(e) references a foreign judgement’s decision (the seat court’s) as a ground for denying enforcement which must necessarily imply the use of issue estoppel in enforcement proceedings.[9]

Singapore jurisprudence is silent on BAZ v BBA’s position but English cases support the applicability of issue estoppel in both situations. Chantiers De L’Atlantique S.A v Gaztransport & Technigaz SAS[10] (“Chantiers”) opined that issue estoppel can arise from a foreign court judgement[11] and Yukos Capital Sarl v OJSC Rosneft Oil Co (No 2)[12] (“Yukos”) implicitly accepted that issue estoppel can apply in both situations.[13] Diag Human SE v Czech Republic[14] (“Diag”) then went further and held that issue estoppel can arise from a foreign judgement that refused enforcement.

Despite the apparent English support, BAZ v BBA is still wrong to allow issue estoppel for situation (2) because of two reasons. First, issue estoppel operating against enforcement cannot be implied under the IAA as the grounds against enforcement are exhaustive but not vice-versa. Second, issue estoppel is unlikely to be applicable by virtue of being a procedural doctrine under NYC Article III.

 

Issue estoppel operating against enforcement is not an additional ground for refusal

 

As a preliminary, issue estoppel cannot be implied under the existing ground in IAA section 31(2)(f) as it expressly refers to only the seat court’s decision as a ground for refusing enforcement by issue estoppel.[15] The question is therefore whether section 31(1) permits issue estoppel to be implied as an additional ground for refusing or permitting enforcement.

Section 31(1)’s plain reading indicates that the Article V grounds are a maximum and not a minimum rule so only additional grounds against enforcement are precluded under the IAA. Essentially, while enforcement of an award may be refused if the Article V grounds listed in section 31(2) are established, the court is not compelled to do so and has the discretion to allow enforcement.[16]

Although there has yet to be any local cases confirming the court’s residual discretion to not refuse enforcement when a ground for refusal is met, it is likely that a future court find it so. For one, English case law has interpreted ‘may’ as enabling the court to enforce the award anyway despite a ground being met for reasons such as issue estoppel.[17] Second, a future court would prefer to retain discretion over whether to refuse enforcement.[18] Third, even though the SGCA in BloomBerry Resorts and Hotels Inc v Global Gaming Philippines LLC[19] recently interpreted ‘may not’ in Model Law section 34(3) as meaning ‘must not’,[20] the decision would likely be confined to section 34(3) and not extended to other Model Law sections. This is as the holding in that case was in relation to the deadline for commencing setting aside proceedings and not the grounds for refusing enforcement.[21]

As there are no specified limits on the court’s discretion to permit enforcement but not vice-versa, it follows that Article V allows enforcement courts to apply rules of national law that are more favourable to enforcement but not rules that are less favourable to enforcement.[22] Accordingly, issue estoppel that operates against enforcement cannot be implied as a new ground for refusing enforcement because it would make enforcement more difficult. Issue estoppel favouring enforcement would however be allowed as it makes enforcement easier.

Applying these principles to the trio of English cases, we find that only Chantiers and Yukos were correct while Diag was wrong. It is therefore submitted that a future court should not place much weight on Diag. We shall now look at how the estoppel operated in each case to show why the first two cases are more persuasive than the third.

Starting with Chantiers,[23] the award creditor first attempted to enforce an award given by an arbitral tribunal seated in London against the award debtor in France. During which, the award debtor claimed that the award was unenforceable as it was tainted by fraud, but the French court dismissed it and found the award enforceable. The award debtor then sought to set aside the award in the seat court (the English court) which the court then dismissed for lacking merit. As any issue estoppel arising from the French enforcement judgement would have prevented the award debtor from raising the same fraud allegations in subsequent proceedings to oppose enforcement, the estoppel worked in favour of enforcement and thus Flaux J’s obiter that issue estoppel could have arisen in the case was correct.[24]

Turning to Yukos,[25] the case also involved issue estoppel operating in favour of enforcement. The award creditor first attempted to enforce an award accorded by a tribunal seated in Russia against the award debtor in the Netherlands. The award debtor however claimed that the award was unenforceable for having been set aside by the seat court in Russia. Notwithstanding this, the Dutch enforcement court upheld the enforceability of the award. The award creditor then sought to enforce the award in the UK but the award debtor raised the same arguments to prevent enforcement. Here, issue estoppel would have favoured enforcement because, if it was established, it would have deprived the award debtor of possibly relying on the award’s setting aside as a ground for opposing enforcement under Article V.[26] As such, Rix J’s implicit endorsement of issue estoppel operating would be correct – but only if it was limited to the kind of estoppel found in Yukos.

In Diag,[27] the issue estoppel operated against enforcement instead. The case involved an award creditor who was previously denied enforcement in Austria seeking enforcement in the UK. The English Commercial Court denied enforcement on the basis that the judgement by the Austrian Supreme Court gave rise to issue estoppel against the award creditor. This decision is however wrong because the estoppel here worked against enforcement[28] – it prevented the award creditor from raising the same arguments favouring enforcement in the English court. This basically meant that Diag was the exact situation in which a court relies on a foreign non-seat court’s refusal of enforcement as a ground to refuse enforcement, which is technically not allowed under the Model Law. It would thus be advisable for a future Singapore court to follow Chantiers and Yukos instead of Diag.

 

Issue estoppel is unlikely to be a procedural doctrine under NYC Article III

 

Some argue that issue estoppel operating against enforcement is permitted under the NYC, not as a separate ground for refusal under Article V, but rather as a part of the procedural grounds in Article III.[29] It is said that issue estoppel is only a procedural rule because the ground for refusal remains the ones in Article V: estoppel only operates to preclude a party from denying the presence of certain facts or legal points when they claim that an Article V ground applied.[30] Accordingly, issue estoppel is argued to be a procedural doctrine that falls under Article III which allows the Contracting state to enforce awards “in accordance with the rules of procedure of the territory where the award is relied upon”.[31]

While it is admittedly possible on the plain words of Article III to treat issue estoppel as a procedural doctrine, a purposive reading of the NYC should discourage this. The fact that Article V(1)(e) only refers to the decision of a foreign seat court setting aside the award as a ground for refusing enforcement must mean that the decision of enforcement courts cannot have the same preclusive effect.[32] If it was otherwise then the NYC would have expressly indicated as so.[33] Also, the existence of Article V(1)(e), which is an application of issue estoppel from the decision of the seat court, as a substantive ground under Article V implies that issue estoppel is to be treated as a substantive ground for the purposes of Article V. Moreover, the NYC’s primary objective is to make the enforcement of foreign awards easier[34] so the grounds for refusing enforcement should be narrowly interpreted whenever there is any ambiguity.[35] Section 31(2) should thus be interpreted as excluding issue estoppel operating against enforcement. As Singapore takes a ‘pro-enforcement’ stance towards foreign awards,[36] this interpretation would also have the added benefit of keeping in line with the contemporary judicial trend.

 

Policy arguments against allowing issue estoppel operating in favour of enforcement

 

Although issue estoppel operating in favour of enforcement can potentially arise under the IAA, the enforcement court should be slow to apply it because the benefit of getting greater finality in enforcement proceedings does not outweigh the much greater loss to fairness to the award debtor.

The main argument favouring issue estoppel is that it promotes finality in arbitration proceedings. Finality is seen as highly desirable in international arbitration because it would be wasteful to allow the unsuccessful party to litigate the same points ad nauseam around the world.[37] It is thus argued that enforcement courts from various jurisdictions should mutually recognise and enforce each other’s decisions to achieve this goal.[38]

However, the objective of achieving finality should not be prioritised over the more important objective of ensuring fair enforcement judgements. While speed is good to have, what is absolutely crucial to international arbitration is the ability to earn the trust of the parties involved. This is as the whole process is ultimately optional and consensual and so if the parties do not view arbitration as fair and reliable then chances are they will not agree to use it. Unfairness in arbitration system would thus pose a greater existential threat to international arbitration than a failure to encourage award finality.

Issue estoppel, by creating an unacceptable risk that enforcement judgements would be unfair, should thus be avoided. The doctrine undermines an enforcement judgement’s fairness by precluding an unsuccessful party from raising the same points for re-evaluation, even if the prior enforcement court erroneously dismissed them on politically biased or patently erroneous grounds[39] – a risk not insignificant due to the summary nature of enforcement applications.[40] Moreover, the doctrine would perpetuate any wrongly decided foreign enforcement judgements. This problem would then be compounded by the court’s lack of residual discretion to refuse enforcement where the estoppel favours enforcement, as the estoppel prevents any Article V ground from being established.[41] This is especially problematic since issue estoppel is an equitable doctrine “subject to the overriding consideration that it must work justice and not injustice”.[42]

Issue estoppel also promotes ‘forum shopping’ which penalises the award debtor. As the doctrine makes the first enforcement court’s decision determinative on subsequent courts, the parties would be incentivised to ‘forum shop’ to take advantage of the first judgement’s preclusive effect.[43] The award creditor will thus seek the most lenient enforcement jurisdiction for first enforcement while the award debtor will seek the strictest one.[44] This massively handicaps the award debtor because it is the award creditor who chooses where enforcement proceedings are to be initiated and even if the award debtor can pre-empt the award creditor by first getting a ‘negative declaration’ that the award is unenforceable from an enforcement court of his choice, very few countries allow negative declarations.[45]

Finally, issue estoppel undermines the seat court’s role under NYC Article V(1)(e). To illustrate, if an enforcement court in Country A refuses enforcement, which generates an issue estoppel in other enforcement jurisdictions, then the decision in Country A would have the same practical effect as a setting aside judgement at the seat court.[46] This would amount to an inappropriate intrusion into the seat court’s exclusive power to set aside awards.[47] Accordingly, in the absence of a seat court judgement, each jurisdiction should independently consider whether the award should be enforced under the NYC without giving preclusive effect to enforcement decisions of other jurisdictions.[48]

 

C.     Domestic awards

 

The SGHC in BAZ v BBA expressed obiter support for issue estoppel to apply to domestic awards regardless of whether (1) it is in favour of or (2) against enforcement. As IAA section 19 is in alignment with the Model Law grounds for refusing enforcement, which is in turn in pari materia with NYC Article V,[49] situation (1) is possible for the reasons expressed in Part A of this section. Although situation (2) is theoretically possible under section 19’s wide wording, a future court should not take advantage of this pliability to permit issue estoppel operating against enforcement as it would go against the prevailing judicial position that the court’s wide discretion must be exercised in a pro-enforcement way.

 

Preliminary issue: Can the court refuse enforcement of a domestic award in Singapore?

 

While it is clear that the courts can refuse enforcement of foreign awards, it was previously unclear whether the same applied to domestic awards. The ambiguity arose from this: while foreign awards can be refused enforcement locally by virtue of IAA sections 31(2) and 31(4), the same arguably did not apply to domestic awards as Model Law Articles 35 and, in particular, 36 lack the force of law in Singapore by virtue of IAA section 3(1). It was thus argued that a domestic award cannot be refused enforcement in Singapore.[50]

It is now clear that domestic awards can be refused enforcement as the ambiguity was resolved by the Singapore Court of Appeal in PT First Media TBK v Astro Nusantara International BV[51] (“PT First Media”) which held that domestic awards can be refused enforcement locally via section 19 of the IAA. Basically, refusal of enforcement is possible because section 19 gave the court the discretion to enforce a domestic award which section 3(1) did not override.[52] This is as the legislative intent behind section 3(1) was just to avoid conflict with the New York Convention’s enforcement of foreign awards and not to remove the court’s right to enforce domestic awards.[53] Section 3(1)’s exclusion of Articles 35 and 36 thus only prevents the court’s discretion to enforce domestic awards from being limited to the Model Law grounds and does not remove their ability to refuse them.[54]

 

Can issue estoppel be applied under IAA section 19?

 

When applying section 19, case law stipulates that the court should “align the exercise of that discretion with the grounds under Art 36”.[55] Whether a court can use issue estoppel to deny enforcement of a domestic award would thus depend on whether issue estoppel is a ground for refusing enforcement under Article 36. This would in turn depend on whether the Model Law grounds are exhaustive as there is no article which provides for the application of issue estoppel.

BAZ v BBA implicitly found the Model Law grounds as non-exhaustive. The SGHC opined that Article 5’s plain words gives room for residual domestic law to apply to enforcement proceedings: the Model Law only blocks the court from intervening in matters governed by the Model Law. This, according to the court, meant that “what was not governed by [the Model Law] must be governed by the other rules of domestic law”.[56] Issue estoppel, a domestic law doctrine, can thus apply notwithstanding its absence as a ground for refusing enforcement under Article 36.[57]

The Article 36 grounds are however exhaustive as per its plain words. The court apparently ignored the phrase “may be refused only [if the Article 36 grounds are met]”[58] – it means that the Model Law omits all grounds, save those listed in Articles 36(1) and 36(2), as the basis for the court to exercise their discretion to deny enforcement of a domestic award. Article 36 therefore encompasses all possible issues arising from the proceedings which would exclude any room for domestic law, such as issue estoppel, to come in as an additional ground for refusal via Article 5.

Accordingly, case law must depart from their alignment with the Model Law for issue estoppel to apply as a ground for refusal. This is possible because the basis for enforcing domestic awards is IAA section 19 and not Model Law Articles 35 and 36 by virtue of IAA section 3(1).[59] As section 19 does not stipulate how the power should be exercised, it has been interpreted to confer wide discretion on the court to decide the applicable rules for enforcement so long as it adheres to the Model Law’s overarching philosophy for enforcement.[60] Therefore, if a future court interprets that ‘overarching philosophy’ as excluding the exhaustive nature of the Model Law grounds then issue estoppel can be introduced as an additional ground for refusing enforcement. This should however not be done as it would go against the widely accepted view that the Model Law is pro-enforcement, which is to be embodied by having specially identified exceptions to enforcement.[61]

 

IV.              SEAT COURT & FOREIGN ENFORCEMENT COURT JUDGEMENT

 

The issue here is whether issue estoppel can or should arise from a judgment of another foreign enforcement court in setting aside proceedings at the seat court. Similar to the enforcement situation, issue estoppel here can either operate (1) in favour of or (2) against setting aside the award. It is likely that issue estoppel can only arise in situation (2) but not (1). Notwithstanding this, a future court should still avoid applying issue estoppel in (2).

 

A.     Current case law position

 

The SGHC in BAZ v BBA held that courts should be slow to recognise issue estoppel arising from a prior enforcement judgement as a seat court’s determination should be given primacy over an enforcement court’s determination.[62] The SGCA has yet to decide on this but English law has voiced obiter support for it arising in situations (1) and (2).[63] Both the Singapore and English positions are however flawed for the reasons below.

 

B.      Issue estoppel operating in favour of setting aside cannot apply under the Model Law

 

The grounds for a seat court to set aside an award are enshrined in IAA section 24 read with Model Law Article 34(2). Similar to NYC Article V, the grounds in Article 34(2) are exhaustive, but only for the grounds to set aside and not the grounds to refuse setting aside. Regarding the former, Singapore case law clearly states that the IAA provides the only grounds on which an award can be set aside[64] and thus courts have rejected expanding the grounds to include doctrines such as ‘Wednesbury unreasonableness’.[65] Although there is no case authority for the latter, it should be permitted. This is as the grounds in Article 34(2) are aligned with those in NYC Article V, minus Article V(1)(e) which cannot apply in a setting aside proceeding,[66] such that the characterisation of the NYC grounds as a maximum and not a minimum rule[67] can also apply to Article 34(2). Article 34(2) thus prohibits additional grounds for setting aside but not more grounds for refusing setting aside. As such, only the application of issue estoppel operating against setting aside is permitted.

 

C.     Issue estoppel operating against setting aside should not be applied under the Model Law

 

Although issue estoppel operating against setting aside can arise under the IAA, a court should not apply it because there are strong doctrinal and practical problems with doing so.

From a doctrinal standpoint, BAZ v BBA was correct to find that the seat court has primacy over the enforcement courts and should thus not defer to prior enforcement decisions.[68] There are three theories as to the role of the seat court which affects its primacy vis-à-vis the enforcement courts: the monolocal, multilocal and transnational theories.[69] Singapore likely follows the monolocal approach which means the seat court enjoys primacy.

Under the transnational theory, an arbitral award’s validity “derives from a distinct arbitral legal order” and not from any national or seat legal order.[70] The seat court therefore has no primacy over the enforcement court. This theory is however unpersuasive because international arbitration cannot be a “truly distinct legal order” when national legal orders retain the ability to review such awards by enforcement or setting aside.[71]

Under the multilocal theory, “the validity of the arbitral award derives not only from the seat, but from all legal orders in which recognition and enforcement of the award are sought” hence a seat court does not have primacy over an enforcement court.[72] Some argue that this approach should be taken to protect parties against the ‘local peculiarities’ of the seat court.[73] This is however unpersuasive because it undermines the more important arbitration principle of respecting the parties’ intention to settle their dispute in a neutral jurisdiction of their choice. The choice of seat is an express intention by the parties to submit their dispute to the seat’s court and law[74] that is often made through careful consideration of the jurisdiction’s neutrality and quality of its arbitration law and judges.[75] As the parties have made an informed choice as to the seat, the law need not protect them from unexpected bias by the seat court because they have made their bed and must lie on it. The alternative argument that the enforcement jurisdiction is more relevant to the dispute and hence should be deferred to by the seat[76] is also unpersuasive. To do so would contravene the parties’ desire for neutrality because an enforcement court is chosen for its close connection to the dispute and may thus unfairly advantage one party over the other.

Under the monolocal theory, the seat court has primacy over determining an award’s validity because an arbitral award derives its legal validity exclusively from the legal order of the seat”.[77] This approach should be followed for the reasons above and because Singapore case law already supports this proposition implicitly: it has been held that there would no longer be any award to enforce if the award has been set aside at the seat because the seat’s act of setting aside renders the award void ab initio.[78]

From a practical standpoint, the promotion of finality in litigation[79] is not a compelling reason for applying issue estoppel to setting aside proceedings for three reasons. First, applying issue estoppel operating against setting aside denies the court any discretion to refuse setting aside even if the prior enforcement judgement was wrong – a risk not insignificant due to the summary nature of enforcement proceedings.[80] This is as issue estoppel will require the seat court to accept the enforcement’s court finding that no ground under Article V (and thus also Article 34(2)) is established. Second, the pro-enforcement stance of enforcement courts also necessitates the seat court to make their own careful judgement instead of simply following other jurisdictions. Apart from the French courts,[81] major jurisdictions defer strongly to the seat court’s decision.[82] Following a wrongly decided enforcement decision at the seat would thus spread the error down the line to the various enforcement jurisdictions. Third, a seat court would likely have great difficulty applying issue estoppel anyway. This is as it may be challenging to determine what exactly drove the foreign court to decide the way it did, especially if the court used different legal rules, procedures and techniques.[83] BAZ v BBA was thus correct not to apply issue estoppel at all.

 

V.                 PUBLIC POLICY & ARBITRABILITY

 

The SGHC’s finding in BAZ v BBA that issue estoppel cannot arise under the public policy and arbitrability grounds for setting aside and refusing enforcement of an award is only accurate as a general proposition. Issue estoppel can arguably arise when the foreign enforcement judgement actually considered the instant jurisdiction’s public policy. It should however not be done as a foreign court would not be well placed to determine the instant jurisdiction’s public policy concerns.

In BAZ v BBA, the SGHC held that issue estoppel cannot arise from a prior enforcement judgement under the public policy and arbitrability grounds in the Model Law (and presumably also the IAA and NYC grounds) because “the public policy and the test for arbitrability are unique to each state” such that “there would be no identity of subject matter even if the ground of arbitrability or public policy has been raised before a different court”.[84] The DHC Judgement therefore created no issue estoppel at the Singapore seat court because although the issue at hand in both cases pertained to the law for minors, the public policy that underpinned the law for each jurisdiction differed.

The SGHC’s finding of no issue estoppel is correct, as a general principle, because the public policy considered cannot be purely ‘international’, which means that identity of subject matter is normally absent. The relevant sections in the Model Law, IAA and NYC[85] expressly reference the application of the setting aside or enforcement jurisdiction’s public policy instead of international public policy so the consideration of ‘purely’ international public policy must be prohibited.[86] A purposive reading supports this interpretation: the public policy ground is supposed to be an escape mechanism to allow national courts to deny effect to awards when it conflicts with the instant state’s public policy and not to enforce international principles.[87] It is therefore only national public policies which mandatorily apply to international matters under national law that can fall within the public policy ground.[88] Since the basis of such public policy is national law, the rationale for which necessarily varying from country to country, it follows that issue estoppel cannot arise from a foreign judgement considering the foreign enforcement jurisdiction’s public policy in a setting aside proceeding which considers the seat’s public policies.

However, if the foreign enforcement judgement considered the instant jurisdiction’s public policy then issue estoppel can potentially arise because the public policies considered in both proceedings would be similar. To use Victrix S.S. Co. v Salen Dry Cargo AB[89] as an illustration: the US enforcement court in that case was obliged, under national law, to consider the effect of enforcing the award on Swedish public policy so arguments relating to Swedish public policy were raised and dealt with in the judgement. If enforcement was subsequently sought in Sweden and the issues pleaded were those pertaining to Swedish public policy, then issue estoppel can arguably arise from the US case as the same Swedish public policy issues would be re-litigated. A setting aside and enforcement court should however not apply issue estoppel in such a situation because a foreign jurisdiction would not be well placed to correctly apply the public policy considerations of the instant jurisdiction. This would be especially so when the jurisdictions use different legal systems or follow divergent legal traditions.

 

VI.              CONCLUSION

 

Although Singapore’s arbitration law has the potential to herald an era where issue estoppel plays a more potent effect in enforcement and setting aside proceedings, we should not seize this potential. Understandably, the temptation is great. Issue estoppel would promote greater certainty and finality into enforcement and setting aside proceedings. However, we must resist the temptation as these upsides do not compensate for its massive downsides. An expansive issue estoppel regime would not only go against internationally accepted arbitration principles in law and in spirit, but also unfairly disadvantage the award debtor and aggravate potential errors in the enforcement and setting aside process. It is thus unfortunate that the SGHC in BAZ v BBA succumbed to the temptation, albeit partially, by allowing issue estoppel in enforcement proceedings. As such, it is imperative for a future court to eschew the doctrine of issue estoppel completely by repudiating BAZ v BBA. While this article recognises that doing so may lead to increased transaction costs for the parties involved and further delay the enforcement or setting aside of the award, it submits that these costs would be a necessary evil for there to be fairness. There is after all no point in having a cheap and speedy arbitration if it would create an unjust result.



* LLB (Candidate), National University of Singapore, Class of 2023. All errors and views expressed in this article remain my own.

[1] Good Challenger Navegante SA v Metalexportimport SA (The “Good Challenger”), [2004] 1 Lloyd’s Rep 67 [The “Good Challenger”].

[2] [2020] 2 SLR 453 [BAZ v BBA].

[3] (Cap 143A, 2002 Rev Ed) [IAA].

[4] Schedule I of the IAA, supra note 3.

[5] Renato Nazzini, “Enforcement of International Arbitral Awards: Res Judicata, Issues Estoppel, and Abuse of Process in a Transnational Context” (2018) 66:3 Am J Comp L 603 at 630 [Nazzini].

[6] Schedule II of the IAA, supra note 3.

[7] David Joseph QC & David Foxton QC, Singapore International Arbitration: Law and Practice, 2nd ed (Singapore: LexisNexis, 2018) at para 6.10 [Joseph & Foxton].

[8] BAZ v BBA, supra note 2 at paras 35 to 36.

[9] Ibid.

[10] [2014] EWHC 1639 (Comm) [Chantiers]

[11] Ibid at paras 313–315.

[12] [2012] EWCA Civ 855 [Yukos].

[13] As observed by Nazzini, supra note 5 at 26 regarding the passage by Rix LJ in Yukos, supra note 12 at paras 147-149.

[14] [2014] EWHC 1639 (Comm) [Diag].

[15] Nazzini, supra note 5 at 632.

[16] Nazzini, supra note 5 at 608.

[17] Yukos Oil Co v Dardana Ltd, [2002] EWCA Civ 543 at para 8; Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan, [2010] UKSC 46 at para 67 [Dallah].

[18] Joseph & Foxton, supra note 7 at para 6.13.

[19] [2021] SGCA 9.

[20] Ibid.

[21] Ibid.

[22] Nazzini, supra note 5 at 608.

[23] Chantiers, supra note 10.

[24] Nazzini, supra note 5 at 631.

[25] Yukos, supra note 12.

[26] Nazzini, supra note 5 at 631.

[27] Diag, supra note 14.

[28] Nazzini, supra note 5 at 632.

[29] Tom Childs, “Enforcement of International Arbitral Awards Should A Party Be Allowed Multiple Bites at the Apple?” (2015) 26:2 The Am. Rev. of Int’l Arb 269 at 275 [Childs].

[30] Nazzini, supra note 5 at 632.

[31] Childs, supra note 29 at 275.

[32] Nazzini, supra note 5 at 632.

[33] Ibid.

[34] Gary Born, International Commercial Arbitration, 3rd ed (The Hague: Kluwer, 2020) at 3721 [Born]

[35] Nazzini, supra note 5 at 632

[36] Aloe Vera of Am. Inc. v Asianic Food (S) Pte Ltd, [2006] SGHC 78 at para 40

[37] The Honourable Chief Justice Sundaresh Menon, “Patron’s Address” (2015) 81:4 Arbitration: The Int’l J of Arb, Med and Dispute Management 413 at 424.

[38] Lord Jonathan Mance, “Arbitration – a Law unto Itself?” (4 November 2015) 30th Annual Lecture organized by The School of International Arbitration and Freshfields Bruckhaus Deringer 1 at 14.

[39] Maxi Sherer, “Effects of Foreign Judgements Relating to International Arbitral Awards: Is the ‘Judgement Route’ the Wrong Road?” (2013) 4:3 J. Int’l Dispute Resolution 587 at 622 to 623 [Sherer].

[40] Born, supra note 34 at 4164.

[41] Nazzini, supra note 5 at 632.

[42] The “Good Challenger”, supra note 1 at para 54.

[43] Sherer, supra note 39 at 622 to 623.

[44] Ibid.

[45] Childs (2015), supra note 29 at 274 & Herbert Kronke et al., Recognition and Enforcement of Foreign Arbitral Awards: A Global Commentary (The Hague: Kluwer, 2010) at 133-35.

[46] Matthew Barry, “The Role of the Seat in International Arbitration: Theory, Practice, and Implications for Australian Courts” (2015) 32 J. Int'l Arb. 289 [Barry], citing Chief Justice Allsop at 319.

[47] Sebastian Perry & Richard Wolley, “Issue estoppel halts enforcement in London” (29 May 2014) Global Arbitration Review.

[48] Born, supra note 34 at 4163.

[49] Ibid at 3762.

[50] PT First Media TBK v Astro Nusantara International BV, [2014] 1 SLR 372 at para 18 [PT First Media].

[51] Ibid.

[52] Ibid at para 85.

[53] Ibid.

[54] Ibid.

[55] Ibid at paras 86 to 90.

[56] BAZ v BBA, supra note 2 at para 37.

[57] Ibid.

[58] Section 36(1) of the IAA, supra note 3.

[59] PT First Media, supra note 50 at paras 86 to 90.

[60] Ibid at para 50.

[61] Born, supra note 34 at 3164 & 3718.

[62] BAZ v BBA, supra note 2 at para 51.

[63] Dallah, supra note 17 at para 39.

[64] PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA, [2007] 1 SLR(R) 597 at paras 54-55 and 57 and Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd, [2007] 3 SLR(R) 86 at paras 60-66.

[65] Sui Southern Gas Co Ltd v Habibullah Coastal Power Co (Pte) Ltd, [2010] 3 SLR 1 at para 19.

[66] Born (2020), supra note 34 at 3438-3439.

[67] Ibid at 3435.

[68] BAZ v BBA, supra note 2 at para 51.

[69] Barry, supra note 46 at 294.

[70] Ibid at 299-301.

[71] Ibid at 300-301.

[72] Ibid at 297.

[73] Jan Paulsson, “Delocalisation of International Commercial Arbitration: When and Why it Matters” (1983) 31:1 Int’l & Comparative L. Q. 53 at 54.

[74] Jean-François Poudret & Sébastien Besson, Comparative Law of International Arbitration, 2nd ed (London: Sweet & Maxwell, 2007) at para 146 [Poudret & Besson].

[75] Francis Mann, “The UNCITRAL Model Law: Lex Facit Arbitrum in Martin Domke & Pieter Sanders, eds, International Arbitration: Liber Amicorum for Martin Domke (Leiden: Martinus Nijhoff, 1967) & Noah Rubins, “The Arbitral Seat is No Fiction: A Brief Reply to Tatsuya Nakamura’s Commentary” (2001) 16 Mealey’s Int’l Arb. Report 12.

[76] Emmanuel Gaillard, Legal Theory of International Arbitration (Leiden: Matrinus Nijhoff, 2010) at 32.

[77] Barry, supra note 46 at 294 to 295.

[78] PT First Media, supra note 50 at paras 76 to 77.

[79] BAZ v BBA, supra note 2 at para 47.

[80] Born, supra note 34 at 4164.

[81] CA Paris, 12 February 1993, Unichips Finanziaraia v Gesnouin.

[82] Barry, supra note 46 at 312.

[83] Ibid at 318.

[84] BAZ v BBA, supra note 2 at para 50.

[85] Section 31(4)(b) of the IAA, supra note 3; Article 34(2)(b) of the Model Law; Article V(2) of the NYC.

[86] Born, supra note 34 at 4013 to 4014.

[87] Ibid at 4014.

[88] Ibid.

[89] 825 F.2d 709, 714-15 (2d Cir. 1987).

Falsification in Trust Law: a Critique of the 'But For' Test

A PDF version of the article can be found here.


FALSIFICATION IN TRUST LAW: A CRITIQUE OF THE ‘BUT FOR’ TEST

 

Desmond Chye*

 

I.                    INTRODUCTION

 

Under trust law, if a trustee misapplies trust property such as by distributing trust funds to unauthorised persons or by making unauthorised investments, the doctrine of falsification steps in to allow the beneficiaries to falsify the trust account to treat the disbursement as one using the trustee’s own money instead.[1] The trustee would thus be required to replace the misapplied asset in specie or in money which is, under the orthodox approach, all loss caused to the trust fund even if it was not ‘but for’ the trustee’s breach.[2] However, the English cases of Target Holdings Ltd v Redferns[3] (“Target Holdings”) and AIB Group (UK) plc v Redler[4] (“AIB Group”) renounced the orthodox approach and laid down a new method whereby the ‘value’ of the trustee’s liability is only what was caused ‘but for’ the breach. While there has not been a definitive pronouncement by the Singapore Court of Appeal (“SGCA”) on whether to follow the English direction, it is submitted that it should not be adopted because Target Holdings and AIB Group are of weak authoritative weight given that it was unnecessary for the court to have considered causation in those cases. Moreover, even if the authoritative weaknesses of the English cases can be somehow overlooked, the ‘but for’ test remains fundamentally incongruent with the established nature of the trustee’s duties vis-a-vis the trust fund such that adopting it would engender undesirable conceptual confusion into what is otherwise a straightforward area of law.

 

II.                 TARGET HOLDINGS WAS DECIDED PER INCURIAM

 

As a preliminary, it should be noted that the English cases revolved around a very common form of trust used to purchase land: the Quistclose trust. This form of trust is, in essence, a bare trust for the lender with a contractual mandate where the trustee has to apply the trust assets only for the specific purposes stipulated for under the contract.[5] The trustee would thus commit a breach of trust if he distributed the assets in a manner not provided for in the contract.[6] In addition, the trustee is also usually an agent of the beneficiary.[7]

In Target Holdings, the client of Target, Crowngate, wanted to purchase a plot of land by way of a mortgage in favour of Target. In order to facilitate the transaction, Target, the mortgage lender, transferred the loan money to their solicitor, Redferns, under a Quistclose trust arrangement where the solicitor-trustee Redferns was to release the money to Crowngate, their associated companies and the vendor only once the requisite documentation had been provided by them. Redferns however committed a breach of trust by releasing the trust money before the documents arrived – paid too early. Two years later, Crowngate defaulted on the mortgage payments and became insolvent. Unfortunately, the property turned out severely over-valued due a decline in the property market. Target then applied for a summary judgement against Redferns for falsification to claim the difference between the mortgage redemption price and the original valuation. The court held that Redferns was not liable for the diminished value of the property as it was not caused ‘but for’ their breach but rather due to the decline in the property market.[8]

It is however submitted that Target Holdings was wrongly decided as it is underpinned by the dubious premise that there was still an active breach of trust by Redferns for ‘paying early’ to Crowngate at the time of the lawsuit. Lord Browne-Wilkinson, in his hypothetical example given at the start of his analysis, explained that there is a breach of trust should monies in the client account be transferred by “the solicitors to the borrower one day before the mortgage is executed”.[9] This is however false as such breaches may be ‘self-corrected’ if the conditions for proper payment are subsequently fulfilled.[10] A ‘self-correction’ arguably occurred in Target Holdings as there was no loss to the trust fund by the time of the trial because the misapplication of funds by ‘paying early’ was properly restored to the correct terms when the required documentation subsequently arrived.[11] This was possible because “the trustee’s obligation to restore the trust property is not an obligation to restore it in the very form in which he disbursed it, but an obligation to restore it in any form authorised by the trust”.[12] Lord Browne-Wilkinson thus erred in finding a breach of trust by Redferns – the breach had already been corrected earlier and so ceased to exist by the time of the trial. This leaves his lordship’s ‘but for’ test necessarily obiter which greatly undermines the case’s authoritative weight.

Although there have been objections to the ‘self-correction’ theory, they can be disregarded for the purposes of Target Holdings. The main contention against the ‘self-correction’ theory is that a trustee cannot ‘cure’ his own breach on his own accord as the ‘cure’ must first be adopted by the beneficiary.[13] This argument is however unconvincing because, as pointed out by Conaglen, a trustee’s trusteeship does not terminate simply because he committed a breach of trust.[14] Due to the special nature of the trustee’s role in a Quistclose trust where he is also an agent of the beneficiary, the trustee’s authority to act post breach can be analogised with that of an agent’s authority to act under similar circumstances.[15] Under agency principles, an agent who has breached his mandate can still remain authorised to ‘cure’ his own breach as the agent retains residual authority to bind the principal until the principal takes steps to terminate the agency.[16] The principal’s act of termination can be implied from context or automatic upon a bad faith breach by the agent.[17] An inference of residual authority would be strong “[w]here the agent has no reason to believe that the principal would not want the transaction completed”.[18] Applying the agency principles, Redferns was in fact authorised to ‘cure’ their breach of trust as there was no implied termination of their agency because Target wanted the mortgage to be executed by Redferns once the documents were subsequently furnished. Even if the element of fraud identified by Lord Browne-Wilkinson could have amounted to a bad faith breach of Target’s instructions which extinguished Redfern’s agency authority to ‘self correct’, it could not have changed the case’s decision as the court was procedurally restricted from considering any claims of dishonest fraud in summary judgement.[19]

Assuming we accept the court’s reasoning that there was a breach of trust, there is still another fatal weakness in the case’s logic supporting the ‘but for’ test: Lord Browne-Wilkinson erroneously concluded that there was case law support for the test. This is as the learned judge relied upon surcharge cases[20] to find that there must “be some causal connection between the breach of trust and the loss to the trust estate for which compensation is recoverable”, namely, “the fact that the loss would not have occurred but for the breach”.[21] His Lordship’s conflation of falsification and surcharge cases is problematic because each doctrine serves a fundamentally different purpose. A claim for a surcharge of the trust fund is for situations where the trustee has failed to do something that did not involve a misapplication of trust property. This is often when the trustee has failed to meet his duties of care such that the fund is now worth less than what it would have been if the trustee had complied with his duties.[22] Implicit in the nature of a surcharge claim is the principle of ‘but for’ causation as the court must determine what the trust fund’s hypothetical value ought to have been without the breach. Falsification claims, on the other hand, are for situations where there was a straightforward misapplication of trust assets which does not need consideration of the future value of the fund.[23] This is as the nature of the trustee’s duty here is akin to a strict liability to maintain the value of the trust fund as it is.[24] As such, the learned judge’s finding that there was a ‘but for’ test requirement from case law was likely made per incuriam because the conceptual incongruity between the two types of cases rendered the surcharge cases irrelevant to Target Holdings, a case on falsification.

 

III.              AIB GROUP IS OF WEAK AUTHORITATIVE WEIGHT

 

Similar to Target Holdings, AIB Group involved a mortgage transaction that went wrong. Under the loan arrangement, AIB Group loaned £3.3m to a borrower which was secured by a mortgage over the borrower’s property worth around £4.25m. The property was however subject to a prior mortgage from Barclays Bank worth around £1.5m. As such, AIB made the mortgage conditional upon Barclays’ mortgage being redeemed on or before the loan advance by AIB so that AIB would be granted the first legal charge over the land. This was to be done using a Quistclose trust where AIB’s solicitor-trustee, Redler, was instructed by the lender-beneficiary, AIB Group, to redeem the mortgage loan prior to or on the date of securing a first charge in favour of AIB Group so as to use the funds to discharge the Barclays mortgage. Unfortunately, the Barclays mortgage was only partially discharged as Redler’s mistakenly remitted around £300,000 short to Barclays. Things remained this way for about two years until Redler confessed to the error. This triggered AIB to negotiate with Barclays to acquire a second, non-first charge, mortgage over the land to secure the £3.3m loan. The borrower then defaulted on the mortgage payments and the property was sold for around £1.2m which was way below the original valuation due to a property market decline. Out of the sale proceeds, AIB only received £867,697 as £300,000 had to go to the partially discharged Barclays mortgage. AIB then sought a falsification claim against Redler for the difference between the sale amount and the original valuation of £4.25m. The UK Supreme Court rejected AIB’s claim and held that Redler was only liable for the £300,000 paid to clear Barclays’ prior mortgage as even if there had been no breach of trust by Redler in paying the wrong amount, the property would still have sold for only £1.2m due to the subsequent decline in the property market.[25]

It is however submitted that AIB Group should also have been decided on orthodox trust principles as opposed to using the ‘but for’ test. This is as there was arguably acquiescence of Redler’s breach of trust when AIB, with full knowledge of the error, chose to obtain a second mortgage with Barclays to resolve the issue instead of pursuing an action against Redler.[26] AIB’s acquiescence critically meant that, similar to Target Holdings, there was no longer an active breach of trust by the time of the trial. As such, it was unnecessary for the court to have applied the dubious ‘but for’ test in AIB Group. This leaves the ‘but for’ test once more in obiter dicta purgatory and thus devoid of authoritative weight.

 

IV.              CONCEPTUAL ARGUMENTS AGAINST THE ‘BUT FOR’ TEST

 

A.                 Fundamental Incompatibility

 

Assuming that the technical weaknesses in Target Holdings and AIB Group identified earlier can be somehow surmounted, it still remains undesirable to adopt the ‘but for’ test because it is conceptually incompatible with the principles underlying the doctrine of falsification.

At the heart of the issue is the question of what purpose should the remedy for falsification, ie. ‘equitable compensation’, serve? Here, there are two competing options. The first is for falsification to serve as a ‘substitutive’ remedy. This is one where the obligation to provide compensation for the breach of trust is of strict liability. A trustee cannot escape liability even if the loss to the trust was still going to materialise notwithstanding his breach of trust. In this sense, the trustee’s duty to maintain the trust fund is analogous to the obligation to repay a debt owed, with the ‘debt’ here being the trust fund’s value.

The second option is for falsification to act as a ‘reparative’ remedy where the purpose is to put the beneficiary in the same position he would have been ‘but for’ the breach of trust. In short, falsification’s objective is to achieve restitution. This was the position adopted by Lord Browne-Wilkinson in Target Holdings.[27] Under this doctrine, the trustee is not obliged to compensate for a breach of trust if the loss would have arisen regardless of the trustee’s breach because, in such situations, the ultimate position of the beneficiaries was unaffected by the breach.[28] This departure from the orthodox position, where the remedy is ‘substitutive’, would however lead to a number of undesirable implications that would weaken the raison d'etre of falsification.

At the most fundamental level, the ‘but for’ approach misunderstands the nature of falsification – falsification stems from a primary obligation rather than a secondary obligation of the trustee. Under the ‘but for’ approach, the trustee is under a primary obligation to execute the trust terms and a secondary obligation to pay equitable compensation if he does not.[29] The reality is however that the trustee is under a single primary obligation to account for his stewardship of the beneficiary’s property[30] because he has to “hold and deal with the trust property in accordance with the trust terms, and to produce it when called upon to do so”.[31] Liability to pay equitable compensation in a falsification claim is thus a primary obligation as it is the means by which the trustee is forced to restore the trust fund to what the trustee should have kept it at.[32]

Moreover, involving principles of ‘but for’ causation in falsification also goes against its nature as a remedy for any discrepancies found during an ‘account’ of the trust fund. In trust law, an account is “the first step in a process which enables [the beneficiary] to identify and quantify any deficit in the trust fund and seek the appropriate means by which it may be made good”.[33] Once discrepancies are identified, the beneficiaries can opt to falsify the account by treating those disbursements of trust property as never having been disbursed and thus obliging the trustee to restore the trust fund to this new falsified account. It is implicit in this process that falsification is only a substitutive, and not reparative, remedy. As an ‘account’ of anything is naturally only referable to the point in time at which it was taken, the trustee’s liability to restore the account must necessarily be limited to the discrepancy at the time it was taken and not after or before.[34] Therefore, introducing any concept of causation would be to go against this nature of an ‘account’ by considering events beyond it. It is thus submitted that the correct purpose of falsification is “to ‘restore’ the claimant to the position he was in before the defendant committed the wrong” instead of “put[ting] the parties into the position they would have been in had no wrong occurred”[35] – the orthodox interpretation where the “award of “equitable compensation” for misapplication should be based on replacement and not compensation”.[36]

Although the SGCA in Sim Poh Ping v Winsta Holdings[37] (“Winsta Holdings”) stated that orthodox falsification does have an element of causation, the ‘causation’ they were referring to is more accurately described as a ‘conceptual link’ rather than a ‘causal link’. A link is ‘causal’ when the act results in an outcome that is extrinsic to the act itself while a link is ‘conceptual’ when the outcome is intrinsic.[38] An example is the act of cooling down a room. The act of cooling down the room is tautological with the temperature going down so there is a ‘conceptual’ link between the two. On the other hand, the act of opening the window is not tautological with the cooling down of the room as it might be hotter outside hence the linkage between the two is ‘casual’. Applying this to the SGCA’s description of the ‘causal link’ as “the subject matter of the trust would not have departed from the custody of the trustee to whom it was entrusted but for the trustee’s breach of his custodial stewardship duty”,[39] it would appear that what they were really referring to is a conceptual link because a trustee’s breach of his custodial stewardship duty is tautological with the departure of trust assets.

Aside from the fundamental conceptual problems in the ‘but for’ test, Lord Browne-Wilkinson’s approach also suffers from a tremendous flaw: it allows the wrongdoing trustee to gain a windfall from external events. This is best demonstrated by the following hypothetical example:[40]

 

Tom is a trustee of some gemstones in a vault. He however commits a breach of trust by removing a gemstone from the trust collection in the vault and gives it away to an unwitting friend of his. Subsequently, out of pure coincidence, the remaining gems were stolen by a burglar.

 

Should Lord Browne-Wilkinson’s approach be followed then Tom would not be liable for the gemstone he stole simply because he was lucky that a burglar came along to break the causal link between his theft and the loss to the trust fund. Using luck to determine liability for wrongdoing is unprincipled and unjust to the beneficiary hence it is better to stick to the orthodox approach instead.

Although the orthodox approach can instead lead to a windfall to the beneficiary, as noted by Lord Browne-Wilkinson, it can be justified on the principle that all uncertainty should be resolved against a wrongdoer. This is as the trustee voluntarily assumed control over the beneficiary’s property to act for the beneficiary’s interests which renders the beneficiary a ‘vulnerable’ party that needs protection by stricter rules against the trustee.[41] While it may be argued that an exception should be carved out for Quistclose trusts as the relationship is possibly more equal due to it being a bare trust where the trustee is to act to the order of the beneficiary, the power differential still tilts decisively towards the trustee. This is as the trustee can exploit the beneficiary’s detached position from the fine details of the trust’s execution to effectively conceal wrongdoing until it is too late for the beneficiary like what happened in Target Holdings.

 

B.                  Inherent Vagueness

 

Furthermore, even if we suppose that the need for fairness to the trustee trumps the need to protect the beneficiary, it would still be undesirable to adopt the ‘but for’ test because it is painfully vague as to what sort of trust it should apply to.

In Target Holdings, it was held that the orthodox approach should only apply to ‘traditional’ trusts while the ‘but for’ approach applies to ‘commercial’ trusts.[42] This was due to the perceived difference between trusts created for commercial purposes and those that are not. In traditional trusts where there is no commercial element, the trust assets are normally held in trust for a number of beneficiaries who have different and normally successive equitable interests to the trust assets (e.g. A for life with the remainder to B). The purpose of the trustee is thus to have the whole fund vested in him so as to be available to satisfy the equitable interest of each beneficiary when it falls due.[43] The trustee’s strict obligation to restore the trust fund thus “reflects the fact that no one beneficiary is entitled to the trust property and the need to compensate all beneficiaries for the breach”.[44] However, this rationale does not apply to commercial trusts because, under the Quistclose structure regularly used in commercial transactions, there is only one beneficiary: the client.[45] Moreover, as observed by the court in AIB Group, the trustee’s duties in Quistclose trusts are much more closely defined and last for a much shorter duration than traditional trusts so the trustee is more akin to an agent than a true trustee.[46] Due to these special characteristics of commercial trusts, there is no need to view the trustee of a commercial trust as the “guarantor of the integrity of the fund” for all beneficiaries which requires the imposition of onerous duties on.[47]

However, how do we determine when a trust is commercial in more complex situations? This is not an easy question to answer because the ‘commerciality’ of a trust is not binary but rather lies on a spectrum. ‘Commerciality’ would misleadingly appear binary if one looks only at cases like Target Holdings and AIB Group where the trusts were for purely commercial purposes but such an illusion would be quickly destroyed once a trust consisting of commercial and non-commercial purposes is analysed. An example is whether the following would be considered a ‘commercial’ trust: a family settlement granting a power to invest on a mortgage to the trustee but the trustee negligently parted with the trust money without obtaining the executed mortgage and title deeds in exchange.[48] In such situations, the ‘commerciality’ of the trust must be assessed on a scale to see if it tips more towards a ‘commercial’ trust than a ‘traditional’ one. Perhaps this could be done based on how many beneficiaries the trust has or how close the trustee was to an agent, like in Target Holdings and AIB Group. However, this would require a subjective assessment on the part of the judge as to where the appropriate tipping point should be which would then have the undesirable effect of greatly increasing the risk of unprincipled and arbitrary judgements. When coupled with the fact that the remedy for each is wildly different, the undesirability of the ‘but for’ test is obvious. It is thus submitted that the local courts should not introduce such uncertainty into an otherwise straightforward area of law.

 

V.                 A POSSIBLE MIDDLE GROUND?

 

Some argue that a modified ‘but for’ test would be more palatable for the court to adopt but it is submitted that the best option is still to stick to the orthodox position. The primary issue with any modified approach is in determining what sort of situation would justify the reparative remedy as opposed to the orthodox substitutive remedy. Unfortunately, the two main approaches to this problem are somewhat deficient in one way or another.

 

A.                 ‘Active’ versus ‘Passive’ Duty

 

The first approach is the one taken by the English Court of Appeal in Main v Giambrone & Law (a firm)[49] (“Giambrone”) where the applicable remedy is determined based on whether the breach of trust by the trustee was that of an ‘active’ or ‘passive’ duty. The learned judge in Giambrone held that this principle stemmed from the facts of Target Holdings and AIB Group.[50] This finding is however somewhat unsatisfactory as the learned judge failed to elaborate on why the solicitors were under an ‘active’ duty when the facts appear to support a contrary finding instead: the solicitors had no duty to do anything other than to hold on to the trust assets if the requisite event for applying trust funds away did not arise.[51] Another issue is that whether a duty is ‘active’ or ‘passive’ should not factor into what remedy is awarded.[52] Conceptually, the basis for any remedy in falsification is the duty to “act as custodians of the deposit monies indefinitely” until mandated by the trust instrument to apply the funds away[53] which is necessarily always a passive duty. Hence, any potential 'active' duty would be additional to the always present passive duty to preserve the trust fund.[54] This leaves the basis for excluding falsification for ‘active’ duties unprincipled.[55]

 

B.                  A ‘Completed’ Trust

 

The second approach is to determine the appropriate remedy based on whether the trust has been ‘completed’. This would involve an analysis of the scope and purpose of the trust to see if the purpose has been achieved.[56] If the objectively construed “purpose of the trust is fulfilled and the relevant transaction undergirding the trust is ‘completed’” then a substitutive remedy would be unavailable.[57] This stems from the idea that the principles of trust law ceases to apply once “there is neither a trust to be reconstituted nor any duties to be performed by trustees”.[58]

However, the ‘completion’ approach would not actually give a different result from the orthodox approach. Under the former, a trust is ‘completed’ when “the conditions of distribution of trust property are met”.[59] Based on this definition, it can be said that there are two possible scenarios which may comprise ‘completion’: (1) when the trustee performed his duties impeccably all the way and (2) when the trustee inappropriately disbursed trust property but subsequent intervening events made it such that the conditions for the disbursement were met by the time of the trial. The completion approach appears to have only considered the first scenario as giving rise to a completed trust. But is it really so? The second can also be said to be a ‘completed’ trust as the conditions of the distribution have been met, albeit subsequently. More fundamentally, a trust is also either completed or is not at the time of the trial so it does not matter whether it was incomplete earlier. Therefore, should the trustee’s non-compliance be subsequently corrected by intervening events then the trust would become completed at the point of trial. This then means that there would be no breach of trust for the substitutive remedy to operate on by the time of the trial.[60] The completion approach would thus only award a substitutive remedy for the scenario where the trustee’s breach was never ‘cured’ (ie. a non-Target Holdings situation) – a scenario that is already well tackled by orthodox principles. The completion approach is hence not strictly necessary when analysed from the earlier self-correction theory. As such, if we have to choose between the two approaches, the self-correction method would be the better option since it does not have the added hassle that the completion approach has of needing to ascertain the trust’s purpose.

 

VI.              CONCLUSION

 

All in all, the ‘but for’ test in English law should not be adopted in Singapore because the cases of Target Holdings and AIB Group were not only wrong on the facts but also on conceptual grounds. While it is fortunate that the SGCA in Winsta Holdings appears cognizant of the fact that falsification should not be a reparative remedy but rather a substitutive one,[61] it remains to be seen whether they would conclusively reject Target Holdings’ reparative approach.[62] It is thus hoped that the SGCA would firmly reject this problematic test as soon as possible as otherwise the conceptual confusion in the doctrine of falsification would continue to stir up a storm of controversy in what is otherwise supposed to be a very calm area of law.



* LLB (Candidate), National University of Singapore, Class of 2023. All errors in this article remain my own.

[1] P.J. Millett, “Equity's place in the law of commerce” (1998) 114 Law Quarterly Review 214 at 226. [Millett].

[2] Ibid.

[3] [1996] AC 421 [Target Holdings].

[4] [2015] AC 1503 [AIB Group].

[5] J E Penner, The Law of Trusts 11th Ed (Oxford: Oxford University Press, 2019) at paras 7.28-7.32.

[6] Ibid.

[7] Example: The trustees in Target Holdings and AIB Group.

[8] Target Holdings, supra note 3 at 440.

[9] Ibid at 432.

[10] Millett, supra note 1 at 227.

[11] Ibid.

[12] Ibid.

[13] J. Edelman, “Money awards of the cost of performance” (2010) 4 Journal of Equity 122.

[14] M. Conaglen, “Explaining Target Holdings v Redferns” (2010) 4 Journal of Equity 288.

[15] P. Watts, “Some Aspects of the Intersection of the Law of Agency with the Law of Trusts” in P.S. Davies and J. Penner, eds, Equity, Trusts and Commerce (Oxford: Hart Publishing, 2019) at 29.

[16] Ibid.

[17] Ibid.

[18] Ibid.

[19] This view came from a seminar conducted by Professor James Ernest Penner which the author attended.

[20] In Target Holdings, Lord Browne-Wilkinson cited cases such as Nestle v National Westminster Bank plc [1993] 1 WLR 1260 and Bartlett v Barclays Bank Trust Co. Ltd (Nos. 1 and 2) [1980] Ch 515 to support his proposition at 434.

[21] Target Holdings, supra note 3 at 434.

[22] Paul S. Davies, “Compensatory Remedies for Breach of Trust” in Richard C. Nolan, Kelvin F.K. Low & Tang Hang Wu, eds, Trusts and Modern Wealth Management (Cambridge: Cambridge University Press, 2018) 307 at 317 [Davies].

[23] Re Dawson (deceased); Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] NSWR 211 at 216.

[24] Ibid.

[25] AIB Group, supra note 4, see Lord Toulson’s judgement.

[26] Peter Watts, “Agents’ Disbursal of Funds in Breach of Instructions” (2016) Lloyd’s Maritime and Commercial Law Quarterly 118 at 121.

[27] Target Holdings, supra note 3 at 436.

[28] Ibid.

[29] Millett, supra note 1 at 225.

[30] Ibid.

[31] Sim Poh Ping v Winsta Holdings [2020] SGCA 35 at para 113 [Sim Poh Ping v Winsta Holdings].

[32] Millett, supra note 1 at 225.

[33] Libertarian Investments Ltd v Hall [2014] 1 HKC 368 at para 168.

[34] Millett, supra note 1 at 225.

[35] Davies, supra note 22 at 323.

[36] Lucina Ho, “An Account of Accounts” (2016) 28 Singapore Academy of Law Journal 849 at para 65.

[37] Sim Poh Ping v Winsta Holdings, supra note 31 at para 114.

[38] Von Wright, Norm and Action (New York: The Humanities Press, 1963) at 40-41

[39] Sim Poh Ping v Winsta Holdings, supra note 31 at para 114.

[40] The author thanks Professor James Ernest Penner for inspiring this hypothetical scenario.

[41] Davies, supra note 22 at 319.

[42] Target Holdings, supra note 3 at 434.

[43] Ibid at 435-36.

[44] Ibid.

[45] Ibid.

[46] AIB Group, supra note 4 at para 71.

[47] Richard Nolan, “A Targeted Degree of Liability” (1996) LMCLQ 161 at 162.

[48] Millett, supra note 1 at 225.

[49] [2017] EWCA Civ 1193 [Giambrone].

[50] Ibid at para 61.

[51] Ding Hang Seah, “Custodial Stewardship Duties of a Trustee: The Search for a Principled Approach” (2019-2020) 37 Sing L Rev 119 at 125-26 [Seah].

[52] Ibid.

[53] Giambrone at para 62.

[54] Seah, supra note 51 at 125-26.

[55] Ibid.

[56] Youyang Pty Ltd v Minter (2003) 196 ALR 482 at paras 48-49.

[57] Seah, supra note 51 at 126.

[58] Ibid at 127.

[59] Ibid.

[60] See the ‘self-correction’ theory in Part 2 of this article.

[61] Sim Poh Ping v Winsta Holdings, supra note 31 at para 125: “[In the] situation involving custodial breaches, the monetary award is substitutive – it seeks to restore the trust fund or the fund of the principal either in specie or by a monetary sum in lieu. The usage of the term “equitable compensation”, with its reparative origins, in cases of custodial breaches may have well led academics and courts to view the monetary awards ordered for custodial breaches similarly – and in our view, wrongly – in a reparative light.”

[62] Ibid at para 122.

Rothstar Group Ltd v Leow Quek Shiong: The Insolvency Implications of Diverting Consideration Towards Related Entities

A PDF version of the article can be found here


Rothstar Group Ltd v Leow Quek Shiong: the insolvency implications of diverting consideration towards related entities

 

Jeriel Teo*

 

I.                    introduction

 

In Rothstar Group Ltd v Leow Quek Shiong,[1] the Court of Appeal held that a shareholder-director’s provision of a legal mortgage to secure the debt of one of his ailing companies was a transaction at an undervalue within the meaning of s 98 of the Bankruptcy Act.[2] The Court of Appeal granted his private trustees in bankruptcy (“PTIB”) an order that the legal mortgage was to be discharged with prospective effect, stating that the benefits accruing to the ailing company did not create any value for the shareholder-director personally. This raises two related insolvency risks for purchasers or lenders during the relevant clawback period. Firstly, a narrow emphasis on the value received by the grantor personally may lead to deals that are negotiated on a group basis to be unfairly impugned as being at an undervalue. Secondly, if the consideration for a transaction is dissipated by the wrongful conduct of the grantor’s directors or officers, the purchaser or lender may become liable for the dissipated funds that were not received by the grantor, notwithstanding that the purchaser or lender may have acted innocently.

II.                 Background to the decision in rothstar

 

Rothstar concerned a debt that was owing by Agritrade International (Pte) Ltd (“Agritrade”) to Rothstar Group Ltd (“Rothstar”). Rothstar was a long-standing creditor of Agritrade, who was initially indebted to Rothstar for $5m.[3] This debt was secured by an equitable mortgage granted by Agritrade’s shareholder-director, Mr Ng Say Pek (“Ng) and one of Ng’s companies, Pictorial Development Pte Ltd (“Pictorial”), over Ng’s family home at 23 Jalan Tanah Puteh (the “Jalan Tanah Puteh property”).[4] Pictorial held 99% of the Jalan Tanah Puteh property, and was wholly-owned by Ng and his wife.[5]

However, Agritrade proved to be unable to pay the debt in time. Rothstar subsequently became concerned about the financial status of Agritrade, and insisted that the equitable mortgage be converted to a legal mortgage, failing which Rothstar would recall the loan, and enforce their rights against the Jalan Tanah Puteh property with immediate effect.[6] Further to this, Rothstar also sought a personal obligation on Ng and Pictorial to pay all monies owing by Ng, Pictorial, and/or Agritrade to Rothstar.[7]

In the events that followed, Agritrade would collapse,[8] Ng would go into bankruptcy,[9] and Pictorial would go into compulsory winding-up.[10] The PTIB of Ng subsequently sought an order from the High Court that the legal mortgage was void for being, inter alia, a transaction at an undervalue under s 98 of the BA. The Court of Appeal, affirming the decision of the High Court, allowed the application by the PTIB. This was on the grounds that Ng and Pictorial had received no value in money, or money’s worth for the provision of the legal mortgage, and that the benefits that had accrued to Agritrade could not be attributed to Ng or Pictorial for the purposes of the value comparison exercise.[11]

 

III.              The implications of the Rothstar decision

 

A.     THE LEGAL BACKDROP TO THE ROTHSTAR DECISION

 

There are two main transactions at an undervalue provisions in the IRDA, both of which are largely identical. s 224 of the IRDA deals with insolvent companies, and s 361 of the IRDA deals with bankrupts. These provisions allow the relevant insolvency representative to apply to the Court to make an order placing the insolvent company or the bankrupt in the position that they would have been in if not for the undervalue transaction.[12] This thus protects the creditors from a diminution of the insolvent estate during the relevant clawback period.

A transaction may be at an undervalue for two reasons. Firstly, the insolvent company may have received no consideration at all in exchange for the consideration that it had provided.[13] Another reason a transaction may be at an undervalue, is if the value received by the grantor company (“incoming consideration”) is “significantly less” than the value provided by the grantor company (“outgoing consideration”).[14]

In line with the overarching policy behind the avoidance provisions in general, the value comparison exercise focuses on the value actually received by the grantor, and not the value provided by the counterparty.[15] While it used to be thought that the purpose of the undervalue transactions provisions were to uphold the principle of pari passu distribution, it has since become relatively uncontroversial that the general policy of the avoidance provisions in general is the protection of the insolvent estate from unjust diminutions.[16] As the Court of Appeal rightly pointed out, a focus on the value received, rather than the value provided, comports with this statutory objective.[17]

In the context of multi-party transactions, where the consideration received may be disbursed to a related entity, or where the consideration is split up amongst multiple related entities, it may be possible for the incoming consideration to be calculated on a collective basis.

The Court of Appeal had previously considered this possibility in obiter dicta in Velstra Pte Ltd v Dexia Bank NV.[18] In Velstra, the insolvent company, Velstra, made a remittance naming the respondent, Artesia Bank, as the beneficiary, but instead listing the account number of Velstra’s shareholders.[19] The Court of Appeal held that there was no transaction between Velstra and Artesia Bank in any real sense. Though Velstra had named Artesia Bank as a beneficiary, the true substance of the transaction was a remittance from Velstra to its shareholders, with Artesia Bank acting as an intermediary or conduit.[20]

Importantly, the Court of Appeal went on to consider whether the remittance could have been a transaction at an undervalue even if the intended beneficiary was Artesia Bank. The Court of Appeal held that there would be no undervalue transaction, because Artesia Bank had released funds equal in amount to the remittance into the accounts of Velstra’s shareholders.[21] The Court of Appeal however did not explain in detail why the payment to the shareholders would be a benefit in monetary terms to the company, given that a company and its shareholders are separate legal personalities. Thus, Velstra suggests that calculations of the incoming consideration may take into account benefits that do not accrue to the company personally, but instead accrue to their shareholders.

Rothstar appears to caution against taking the dicta in Velstra too far. While the Court of Appeal recognised that it was possible in principle for the grantor to benefit in monetary terms from a benefit accruing to a related entity, the Court of Appeal firmly stated that a benefit accruing to a related entity would not ipso facto result in a benefit accruing to the grantor himself. The value comparison exercise should remain focused on the value received by the grantor, and not “amorphous” benefits that arise solely “by dint of their association” with other related entities who benefited from the transaction.[22]

 

B.      THE ROTHSTAR DECISION CREATES THE RISK OF ARTIFICIALLY UNDERVALUING TRANSACTIONS MADE TO BENEFIT A GROUP OF RELATED COMPANIES

 

While the principle appears to be sound, Rothstar generates significant insolvency-related risks for parties transacting with related companies, or their shareholders, during the clawback period. Firstly, a narrow focus on the value received by the grantor may result in otherwise sound transactions being impugned as being at an undervalue. For example, in the context of group companies, transactions may be structured from the perspective of maximizing value for the group on a collective basis, and the true value of the incoming consideration may not be reflected when measuring the benefits to each member of the group on an individual basis. In such situations, a dogged focus on the value received by the grantor, rather than the group as a whole distorts the true nature of the transaction at hand, leading to certain transactions becoming unfairly impugned as being at an undervalue. Thus, counsel would be well advised to ensure that where a transaction provides for consideration to move to any party other than the grantor, there is a well-particularised explanation of how the grantor will personally benefit from such a transaction.

 

C.     THE ROTHSTAR DECISION POSES SIGNIFICANT RISKS TO INNOCENT PURCHASERS WHO DEAL IN GOOD FAITH WITH INSOLVENT COMPANIES

 

Secondly, a strict application of this decision potentially prejudices otherwise innocent parties that deal in good faith with the insolvent company, if consideration is split up between the insolvent company and other related companies. This may be illustrated by a hypothetical.

Suppose that Company P wishes to purchase assets from the vendor company, Company I. The director of Company I instructs Company P to instead disburse the consideration to Company X, claiming that it is for reasons of tax-efficiency. Now, suppose further that the director of Company I is a fraudster, and that Company X was no more than a shell company used by the errant director to funnel cash out of Company I. The errant director then absconds with the sales proceeds. Company I then goes insolvent.

If the decision in Rothstar is applied strictly, then the sale of assets is a transaction at an undervalue, notwithstanding that Company P is not a party to the fraud and has acted innocently. Company I has received no consideration, because the sales proceeds were all funnelled out by the errant director. If the director absconds and cannot be found, then the liquidators of Company I will no longer have any possibility of seeking restitution from the errant director. In such situations, the liquidators would be incentivised to seek an order that Company P reimburse Company I to the extent of the undervalue.

Such an order would be prejudicial to Company P, because it would place Company P in the position of subsidizing Company I for the wrongdoing of its errant director. Further to this, if Company P had provided full consideration, then it would be in the position of having to pay twice. Put simply, there is no difference between the former scenario, and the scenario in which Company P disbursed the monies to Company I directly, and the errant director simply siphoned it out of Company I. Though there is equally a depletion of the insolvent estate of Company I, it would be unfair to make Company P liable for wrongdoing that it was not a party to.

 

D. THE RISK MAY BE MITIGATED BY THE COURT’S DISCRETION TO MAKE NO ORDER

 

The risks inherent in such transactions may be mitigated by the Court’s discretion to grant no order, even where there is an undervalue transaction. It is uncontroversial that the Court’s discretion under s 98(2) BA also extends to not making an order at all, even if there has been an undervalue transaction.[23] Such an exercise of discretion may be justified on the grounds that the purchaser firstly provided full consideration, dealt in good faith, and may be prejudiced by having to pay an additional sum, above and beyond the full consideration they had initially supplied.[24]

The Court may also not be minded to simply reverse the transaction because such orders are often impractical in the context of an insolvent company, which may not have the funds necessary to repay the purchasing company. One example of this took place in Re MDA Investment Management Ltd.[25] MDA was a company in dire financial straits. Though it was a financial services business, it had recently lost its membership in the relevant regulatory body and thus could no longer carry on its business. The directors thus arranged for a sale of MDA’s assets to a purchaser, Farlake. However, the deal was structured in such a way that over 50% of the consideration paid by Farlake was disbursed to a partnership in which one of the directors was an 80% partner.

Though the High Court found that the transaction was indeed at an undervalue within the meaning of s 238 of the Insolvency Act 1986 (UK),[26] the High Court declined to make an order. As Park J noted:

 

the section permits me only to restore the position to what it would have been if [MDA Ltd] had not entered into the transaction at all: it does not permit me to reconstruct the position to what it would have been if [MDA Ltd], as well as not entering the actual transaction, had entered into a different transaction instead.[27]

 

Because MDA was not able to carry on business for lack of licensing, even a sale of its assets at an undervalue was better than no sale at all. Thus, Park J declined to reverse the transaction.

Though MDA should be treated with caution befitting its unique set of facts, it seems to suggest that where the court is unable to reconstruct the position to where it would be had the transaction not been entered, it should exercise its discretion to decline to make an order. In the hypothetical discussed, it would often be impractical to restore the status quo ante, because even if Company P restored the purchased assets, Company I would not have the liquidity to refund the purchase. Thus, it is submitted that the right course of action for the Court may be to make no order at all, and leave the liquidators of Company I to the remedies ordinarily available for breaches of directors’ duties.

This discretionary approach is perhaps the most preferable solution to this conundrum, largely because they balance the preservation of doctrinal coherence with fairness to creditors who deal in good faith with the company. The discretionary approach is not inconsistent with the general principle of anti-deprivation. The only real “deprivation” to speak of is that the creditors have not enjoyed an unfair windfall at the expense of those that deal with the insolvent company in good faith, and mitigates the harshness inherent in an approach that values transactions solely from the perspective of the insolvent company.

 

IV.              Conclusion

 

Though the decision in Rothstar is largely sound from a doctrinal perspective, the decision generates significant insolvency-related risks for transactions where the consideration does not move directly to the grantor. Though the Court of Appeal left the possibility that benefits that accrue to related entities may also benefit the grantor, the Court of Appeal has issued a strong caution that such knock-on benefits must be clearly particularised and substantiated. Further to this, a strict application of this decision may result in innocent purchasers being held liable for the fraudulent behaviour of errant directors in the grantor company. This risk, however, may be mitigated by the court’s discretion to make no order where they see fit, even if there has been an undervalue transaction.

 



* LLB Candidate, National University of Singapore, Class of 2024. All errors remain my own.

[1] [2022] SGCA 25 [Rothstar].

[2] Cap 20, 2009 Rev Ed [BA], now s 361 of the Insolvency Restructuring and Dissolution Act 2018 [IRDA].

[3] Rothstar, supra note 1 at para 6.

[4] Ibid.

[5] Rothstar, supra note 1 at para 4.

[6] Rothstar Group Ltd v Chee Yoh Chuang [2021] SGHC 176 [Rothstar HC] at para 48.

[7] Rothstar, supra note 1 at para 47.

[8] Rothstar HC, supra note 6 at para 13.

[9] Ibid at para 16.

[10]Ibid at para 18.

[11] Rothstar, supra note 1 at para 51.

[12] IRDA, supra note 2, ss 224(2) and 361(2).

[13] IRDA, supra note 2, ss 224(3)(a) and 361(3)(a).

[14] IRDA, supra note 2, ss 224(3)(b) and s 361(3)(c) IRDA. Note that s 361 has an additional category for transactions in which the consideration received is marriage.

[15] Rothstar, supra note 1 at para 25.

[16] Mercator & Noordstar NV v Velstra Pte Ltd [2003] 4 SLR(R) 667 at para 27.

[17] Rothstar, supra note 1 at para 25.

[18] [2005] 1 SLR(R) 154 [Velstra].

[19] Ibid at para 6.

[20] Ibid at para 38.

[21] Ibid at paras 8 and 41: the “full consideration” identified by the Court of Appeal is a payment into the accounts of the shareholders.

[22] Rothstar, supra note 1 at para 49.

[23] Christie, Hamish Alexander v Tan Boon Kian [2021] 4 SLR 809 at para 80.

[24] Trustee in Bankruptcy of Gordon Robin Claridge v Claridge [2011] All ER(D) 27 (Aug).

[25] [2003] EWHC 227 [MDA].

[26] Which is in pari materia with ss 361 and 223 of the IRDA.

[27] MDA, supra note 25 at para 123.

In Conversation with Dr Dong Qiyao

A PDF version of the article may be found here


IN CONVERSATION WITH DR Dong Qiyao

 

Interviewer: SHAKTIVEL ARUMUGAM*

 

This is the sixth part of a series of interviews that the Intellectual Property Students Association (“IPSA”) has conducted with key players of the intellectual property (“IP”) field in Singapore. These key players represent a diversity of views in the field of IP dispute resolution. The Singapore IP Strategy 2030 Report[1]has highlighted that Singapore is currently seeking to strengthen its position as a dispute resolution hub for IP disputes. The main purpose of these interviews is therefore to explore and discuss the various strategies that Singapore intends to employ towards advancing its goal as an IP dispute resolution hub.

 

On 24 November 2021, IPSA had the opportunity to interview Dr Dong Qiyao, the Representative of the World Intellectual Property Office ("WIPO") Arbitration and Mediation Center ("WIPO Center") Singapore Office. The WIPO Center Singapore Office opened in 2010 to promote and provide alternative dispute resolution ("ADR") services, such as mediation and arbitration, in the region.

 

Q1: From what the WIPO Center has seen around the world, what, if any, is the relationship between the strength of a country’s IP framework and its dispute resolution landscape?

 

Dr Dong noted that in general, how supportive a country is of its ADR framework influences how widely ADR options will be used in the jurisdiction. This depends on relevant legislations and the attitudes of judges. In a country with open attitudes towards ADR, for e.g., by encouraging the use of ADR options such as mediation, the ADR landscape will be enhanced (particularly for IP related aspects). If the law itself has an open attitude and there are clear instructions in legislation saying that this dispute should be resolved through ADR options, it provides a good opportunity for parties to think about using ADR for IP disputes.

 

Q2: What changes has the WIPO Center seen in the dispute resolution landscape in Singapore and the region since setting up its Singapore office more than a decade ago? What is the prevalent mindset towards ADR for IP disputes?

 

Dr Dong made the following observations:

 

"The dispute resolution landscape is certainly rapidly developing in Asia and Singapore. Singapore holds broader perspectives with respect to ADR. In particular, both the domestic and international dispute resolution legal framework has been robustly developing in Singapore. One example I can think of is the new amendments to the International Arbitration Act 1994 passed by the Singapore parliament in 2020[2]. Also, I note that Singapore is one of the earliest countries to deposit instruments of ratification for the Singapore Convention on Mediation[3].

 

From the perspective of the WIPO Center, we are observing a growing ADR caseload in SG and the ASEAN region. Many IP offices are also collaborating with the WIPO Center to raise the public profile of ADR. In fact, the WIPO Center has collaborated with the Intellectual Property Office of Singapore ("IPOS"), notably in facilitating pending trading opposition proceedings.

 

From her understanding, the prevalent mindset is that ADR options are already popular amongst parties for disputes concerning investment and finance. However, ADR for IP disputes a.k.a "IP ADR" is a relatively new area. Nevertheless, research has shown that ADR is very suitable for IP disputes. This is because ADR can be used to resolve IP in a cost and time efficient way. Furthermore, as IP disputes usually involve confidential information, the strict confidentiality of ADR proceedings lends itself well to resolving IP disputes and is therefore an important consideration. Other key considerations for parties of IP disputes include the expertise of the mediators or the arbitrators, as well as the international enforceability of a final award."

 

Q3: What else can be done to encourage greater reception towards ADR for IP disputes? Furthermore, how do you think that the promotion of ADR can interact with litigation to promote holistic dispute resolution options for users?

 

Dr Dong explained that the WIPO Center does see growing efforts to promote the use of ADR in disputes around the world. As a result, they have observed an increasing receptivity towards ADR. In 2021, WIPO ADR caseload has been increased by 45%. As such, the WIPO Center believes that there should be continued efforts to raise awareness of ADR options. In this regard, the WIPO Center has always welcomed collaborations in a bid to raise awareness. For instance, the WIPO Center has been collaborating with courts, law firms, IP offices for industrial associations to provide information to companies, especially Small-Medium Enterprises, to facilitate the resolution of IP disputes through ADR.

 

With respect to the second part of the question about litigation, Dr Dong made the following comments:

 

"I believe that the promotion of ADR can interact well with litigation to ensure efficient resolution of IP disputes, especially for complex IP disputes that are international in nature. ADR options, particularly mediation and expert determination present good opportunities for parties with cases pending if they are willing to settle or seek assistance on technology matters. We note that in recent years, WIPO has seen a growing number of courts referring parties to mediation to settle disputes. Courts are even encouraging global settlements thru mediation in order to end long and costly litigation and avoid further harm of business relationship. Against this backdrop, the WIPO Center has established collaborations with national courts in a growing number of jurisdictions to promote ADR. For instance, based on MOUs concluded between the WIPO Center and the Supreme People's Court of China and the Shanghai High People’s Court, parties can refer to WIPO Arbitration and Mediation Shanghai Service to settle their international IP disputes pending before six courts in Shanghai. So far, the WIPO Arbitration and Mediation Center has received 50[4] mediation cases involving copyright infringement, patent infringement, and trademark licencing disputes. Back to my first point, this is one example of how promotion of ADR can interact with litigation in a holistic way."

 

Q4: Expert determination is an ADR option WIPO offers in which a dispute or a difference between the parties is submitted, by agreement of the parties, to one or more experts who make a determination on the matter referred to them. What type of IP disputes are particularly suited for expert determination? What are some of the distinct advantages that expert determination offers?

 

Dr Dong explained that in expert determination, parties submit a specific matter to make a decision or determination on the matter. Expert determination is especially suitable when it is necessary to determine issues that are scientific or technical in nature e.g., the valuation of an IP asset or establishment of royalty rights, or interpretation of the extent of rights covered under a license. In practice, expert determination has been used to resolve life science disputes, FRAND disputes etc. One of the key advantages of expert determination is that parties benefit from specifically focused expertise and time efficiencies.

 

While expert determination is not commonly offered by IP offices, Dr Dong notes however that IPOS and the WIPO Center have developed an expert determination option for patent proceedings such as revocation and inventorship disputes etc.

 

Q5: What is WIPO Center’s unique value proposition in Singapore and the region?

 

According to Dr Dong, the WIPO Center is an international dispute resolution service provider, specialised in IP and technology disputes. It was established in 1994 as an independent and impartial body which forms part of WIPO. The primary goal of the WIPO Center is to offer IP stakeholders a means to resolve their disputes in a cost– and time– saving manner. WIPO ADR proceedings were developed by leading experts in cross-border dispute resolution and WIPO ADR services are recognised as being particularly appropriate for international disputes. With respect to the caseload of the WIPO Center, most of the cases are IP and technology related, covering a wide range of aspects such as patent, trademark, copyright and ICT.

 

Moreover, WIPO Center also has a growing database of over 2000 mediators, arbitrators and experts from over 100 jurisdictions including highly specialised practitioners, and experts with specialised knowledge in the area of IP. Additionally, the WIPO Center actively collaborates with member states to prevent and resolve IP disputes. For instance, the WIPO Center assisted in the establishment of joint dispute resolution procedures by IP offices in Singapore and the wider Asian region, such as the Philippines and the Republic of Korea to facilitate the use of ADR processes for disputes pending before IP courts.

 

 



* LLB (NUS), Class of 2021.

[1] Intellectual Property Office of Singapore, Singapore IP Strategy (SIPS) 2030 Report, (Singapore: Intellectual Property Office of Singapore, 2021), online: <https://www.ipos.gov.sg/docs/default-source/default-document-library/singapore-ip-strategy-report-2030-18may2021.pdf> (accessed 16 December 2021).

[2] On September 1, 2020, Singapore’s Ministry of Law introduced an International Arbitration (Amendment) Bill that proposed two changes to the International Arbitration Act, which governs the conduct of international arbitrations seated in Singapore. The first change is the addition of default processes and timeframes for appointing arbitrators in multi-party situations where the parties’ agreement does not specify an appointment procedure. The second change would explicitly recognize the powers of an arbitral tribunal and Singapore’s High Court to enforce confidentiality obligations. Singapore is a world class international commercial arbitration hub, and these changes aim to further enhance its legal framework for international arbitration.

[3] The Singapore Convention on Mediation, formally the United Nations Convention on International Settlement Agreements Resulting from Mediation which was adopted on 20 December 2018 and opened for signature on 7 August 2019, is an international agreement regarding the recognition of mediated settlements.

[4] So far, the WIPO Arbitration and Mediation Center has received 50 mediation cases. This number is correct as of publication and was provided by WIPO Arbitration and Mediation Center. At the time of the interview, the original figure provided to Shaktivel was 40.

 

Evaluating the Duty of Utmost Good Faith in light of the SAL Reform Committee's "Report on Reforming Insurance Law in Singapore"

A PDF version of the article can be found here.


EVALUATING THE duty of utmost good faith IN LIGHT OF THE SAL Law Reform Committee’s “Report on Reforming Insurance Law in Singapore”

 

Tan Wee Liang*

 

I.             Introduction

 

How do we restore faith in the duty of utmost good faith (“UGF”)? As Sir Longmore puts it, “[t]he time has come when…[the insureds’] burden should be a lighter one.”[1] Parties to an insurance contract bear a statutory duty of UGF.[2] In particular, insureds have an independent duty to volunteer information material to the risk to be insured. The pre-contractual duty of disclosure is the chief manifestation of UGF, with the other manifestation being the duty of non-misrepresentation.[3]

Due to the asymmetry of information between insureds and insurers, UGF sought to prevent insurers from running a risk different from the risk they assumed to run.[4] Stemming from the mid-18th century, when communication technology was rudimentary, Lord Mansfield presumed that insureds had superior knowledge because insurers lacked the technology to uncover information unique to insureds.[5] In contrast, today, technological advancements equip insurers with information-gathering technologies,[6] thereby ensuring that they are no longer stuck with the shorter end of the stick.[7] For instance, insurers are progressively deploying big data analytics, artificial intelligence and “InsurTech” to augment the underwriting process.[8] Given the reduced reliance on insureds’ disclosures, the traditional rationale for active insureds and passive insurers[9] is “no longer convincing nowadays”[10] in the 21st-century market.[11] Insurers today are companies with greater capabilities than the consumer-insureds, who are individuals negotiating for personal cover and unlikely to suffer from unusually high risks.[12]

The shifting insurance landscape results in UGF being unfair to consumer-insureds and business-insureds as well, due to its harsh operation of the one-size-fits-all remedy of total avoidance[13] being ineffective for insureds,[14] its facilitation of passive underwriting,[15] and its low materiality threshold in the “prudent-insurer test.”[16] Moreover, while there is a common law[17] and statutory inducement requirement[18] for avoidance, under which insurers bear the burden of proof, insureds must still explain and contextualise the undisclosed facts to dispute inducement even when they lack recollection given the time-lapse.[19] Thus, commentators have opined that reform is “long overdue.”[20]

To address this unfairness, the Singapore Academy of Law’s Law Reform Committee[21] recommends reforming the duty of disclosure and non-misrepresentation doctrines. Its key recommendation is to enact a single Insurance Contract Act,[22] which adopts the United Kingdom (“UK”)’s “bifurcated insurance contract law regime”[23] supplemented with features of Australia’s insurance regime.[24] Accordingly, while the SAL Report lists the Australian features,[25] this paper focuses only on key Australian features relevant to the UK regime.

This paper explores the feasibility of the SAL Report’s recommendation of adopting the UK’s position, namely of: (1) removing the duty of disclosure but retaining the duty not to misrepresent for consumer-insureds;[26] (2) replacing the duty of disclosure with the duty of fair presentation for business-insureds;[27] and (3) substituting the avoidance remedy with proportionate remedies.[28] Each section analyses the effectiveness of the UK’s position in mitigating the common law’s harshness[29] while referencing the Australian regime,[30] before evaluating the UK’s position in Singapore’s context. Finally, this paper concludes by proposing a way forward for Singapore that best strikes a balance between the interest of the insureds and that of the insurers.

 

II.            Remove duty of disclosure but retain duty not to misrepresent for consumer-insureds

 

The UK’s CIDRA abolished the duty of disclosure in “one bold legislative stroke,”[31] adopting an inquiry-based, rather than a disclosure-based, approach to insurance. It imposes on consumers a duty to take reasonable care not to make misrepresentations to insurers,[32] which replaces any existing duty of disclosure or representations owed to the insurers.[33] This transforms the nature of the insurers’ role from passive to active. Instead of a pre-contractual obligation to volunteer information, the onus is on insurers to inquire for information from the insureds. There are several justifications for Singapore to adopt a similar change.

 

A.     Fairness

 

Removing the duty of disclosure is fairer to insureds as this eliminates the “evil” of passive underwriting,[34] where insurers only inquire “at the claims stage” to avoid liability.[35] As insureds are not insurance law experts, they “are unaware that they are under a duty to volunteer information” and “even if they are aware of it, they usually have little idea of what an insurer might think relevant.”[36] Furthermore, materiality extends to facts beyond circumstances increasing the risk or relevant to the risk occurring. The uncertainty surrounding materiality is more pronounced in a reinsurance context. If insureds are uncertain as to what should be disclosed, this uncertainty snowballs through the reinsurance layers until the disclosure to the final reinsurer down the chain is no longer accurate nor reliable.

Yet, since the disclosure enquiry occurs ex post facto, the duty of disclosure “does not recognise the breadth and depth of the gap” between what insureds know and what insurers know.[37] By imposing an inquiry-based duty on insurers and abolishing the insureds’ duty of disclosure,[38] CIDRA absolves insureds of their disproportionately onerous duty. In addition, judging materiality through the reasonable insured’s perspective, instead of the prudent insurer’s perspective, reduces the insureds’ guesswork. Contrasted against insureds, insurers “are always better placed than [insureds] to identify the categories of information that they consider to be relevant to their decision of whether to insure a risk.”[39] Thus, it is fairer to impose an active obligation of inquiry on insurers.

 

1.       Proposal Forms and Renewals

 

The benefits of transforming insurers into active insurers are more apparent in proposal form and renewal scenarios since the transformation is more consistent with consumer-insureds’ expectations and perceptions of fairness. CIDRA does not fault insureds when insurers fail to ask the right questions to get relevant information.

Currently, in Singapore, insureds risk breaching their duty of disclosure in proposal form and renewal situations when they are misled by the comprehensive nature of questions posed to them and the impression that honestly answering these questions satisfies their duty.[40] Notwithstanding the possibility of a waiver via proposal form questions limiting the duty of disclosure,[41] insureds can still bear the duty to disclose facts beyond the scope of questions in the proposal form.[42] The fact that particular questions relating to the risk are put to the insured “does not per se relieve him of his independent obligation to disclose all material facts.”[43] Despite merely being told to complete the form,[44] there is no presumption that matters not dealt with in the form are immaterial.[45]

Apart from proposal forms, unsuspecting insureds are unaware of their disclosure obligations during policy renewals since they do not perceive renewals as entering into new contracts.[46] Furthermore, with passive underwriting,[47] insurers are discouraged from reminding insureds of this duty. Therefore, removing the duty of disclosure ensures fairer proposal form and renewal processes that are consistent with the insureds’ expectations, in light of how the mutuality of UGF heavily favours insurers in reality.[48]

 

B.      Relevance

 

By imposing active obligations on insurers, CIDRA remains consistent with reality.

First, CIDRA’s expectation for insurers to inquire is consistent with the reality of insurers being better positioned to identify categories of relevant facts. While s 25(5) of Singapore’s Insurance Act[49] aims to protect consumer-insureds by requiring insurers to remind insureds to furnish facts known to themselves, academics have questioned the effectiveness of such warnings.[50] On the one hand, these warnings are often phrased too generally and, consequently, fail to warn insureds of their duty of disclosure. As a result, they are of anaemic value in clarifying what facts insureds ought to disclose, and their inadequacy was noted extrajudicially as being insufficient “to ensure that [the insureds] would appreciate [their] scope and significance.”[51] On the other hand, it is impractical to expect insurers to specify information the prudent insurer would be looking for.[52] Instead, it is more feasible for insurers to ask about categories of relevant facts.

Second, CIDRA’s removal of the duty of disclosure aligns with modern consumer insurance practices. CIDRA targets potential pitfalls stemming from the changing face of insurance practice discouraging disclosure.[53] For example, with technological advancements, policies are increasingly sold through computerised sales processes, making “it more likely that consumers fail to disclose things which insurers can try to use to avoid liability,”[54] or via telephone where insureds answer predetermined questions without much opportunity to disclose additional information.[55] After all, “direct marketing [emphasises] making a sale rather than obtaining the relevant information.”[56] Thus, insurers must ask the questions that best encourage insureds to reveal information relevant to the insurers’ decision-making, and Singapore can draw guidance from CIDRA’s emphasis on insurers inquiring on relevant information.

Third, CIDRA caters to sophisticated consumers who may pose unusual risks, by considering insureds’ unique characteristics,[57] policy type and clarity of proposal form questions when assessing whether they complied with their duty not to misrepresent.[58] CIDRA’s comprehensiveness prevents sophisticated consumers from exploiting the regime by taking out personal policies catering to the risks of average consumers.

 

C.     Public Policy

 

CIDRA’s removal of the insureds’ duty of disclosure and its recognition of active insurers alleviate the harshness stemming from the cumulative consequence of the common law duty of disclosure and passive underwriting, namely that of the avoidance remedy being one-sided.[59] As Australia is also facing similar consequences,[60] the Australian Parliament has adopted the Australian Report’s recommendation[61] and followed CIDRA in replacing the consumer-insureds’ duty of disclosure with a duty to take reasonable care not to make a misrepresentation for all consumer-insureds.[62] This ensures a consistent level of consumer protection across all consumer insurance policies.[63] The revised duty of disclosure encourages insurers to pose specific questions.[64] Going a step further than CIDRA, the AIA removes the guesswork for insureds in determining which facts are relevant to insurers and discourages insurers from asking open-ended questions permitted under CIDRA, where the facts desired remain ambiguous.[65] Likewise, Singapore can draw inspiration from CIDRA and AIA to craft an insurance regime sensitive to public policy needs.

 

III.            Replace duty of disclosure with duty of fair presentation for business-insureds

 

Singapore can follow the UK’s drive towards active insurers while striking a balance by distinguishing between consumer-insureds and business-insureds. The UK’s IA has recharacterised the duty of disclosure as the duty of “fair presentation” in the context of businesses.[66] It requires business-insureds to make a fair presentation of risks that can put insurers on notice to inquire.[67] Failure to inquire is treated as insurers waiving their right to information.[68] While the IA follows CIDRA’s push towards active insurers, it also recognises how business-insureds are usually in a stronger position than consumer-insureds. Thus, it strikes a balance between insurers and business-insureds by expecting business-insureds to adopt a more active role relative to consumer-insureds in assisting the insurer by disclosing information.

Such a distinction between consumer-insureds and business-insureds is warranted because most business-insureds have greater information-gathering capabilities than consumer-insureds. This was the UK Law Commission’s rationale for ensuring that the law did not “molly-coddle businesses,”[69] which Yeo Hwee Ying and Yaru Chia cited when arguing for imposing a “fair presentation” duty on business-insureds.[70] Otherwise, applying CIDRA to business-insureds treats them equally with consumers who may have scant insurance knowledge, which will be unduly onerous on insurers. Some business-insureds may face unusual or specialist risks, and insurers cannot lead the disclosure process to the same extent as that for consumer-insureds, given the various risks involved in non-consumer contexts.[71] Instead, business-insureds can more easily provide the information as they are experienced in their respective industries.

Furthermore, to facilitate business efficacy, the IA ensures that business-insureds do not data-dump insurers with unnecessary information.[72] While business-insureds can justify data-dumping as being overly cautious since they do not know if the insurer “ought to know” or “is presumed to know” particular circumstances,[73] insurers can always obtain relevant information through their own means or seek further information from business-insureds.

Taking a leaf out of Australia’s book, Singapore can treat new businesses as consumers,[74] thereby granting these new business-insureds similar treatment as consumer-insureds. Distinguishing these businesses from established businesses is justified given the new businesses’ lack of experience with the disclosure process. In addition, a lighter duty on new businesses is consistent with Singapore’s bid to establish a start-up ecosystem by encouraging start-ups to take up insurance coverage.[75] This provides start-ups with insurance coverage benefits, such as risk management.

 

IV.            Replace avoidance remedy with proportionate remedies

 

A.     Harshness and One-sidedness of Avoidance Remedy

 

Both courts and academics recognise the harsh reality of the avoidance remedy’s “draconian” and “extreme” nature,[76] and it being “wholly one-sided” in favouring insurers.[77] These drawbacks eventually led to UK’s insurance law reforms.[78] When insurers breach their duty, avoidance is detrimental to insureds where the risk insured against has already crystallised. While avoidance can benefit insureds if their policies are “about to end or [have] ended without [them] having suffered any [losses] as yet,”[79] such instances are rare since the policies must not have a surrender value and the insureds must be “aware of the non-disclosure before the occurrence of the contingency against which [they] intended to insure.”[80] Furthermore, “the hypothesis of continuing dealings with each other will normally postulate some claim having been made by the [insureds] under the policy.”[81]

As demonstrated, avoidance predominantly fails to address the prejudice insureds face. It leaves insureds without cover since the non-disclosures usually only surface when insureds have suffered losses and attempt to claim from their policies. They are left unable to benefit from the cover they assumed they were entitled to, even when insurers might only have increased premiums marginally had the facts been disclosed.[82]

Insureds also lack incentive to litigate because avoidance offers minimal relief relative to the losses sustained from the misfortunes,[83] and courts cannot grant damages in lieu of avoidance to insureds due to its inconsistency with UGF’s equity juridical basis and the court’s refusal to create a novel tort.[84] Moreover, the bluntness of avoidance reduces insureds’ bargaining power in future negotiations for insurance policies because previous cancellations amount to material disclosure.[85] Long-term health and life policyholders are particularly affected as their premiums typically increase with age. Besides costlier future covers, avoidance leaves them without existing cover when cover is most needed, given the nature of life policies. This led to CIDRA restricting grounds for termination[86] for insurers of contracts that are “wholly or mainly [ones] of life insurance.”[87] It would be manifestly unfair to deny hapless insureds of any life policy benefit despite having “dutifully paid the premiums over the years in the expectation of cover should disaster strike,”[88] especially when they are “unlikely to find alternative life coverage at that stage.”[89]

In addition, when insurers elect to avoid the contracts due to the insureds’ breaches, avoidance is not subject to UGF. As English courts have yet to recognise that the right of avoidance is subject to UGF,[90] local courts are likely to refuse to do so as well. There is also no general contractual principle requiring rescission to be subject to a UGF requirement. Hence, it will be inconsistent for insurance law to recognise otherwise. On the insureds’ end, avoidance also disregards the blameworthiness of fraudulent insureds.[91] Given that innocent and fraudulent non-disclosures trigger the same avoidance remedy, fraudsters are encouraged to suppress information to obtain better terms. With proportionate remedies based on fault, the remedies doctrine is realigned with the classical notion[92] and original conception of UGF as articulated by Lord Mansfield—that “it must be a fraudulent concealment of circumstances that will vitiate a policy.”[93] 

 

B.      Fairness

 

Singapore should consider following CIDRA’s[94] and IA’s[95] replacement of the avoidance remedy with proportionate remedies to mitigate the harshness and unfairness of the all-or-nothing avoidance remedy under common law. Proportionate remedies tied to the insureds’ fault level better ensure a mutually equitable result.[96] They strike a balance between the insureds’ and insurers’ interests. On the one hand, they protect the insurers’ rights to have all necessary information to assess risk and to avoid the contract where there is a deliberate or reckless misrepresentation.[97] On the other hand, insureds benefit from partial recovery when their breach does not justify a total rejection of the claim,[98] such as when there is an “unintentional mistake.”[99]

Upon a “qualifying breach”[100] or “qualifying misrepresentation”[101] occurring, UK courts consider what the insurer would have done had the insured disclosed the risks and the insured’s culpability to determine the appropriate remedy. The consideration of the insured’s culpability coheres well with the fact that insurance contracts are contracts of UGF. A partial recovery is also an option when total rejection is unwarranted, ensuring insureds remain covered to the extent that they contracted and duly paid for.[102]

Beyond the UK position, Australia also recognises the value of proportionate remedies, since Australia’s insurance law regime includes these remedies.[103] Indeed, the Australian Report recognised the pitfalls of an “‘avoidance’ regime that is unfairly weighted in favour of insurers” and proposed reducing the instances where insurers could avoid life insurance policies.[104]

 

C.     Public Policy

 

As proportionate remedies encourage insureds to sue insurers for their breach (in contrast to avoidance),[105] it provides courts with opportunities to examine UGF and develop its jurisprudence. Currently, insurers can rely on the one-sidedness of the avoidance remedy to encourage insureds to settle, thereby preventing favourable judgements from being overturned. However, this also impedes the development of UGF in courts.

D.    Potential Uncertainty

 

Singapore should note the potential uncertainty arising from CIDRA’s comprehensiveness in anticipating the insurers’ possible reaction if the facts were disclosed.[106] Where insurers would have required additional warranties or a deductible, narrowed the scope of risk through exclusion clauses, or reinsured the risk, uncertainty stems from the lack of guidance to courts in this “question of guesswork” when determining the reduction in amount owed to the insured.[107] There are challenges in proving or challenging the notional premium.[108] Singapore’s Parliament is unlikely to take up James Davey’s suggestion of an equitable alternative,[109] given the court’s lack of equitable jurisdiction to prevent avoidance,[110] unlike in Australia.[111] This demonstrates how equity is restricted in non-disclosure or misrepresentation cases. Instead, a more feasible solution is the implementation of statutory principles to aid courts in determining the appropriate remedy.

 

V.            A PROPOSAL FOR Singapore’s way forward

 

This paper argues that Singapore should adopt a similar position as the UK in light of the benefits gained from the UK’s revised position.[112]

A bifurcation of business and consumer insurance policies addresses consumer-insureds’ concern of passive underwriting and insurers’ concern of business-insureds concealing information for lower premiums. For its consumer regime, Singapore should follow CIDRA’s “active insurer” requirement[113] and AIA’s encouragement for insurers to pose specific questions.[114] This prevents insurers from asking open-ended questions to “cover more ground”[115] and generating uncertainty for insureds who cannot identify what insurers want to know. This denies an escape route for insurers to avoid a claim where insureds have honestly answered the sweeping questions.[116] Alternatively, a more conservative approach is to follow Germany in interpreting such questions contra proferentem against insurers.[117] After all, Singapore courts have used the contra proferentem tool where the policy language is ambiguous to develop post-contractual UGF and sidestep the otherwise inflexible remedy of avoidance.[118] For the business regime, Singapore should follow Australia’s enactment of statutory safeguards for new businesses.[119]

In addition, Singapore should adopt proportionate remedies for both its consumer and business regimes, given the harshness of the avoidance remedy. Australia has already embraced proportionate remedies and intends to extend them across more insurance contexts.[120] To cope with the inherent uncertainty associated with proportionate remedies, Parliament could provide non-exhaustive statutory principles to assist courts in crafting the appropriate proportionate remedy. Without such principles, the urge for justice and the “voice of busy common sense” can often descend into merciless justice or merciful but unjust beneficence.[121]

When implementing these recommendations, Singapore should codify the proposed reforms, given that the “possibility of relying on soft-law mitigation in Singapore appears slim at best.”[122] Self-regulatory codes or states will never “compensate for a technically harsh regime that is in dire need of reform.”[123] Singapore’s soft law remains “very opaque,” with consumers left in the dark on the content and execution of claims-handling guidelines,[124] and insurers left to be “judges of their own case.”[125] The Life Insurance Association of Singapore’s Statement of Life Insurance Practice is not legally binding, “has largely been ignored”[126] and is not publicly available,[127] while the General Insurance Association of Singapore’s Code lacks promises like those mentioned in the Statement of Life Insurance Practice.[128] Besides soft law, alternative dispute resolution options, such as the Financial Industry Dispute Resolution Centre, prohibit legal representation and publication of decisions.[129] In contrast, statutes provide greater certainty without the piecemeal development of common law, preclude objections relating to judicial legislation,[130] and are more expedient given the relatively less litigious nature of Singaporeans and its small population, which presents little opportunity for local courts to evaluate and decide on controversial insurance issues.[131] Furthermore, Sir Longmore has pointed out that “it is cheaper to legislate than to litigate.”[132]

 

VI.            Conclusion

 

Singapore’s current insurance regime remains outdated and heavily favours insurers due to the one-sidedness of UGF and its associated duties. The consequent avoidance remedy remains unjustly inadequate for insureds.[133] For Singapore, reforms are long overdue[134] to ensure that “this indispensable shield for an insurer” does not become an “engine of oppression against the insured.”[135] This paper proposes a way forward for Singapore: (1) follow the SAL Report’s recommendation of adopting the UK’s position supplemented by Australian features; (2) enact non-exhaustive statutory principles to guide courts in dispensing proportionate remedies; and (3) implement these changes via legislation. Singapore’s insurance regime has long skewed in favour of the insurers, and it is high time for Singapore to join the ranks of the UK’s legatees which have “forged ahead” to rid themselves of outdated doctrines.[136] Only then can Singapore remain aligned with global standards of best practice[137] and Asia’s leading insurance hub.[138]



* LLB, National University of Singapore, Class of 2022. I would like to thank my friends, Mok Yue Min and Jewel Hong, for sharing their thoughts on this paper. All errors and views expressed in this article remain my own. An earlier version of this article was submitted for the NUS Law Module LL4407 Law of Insurance. This article was initially published in July 2022 and uploaded in October 2022.

[1] Andrew Longmore, “An Insurance Contracts Act for a new century?” (2001) 3 LMCLQ 356 at 356 [Andrew Longmore].

[2] Marine Insurance Act (Cap 387, 1994 Rev Ed Sing), s 17 [MIA].

[3] Ibid, s 20.

[4] Carter v Boehm (1766) 3 Burr 1905.

[5] Yeo Hwee Ying, “Of Shifting Winds—Insured’s Pre-contractual Duty of Good Faith in Singapore” (2018) 30:1 Sing Ac LJ 345 at 346 [Yeo, “Of Shifting Winds”].

[6] Ibid.

[7] H Y Yeo & Yaru Chia, “The Morphing Duty of Good Faith and Disclosure—Lessons for Singapore” (2018) 5 JBL 425 at 439 [H Y Yeo & Yaru Chia].

[8] See PricewaterhouseCoopers, “Opportunities await: How InsurTech is reshaping insurance”, online: PricewaterhouseCoopers <https://www.pwc.com/gx/en/industries/financial-services/fintech-survey/

insurtech.html>. For Singapore, see Immediate.io, “How insurance technology helps disrupting the underwriting process in the insurance sector” (6 July 2020), online: Medium <https://inmediatesg.medium.com/how-insurance-technology-helps-disrupting-the-underwriting-process-in-the-insurance-sector-3baa4145cd5>.

[9] Yeo, “Of Shifting Winds”, supra note 5 at 364.

[10] Yeo Hwee Ying, “Call for Consumer Reform of Insurance Law in Singapore” (2014) 26:1 Sing Ac LJ 215 at 228 [Yeo, “Consumer Reform”].

[11] United Kingdom, The Law Commission (Law Com No 319) & The Scottish Law Commission (Scot Law Com No 219), Consumer Insurance Law: Pre-contract Disclosure and Misrepresentation (Cm 7758) (2009) at para 2.59 [The Law Commission & The Scottish Law Commission].

[12] See Ireland, Law Reform Commission, Consultation Paper: Insurance Contracts (LRC CP 65) (2011) at para 5.91. See also Yeo, “Consumer Reform”, supra note 10 at 215.

[13] The remedy of avoidance is also encapsulated in MIA, supra note 2, s 17.

[14] This is further discussed in Section IV(A).

[15] H Y Yeo & Yaru Chia, supra note 7 at 428. This is further discussed in Section II.

[16] This is the first stage of the test established in Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501 (HL) [Pan Atlantic], and adopted locally in Tat Hong Plant Leasing Pte Ltd v Asia Insurance Co Ltd [1993] 1 SLR(R) 728 (CA) and UMCI Ltd v Tokio Marine & Fire Insurance Co (Singapore) Pte Ltd [2008] SGHC 188.

[17] Pan Atlantic, supra note 16; Assicurazioni Generali SpA v Arab Insurance Group [2002] EWCA Civ 1642; AXA Versicherung AG v Arab Insurance Group [2017] EWCA Civ 96.

[18] Consumer Insurance (Disclosure and Representations) Act 2012 (UK), c 6, s 4(1)(b) [CIDRA]; Insurance Act 2015 (UK), c 4, s 8(1) [IA].

[19] Synergy Health (UK) Ltd v CGU Insurance plc [2010] EWHC 2583 (Comm).

[20] Yeo, “Of Shifting Winds”, supra note 5 at 350.

[21] Singapore Academy of Law, Law Reform Committee, Report on Reforming Insurance Law in Singapore, (Singapore: Singapore Academy of Law, 2020) [SAL Report].

[22] Ibid at para 6.1.

[23] Ibid at para 2.72.

[24] Ibid at para 2.1.

[25] Ibid at paras 2.36–2.54.

[26] See infra Section II.

[27] See infra Section III.

[28] See infra Section IV.

[29] See infra Section IV(A).

[30] For example, Australia, Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Final Report, by Commissioner Kenneth M Hayne, (2019) [Australian Report].

[31] Yeo, “Of Shifting Winds”, supra note 5 at 362.

[32] CIDRA, supra note 18, s 2(2).

[33] Ibid, s 2(4).

[34] H Y Yeo & Yaru Chia, supra note 7 at 444.

[35] The Law Commission & The Scottish Law Commission, supra note 11 at paras 5.6, 5.37.

[36] Australian Report, supra note 30 at 298. See also H Y Yeo & Yaru Chia, supra note 7 at 440.

[37] Australian Report, supra note 30 at 297.

[38] UK, House of Lords, Consumer Insurance (Disclosure and Representations) Bill [HL] Explanatory Notes, HL Bill 68 (London: The Stationary Office, 2011) at para 10.

[39] Australian Report, supra note 30 at 298.

[40] Yeo, “Of Shifting Winds”, supra note 5 at 357.

[41] Doheny v New India Assurance Co Ltd [2004] EWCA Civ 1705.

[42] Schoolman v Hall [1951] 1 Lloyd’s Rep 139 (CA) [Schoolman].

[43] Evan James MacGillivray et al, MacGillivray on Insurance Law: Relating to all risks other than marine, 14th ed (London: Sweet & Maxwell, 2018) at para 17-018; Schoolman, supra note 42.

[44] Lambert v Co-operative Insurance Society Ltd [1975] 2 Lloyd’s Rep 485 at 487 (CA); The Melanie; United Oriental Assurance Sdn Bhd, Kuantan v W M Mazzarol [1984] 1 MLJ 260 (Federal Court, Kuala Lumpur); March Cabaret Club & Casino Ltd v The London Assurance [1975] 1 Lloyd's Rep 169 (QB) [March Cabaret]. See also Yeo, “Of Shifting Winds”, supra note 5 at 357.

[45] March Cabaret, supra note 44 at 176.

[46] Yeo, “Of Shifting Winds”, supra note 5 at 357.

[47] H Y Yeo & Yaru Chia, supra note 7 at 443.

[48] This is further discussed in Section IV(A), which explains how the avoidance remedy usually only benefits insurers.

[49] (Cap 142, 2002 Rev Ed Sing).

[50] H Y Yeo & Yaru Chia, supra note 7 at 436.

[51] Michael Kirby, “Australian Insurance Contracts Law: Local Reform with a Global Relevance” (2011) 4 JBL 309 at 321 [Michael Kirby].

[52] Yeo, “Of Shifting Winds”, supra note 5 at 351.

[53] Yeo, “Consumer Reform”, supra note 10 at 225.

[54] UK, House of Commons Library, Consumer Insurance (Disclosure and Representations) Bill (Bill No 274 [HL] 2010/12): Research Paper 12/06, by Timothy Edmonds, (20 January 2012) at 2.

[55] Baris Soyer, "Reforming the Assured’s Pre-Contractual Duty of Utmost Good Faith in Insurance Contracts for Consumers: Are the Law Commissions on the Right Track?" (2008) 5 JBL 385 at 392.

[56] Michael Kirby, supra note 51 at 316.

[57] CIDRA, supra note 18, s 3(4).

[58] CIDRA, supra note 18, s 3(2).

[59] This is discussed in Section IV(A).

[60] Australian Report, supra note 30 at 299.

[61] Ibid, Recommendation 4.5 at 302.

[62] Insurance Contracts Act 1984 (Cth), s 20B [AIA]. See also Clyde & Co, “New duty to take reasonable care not to make a misrepresentation to insurer on consumer insureds in Australia” (12 May 2021), online: Clyde & Co <https://www.clydeco.com/en/insights/2021/05/new-duty-to-take-reasonable-care-not-to-make-a-mis#:~:text=The%20existing%20duty%20of%20disclosure%20imposed%20on%20insureds%20under%20section,so%2C%20on%20what%20terms%3B%20or>.

[63] H Y Yeo & Yaru Chia, supra note 7 at 439.

[64] AIA, supra note 62, s 20B(3)(c).

[65] Australia, House of Representatives, Insurance Contracts Amendment Bill 2013: Explanatory Memorandum, (2013) at para 1.56.

[66] IA, supra note 18, s 3(1).

[67] Ibid, s 3(4).

[68] H Y Yeo & Yaru Chia, supra note 7 at 429.

[69] UK, The Law Commission (Consultation Paper No 204) & The Scottish Law Commission (Discussion Paper No 155), Insurance Contract Law: The Business Insured’s Duty of Disclosure and the Law of Warranties, A Joint Consultation Paper (2015) at para 4.22.

[70] H Y Yeo & Yaru Chia, supra note 7 at 438.

[71] UK, The Law Commission (Law Com No 353) & The Scottish Law Commission (Scot Law Com No 238), Insurance Contract Law: Business Disclosure; Warranties; Insurers’ Remedies for Fraudulent Claims; and Late Payment, Executive Summary (2014) at para 6.28.

[72] IA, supra note 18, s 3(b), which requires the business-insured to disclose in a manner reasonably clear and accessible to a prudent insurer.

[73] IA, supra note 18, s 3(5).

[74] AIA, supra note 62, s 11AB(2)(a).

[75] The Business Times, Claudia Chong, “Build it, and they will come: How Singapore forged a startup ecosystem from scratch” (8 May 2021), online: Enterprise Singapore <https://www.enterprisesg.gov.sg/media-centre/news/2021/may/build-it--and-they-will-come--how-singapore-forged-a-startup-ecosystem-from-scratch>.

[76] For instance, Drake Insurance plc v Provident Insurance plc [2003] EWCA Civ 1834 at para 92 [Drake Insurance]; Andrew Longmore, supra note 1 at 366.

[77] For instance, the House of Lords in HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6; Peter MacDonald Eggers, “Remedies for the failure to observe the utmost good faith” (2003) 2 LMCLQ 249 at 273 [P Eggers].

[78] UK, The Law Commission (Law Com No. 104), Insurance Law: Non-Disclosure and Breach of Warranty, Report on a reference under Section 3(1)(e) of the Law Commissions Act 1965 (Cmnd 8064) (London: The Stationary Office, 1980) [The Law Commission (Law Commission No. 104)]; H Y Yeo & Yaru Chia, supra note 7.

[79] H Y Yeo, “Of reciprocity and remedies—duty of disclosure in insurance contracts” (1991) 11:2 Legal Stud 131 at 153.

[80] Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1990] 1 QB 665 at 775 (CA) [Banque Financiere].

[81] P Eggers, supra note 77 at 273.

[82] Yeo, “Consumer Reform”, supra note 10 at 228.

[83] The Stansfield Group Pte Ltd (trading as Stansfield College) v Consumers’ Association of Singapore [2011] 4 SLR 130 (HC).

[84] Banque Financiere, supra note 80.

[85] The Law Commission (Law Commission No. 104), supra note 78. See also Yeo, “Of Shifting Winds”, supra note 5 at 358.

[86] Yeo, “Consumer Reform”, supra note 10 at 231.

[87] See CIDRA, supra note 18, Schedule 1, para 9(5).

[88] Yeo, “Consumer Reform”, supra note 10 at 231.

[89] See The Law Commission & The Scottish Law Commission, supra note 11 at para 6.95.

[90] Drake Insurance, supra note 76.

[91] Container Transport International Inc v Oceanus Mutual Underwriting Association (Bermuda) Ltd [1984] 1 Lloyd’s Rep 476 (CA). See also Yeo, “Of Shifting Winds”, supra note 5 at 358.

[92] Yeo, “Of Shifting Winds”, supra note 5 at 365.

[93] James Allan Park, A System of the Law of Marine Insurances, 4th ed (Butterworth, 1800) at 195.

[94] CIDRA, supra note 18, s 4(1).

[95] IA, supra note 18, s 8.

[96] Yeo, “Of Shifting Winds”, supra note 5 at 365.

[97] Ibid.

[98] The Law Commission (Law Commission No. 104), supra note 78 at 2.

[99] Yeo, “Of Shifting Winds”, supra note 5 at 365.

[100] IA, supra note 18, s 8.

[101] CIDRA, supra note 18, s 4(1).

[102] Kausar v Eagle Star Insurance Co Ltd [2000] Lloyd’s Rep IR 154 at 157 (CA).

[103] AIA, supra note 62, s 28. See Clyde & Co, “Insurance Act 2015: Shaking up a century of insurance law”, online: Clyde & Co <https://www.clydeco.com/clyde/media/fileslibrary/Admin/CC010256_Insurance_

Act_2015_26-07-16-web.pdf> at 12.

[104] Australian Report, supra note 30 at 301–302.

[105] See supra Section IV(A).

[106] The Law Commission (Law Commission No. 104), supra note 78 at 31.

[107] Ibid.

[108] Ibid at 33–34.

[109] See James Davey, “Proportionality, fair presentation of the risk & the hypothetical bargain: The Law Commission’s remaking of commercial insurance law” (2019) 3 LMCLQ 359.

[110] Brotherton v Aseguradora Colseguros SA (No 2) [2003] EWCA Civ 705 at paras 45–48.

[111] AIA, supra note 62, s 31.

[112] This is discussed in Sections II to IV.

[113] See supra Section II.

[114] See supra Section II(C).

[115] The Law Commission & The Scottish Law Commission, supra note 11.

[116] Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd [2001] UKHL 1 at para 57.

[117] Manfred Wandt, "Insured’s pre-contractual duties to inform according to German Law" (Paper delivered at the NUS Colloquium on "Carter v Boehm after 250 years: Insured’s and Insurer’s Pre-Contractual Duties", 2016) [unpublished] at 7.

[118] Tay Eng Chuan v Ace Insurance Ltd [2008] 4 SLR(R) 95 (CA).

[119] See supra Section III.

[120] See supra Section IV(B).

[121] P Eggers, supra note 77 at 251.

[122] Yeo, “Of Shifting Winds”, supra note 5 at 359.

[123] Yeo, “Consumer Reform”, supra note 10 at 230.

[124] Ibid at 235.

[125] Yeo, “Of Shifting Winds”, supra note 5 at 361.

[126] See Myint Soe, Life Insurance Law (Singapore: Singapore College of Insurance, 2006) [Myint Soe].

[127] See Myint Soe, supra note 126 at Appendix 1.

[128] General Insurance Association of Singapore, The Singapore General Insurance Code of Practice, Singapore: General Insurance Association of Singapore, 2016.

[129] See Christopher Chen, "Measuring the Transplantation of English Commercial Law in a Small Jurisdiction: An Empirical Study of Singapore’s Insurance Judgments between 1965 and 2012" (2014) 49:3 Tex Int’l LJ 469.

[130] Yeo, “Of Shifting Winds”, supra note 5 at 361.

[131] Ibid at 359.

[132] Andrew Longmore, supra note 1 at 364, citing Sir Mackenzie Chalmers’ when he published the originally proposed Marine Insurance Bill as a digest of the law relating to marine insurance in 1901.

[133] P Eggers, supra note 77 at 277.

[134] H Y Yeo & Yaru Chia, supra note 7 at 434.

[135] Commercial Union Assurance Co Ltd v The Niger Co Ltd [1922] 13 Lloyd’s List LR 75 at 82 (HL).

[136] Yeo, “Consumer Reform”, supra note 10 at 218. See UK, The Law Commission & The Scottish Law Commission, Reforming Insurance Law: Is there a Case for Reverse Transportation?  by Robert Merkin, A Report for the English and Scottish Law Commissions on the Australian Experience of Insurance Law Reform (2006).

[137] Yeo, “Of Shifting Winds”, supra note 5 at 366.

[138] See Ravi Menon, “Singapore as a Global Insurance Marketplace” (Keynote Address delivered at the 12th Singapore International Reinsurance Conference, 6 November 2013) [unpublished, archived at online: Monetary Authority of Singapore <https://www.mas.gov.sg/news/speeches/2013/singapore-as-a-global-insurance-marketplace>].