Case Update: Major Shipping & Trading Inc v Standard Chartered Bank (Singapore) Ltd [2018] SGHC 04 – Claim against bank for making unauthorised transactions by fraudster fails

Significance: Singapore High Court construes “good faith” in banking standard terms in the context of unauthorised fund transfers, finds that circumstances were not sufficient to put a reasonable banker on suspicion regarding unauthorised transfers, and finds on reasonableness of exclusion clauses under the unfair contract terms act.

Summary: The plaintiff sued Standard Chartered Bank for remitting monies in four transactions totalling US$1.8 million it claims were not authorised, but were instructed by some third party fraudster who had presumably hacked into the plaintiff’s personnel’s email (possibly through a phishing attack) and sent instructions to the bank. The plaintiff sued the bank for breach of contract–making remittances without authorisation when the bank could not have believed in good faith that the payment instructions were sent by authorised persons, given the suspicious circumstances surrounding their receipt. The plaintiff also claimed the bank breached its duty to use reasonable care and skill under the contract, and also some duty to take steps or systems to prevent unauthorised fund transfers.

The Court (Kannan Ramesh J) first considered the issue of the definition of “good faith” and held, relying on HSBC Institutional Trust Services (Singapore) Ltd (trustee of Starhill Global Real Estate Investment Trust) v Toshin Development Singapore Pte Ltd [2012] 4 SLR 738 (CA), and construing the bank account opening documents, that the concept of good faith incorporated a subjective requirement of acting honestly, and the objective element of a lack of gross negligence or recklessness by the bank: at [53].

The Court examined the evidence and found on the facts that on balance of probabilities, the plaintiff’s authorised personnel did not issue the payment instructions to the bank: at [64].

The Court then considered whether the bank was grossly negligent in believing that the plaintiff’s authorised personnel had issued the payment instructions. The plaintiff relied on expert evidence to argue that there were various red flags in the circumstances of the bank’s receipt of the payment instructions which would have given rise to enough suspicion to warrant further investigations of the payment instructions before they were executed. The red flags were (at [68]):

(a) Irregularities concerning the content of the Four Instructions:
(i) The frequency and quantum of the payment instructions were “extremely high” and unprecedented.
(ii) The instructions were to remit monies to beneficiaries and countries to which the plaintiff had not remitted monies before.
(iii) The plaintiff’s name was misspelt as “Major Shipping & Tagging”.
(iv) The purposes of the Four Instructions were not stated on the Four Instructions.
(v) The date of the 3rd and 4th Instructions was erroneously stated.

(b) Irregularities concerning the manner in which the payment instructions were sent to the Bank:
(i) The payment instructions were sent to the Bank by email before being faxed thereto, contrary to the plaintiff’s usual practice.
(ii) The payment instructions were faxed via eFax, which the plaintiff had not used before.
(iii) The payment instructions were sent by email and fax to the Bank notwithstanding that plaintiff’s authorised personnel had learnt to use the S2B Platform as a more efficient way of transferring funds.

(c) Miscellaneous irregularities:
(i) one of the bank’s relationship managers (“RM”) was asked by email for the balance of the Account
(ii) on another occasion, the plaintiff’s authorised personnel purportedly sent the Health Problems email to another RM.

The Court considered the evidence concerning these purported red flags and found that individually and collectively were not sufficient to put the bank on suspicion to question the payment instructions: at [90]-[91]. Accordingly, the Court found that the bank was not negligent in not obtaining call-back information on the payment instructions: at [92]. Thus, the Court found that the bank had believed in good faith that the instructions were sent by the plaintiff: at [94].

In addressing the plaintiff’s arguments on whether the bank could rely on exclusion of liability clauses, the Court also found that it was not unreasonable for the bank to exclude liability for negligence simpliciter under the Unfair Contract Terms Act given that the plaintiff was a commercial entity who entered into a contractual relationship with the bank in the course of its business, the banking experts’ view that such clauses were commonly found in account opening documents and standard terms of Singapore banks, and the volume of transactions banks handle for various customers.

Finally, the Court held that the plaintiff was to pay costs to the bank on an indemnity basis under the bank’s standard terms. Costs amounted to S$384,375.

 

Article: So you want to conduct an initial coin offering (ICO) or digital token sale?

Introduction

So you are a tech startup who want to raise funds. You figure that instead of incurring debt, issuing equity, entering into convertible loan agreements (CLA), you will conduct an initial coin offering (ICO) or digital token sale. Not least because the amounts of money which have been raised by recent ICOs are huge. (I am using ICO because it is a shorter well-recognised abbreviation than “digital token sale”, even though the term ICO may be a bit of a misnomer.)

For every ICO that makes headlines, there are probably many ICOs which fall far below the issuers’ expectations. A lot of this of course is based on investors/purchasers’ sentiment and speculation. But some of that is also dependent on a few things like good marketing, viable underlying business model or technology, a credible team, and fair and reasonable terms of sale. If you do wish to build credibility for your ICO, there are some things which you would want to consider from a legal, regulatory perspective.

Continue reading “Article: So you want to conduct an initial coin offering (ICO) or digital token sale?”

Case Update: Long Kim Wing v LTX-Credence Singapore Pte Ltd [2017] SGHC 151 – employer liable for failing to conduct due inquiry before termination for cause / dismissal

Significance: The Singapore High Court held an employer liable for failing to conduct due inquiry before terminating or dismissing an employee for misconduct.

Although the employee was found to have indeed committed misconduct which justified his dismissal, the Court also found that the employer had breached its employment contract in failing to conduct due inquiry. Under the relevant clause in the contract, it was provided that:-

“The Company may after due inquiry dismiss without notice an employee on the grounds of misconduct inconsistent with the fulfilment of the express or implied conditions of his/her service.”

The Court then had to consider what constituted “due inquiry”. Although the clause was similar to s 14(1) of the Employment Act (Cap 91, 2009 Rev Ed), the employee did not rely on this section as the Act was not applicable to him. The Court then considered case law as well as the website of Singapore’s Ministry of Manpower (“MOM”) (http://www.mom.gov.sg/employment-practices/termination-of-employment (accessed 17 April 2017)). The Court noted that under the subject of “Termination due to employee misconduct” and “Holding an inquiry”, the website states that the employee being investigated for misconduct should have the opportunity to present his case even though there is no prescribed procedure for conducting an inquiry.

At [161]-[162], the Court then opined that the phrase “due inquiry” means something more than just the making of inquiries and the conduct of an investigation. Otherwise the word “inquiry” alone would suffice. The phrase suggests some sort of process in which the employee concerned is informed about the allegation(s) and the evidence against him so that he has an opportunity to defend himself by presenting his position, with or without other evidence. While the website of the MOM does not have the force of law, its guide that the employee concerned should have the opportunity to present his case is a useful one. That accords with notions of justice and fairness especially since serious consequences may follow.  In order for an employee to be given an opportunity to present his case effectively, he must first be informed clearly what the case against him is. This includes the allegation(s) and the evidence against him. While “due inquiry” does not mandate any formal procedure to be undertaken, the more the informality the greater the danger that “due inquiry” was not undertaken. Accordingly, where no formal process was undertaken, the court should be more careful to ensure that the employee’s right is protected.

The Court thus found the employer liable for breaching its obligation to conduct due inquiry. The Court then applied Gunton v Richmond-Upon-Thames London Borough Council  [1980] 3 WLR 714, which entitled the employee his salary for the reasonable time it would have taken the employer to conduct “due inquiry”.

Unfortunately, the evidence adduced by the parties before the Court was scant on this point of how long the reasonable time would have been to conduct due inquiry.

Further,  the Court had some reservation as to whether the Defendant would also be obliged to give the Plaintiff an opportunity to address it on the consequences of his misconduct if it concluded that the misconduct was established. There was no evidence as to what human resource departments do or on the advantages and disadvantages of embarking on such a course of conduct. There was also no evidence or submission as to whether both liability and consequences could be addressed together in the same opportunity given to the Plaintiff or should be done separately: at [182].

The Court then found that the employer would not have required more than seven days, based on the chronology of events which transpired in this case.

Case Update: Long Kim Wing v LTX-Credence Singapore Pte Ltd [2017] SGHC 312 – offer to settle and costs

Significance: Singapore High Court considered that an Offer to Settle (“OTS”) was not validly accepted when it was purportedly accepted by the other party after judgment was given.

The Court also considered whether indemnity costs ought to be ordered in the light of the OTS. The Court thought that the OTS was not a genuine offer to settle all the claims and counterclaims, despite the OTS offer being higher than the actual judgment sum (after taking into account claims and counterclaims). Because this analysis was to be with reference to the claim amount not the actual judgment sum.

The Court then found that on a standard basis, 100% of the costs of the action (for a 7-day trial) was $113,000. The Court then ordered 80% costs to the Defendant. It should be noted that this amount was based on the Appendix G Fee Guidelines on Party and Party Costs. Party and Party Costs are what the court orders. It is different from Solicitor and Client Costs, which are what the client actually pays their solicitors, which is usually much more than the Party and Party Costs.

Case Update: Grace Electrical Engineering Pte Ltd v Te Deum Engineering Pte Ltd [2017] SGCA 65 – Singapore Court of Appeal clarifies doctrine of res ipsa loquitur in a fire case

Significance: Singapore Court of Appeal clarifies doctrine of res ipsa loquitur in a fire case based on the tort of negligence.

Brief Facts

The appellant’s premises are situated next to the respondent’s. A fire broke out on the appellant’s premises, which spread to the respondent’s. There were several expert reports adduced at the trial which opined on the source of fire and the cause of fire. At trial, the appellant pleaded and argued that the fire had actually broken out from the respondent’s premises. It also disavowed the expert reports. On appeal, the appellant did a volte-face and relied on the expert reports to then argue that the trial judge should not have found that res ipsa loquitur applied.

Preliminary Issue on Appellant Changing Its Case

The appellant sought leave of court pursuant to O 57 r 9A(4)(b) of the Rules of Court to introduce the new points in the appeal, which contradicted its pleaded case. The Court of Appeal allowed it and distinguished the case of North Staffordshire Railway Company v Edge [1920] AC 254. It observed that the new arguments did not require amendment to the pleadings. The expert reports were already before the court so there’s no issue of adducing fresh evidence. And the trial judge had carefully considered the other possible causes of fire that were raised by the expert reports in relation to the application of res ipsa loquitur. Further, it remains the burden of the respondent to prove res ipsa loquitur such that the appellant can be found prima facie negligent: at [37].

Generally, when an application to introduce on appeal new points not taken in the court below under O 57 r 9A(4)(b) of the Rules of Court, the Court will consider the following factors (at [38]):-

  • (a) the nature of the parties’ arguments below;
  • (b) whether the court had considered and provided any findings and reasoning in relation to the new point;
  • (c) whether further submissions, evidence, or findings would have been necessitated had the new points been raised below; and
  • (d) any prejudice that might result to the counterparty in the appeal if leave were to be granted.

Discussion on Res Ipsa Loquitur

Res ipsa loquitur is a rule of evidence that enables a plaintiff to establish a prima facie case of negligence in the event that there is insufficient direct evidence to establish the cause of the accident in a situation where the accident would not have occurred in the ordinary course of things had proper care been exercised, ie, absent any negligence: at [39].

The 3 requirements for the application of res ipsa loquitur are identified in Scott v The London and St Katherine Docks Company (1865) 3 H & C 596 (“Scott”) followed in BNJ v SMRT Trains Ltd and another [2014] 2 SLR 7 (“BNJ”); see also Tesa Tape Asia Pacific Pte Ltd v Wing Seng Logistics Pte Ltd [2006] 3 SLR(R) 116 (“Tesa Tape”); and Teng Ah Kow and another v Ho Sek Chiu and others [1993] 3 SLR(R) 43 (“Teng Ah Kow”)):-

  • (a) the defendant must have been in control of the situation or thing which resulted in the accident (“the first requirement”);
  • (b) the accident would not have happened, in the ordinary course of things, if proper care had been taken (“the second requirement”); and
  • (c) the cause of the accident must be unknown (“the third requirement”).

Once the 3 requirements are satisfied, the evidential burden shifts to the defendant to rebut the prima facie case of negligence Teng Ah Kow at [22]).

Note however that the mere occurrence of a fire does not in itself give rise to the inference of negligence: [41].

After analysing several cases, the Court observed that the courts have generally declined to apply res ipsa loquitur in situations where there is simply no evidence of any act or omission (including any breach of statutory duty) by the defendant that could have caused the fire. In addressing the second requirement in Scott, the court must necessarily examine whether there was any act or omission on the part of the defendant that could have caused the fire. Absent that, the rule simply does not apply: at [47].

Generally, where the defendant has committed a negligent act or omission, the court is more likely to apply the rule where such negligent act or omission has created or increased the risk of the occurrence of fire. This would cause his negligence (as a cause of the fire) to shift into the “realm of probabilities” (Sisters of Charity of the Immaculate Conception v Robert J Fudge Ltd [1988] NBJ No 322 (“Sisters of Charity”)). In order to raise a prima facie inference of negligence, the plaintiff must “at the close of [its] case” and “[o]n the assumption that a submission of no case is then made”, show that on the evidence, in the ordinary course of things, the accident was “more likely than not” caused by the defendant’s negligence (Lloyde v West Midlands Gas Board [1971] 1 WLR 749): at [50].

Application to Facts

In this case, the appellant had been charged and convicted several times for breaches of the Fire Safety Act (“FSA”). The Court noted that this is particularly relevant to the court’s assessment of whether the second requirement of res ipsa loquitur is satisfied. The convictions presented the clearest objective evidence that the appellant had, by its conduct, increased the risk of fire on its premises. In examining whether the FSA convictions had any nexus to the increase in the risk of fire, it is relevant to consider whether the convictions concerned acts or omissions that occurred in the location where the fire started: at [52].

On the facts, the appellant was found to have allowed its foreign workers to cook on its premises. The area where cooking took place was in close proximity to the area where the fire started. At that time, there were 10 workers living in the premises. They were cooking past 11.15pm. This was a contravention of the FSA as the premises was not supposed to be living quarters. The Court found that the appellant’s conduct increased the risk of fire occurring and made it more probable that the fire would not have occurred if proper care had been taken by the appellant: at [53].

The Court noted that generally, the mere presence of some evidence indicating other possible causes of the fire has never been sufficient to preclude the application of res ipsa loquitur: at [61].

The Court drew a distinction between “non-negligent causes” and “neutral causes”. It noted that it is never a matter of raising possibilities in order to exclude the application of the rule. The court must be satisfied at the close of the plaintiff’s case that the explanation that rests on the negligence of the defendant is that which is more probable than not; and if the court is satisfied of that, the defendant can only overcome it by adducing evidence to show that there are other causes that are more probable. In order to displace the inference, it will not suffice for the defendant to establish a neutral event: at [64].

Once a prima facie inference of negligence arises, it is insufficient for the defendant, in its attempt to rebut the inference, to merely show that the accident was due to a neutral event. The defendant must go on to show either that (a) this neutral event does not connote negligence on its part (ie, the event was a non-negligent cause of the accident); or (b) it had exercised all reasonable care in relation to that event. In seeking to show a cause which does not connote negligence, the appellant must positively point to “its absence as more probable”: at [66].

In this case, the expert reports relied on by the appellant merely identified the possibility of other physical causes of the fire without expressing any view as to whether or not there was any negligence with regard to those causes, so they do not assist the appellant: at [70]. Further, the appellant also did not adduce sufficient evidence to show that it had exercised all reasonable care in relation to its electrical appliances and wirings: at [71].

On the third requirement in Scott, the presence of other “possible” causes does not per se mean that the third requirement of res ipsa loquitur is not satisfied: at [76].

On the facts of the case, the evidence available shows that the precise cause of the fire had not been established on the balance of probabilities: at [80].

The Court further emphasised that the the rule applies in cases where there is genuine difficulty with establishing the cause of the incident and not in cases where, merely by reason of the way the case was run, there was no evidence on the relevant issues before the court. The rule is a practical outworking of the burden of proof in cases where there are real difficulties in establishing what in fact happened, and not a means by which to overcome the shortcomings in the evidence arising only from the failure of the plaintiff to prove his case in the appropriate way: at [84].

Regulatory Update: MAS Guide to Digital Token Offerings

JUST IN. MAS Guide to Digital Token Offerings.

The case studies are very helpful in illustrating MAS’ position on whether certain scenarios fall within regulated activities under the Securities and Futures Act (SFA) or Financial Advisers Act (FAA).

Case study 1: tokens only give access rights to token issuer’s platform and pay for services on the same–not subject to SFA or FAA.

Case study 2: tokens to represent share in company which plans to develop property. Will constitute securities under SFA. Company may need to apply to be licensed financial adviser. Company will need to comply with prospectus requirements.

Case study 3: tokens enable holders to receive profits from company’s investments in a portfolio of shares in companies. Token holders have no powers relating to operations or management. Will constitute collective investment scheme (CIS). Company will need to comply with prospectus requirements, and likely will need to apply for capital markets services (CMS) licence.

Case study 4: token holders receive profits from investment in shares of portfolio of companies. Token issue not available to persons in Singapore. Part XIII of SFA will not apply. But company may be carrying on business of fund management in Singapore and may thus need to apply for CMS licence.

Case study 5: tokens represent loan by investor to startup. Token will be deemed a debenture and thus securities under the SFA. Company facilitating purchase or sale of token may require CMS licence.

Case study 6: company plans to set up virtual currency exchange platform. On the premise that no products regulated under SFA will be traded, SFA will not apply. If any token constitutes securities under SFA, then company may be operating a securities market and thus need to be approved as an exchange by MAS.

http://www.mas.gov.sg/Regulations-and-Financial-Stability/Regulations-Guidance-and-Licensing/Securities-Futures-and-Funds-Management/Guidelines/2017/A-Guide-to-Digital-Token-Offerings.aspx

Case Update: Liu Huaixi v Haniffa Pte Ltd [2017] SGHC 270 – IPA letter may be evidence of foreign worker’s salary amount

Significance: Singapore High Court rules that monthly salary amount stated in Ministry of Manpower’s (MOM’s) in-principle approval (IPA) letter to a foreign worker is indicative of worker’s salary where written employment contract is absent.

The Court in this case ordered department store company Haniffa to pay $6,500 for salary and payment in-lieu of termination notice to PRC worker Liu Huaixi who had worked as a warehouse assistant and supermarket storekeeper.

The IPA letter issued by MOM had stated that Liu would receive a basic monthly salary of $1,100. Generally, such IPA letters are issued on the basis of the employer’s declaration to MOM as to the expected monthly salary amount.

However, Liu was given in this case a salary of $680. The employer claimed that there was an oral contract, but the evidence was scant and the Court rejected finding such an oral contract.

Justice Lee Sieu Kin noted former Labour Minister Tan Chuan-Jin’s parliamentary speech on IPA letters and stated at [25]-[31] that the IPA letter is intended to keep foreign workers informed of their salary components in clear terms. When applying to the MOM for a work permit, the employer is required to declare the foreign worker’s basic monthly salary, allowances, and deductions. This is one of the bases upon which the MOM approves (or rejects) the application. The second policy objective is to shift more responsibilities of employing foreign workers onto the employers. The reason why IPA duties are added to employers is to broaden their scope of their responsibilities, and in the process, to allow employees to rely less on middlemen. An employer is required to declare the actual basic monthly salary of the foreign worker in applying for a work permit and to maintain the payment of such sum for the duration of that employment unless modified in accordance with the Employment Regulations. Given the statutory intent of the IPA, the court would take as factual an employer’s declaration of the basic monthly salary in the IPA because he must be presumed to be truthful when he made the declaration.

The Court also stated at [33]: “Indeed, I would go so far as to state that even if there was a written contract of employment which provides for a monthly basic salary of less than the sum stated in the IPA, the burden would lie on the employer to show why the IPA figure does not reflect the true salary. For example, the employer may adduce evidence to prove that the sum stated in the IPA is different from the amount declared by him in the application for the work permit and somehow an error had been made in the IPA by MOM. Or the employer can admit that he had made a false declaration in the work permit application, thereby attracting other consequences for himself”.

Comment: It is needless to say that employers should be truthful in making declarations in their applications for work permits to MOM. For a long time prior to this case, it was unclear what the status of IPA letters is in salary disputes. From my volunteering work with migrant worker NGOs, I have heard anecdotally that in many cases in the (former) labour courts, the IPA letter was sometimes treated as neither here nor there.

Now it is made clear that the IPA letters have evidential effect and arguably almost quasi-contractual effect. Of course, this is where there is no written employment contract, or good evidence of a binding oral employment contract. In any case, MOM regulations now require that key employment terms are in writing. This is helpful for foreign workers. At the end of the day, the starting point for justice and fairness has to be in clear expectations on all parties, and the clarity of these expectations (assuming there is no intentional exploitation, misrepresentation or otherwise) is best brought out where there are clear written documents which every party understood and signed on.

It is hoped that this decision will go some way to promoting clarity and certainty for employers and foreign workers. I hope also that black sheep employers will not now try to force foreign workers to sign on documents (e.g. to agree to lower the salary only after arriving in Singapore) the workers would likely disagree on but have no bargaining power to say no to.  I think it is important that workers should in such cases collate evidence of such instances if they are ever forced into them. For example, record the conversation with the employer where they voice our their objection and the employer pressures them to sign the documents anywhere and threatens to repatriate them if they do not.

Case Update: Ng Huat Seng v Munib Mohammad Madni [2017] SGCA 58 – Singapore Court of Appeal discusses non-delegable duty of care in negligence and ultra-hazardous acts

Significance

Singapore Court of Appeal discusses non-delegable duty of care and vicarious liability in the tort of negligence and in particular the doctrine of ultra-hazardous acts. It would appear from the Court’s comments that it is inclined to accept the ultra-hazardous acts doctrine as part of Singapore law provided it is established on the narrow ambit as held in the Biffa Waste case. That is, the doctrine of ultra-hazardous acts should be applied only to activities that were “exceptionally dangerous whatever precautions are taken”.

Brief facts

The respondents demolished and re-built their house. Some debris fell from respondents’ property on the boundary wall shared with the appellants’ house. The debris also ricocheted off the wall and broke some items on the appellants’ property. The appellants sued the respondents and the respondents’ builder, Esthetix. They pleaded that the demolition works on the respondents’ property was extra-hazardous, that the respondents were personally liable for failing to “exercise reasonable care to avoid or prevent the damage and loss”, that the respondents had failed to exercise reasonable care in appointing Esthetix as their contractor.  The respondents denied that the demolition works had been carried out under their “control, supervision and/or management”, and pleaded that Esthetix was an independent contractor, and that they have exercised reasonable care in selecting Esthetix.

The appellants failed in their claims in the District Court and on appeal in the High Court. The Court of Appeal (CA) dismissed their appeals.

Legal Principles

Vicarious Liability

Vicarious liability is a form of secondary liability. It has always been recognised that a prerequisite for the imposition of such liability is the existence of a special relationship between the defendant and the tortfeasor such as would make it fair, just and reasonable to impose liability on the defendant for the wrongful acts of the tortfeasor: at [41], [62]. Whatever might be the nature of that special relationship, its very antithesis is a relationship under which the tortfeasor is engaged by the defendant as an independent contractor: at [42], [64].

The CA considered the UK decisions of Various Claimants v Catholic Child Welfare Society and others [2012] 3 WLR 1319 (“the Christian Brothers case”) and Cox v Ministry of Justice [2016] 2 WLR 806 (“Cox”) to be fine-tuning of the orthodox legal principles on vicarious liability so as to accommodate the more diverse range of relationships which might be encountered in today’s context and not some major departure in terms of analytical framework: at [62]-[63].

In the Christian Brothers case, Lord Phlilips elaborated on the 2-stage inquiry in determining vicarious liability:-

  1. Was there a true employer-employee relationship between the defendant and the tortfeasor?
  2. Was the tortfeasor acting in the course of his employment when he committed the tortious act?

On the first stage, the relationship that gave rise to vicarious liability in the vast majority of cases was that between an employer and an employee under a contract of employment. In such a situation, the following would generally be true, and there would usually be no difficulty in finding it fair, just and reasonable to impose vicarious liability on the employer (the Christian Brothers case at [35]):

  • (a) the employer would be more likely than the employee to have the means to compensate the victim and could be expected to have insured itself against that liability;
  • (b) the tort would have been committed as a result of activity undertaken by the employee on behalf of the employer;
  • (c) the employee’s activity would likely be part of the business activity of the employer;
  • (d) the employer, by employing the employee to carry out the activity, would have created the risk of the tort being committed by the latter; and
  • (e) the employee would, to a greater or lesser degree, have been under the control of the employer at the time the tort was committed.

On the second stage of the inquiry, where the relationship between the defendant and the tortfeasor was akin to an employment relationship, the issue was whether there was a “close connection” between the tortious act and the tortfeasor’s relationship with the defendant.

These principles do not change the legal position that people who engage independent contractors are not subject to vicarious liability. On the facts of the case, Esthetix was an independent contractor. It had pursued the project for its own gain (at [69]): (a) Esthetix concluded contracts with consultants and subcontractors in its own name; (b) it hired its own employees and was solely responsible for their management and supervision; (c) it took out insurance in its own name; and (d) it maintained a separate account from the respondents and regularly received lump sum payments from the respondents which it retained as its own profits.

Negligent Selection of Contractor

Liability for negligent selection of contractor is a primary liability. The appellants tried to argue that the High Court Judge was wrong in considering the “turnkey” approach which the respondents adopted in engaging Esthetix as builder. The turnkey approach was that as the main contractor, it assumed carriage of the entire project and was contractually responsible to the respondents for both demolishing the existing house on the property as well as designing and building the new house. To that end, it was to engage such subcontractors and professional consultants and apply for such approvals as might be required. This differed from the “traditional approach”, under which the owner would engage a team of professional consultants to design the house and obtain the necessary approvals before calling for tenders and appointing a main contractor to undertake the construction of the house. In keeping with the arrangement in this case, Esthetix appointed professional consultants to provide it with the requisite architectural and engineering services for the project. See [4].

The CA did not think the Judge was wrong. The Judge did state expressly that the applicable standard was “that of a reasonable person in the circumstances of the defendant”. What the Judge then proceeded to do was to have regard to the particular circumstances of the present case, including the applicable industry practices, and then ascertain, on this basis, what a reasonable person in the respondents’ position would have done. Industry standards and common practice have long been viewed as important, although not necessarily conclusive, factors in ascertaining the appropriate standard of care. When receiving evidence of what is alleged to be a common and approved practice so as to assess the standard of care appropriate in a particular set of circumstances, the court should of course examine the practice against considerations of logic and common sense. It would be just as unwise to accept a common industry practice uncritically as it would be to simply ignore it: at [74].

On the facts of the case, Esthetix was licensed to carry out the works that it had been engaged to perform. In a regulated area of activity, the fact that a tortfeasor was statutorily qualified to carry out the very works that the defendant engaged him to do would generally afford a cogent basis for excluding a finding of negligence on the part of the defendant in selecting that person to do those works: at [76].

Non-Delegable Duty of Care and Ultra-Hazardous Acts Doctrine

The appellants sought to argue that the respondents bore a non-delegable duty to ensure that Esthetix took reasonable care in performing the demolition works which it had been engaged to carry out on their property. The CA rejected this.

The CA referred to its framework set out in the decision of Management Corporation Strata Title Plan No 3322 v Tiong Aik Construction Pte Ltd and another [2016] 4 SLR 521 (“Tiong Aik”).

In Tiong Aik, the CA had sought to rationalise the situations in which non-delegable duties of care could arise. Drawing on the principles laid down in Woodland v Swimming Teachers Association and others [2014] AC 537 (UKSC) (“Woodland”) as a starting point, the CA formulated the Tiong Aik framework, which was essentially a two-stage test for determining whether a non-delegable duty would arise on a given set of facts (at [58] and [62] of Tiong Aik).

At the first stage of this two-stage test, the claimant would have to satisfy the threshold requirement that:

(a) either his case fell within one of the established or recognised categories of non-delegable duties; or

(b) his case possessed all of the five defining features outlined by Lord Sumption JSC in Woodland at [23], namely:

(i) The claimant was a patient or a child, or, for some other reason, was especially vulnerable or dependent on the protection of the defendant to avoid the risk of injury. Prisoners and residents in care homes were also mentioned in Woodland as likely examples in this regard.

(ii) There was an antecedent relationship between the claimant and the defendant, independent of the negligent act or omission itself, which placed the claimant in the defendant’s actual custody, charge or care, and from which it was possible to impute to the defendant the assumption of a positive duty to protect the claimant from harm, and not merely a duty to refrain from conduct which would foreseeably harm or injure the claimant. In this regard, Lord Sumption JSC noted in Woodland that it was characteristic of such relationships that they involved an element of control by the defendant over the claimant, which would vary in intensity in different situations, but would “clearly [be] very substantial in the case of schoolchildren” (see Woodland at [23]).

(iii) The claimant had no control over how the defendant chose to perform the obligations arising from the positive duty which it had assumed towards the claimant, that is to say, whether personally or through employees or third parties.

(iv) The defendant had delegated to a third party some function that was an integral part of the positive duty which it had assumed towards the claimant; and at the time of the tortious conduct, the third party was exercising, for the purposes of the function thus delegated to him, the defendant’s custody, charge or care of the claimant and the element of control that went with it.

(v) The third party had been negligent not in some collateral respect, but in the performance of the very function assumed by the defendant and delegated by the defendant to him.

At the second stage, the court would additionally take into account the fairness and reasonableness of imposing a non-delegable duty of care on the defendant in the particular circumstances of the case, as well as the relevant policy considerations in our local context (at [62] of Tiong Aik).

Ultra-hazardous Acts Doctrine

The CA noted some criticisms made by the High Court Judge of the ultra-hazardous acts doctrine. In particular, this doctrine appears to have been rejected in Australia: at [80]. However, the CA declined to come to a firm conclusion on the issue because on the facts, the doctrine would not be made out.

At [91], the CA referred to the Honeywill and Stein, Limited v Larkin Brothers (London’s Commercial Photographers), Limited [1934] 1 KB 191 (“Honeywill”) case and observed that in that case, it was considered an activity might be considered ultra-hazardous on account of its “inherently dangerous” nature even if, when proper precautions were taken, no harm was likely to follow. Honeywill was criticised significantly. So in the subsequent Court of Appeal case of Biffa Waste Services Ltd and another v Maschinenfabrik Ernst Hese GmbH and others [2009] 3 WLR 324 (“Biffa Waste”), the court tried to narrow the ambit of the doctrine. Stanley Burnton LJ stated therein that the doctrine of ultra-hazardous acts should be applied only to activities that were “exceptionally dangerous whatever precautions are taken” (at [78] of Biffa Waste). The CA found this approach “attractive”: at [94].

Some activities remain “exceptionally dangerous” even if precautions are taken, in that these activities pose a material risk of causing exceptionally serious harm to others even if they are carried out with reasonable care. Using explosives for a legitimate purpose is an example of such an activity; another might be the use of extremely hazardous chemicals for a legitimate purpose. Whether it is ultra-hazardous or exceptionally dangerous would have regard to: (a) the persistence of a material risk of exceptionally serious harm to others arising from the activity in question; (b) the potential extent of harm if the risk materialises; and (c) the limited ability to exclude this risk despite exercising reasonable care. See [95]. It is the persistence of such a risk despite the exercise of reasonable care which makes it fair, just and reasonable to hold the defendant liable for any negligence in the performance of the activity even if the negligent conduct was on the part of an independent contractor whom the defendant had engaged to carry out the activity: [96].

On the facts of the case, the CA found that the demolition works could not reasonably be said to be ultra-hazardous: [97].

(a) The appellants did not put forward anything to explain how the damage to their property ensued from a particular risk arising from the demolition works on the respondents’ property that remained substantial despite the exercise of reasonable care.

(b) Demolition works are routinely done and there is nothing to suggest that despite the exercise of reasonable care, there remains a material risk of exceptionally serious harm arising from such works.

(c) This analysis does not change even though landed properties in Singapore tend to be located in close proximity to one another. That simply establishes the element of factual proximity and the foreseeability of harm being caused if reasonable care is not taken when demolition works are carried out. It does not in any way shed light on whether such works are “exceptionally dangerous whatever precautions are taken” (per Burnton LJ in Biffa Waste at [78]), which was the central issue here.

In closing, the CA made some final remarks on the ultra-hazardous acts doctrine. The Court noted that the doctrine retains the responsibility and liability of the principal by imposing on it a separate duty to ensure that the party who is actually performing the activity does so with reasonable care. If the principal fulfils its duty (that is, if the principal takes reasonable care to ensure that the party performing the activity does so in a non-negligent manner and the latter does indeed perform the activity non-negligently) but some harm nonetheless ensues, there will be no liability on the basis of negligence on the part of the party performing the activity, nor will there be liability for breach of a non-delegable duty on the principal’s part. But if, due to the negligence of the party carrying out the activity, harm ensues, then that party will be liable in negligence; and in addition, the principal too will be liable, albeit on the basis of breach of its non-delegable duty rather than on the basis of negligence in performing that activity: at [107].

A claimant whose case comes within the ambit of this doctrine is in a position to make a principal answer for the negligent acts and/or omissions of another even if the latter is an independent contractor: at [108].

Comment

By the looks of the CA’s comments on ultra-hazardous acts doctrine, it does appear that the apex court is inclined to accept this doctrine as part of Singapore law provided it is established on the narrow ambit as held in the Biffa Waste case. That is, the doctrine of ultra-hazardous acts should be applied only to activities that were “exceptionally dangerous whatever precautions are taken”.

Case Update: SK Engineering & Construction Co Ltd v Conchubar Aromatics Ltd and another appeal [2017] SGCA 51 – Court of Appeal reverses sanction of scheme of arrangement

Significance: Singapore Court of Appeal reverses the High Court decision’s to sanction a scheme of arrangement on the basis that certain majority creditors owed genuine debts to the companies in question, and found that the High Court should not have sanctioned the schemes without proof of authenticity of those debts. The Court also found that there was material non-disclosure of the rejection of a restructuring proposal. The Court of Appeal also considered factors to consider in determining whether a creditor is a related

The Court of Appeal also considered factors to consider in determining whether a creditor is a related creditor to the company (at [41]):-

(a) The scheme company controls the creditor or vice versa. Alternatively, the scheme company and the creditor have a common controlling shareholder, ie, a shareholder who owns (directly or indirectly) 50% or more of the shares in each of these companies.

(b) The creditor and the scheme company have common shareholder(s) who hold a less than 50% but more than de minimis stake in both companies. In this regard, what would be considered de minimis would depend on the facts; for instance, the threshold would be higher in the case of a public listed company as opposed to a private company.

(c) The creditor and the scheme company have common director(s), in particular, director(s) who propose or support the scheme.

(d) The scheme company and the creditor do not have any common shareholder(s), but their controlling shareholder(s) are either:

(i) related by blood, adoption or marriage; or

(ii) where the controlling shareholder(s) are corporate entities, in turn controlled by individual(s) who are related by blood, adoption or marriage.

(e) The creditor is related by blood, adoption or marriage to the controlling shareholder(s) or director(s) of the scheme company.

Handbook on Competition Law & E-Commerce in ASEAN

The Competition Commission of Singapore (CCS) has recently launched on 16 August 2017 a handbook to help ASEAN member states and businesses address and navigate competition law issues relating to e-commerce. I was there at the Competition Law Conference when Trade Minister Lim Hng Kiang launched it by entering a pin code into a federated locker (Singapore’s nation-wide infrastructure to boost last mile delivery services).

Here are some helpful pointers from the Handbook for businesses, especially e-commerce startups operating in South-East Asia (SEA) and ASEAN countries, to consider in ensuring they do not flout competition laws, which may result in heavy financial penalties and expenditure of significant time and resources in assisting in investigations.

Continue reading “Handbook on Competition Law & E-Commerce in ASEAN”