Re: Over At AIA CO. , LTD : From S$1.00 M to Profit S$17.00M : What is Happening
23 The English Court of Appeal agreed with the lower court that the decision to order an interim payment was a two-stage process but disagreed on the considerations that had to be taken into account at the first stage. The court held (per Glidewell LJ) that (at 989):
[T]he [lower court] judge ... was correct ... to consider the matter arising on the application for an interim payment in two stages. The first stage was to answer the question, was he satisfied that, if the action proceeded to trial, the plaintiff would obtain judgment for a substantial sum? If the action did proceed to trial, the court would, of course, have to rule on the defendant's counterclaim and set-off. As I have said, if the amount set off exceeded the amount found to be due to the plaintiff in the first instance, there would be no judgment for the plaintiff. In my judgment, on the wording of the rule it is inescapable that, at stage 1, the likelihood of the set-off or any other defence succeeding must be considered by the court.
If, but only if, the court is satisfied at stage 1, then it proceeds to consider at stage 2 whether, in its discretion, it should order an interim payment and, if so, of what amount. At that stage the rules againrequire the court to take any set-off claimed by the defendant into account or any counterclaim arising out of some other transaction and not available as a defence and, in an application under rule 11, any alleged contributory negligence. [emphasis added]
It appears that the English Court of Appeal in Shanning regarded defences, set-offs and any other counterclaims as relevant considerations not only at the second stage, but also at the first, in determining whether the applicant would obtain judgment for a substantial sum (see Civil Procedure 2007 (London: Sweet & Maxwell, 2007) at [25.7.11]).
The distinction between set-offs and independent cross-claims
24 It is important at this juncture to make some observations on the differences between set-offs, counterclaims and cross-claims. The act of deducting from sums otherwise due is known variously as set-off, cross-claim or counterclaim. Some of these terms carry different meanings. So far as legal terminology is concerned, the terms “cross-claim” and “counterclaim” are used interchangeably. It is important to appreciate, however, that set-off has a narrower meaning than cross-claim. All set-offs are cross-claims but not all cross-claims are set-offs. To highlight the difference, the following observation by Lord Denning MR in The Nanfri; Federal Commerce and Navigation Co Ltd v Molena Alpha Inc [1978] QB 927 at 988 (“Federal Commerce”) (cited favourably by the Court of Appeal in Pacific Rim Investments Pte Ltd v Lam Seng Tiong [1995] 3 SLR 1 at 14 (“Pacific Rim Investments”)) is apposite:
… it is not every cross-claim which can be deducted [and which thus qualifies as a set-off]. It is only cross-claims that arise out of the same transaction or are closely connected with it. And it is only cross-claims which go directly to impeach the plaintiff’s demands, that is, so closely connected with his demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim. [emphasis added]
25 The House of Lords in Bank of Boston Connecticut v European Grain and Shipping Ltd [1989] 1 AC 1056 (“Bank of Boston”), however, approved a formulation that the Privy Council had expressed in The Government of Newfoundland v The Newfoundland Railway Co (1888) 13 App Cas 199 that an equitable set-off may occur if there is a cross-claim “flowing out of and inseparably connected with the dealings and transactions which also give rise” to the claim. Lord Brandon of Oakbrook, who delivered the judgment of the Law Lords, did not regard that formulation as a departure from the impeachment test first set out in Rawson v Samuel (1841) 41 ER 451 and adopted by Lord Denning in Federal Commerce. Lord Brandon opined that it was merely a “different version” of the impeachment test while Lloyd LJ (at 1102) later characterised it as “the same test in different language”. A decade or so later, Potter LJ in Bim Kemi AB v Blackburn Chemicals Ltd [2001] 2 Lloyd’s Rep 93 (“Bim Kemi”), delivering the judgment of the Court of Appeal, reviewed the authorities on equitable set-off and adopted the test approved by the House of Lords in the Bank of Boston case. More recently, Sundaresh Menon JC in Abdul Salam Asanaru Pillai (trading as South Kerala Cashew Exporters) v Nomanbhoy & Sons Pte Ltd [2007] 2 SLR 856 at [28] (“Abdul Salam”) considered Potter LJ.s decision in Bim Kemi and held that:
the further passages [from Potter LJ’s decision on the test in Bank of Boston cited do not add] to the understanding of the applicable principles when considering whether an equitable set-off may be raised. The question of whether a sufficient degree of closeness is established in the connection between the respective claims is not determined by some sort of formulaic process. In each case, the question turns on whether the respective claims are so closely connected that it would offend one’s sense of fairness or justice to allow one claim to be enforced without regard to the other.
It appeared that Menon JC regarded the differences between the impeachment test and the Bank of Boston test as academic. This is unsurprising considering the fact that as, Lloyd LJ observed, the two tests are the same albeit in different language. I respectfully agree with this view.
26 With regard to the nature of the equitable set-off, the Court of Appeal in Pacific Rim Investments, after an extensive review of the English authorities, went on to conclude that equitable set-off was a substantive defence and that the right of equitable set-off arose where there were good equitable grounds for directly impeaching the title to the legal demand for a sum of money (see generally Pacific Rim Investments ([24] supra at [18] to [37]). Having set out the law on set-offs, I turn now to the English Court of Appeal’s decision in Shanning.
My disagreement with the decision in Shanning
27 I would agree with the court in Shanning ([22] supra) that the lower court in that case erred in the sense that the test under the first stage is not whether the applicant had a prima facie right to a judgment, but whether the claim would in fact succeed (see British and Commonwealth Holdings PLC v Quadrex Holdings Inc ([21] supra). However, I would respectfully disagree that in determining whether the claim would in fact succeed, the court has to take into account counterclaims arising out of some other transaction which is not available as a defence (“independent cross-claims”) in addition to any defence and set-offs.
28 With respect to the English Court of Appeal, I find that the wording of O 29 r 12 does not support the view that independent cross-claims have to be considered at the first stage. For convenience, I shall set out the relevant parts of O 29 r 12 again:
Order for interim payment in respect of sums other than damages (O. 29, r. 12)
12. If, on the hearing of an application under Rule 10, the Court is satisfied —
(a) …
(b) …
(c) that, if the action proceeded to trial, the plaintiff would obtain judgment against the defendant for a substantial sum of money apart from any damages or costs,
the Court may, if it thinks fit, and without prejudice to any contentions of the parties as to the nature or character of the sum to be paid by the defendant, order the defendant to make an interim payment of such amount as it thinks just, after taking into account any set-off, cross-claim or counterclaim on which the defendant may be entitled to rely.
29 There is nothing in r 12(c) which states that the court has to consider all cross-claims (whether independent cross-claims or set-offs). The imposition of such a requirement would have to be viewed either as being implicit from the wording and therefore legitimate, or, worse, as an unwarranted addition to the wording of r 12(c). Glidewell LJ’s conclusion that all cross-claims had to be considered appeared to stem from his view that in order for the applicant to obtain “judgment” within the meaning of r 12(c), the court would have to rule on independent cross-claims in addition to set-offs and defences.
