Till Annulment Do Us Part

On 17 May 2018, the Straits Times reported that the marriage between a man and women was annulled by the Registrar of Marriages (the “Registrar“) on the grounds that the man had – subsequent to the marriage – undergone gender re-assignment surgery (the “Report“). The Report may be found here.

According to the Report, the Registrar annulled the marriage on the grounds:-

“…that the couple had no intention of living as man and wife during their marriage, which runs counter to the Women’s Charter.

Under Singapore law, the Women’s Charter (Cap. 353) (the “Charter“) is the primary legislation which addresses, amongst other things, the legality of a marriage, the grounds for divorce, the situations where a marriage is void and where a marriage is voidable.

The couple appealed to the High Court to overturn the Registrar’s decision, but dropped the case, with the High Court subsequently sealing the court file upon the application of the couple.

Consequently, the Registrar’s decision to annul the couple’s marriage remains upheld.

The Facts

The facts are neatly summarised in the Report. Essentially, at the time the couple applied for their marriage to be registered, both the individuals were of a different gender. The Registrar had doubts about whether to register the marriage given “…the man’s appearance and name.

However, upon the assurance of the man that he did not intend to undergo gender re-assignment surgery before the marriage date, the Registrar registered the marriage (the “Registration“). 6 months’ after the Registration, the man underwent gender re-assignment surgery and was thereafter registered with the Immigration and Checkpoints Authority as a female.

The Law

This is a curious case indeed, as under Chapter 3, Part X of the Charter – which addresses “NULLITY OF MARRIAGES” (bold in original) – a marriage is only void (and not voidable) if it falls within Section 105 of the Charter. Section 105 provides as follows:-

Grounds on which marriage is void

105. A marriage which takes place after 1st June 1981 shall be void on the following grounds only:

(a) that it is not a valid marriage by virtue of sections 3(4), 5, 9, 10, 11, 12 and 22;

(aa) where the marriage was solemnized on or after the date of commencement of section 6 of the Women’s Charter (Amendment) Act 2016, that it is not a valid marriage by virtue of section 11A; or

(b) where the marriage was celebrated outside Singapore, that the marriage is invalid —

(i) for lack of capacity; or

(ii) by the law of the place in which it was celebrated.

[bold in original; emphasis in underline]

In this author’s view, none of the situations contemplated by Sections 3(4), 5, 9, 11, 12 and/or 22 of the Charter apply based on the facts in the Report. Sections 105(aa) and 105(b) are equally inapplicable.

The only section which refers to gender re-assignment is Section 12 of the Charter, which provides:-

Avoidance of marriages between persons of same sex

12.—(1) A marriage solemnized in Singapore or elsewhere between persons who, at the date of the marriage, are not respectively male and female shall be void.

(2) It is hereby declared that, subject to sections 5, 9, 10, 11 and 22, a marriage solemnized in Singapore or elsewhere between a person who has undergone a sex re-assignment procedure and any person of the opposite sex is and shall be deemed always to have been a valid marriage.

(3) For the purpose of this section —

(a) the sex of any party to a marriage as stated at the time of the marriage in his or her identity card issued under the National Registration Act (Cap. 201) shall be prima facie evidence of the sex of the party; and

(b) a person who has undergone a sex re-assignment procedure shall be identified as being of the sex to which the person has been re-assigned.

(4) Nothing in subsection (2) shall validate any such marriage which had been declared by the High Court before 1st May 1997 to be null and void on the ground that the parties were of the same sex.”

[bold in original; emphasis in underline and bold]

Section 12 of the Charter does not appear to void a marriage on the grounds that a party to the marriage subsequently changes gender. Section 12(1) of the Charter specifically voids marriages between people of the same sex at the date of the marriage.

Consequently, this section has no application to the present facts given that the gender reassignment of one of the parties occurred after the marriage was registered.

To the contrary, Section 12(2) of the Charter appears to expressly permit the registration of a marriage between two people, one of whom has previously undergone gender re-assignment surgery. That said, it could be argued – adopting a purposive reading of Section 12(2) of the Charter – that the section implicitly is intended to provide for marriage between male and female.

Such an interpretation is, however, quite a stretch in my view.

The Registrar’s Decision

In light of the express statutory provisions which presumably exhaustively provide for the grounds on which a marriage is void, the Registrar’s decision to annul the marriage is certainly questionable.

No broad power to annul a marriage appears vested in the Registrar within the text of the Charter and, consequently: “…that the couple had no intention of living as man and wife during their marriage, which runs counter to the Women’s Charter…does not appear to have any statutory basis.

Conclusion

The consequence of the Registrar’s decision cannot be understated, given the implications it would have for the couple, not least their jeopardised application for a HDB flat (identified in the report).

However, as a matter of public policy, the decision is perhaps even more far reaching. In this author’s view, there at least exists a prima facie case that the decision to annul / void the marriage was an overreach of the Registrar’s powers.

The couple’s decision to drop the appeal against the Registrar’s decision – and consequently the sealing of the court file – is a pity indeed, as a decision of the High Court on this matter would have been welcomed, particularly as it would – assumably – consider the sections and arguments contemplated above.

For now though, it appears that the decision of the Registrar – although not a legal precedent in the sense of stare decisis – means that any subsisting registered marriage, where one party subsequently changes gender (and the other does not), is void.

This is not an acceptable situation, and given that judicial pronouncement on the matter will not be forthcoming with the withdrawal of the appeal, there should at least be legislative clarification.

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Recoverability Of Damages In The Law Of Tort By A Foreign Employee

Introduction

In what must surely be considered to be a sound decision – both as a matter of law and moral principle – the Court of Appeal held that the position of a “foreign employee” is no different from that of a “local employee” insofar as the recovery of special damages arising from a tort is no different (subject to the principles of double recovery).

A link to the apex court’s decision in Minichit Bunhom v Jazali bin Kastari and another [2018] SGCA 22 (the “Judgment“) may be found here.

Judge of Appeal Steven Chong (who delivered the judgment of the Court) pithily put the issue for determination in the opening paragraph of the Judgment:-

Consider an accident involving two workers who were injured following a road accident for which the driver of the vehicle was wholly responsible. Both incurred similar medical expenses and brought separate legal proceedings to recover damages, including the medical expenses, against the negligent driver. One worker was a local while the other was a foreign worker. The foreign worker’s employment, unlike the local worker, was governed by the Employment of Foreign Manpower Act (Cap 91A, 2009 Rev Ed) (“EFMA”). Even though the employer had initially paid for the medical expenses in both cases, it was beyond question that the local worker would be able to claim for his medical expenses against the negligent driver. The position in respect of the foreign work was however disputed. Should the employment status of the injured worker affect his right of recovery in respect of the medical expenses against the negligent driver? This was, in essence, the issue before us.”

[emphasis added]

Does An Employer’s Obligation To Bear A Foreign Employee’s Medical Expenses Preclude A Subsequent Claim By The Foreign Employee In The Law of Tort Against The Tortfeasor?

The answer to the question, underlined in the quote above, was a resounding “No”, as evident from paragraphs [41] to [43] and [48] of the Judgment, where the Court held as follows:-

“…we did not think that the broad scope of an employer’s obligations relating to a foreign employee’s medical expenses would in itself have any bearing on the separate question of whether a victim-foreign employee could recover the medical expenses occasioned by a third party tort from the tortfeasor. The statutory provisions in the EFMA and the EFMR were designed to ensure that, as between an employer and his foreign employee, the employer bore the obligation to provide for the employee’s upkeep and maintenance. There are sound policy reasons behind this position, not least for the protection of the foreign employee as well as to ensure that the ultimate burden for the upkeep of foreign workers should not fall on the State (see [47] below).

42 However, nothing in the EFMA or the EFMR suggested that they were intended to abridge the recovery of medical expenses as between a tortfeasor and the victim. As we alluded to above, the employment and the tortious relationships are wholly distinct and they implicate different policies and principles.

43 Indeed, it could not have been Parliament’s intention for the EFMA or the EFMR to affect not only the employer’s obligations relating to a foreign employee’s medical expenses, but also the entitlement of a victim to seek the recovery of such medical expenses from the tortfeasor at common law.

48 In our judgment, where a third party tortfeasor was liable for the medical expenses incurred by a victim-foreign employee as a result of the former’s tortious conduct, neither the EFMA nor the EFMR applied to exonerate the tortfeasor or to shift that duty onto the employer by precluding the victim’s right of recovery against the tortfeasor. Indeed, nothing in the text, history, or purpose of the EFMA and the EFMR suggested that the legislation had any bearing on the recoverability of the medical expenses as between the victim and the tortfeasor. This submission stemmed from an unfortunate misunderstanding of the purpose and object of the EFMA and the EFMR. The duty of the employer to provide medical coverage for his foreign employee is an incident of the employment relationship and hence governed by the EFMA and the EFMR. This however was a distinct issue from the entitlement of the victim to seek recovery from the tortfeasor, which is an incident of the tortious relationship and hence governed by the common law.

[emphasis added in bold and underline]

Are The Costs & Expenses Of Medical Treatment Recoverable By A Foreign Employee From His Employer, Where The Injuries Suffered By The Foreign Worker Are Due To The Tortious Acts Of A Third Party?

Another issue which arose for determination was whether the a foreign employer’s obligation to provide “medical treatment” for the “upkeep and maintenance” of a foreign worker depended on whether the injuries suffered by the foreign worker were caused with or without the involvement of a third party tortfeasor.

The reason the issue came up for consideration is due to the fact that the unreported Singapore High Court decision of Sun Delong v Teo Poh Soon and another [2016] SGHC 129 (“Sun Delong“) at [25] appeared to support such a distinction, i.e. that:-

“[e]mployers must provide “medical treatment” to maintain the health and well-being of their foreign employees, but when their employees… suffer serious injuries due to the tortious conduct of third parties, it cannot be the case that liability to pay for treatment for those injuries lies with the employers while the tortfeasor(s) are absolved from their responsibility to pay damages for the wrong that they have done. In such situations, the medical treatment required by the employee goes beyond that for his regular “upkeep and maintenance” and, accordingly, falls outside the scope of Condition 1.”

[emphasis added in bold and underline]

The Court of Appeal disagreed with the above-quoted portion of the judgment in Sun Delong and departed from the same, holding that an employer’s obligations under the Employment of Foreign Manpower Act and the Employment of Foreign Manpower Regulations imposed independent obligations on the foreign employer.

Consequently, the Court of Appeal held at [69]:-

The applicability of Condition 1 (and other obligations in the EFMA and the EFMR) was not dependent on the presence or absence of any third party tortious conduct. Rather, these obligations independently applied in either case as between the employer and the victim-foreign employee; the point was simply that they had no bearing on the latter’s entitlement to recover the medical expenses occasioned by a third party tort from the tortfeasor.”

[emphasis added]

Conclusion

The Judgment is indeed a welcomed one as there ought to be no distinction at common law between the rights of employees, whether they be local or foreign.

The statutory scheme (the EFMA and the EFMR) imposing obligations on employers to provide and undertake certain basic responsibilities vis-a-vis their foreign employees should not and does not affect the rights of those foreign employees under general law.

 

 

 

 

Income Earned From Illegal Employment In Singapore Is Subject To Income Tax

**Edited as of 1500H, 8 March 2018 based on input from Lian Chuan Yeoh, Counsel at Allen & Overy. Thank you for the insight Chuan Yeoh!

 

In his usual succinct style, Justice Choo Han Teck dismissed an appeal against the decision of the Income Tax Review Board’s decision in BRE v Comptroller of Income Tax [2018] SGHC 77 (the “Judgment“), available online here.

Background

The facts of the case are straightforward; the appellant (an Australian national) claimed that he was not liable to pay income tax to the Singapore tax authorities on the basis that he did not have a right to work in Singapore (in this case, he did not have an appropriate work pass).

Consequently, any income derived from his “illegal” employment was not subject to taxation under the Income Tax Act (Cap. 134), available here.

This defence – in this author’s respectful view – was rightly dismissed by Justice Choo on the basis that whether the appellant’s employment in Singapore was lawful or not did not affect the appellant’s liability to pay income tax.

As noted by the Court at [9] of the Judgment:-

It is not disputed that BRE did not have an employment pass with TGS. It is therefore clear that he had been working illegally in that sense, but illegality is a garden of mixed fruit, and not all are forbidden to the tax authority. Unless BRE can show some ground that offends public policy, income earned by a resident is taxable even if that resident did not have the requisite licence for his work. This appeal is dismissed with costs to be taxed if not agreed.”

[emphasis added in underline]

The Income Tax Act (Cap. 134) (the “Act”)

The Act itself spells out an individual’s tax obligations, as well as the fact that the Act operates both within Singapore as well as extra-territorially (viz. outside the jurisdiction).

Section 10(1)(a), (b) and (2)(a) of the Act respectively provide as follows:-

10(1) Income tax shall, subject to the provisions of this Act, be payable at the rate or rates specified hereinafter for each year of assessment upon the income of any person accruing in or derived from Singapore or received in Singapore from outside Singapore in respect of

(a) gains or profits from any trade, business, profession or vocation, for whatever period of time such trade, business, profession or vocation may have been carried on or exercised;

(b) gains or profits from any employment;

(2) In subsection (1)(b), “gains or profits from any employment” means —

(a) any wages, salary, leave pay, fee, commission, bonus, gratuity, perquisite or allowance (other than a subsistence, travelling, conveyance or entertainment allowance which is proved to the satisfaction of the Comptroller to have been expended for purposes other than those in respect of which no deduction is allowed under section 15) paid or granted in respect of the employment whether in money or otherwise

[emphasis in bold and underline]

The appellant’s argument was therefore doomed to failure from the outset since – on the facts of the case – his income was derived from an employment agreement with an Australian company, pursuant to which the appellant was employed as a project manager in Singapore.

The fact that he did not have a relevant work pass at the material time was correctly dismissed as immaterial, since the income by the appellant was in fact “…derived from or received in Singapore…in respect of gains or profits from any employment“.

If this were not the case, any person who derives taxable income from Singapore – but who chooses deliberately (or otherwise) not to apply for a work pass in Singapore – would effectively evade Singapore’s tax laws. From a public policy perspective, that would simply be ludicrous.

It also ought to be recalled that this was not an instance where the appellant claimed “double taxation”; his defence was entirely premised on his own illegal act in not obtaining a proper work pass prior to commencing employment in Singapore.

**Singapore – Australia Tax Treaty (the “Treaty”)

It is useful at this juncture to highlight that the Government of Singapore and the Government of the Commonwealth of Australia have in place a tax treaty titled “Agreement between the Government of the Republic of Singapore and the Government of the Commonwealth of Australia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income.”

The Treaty is available online here.

Article 11 of the Treaty provides:-

11. Subject to this Article and to Articles 12, 13 and 14, remuneration or other income derived by an individual who is a resident of one of the Contracting States in respect of personal (including professional) services shall be subject to tax only in that Contracting State unless the services are performed or exercised in the other Contracting State. If the services are so performed or exercised such remuneration or other income as is derived therefrom shall be deemed to have a source in, and may be taxed in, that other Contracting State.

Whereas Article 1 of the Second Protocol to the Treaty, provides that Article 19 of the Treaty be substituted as follows:-

The competent authorities of the Contracting States shall exchange such information as is foreseeably relevant for carrying out the provisions of this Agreement or to the administration or enforcement of the domestic laws concerning taxes of every kind and description imposed on behalf of the Contracting States, insofar as the taxation thereunder is not contrary to the Agreement. The exchange of information is not restricted by Articles 1A and 1.”

[emphasis in bold and underline]

Although the amended Article 19 of the Treaty addresses the exchange of information between Singapore and Australia for the “carrying out of the provisions of [the Treaty]”, it is submitted that the Article 19 arguably provides legal basis for one contracting state to enforce its domestic tax laws in another contracting state. This is because the remainder of the amended Article 19 states that information is exchanged for “…the enforcement of the domestic laws concerning taxes of every kind…imposed on behalf of the Contracting States, insofar as the taxation thereunder is not contrary to the [Treaty].”

It is therefore clear that the income derived by the appellant in Singapore (which was presumably not taxed in Australia, otherwise the defence of double taxation would have been raised) was “…remuneration or other income as is derived” from “…personal (including professional) services” that “have a source in, and may be taxed in [Singapore]”.

Imposition of a Penalty?

Although not discussed in the Judgment, it is conceivable that IRAS would seek to impose and collect penalties for unpaid income tax on the appellant in light of the Judgment.

This, however, would not be recoverable by the Singapore authorities in Australia, as the Treaty is limited to “income tax”. It is also a general principle of common law that a country will not impose foreign penalties on its citizens.

This is consistent with the Treaty, which only provides for reciprocity – insofar as the prevention of fiscal evasion is concerned – concerning “income tax”, and not penalties that may be imposed by either of the contracting parties.

If, however, the appellant enters Singapore’s jurisdiction, it is likely that he will be held liable for any penalties that may have accrued by reason of his failure to pay income tax during the relevant period.

Conclusion

As the old adage goes, there is nothing certain but death and taxes.

It would make a nonsense of tax laws if one could simply rely on one own illegality – by reason of working in Singapore illegally – to evade paying income tax to the Singapore tax authorities.

 

8 April 2018

*The contents of this article represent the views and observations of the author alone from a Singapore law perspective and are subject to copyright protection under the laws of the Republic of Singapore (as may from time to time be amended). No part of this article may be reproduced, licensed, sold, published, transmitted, modified, adapted, publicly displayed and/or broadcast (including storage in any medium by electronic means whether or not transiently for any purpose save as permitted herein) without the prior written permission of the author.

Please note that whilst the information in this article is correct to the best of the author’s knowledge and belief at the time of writing, it is for academic reference, does not constitute legal advice and is only intended to provide a general guide to the subject matter. It should therefore not be treated as a substitute for specific professional advice for and/or in respect of any particular course of action as such information may not suit your specific business, operational and/or commercial requirements. You are therefore urged to seek legal advice for your specific situation. All the author’s rights are expressly reserved and nothing herein shall be construed as a waiver thereof.

Winding Up To Unlock Deadlock: A Cautionary Tale

As published by the Singapore Academy of Law on Singapore Law Watch on 23 March 2018. A link to the PDF version of the published article is available here.

Winding Up To Unlock Deadlock: A Cautionary Tale[i]

March 2018

Introduction

  1. The recent Singapore Court of Appeal decision in Perennial (Capitol) Pte Ltd and Anor v Capitol Investment Holdings Pte Ltd and Ors [2018] SGCA 11 (the “Judgment“) is notable – in this author’s view – for several reasons. Apart from addressing what constitutes “deadlock” in cases where winding up applications are filed on just and equitable grounds, the Judgment also serves to highlight the importance of the contents of a company’s constitution in joint venture companies.
  2. This case commentary serves to set out the salient takeaways from the Judgment, as well as offer practical and commercial considerations to professionals and business people alike. Also examined are the potentially disastrous effect the filing of a winding up application may have on a company in cases where the company’s solvency is not dispute. This is because certain statutory provisions in the Companies Act (Cap. 50) (the “Act”) automatically take effect upon the filing of a winding up application.
  3. The legislative intention behind these provisions is generally the preservation of an insolvent company’s assets. However, where the winding up application is premised solely on just and equitable grounds, these provisions nonetheless apply, with the result that a company’s business activities may be paralyzed whilst the winding up application is lis pendens.
  4. A copy of the Judgment is available on Singapore Law Watch here.

    Meaning of “Deadlock” In The Context Of Applications To Wind Up Companies On Just & Equitable Grounds
     
  5. First, Singapore’s apex court endorsed the view that the definition of what constitutes “deadlock” between shareholders did not require “true or absolute” deadlock in the sense of equal shareholding between two parties which had fallen out.
  6. What is required to constitute “deadlock” – at least for the purposes of determining whether “unfairness” exists such as to justify an order to wind up a company on just and equitable grounds (Section 254(1)(i) of the Act – is a shareholder’s inability to exit the company (or inability to exit an untenable relationship, in the words of the Judge in the court below).
  7. In this respect, Judith Prakash JA – delivering the Court of Appeal’s judgment – noted at [45] of the Judgment as follows:-

A close examination of the cases reveals that the Judge was right in finding at [40]–[44] of the GD, that in situations of deadlock between the shareholders of a company, unfairness stems from the shareholders’ inability to exit rather than the deadlock per se.

[emphasis added in underline]

  1. It is therefore pleasing to see an emphasis on substance rather than form in determining whether “deadlock” exists, rather than just a consideration of management or shareholder impasse. 

    The Availability of a Viable Exit Mechanism Will Vitiate Purported “Unfairness” In A Section 254(1)(i) Application

     

  2. Second, the Court held that the existence of an exit mechanism – subject to certain exceptions (as set out in the Singapore Court of Appeal’s decision in Ting Shwu Ping (administrator of the estate of Chng Koon Seng, deceased) v Scanone Pte Ltd and another appeal[2017] 1 SLR 95 (“Ting Shwu Ping“) at [107(b)] – would negate any “unfairness”, since the parties had a pre-arranged, agreed method to exit the company.
  3. For completeness, the exceptions cited by the Court in Ting Shwu Pingand again endorsed by the Court in this case were where – although an exit mechanism exists:-

(a) the disaffected shareholder had a legitimate expectation that he was entitled to have his shares valued in some other way;

(b) there was relevant bad faith or impropriety in the respondents’ conduct which had affected the value of the shares; or

(c) the articles provided an arbitrary or artificial method of valuation.”

See [24] of the Judgment.

  1. In the present case, the Court found that the exit mechanism existed in the respondent companies’ respective constitutions. In particular, on the present facts Article 22(A) of the articles of association (which form part of the constitution), provided as follows:-

22.(A) Every Member who desires to transfer any share or shares (hereinafter called “the vendor”) shall give to the Company notice in writing of such desire (hereinafter called “the transfer notice”). Subject as hereinafter mentioned, a transfer notice shall constitute the Company the vendor’s agent for the sale of the share or shares specified therein (hereinafter called “the said shares”) in one or more lots at the discretion of the Directors to the Members other than the vendor at a price to be agreed upon by the vendor and the Directors or, in case of difference, at the price, which the Auditor of the Company for the time being shall, by writing under his hand, certify to be in his opinion the fair value thereof as between a willing seller and a willing buyer, and such sum shall be deemed to be the fair value, and in so certifying the Auditor shall be considered to be acting as an expert and not as an arbitrator and accordingly the Arbitration Act, Cap. 10 shall not apply. A transfer notice shall not be revocable except with the sanction of the Directors.” (“Article 22A”)

  1. It is therefore apposite at this juncture to highlight what is a trite, but often overlooked legal principle, namely that a company’s articles of association constitute a statutory contract between the company and its members, as well as its members inter se.
  2. Accordingly, the Court of Appeal held that Article 22A constituted an acceptable exit mechanism thereby precluding the appellants (the plaintiffs in the winding up applications) from alleging unfairness as a basis to justify their application for winding up orders pursuant to Section 254(1)(i) of the Companies Act (Cap. 50).
  3. In this respect, the Court held at [59] of the Judgment as follows:-

It was abundantly clear – and this was an observation made by the Judge too at [86] of his decision – that applying the principles in Ting Shwu Ping led to the conclusion that the just and equitable ground under s 254(1)(i) had not been made out on the present facts. That the shareholders of the respondent companies were mired in a deadlock was not disputed by Chesham. However, given that Art 22 allowed a shareholder to “exit” the respective companies, there was no situation of “lock-in” on which a finding of unfairness could be made.”

[emphasis added in underline]

  1. Article 22A was therefore central to the dismissal of the appeal.
    Analysis and Practical Considerations

     

  2. Insofar as legal principle is concerned, the decision is a welcomed one as it demonstrates that the Singapore Courts will take a practical approach to what constitutes “deadlock” in the context of shareholder fall-outs and applications to wind up companies on just & equitable grounds.
  3. As a matter of practice, it is a cautionary tale to would be joint venture partners to pay particular attention to the articles of association determined at the time the joint venture company is incorporated. This is especially so if no contemporaneous shareholders’ agreement is executed.
  4. This is because the articles of association will take precedence until such time as a shareholders’ agreement is signed, and the articles consequently amended to reflect the parties’ intentions. It would also be prudent for legal professionals to specify whether the articles of association or the joint venture agreement is to take precedence in the event of conflict.
  5. As observed by the Court at [67] of the Judgment:-

We certainly did not think it appropriate that shareholders be allowed to march into the court with a winding-up application because they held the view that it was unfair for them to be bound to apply a contractual mechanism that they had agreed to when drafting their company’s constitution.”

  1. The lesson here is that a company’s constitution (which includes its articles of association), is the default contractual agreement binding the company’s shareholders, until and unless a subsequent joint venture agreement is signed. Any subsequent execution of a joint venture agreement should be carried out concurrently with the passing of the appropriate shareholder resolutions to amend, supplement and/or modify the company’s constitution.
  2. The Judgment is also a further reminder that an application to wind up a company on just and equitable grounds should not be made lightly. Such applications – even if no order is eventually made – have potentially draconian economic and social consequences by virtue of the filing of the application.
  3. Although not discussed in the Judgment, it should be noted that upon the filing of a winding up application, certain statutory provisions automatically come into force.. One particularly difficult provision is Section 259 of the Act, which provides:-

Avoidance of dispositions of property, etc.

Any disposition of the property of the company, including things in action, and any transfer of shares or alteration in the status of the members of the company made after the commencement of the winding up by the Court shall unless the Court otherwise orders be void.

[emphasis in underline; bold in original]

  1. Whilst the purpose of the provision is the preservation of a company’s assets whilst a winding up application is lis pendens, this assumes that a winding up order is eventually made.
  2. Perhaps more critically, the legislative purpose of Section 259 of the Act is more relevant in situations where the company’s solvency is in doubt, hence the need to protect the creditors’ interests. However, where the winding up application is premised on just and equitable grounds, a strong argument may be made that Section 259 of the Act essentially cripples the company where the application is opposed.
  3. This is because, without knowing whether or not a winding up order will eventually be made, the operation of Section 259 of the Act puts the company in the unenviable position of being unsure and unclear as to whether it may enter into any particular transaction constituting a “disposition” within the meaning of section.
  4. This usually results in applications having to be made to Court – whilst the winding up application is lis pendens – to seek validation orders authorising such “dispositions”, even where such dispositions are those made in the ordinary course of the company’s business and/or for the company’s benefit. In such a scenario, such applications cause the incurrence of unnecessary cost and expense.Conclusion

     

  5. Ultimately, the author submits that the key takeaway from the Judgment is consistent with an established principle of insolvency law, namely that winding up applications ought not to be commenced for collateral purposes.
  6. This is true in the case of applications to wind up companies on the grounds of alleged inability to pay debts, and ought to apply equally to all winding up applications.

[i] The contents of this article are owned by author and subject to copyright protection under the laws of the Republic of Singapore (as may from time to time be amended). Save for the Singapore Academy of Law and/or its affiliates, no part of this update may be reproduced, licensed, sold, published, transmitted, modified, adapted, publicly displayed, broadcast (including storage in any medium by electronic means whether or not transiently for any purpose save as permitted herein) without the prior written permission of the author. Please note that whilst the information in this article is correct to the best of the author’s knowledge and belief at the time of writing, it is only intended to prove a general guide to the subject matter and should not be treated as a substitute for specific professional advice for any particular course of action as such information may not suit the reader’s specific business, operational and/or commercial requirements. The reader is therefore urged to seek legal advice for your specific situation. All the author’s rights are expressly reserved and nothing herein shall be construed as a waiver thereof.

*************************************************************************************

*The contents of this article represent the views and observations of the author alone from a Singapore law perspective and are subject to copyright protection under the laws of the Republic of Singapore (as may from time to time be amended). No part of this article may be reproduced, licensed, sold, published, transmitted, modified, adapted, publicly displayed and/or broadcast (including storage in any medium by electronic means whether or not transiently for any purpose save as permitted herein) without the prior written permission of the author.

Please note that whilst the information in this article is correct to the best of the author’s knowledge and belief at the time of writing, it is for academic reference, does not constitute legal advice and is only intended to provide a general guide to the subject matter. It should therefore not be treated as a substitute for specific professional advice for and/or in respect of any particular course of action as such information may not suit your specific business, operational and/or commercial requirements. You are therefore urged to seek legal advice for your specific situation. All the author’s rights are expressly reserved and nothing herein shall be construed as a waiver thereof.

Defining Actionable Defamation And Relevant Commercial Considerations

TODAY released a report dated 10 March 2018 (the “Report“) highlighting the increasing number of defamation claims filed in Singapore.

In light of this, the State Courts of the Republic of Singapore (formerly known as the District Courts) will be “…rolling out several initiatives to improve court processes, including publishing a guidebook on damages.

As noted in the Report:-

Between 2013 and 2017, there were at least 50 defamation writs filed each year, reaching a high of 79 in 2016.

The number of defamation writes filed in the five-year period between 2008 and 2012 was not available.

In his speech at the State Courts workplan seminar on Friday (March 9), Justice See Kee Oon, who is the presiding judge of the State Courts, noted that social media and instant messaging applications “provide an easy and unrestrained forum for views to be expressed on a vast array of issues that can potentially form the subject matter of defamation actions”.”

These changes are welcome, particularly as this author believes that the same will sieve out viable, genuine claims from those which are not.

This is particularly relevant in Singapore, where the tort of defamation is increasingly relied upon by parties to a dispute, whether as a primary and/or secondary claim, particularly where the dispute is marred by personal vendetta (or point of principle, which is usually expensive).

This stems from the perception – or more accurately misconception – that claims in defamation inflict the maximum damage on the alleged tortfeasor (the wrongdoer; person who allegedly is guilty of making defamatory remarks, statements and/or publications) insofar as the claimant may recover damages and insist on the publication of an apology by the wrongdoer. To clarify, a court cannot “order” the making or publication of an apology, although this is usually volunteered to mitigate damages awarded.

The truth of the matter, however, is that defamation claims are far from straightforward. Moreover, and from a commercial point of view, even if one succeeds in a claim for defamation, damages that are recoverable are usually nowhere near what the claimant expects.

This is particularly true of corporate claimants, which cannot recover damages to “feelings” or “pride”, since a corporate entity is physically incapable of suffering such damage. The issue of whether a corporate entity recovers damages in respect of loss of reputation and goodwill though is a separate issue.

Tort of Defamation: Raison d’être

As a start, it is useful to examine what actionable defamation really is.

At the outset, it should be remembered that defamation is a tort, i.e. it is an actionable civil wrong. As noted by the learned authors of Clerk & Lindsell on Torts (20th Edition, 2010) at [1-02]:-

Torts are civil wrongs and according to Professor Birks they are best viewed as ‘‘a distinct category of obligation-creating event within the fourfold classification of such events’’, the other categories being contracts, unjust enrichments and other events such as income generation giving rise to tax liability. What distinguishes civil wrongs is that, whilst in the other categories the nature of the causative event giving rise to the obligation also dictates the nature of the remedy, wrongs ‘‘themselves dictate no fixed measure of response’’. Thus, a civil wrong can be defined simply as a ‘‘breach of a legal duty which affects the interests of an individual to a degree which the law regards as sufficient to allow that individual to complain on his or her own account rather than as a representative of society as a whole’’.

In this respect, the tort of defamation (whether defamation takes the form of slander (spoken) or libel (written)) seeks to provide a remedy to an individual where statements or publications have primarily caused reputational damage.

Consequently, it should be reminded that the tort of defamation is premised on:-

“...the right of every person, during life, to possession of a good name. A person who communicates to a third party matter which is untrue and likely in the course of things substantially to damage the reputation of a third person is, on the face of it, guilty of a legal wrong for which the remedy is a claim in tort for defamation. Defamation is therefore the tort which protects reputation and the courts have, on more than one occasion, stressed that defamation is the only appropriate action for the vindication of reputation.

See Clerk & Lindsell on Torts (20th Edition, 2010) at [22-01]

Elements Necessary to Establish Defamation

To successfully bring a claim in defamation, the claimant must be able to plead and subsequently establish the following at trial:

First, identify with specificity the purported words spoken or published by the tortfeasor (the person who uttered, published and/or circulated the allegedly defamatory remarks – the “Defamatory Words“).

Second, plead and be able to prove that the Defamatory Words are untrue.

Third, to explain the natural and ordinary meaning of the Defamatory Words or the innuendo of the same, and how such meanings are defamatory.

As eruditely set out in [21.7.6] of the Laws of Singapore: Commercial Law: Chapter 21: Economic Torts:-

In terms of construction, a statement may be defamatory in two ways: (i) via the natural and ordinary meaning of the words used or as may be reasonably inferred from the words; and (ii) by way of true or legal innuendo. True innuendo arises from words which appear innocuous, but may be understood to be disparaging of the plaintiff by third parties who have knowledge of special facts which are not generally known. To support a cause of action based on true innuendo, the plaintiff will have to plead those special facts known to such third parties to whom the statement has been published.”

[emphasis added]

In other words, the Defamatory Words must be defamatory from the perspective of an ordinary, reasonable and fair-minded reader or convey a defamatory meaning to person(s) who had / have knowledge of facts extraneous to the words complained of. In the latter case, the claimant must identify the extraneous facts which give rise to the innuendo meaning.

Finally, the claimant must prove how the Defamatory Words are causative of loss and/or damage which has been or will be suffered by the claimant.

Damage allegedly suffered is also subject to the principles of remoteness of damage, i.e. damages which are not reasonably foreseeable are generally irrecoverable. 

Defences to Claims For Defamation

Even if the above criteria are satisfied, the tortfeasor (defendant) has several defences available to him, namely absolute privilege, qualified privilege, justification (truth) and/or fair comment.

It is not within the scope of this article to examine each and every defence that may be raised by a person facing a claim for defamation, save that the “defence” of justification is not, in essence, a true defence.

This is because if the truth of the allegedly Defamatory Words is established, then such words are not defamatory at all.

It ought to be borne in mind though that where a defendant pleads the defence of justification and is later held liable to the claimant, aggravated damages may be awarded against the defendant.

Commercial Considerations

By and large, a claim for defamation should be clearly thought out before being brought. This is because even if one succeeds in proving defamation, damages suffered are not crystallized and are therefore subject to assessment.

Consequently, even where the successful party establishes liability in principle, the quantum of damages must still be determined by the Court.

In ascertaining the appropriate general damages to be awarded in a case of defamation, the following factors should be considered:

(a)     the nature and gravity of the defamatory statement itself;

(b)     the conduct, position and standing of the plaintiff and the defendant; and

(c)     the mode and extent of publication.

See [29] of ATU and ors v ATY [2015] SGHC 184 available here.

Consequently, the process of assessing damages usually increases the amount of legal cost and expense incurred by the party asserting the claim. Even though the wrongdoing party may be expected to pay part of the successful party’s costs, this rarely (if ever) covers the entire quantum of legal costs incurred. 

Finally, one must bear in mind the opportunity costof pursuing such legal proceedings to conclusion (and this is true of any type of legal proceeding). Time spent preparing for a trial or instructing lawyers is time lost on actually doing business.

Consequently, potential claimants should think long and hard about:-

(a) whether they have a claim;

(b) whether the defendant has a viable defence; and

(c) even if they succeed in a court of law, whether it makes financial and commercial sense to proceed.

From personal and professional experience, there are sometimes no alternatives but to seek vindication in a court of law. However, this should be motivated by business and commercial considerations, rather than a “battle of wills” or personal vendetta.

10 March 2018

*The contents of this article represent the views and observations of the author alone from a Singapore law perspective and are subject to copyright protection under the laws of the Republic of Singapore (as may from time to time be amended). No part of this article may be reproduced, licensed, sold, published, transmitted, modified, adapted, publicly displayed and/or broadcast (including storage in any medium by electronic means whether or not transiently for any purpose save as permitted herein) without the prior written permission of the author.

Please note that whilst the information in this article is correct to the best of the author’s knowledge and belief at the time of writing, it is for academic reference, does not constitute legal advice and is only intended to provide a general guide to the subject matter. It should therefore not be treated as a substitute for specific professional advice for and/or in respect of any particular course of action as such information may not suit your specific business, operational and/or commercial requirements. You are therefore urged to seek legal advice for your specific situation. All the author’s rights are expressly reserved and nothing herein shall be construed as a waiver thereof.