American International Assurance Co Ltd v Wong Cherng Yaw and Others

Andrew Ang J:

[1] This application for interim payment of certain sums made by way of Summons No 4743 of 2008 (“Sum 4743”) was one of two applications made by the defendants in response to the plaintiff’s refusal to release funds which the defendants had invested with the latter under 21 Investment Linked Policies (“ILPs”). The other application by way of Summons No 4476 of 2008 (“Sum 4476”) for interim preservation of the proceeds of the ILPs has since been resolved pursuant to a “without prejudice” agreement between the parties to place the proceeds in a joint stakeholder’s account pending resolution of the main suit, Suit No 670 of 2008. With regard to Sum 4743, I granted the defendants’ application for interim payment and ordered a sum of $1,019,300 which represented the balance of the defendants’ capital invested with the plaintiff to be paid by the plaintiff to the defendants.

[2] The plaintiff is an insurance company with whom the defendants and one Lee Swee Chee invested a total of $1,059,300 under 21 ILPs. The original policyholders of the ILPs are as follows:

*60,000

*67,900

*33,300

*137,000

*80,000

*61,000

*80,000

*80,000

[3] As a result of various assignments between the defendants and Lee Swee Chee, the policyholders of the 21 ILPs came to be as follows:

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[4] Under an ILP, premiums paid by the policyholder are used to invest in units in funds listed in a “Schedule of Funds” annexed to each policy. The funds listed may differ between different plans. The number of units in a fund which a policyholder could purchase with any given sum under an ILP depends on the price at which the units are to be issued. When a policyholder liquidates the units in the fund due to the policyholder is determined by the price at which the units are redeemed. Under the ILPs, policyholders are also entitled to switch between funds as many times as they want. All the policyholders have to do is to instruct the plaintiff to switch their invested sums from one of more funds into other funds (which process I shall refer to as “fund switches”). These rights are derived from the following contractual provisions which apply to the ILPs:

[5] Somehow, through numerous fund switches over the course of two years or so, the defendants were able to make large profits. Their investments peaked on 7 August 2008 with the ILPs valued at a total of $18,759,523.27, giving the defendants a paper gain of $17,700,223.27. Things, however, were not always so rosy. According to the third defendant, Lim Wee Chee (“Lim”), a former teacher at a junior college, who was authorised to make his affidavit filed on 13 October 2008 on behalf of the other defendants, he had initially suffered huge losses when he first invested in these ILPs. He purchased his first policy (Policy No. U023615744) effective from 24 March 2006 and he suffered losses within the first few months of its commencement. He was naturally interested to find out how the funds worked so as to recoup his losses. He started analysing and observing the performance of the various funds and the markets to which they were linked. He realised that the margin of change for each fund was usually limited to about 3%. By keeping up with the trends of fund prices, he was able to take calculated risks by switching from one fund to another to avoid adverse fluctuations in prices and to ride on positive trends.

[6] Pursuant to his right to switch funds, he made more than 300 fund switches over the span of two years and the other defendants also performed similar fund switches. After the first four free fund switches, the defendants would pay the fund switch fee of $25 for each subsequent fund switch and the plaintiff would dutifully carry out the defendants’ instructions. The defendants were not always successful in their speculation. They incurred losses for at least 20% of the switches (the plaintiff contests this figure and argues that the defendants only incurred losses for 10–13% of the switches). In any event, the investments were giving the defendants good returns. So confident was Lim that he was doing something right that he even borrowed money from friends, relatives and banks to invest more money in the ILPs. Throughout all this, Lim and the other defendants had made partial withdrawals from their respective policies without a hitch.

[7] Sometime in June 2007, the first defendant who was the plaintiff’s Financial Services Consultant, was queried by his superior on the frequency of the fund switches. He explained that Lim and he had decided to switch funds after analysing the markets. Nothing happened after these interviews and the plaintiff continued to carry out the defendants’ instructions to switch funds. The first defendant was queried again on the same matter in May 2008 by a member of the plaintiff’s Compliance Department and he gave the same reply. Again, the plaintiff continued to carry out the defendants’ instructions to fund switch.

[8] The situation, however, changed three months later. On 8 August 2008, when Lim applied to partially withdraw a sum of $495,420 from the proceeds of one of his policies (Policy No U023615744), the plaintiff refused to allow the withdrawal. The plaintiff would later, in defending this application, justify its refusal on the basis of the following contractual provision:

[9] At the time, however, the plaintiff’s response to Lim in a letter dated 18 August 2008 was as follows:

In the same way, other attempts by the first, second and fifth defendants to partially withdraw their policies were also refused:

(a) On 12 August 2008, the first defendant sought full withdrawal of his policy (Policy No U023615760) worth $348,771.31;

(b) On the same day, 12 August 2008, the second defendant surrendered one of her policies (Policy No U024153344) worth $250,560 and sought partial withdrawal of a sum of $463,576.82 from another (Policy No U024057411); and

(c) The fifth defendant surrendered his policy (No U090196322) worth $20,770.52 on 29 August 2008.

Upset with the plaintiff’s response, Lim wrote a letter in reply dated 22 August 2008 expressing his displeasure with the plaintiff’s lack of transparency and accountability.

[10] The defendants’ applications made from 25 to 29 August 2008 to fund switch were also refused. No reason was given for the refusal. The defendants were very concerned with the state of affairs. With their moneys locked up in these investments, the defendants were facing potentially financial hardship: the fourth defendant, for instance, had tied up a large portion of her retirement funds in the ILPs; and Lim was unable to repay the bank loans he had taken and faced the prospect of bankruptcy proceedings being initiated against him. In these circumstances, Lim sought the help of the defendants’ solicitors who wrote to the plaintiff on 3 September 2008 demanding payment of the partial withdrawal he had sought. In their letter of reply dated 8 September 2008, the plaintiff’s solicitors requested that Lim’s solicitors hold their hands while they took instructions and they promised to reply by the close of business on 15 September 2008.

[11] When the plaintiff did not respond by that date, the defendants’ solicitors wrote to the plaintiff on 18 September 2008 stating that they would proceed with legal action if the plaintiff did not reply by 19 September 2008. To their amazement, the defendants received a letter dated 9 September 2008 from the plaintiff with the shocking news that a Writ of Summons indorsed with a Statement of Claim had been filed against them that very same day. The plaintiff brought a whole host of claims against the defendants comprising:

(a) A claim that the defendants had been unjustly enriched by $17,700,223.27 having exploited the plaintiff’s mistake in determining the Bid Prices for the fund switches;

(b) A claim exploiting the plaintiff’s mistake in determining the Bid Prices for the fund switches and knowingly causing and/or causing a loss to the other policyholders of about $11,040,000;

(c) A declaration that the defendants are liable as constructive trustees for the loss and damage caused to the other policyholders of the plaintiff;

(d) A claim against the defendants for the tort of conspiracy;

(e) A claim against the first and second defendants for breach of their fiduciary duties and contracts as agents of the plaintiff;

(f) A claim seeking an account and inquiry to trace and recover the proceeds;

(g) A claim seeking recovery of the sums of $239,945.50 and $189,490.93 previously paid out to the second and fourth defendants respectively; and

(h) A claim seeking an indemnity from the defendants for liability incurred by the plaintiff to the other policyholders.

[12] As would later emerge, the basis of these claims rested on the simple allegation: that the plaintiff had made a mistake in valuing the funds by using one day old Bid Prices (contrary to the express terms of the contract between the parties) to effect the fund switches and that this had led to the defendants being given a larger share of the funds than that to which they were entitled. Martin Knight (“Knight”), the plaintiff’s vice president of the Actuary Department, in his affidavit filed on 21 November 2008 (at [8.1], [16], [17], [19] and [27] to [29]) explained how the plaintiff’s alleged mistake led to the defendants making “surreal” profits:

[13] This explanation by Knight was, however, only made known later when he filed his affidavit. At the time of receipt of the letter dated 19 September 2008, the defendants did not know fully the nature or basis of the claims brought against them. Apart from notifying the defendants of the claims, the plaintiff’s lawyers also stated in the same letter that:

[14] Although disappointed with the plaintiff’s response, the defendants were comforted by the assurance that the value of their policies would be preserved given the volatile financial market conditions. Any such comfort was, however, short-lived. By 2 October 2008, Lim noticed that the defendants’ funds in their ILPs were still being actively traded. The defendants thus sent yet another letter on the same day, 2 October 2008, to request that the funds be put aside in an escrow account to be held jointly by both parties’ solicitors as stakeholders. There was no reply. By 9 October 2008, with the collapse of Lehman Brothers Holdings Inc and the consequent devastation in the financial markets, the total value of the defendants’ investments in the ILPs had plunged to S$11,360,834.24 – a loss of approximately $5m from the S$16,148,985.91 it was worth on 19 September 2008 on which day the defendants had received the plaintiff’s assurance that the latter would be taking steps to ensure that the moneys in dispute were held in escrow. It did not help that, at the time, public confidence was shaken as to the plaintiff’s financial viability. These circumstances led to the defendants taking out Sum 4476 in which they applied for the court to order that the moneys in dispute be held in escrow. As explained earlier (at [1] above), this application was resolved by the parties reaching a “without prejudice” agreement to place the proceeds in a joint stakeholder’s account pending resolution of the main suit, Suit No 670 of 2008.

[15] The defendants also took out Sum 4743 praying, inter alia, that the court order that:

The interim payment was sought to alleviate the financial hardship the defendants were facing which, amongst other consequences, threatened to cripple their ability to conduct the litigation.

[16] The defendants sought the interim payment on the basis of the court’s inherent jurisdiction. However, recourse to the court’s inherent jurisdiction is inappropriate, save in the most exceptional cases, where there is an existing rule (whether by way of statute or subsidiary legislation or rules of court) already covering the situation at hand (see Wellmix Organics (International) Pte Ltd v Lau Yu Man [2006] 2 SLR 117 at [81]). There are statutory provisions and rules of court relating to interim payments. Section 18 of the Supreme Court of Judicature Act (Cap 322, 2007 Rev Ed) (“SCJA”) reads as follows:

[17] The relevant part of the First Schedule to which s 18(2) of the SCJA refers reads as follows:

[18] Section 18(3) of the SCJA, however, states that such a power shall be exercised in accordance with the Rules of Court (Cap 322, R 5, 2006 Rev Ed). The relevant rules, O 29 rr 10, 11 and 12 read as follows:

[19] The application before me fell within the ambit of O 29 r 12. Consequently, the issue raised for my consideration was whether I had the power under O 29 r 12 to order the interim payment and whether I ought to exercise my discretion to do so.

[20] The law on interim payments was well summarised by Neill LJ in Schott Kem Ltd v Bentley [1991] 1 QB 61 at 71, after a survey of the authorities, as follows:

[21] Thus, in reading O 29 r 12 (and O 29 r 11 for that matter), there are two stages to the court’s decision to grant an order for interim payment. First, the court must be satisfied that one of the grounds stated in the sub-paragraphs is established. With regard to r 12(c), the court must be satisfied that the applicant would obtain judgment for a substantial sum of money. If the strength of the defence is such that the court would only grant conditional leave to defend if the application was one for summary judgment, the court could still be satisfied that the applicant would obtain judgment for a substantial sum of money (British and Commonwealth Holdings Plc v Quadrex Holdings Inc [1989] QB 842 at 866). If the court is so satisfied, it has the power to grant an order for interim payment. The court then moves on to consider, at the second stage, whether it ought to exercise its discretion to do so and to determine the quantum of such payment.

[22] There are different considerations at both stages and the implications of these considerations on the decision to grant an interim payment is significant. In Shanning International Ltd v George Wimpey International Ltd [1989] 1 WLR 981 (“Shanning”), the English Court of Appeal was faced with a case in which the plaintiff was a subcontractor to the defendant who had secured the main contract for the construction of a hospital in Oman. A dispute having arisen between the parties, the plaintiff issued a writ against the defendant and subsequently applied for summary judgment under O 14 of the English Rules of Court or, alternatively, for an interim payment under O 29. The defendant, in an affidavit, admitted liability for £904,000 of the £969,000 claimed by the plaintiff but sought to set off that sum against an alleged counterclaim of £3,476,000 which would wholly extinguish the plaintiff's claim. The lower court refused summary judgment on the basis that there were counterclaims which qualified as set-offs on which the defendant could rely but ordered the defendant to make an interim payment of £350,000. He held that the effect of O 29 r 12(c) required the court to consider first, whether the plaintiff had a prima facie right to a judgment for a substantial sum of money and then secondly, whether that right was modified by any set-off claimed by the defendant.

[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):

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]).

[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:

[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:

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.

[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:

[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.

[30] With respect to Glidewell LJ, I am of the view that this conclusion may be premised on too simplistic a reading of the word “judgment” in r 12(c). In a suit where the respondent’s independent cross-claim is for a larger sum than that claimed by the applicant, assuming both succeed in their claims, the former will be able to execute the judgment it obtains for the balance. This, however, does not mean that the applicant failed to obtain judgment for his claim. This is well explained by the learned author of S R Derham, The Law of Set-Off (Oxford University Press, 3rd Ed, 2003) at [1.04]:

Therefore, both the respondent’s independent cross-claim and the applicant’s claim could succeed with the result that both parties obtain judgment. It is only in the execution that the party with the larger claim receives the balance. (This stands in juxtaposition to a case where a cross-claim for a larger sum qualified also as a set-off thus having the effect of extinguishing the other party’s claim with the result that only one judgment is entered in favour of the party bringing the cross-claim.) Therefore, there is nothing to preclude an applicant from obtaining judgment within the meaning of r 12(c) even though he has to defend an independent cross-claim for a larger amount. Only if the cross-claim also qualified as a set-off would he be precluded from obtaining judgment. Therefore, while it could be said that it was implicit in the wording of r 12(c) for set-offs to be considered, this is not the case for independent cross-claims.

[31] In so interpreting r 12(c), I have to account for the wording which comes after r 12(c) (which I shall refer to as “the proviso”). Having concluded that set-offs but not independent cross-claims have to be considered at the first stage, the presence of the word “set-off” in the proviso may be deemed superfluous. This may be so. However, the following would be the best way to read of r 12(c) harmoniously with the proviso: whereas the requirement to consider set-offs is implicit by virtue of the terms “would obtain judgment” (since no judgment can be obtained if the set-off exceeds the applicant’s claim), the requirement to consider independent cross-claims would not be implicit in the use of those words (since judgment could still be obtained by the applicant even if the respondent succeeds in its independent cross-claim for a larger sum).

[32] The implication of the differing interpretations (mine and that in Shanning) is this. Under my interpretation, at the first stage, in determining whether the applicant would obtain judgment for a substantial sum of money, notwithstanding the respondent’s independent cross-claims (regardless of their strength), if the court is satisfied that the applicant would obtain judgment for his claim and that this would amount to a substantial sum of money, it may in its discretion order interim payment. Under the interpretation in Shanning, this is not possible. If the respondent has an arguable case in respect of its independent cross-claims and these cross-claims are for an amount which exceeds the applicant’s claim, the court has no discretion to order interim payment. Thus, the Shanning interpretation in effect institutes an impediment to the exercise of the court’s power to order interim payments whereas my interpretation does not and instead leaves the matter of the respondent’s independent cross-claims as a factor to be considered at the second stage in the court’s exercise of its discretion to grant an interim payment. The implication of my interpretation is that if the respondent has a strong case with regard to the cross-claims, the court may very well be reluctant to exercise its discretion in favour of the applicant but it is not prevented from doing so.

[33] The court’s power to order interim payments to be made is framed widely in the First Schedule of the SCJA. It is nevertheless circumscribed by the Rules of Court by virtue of s 18(3) of the SCJA but no further. While the Shanning interpretation has been incorporated into Rule 25.7 of the English Civil Procedure Rules (c 12), there has been no similar amendment to Singapore’s O 29 r 12. Therefore, I do not think it proper to further curtail the powers of the court by reading in a restriction which is not found in the clear wording of the rules. Neither are the interests of justice better served by reading in such a restriction. Leaving the matter of independent cross-claims as a factor for the court to consider in the exercise of its discretion would also better serve the objective of interim payments. It is well accepted that the purpose of allowing interim payments is “to mitigate hardship or prejudice to [the applicant] which may exist during the period from the commencement of an action to the trial” (per Nicholls LJ in Shearson Lehman Brothers Inc v Maclaine, Watson & Co Ltd [1987] 1 WLR 480 at 492; see also the dictum of Ralph Gibson LJ in Ricci Burns Ltd v Toole [1989] 1 WLR 993 at 1002).

[34] It may be that the respondent has an arguable case with regard to its independent cross-claim but the court ought still to retain the discretion to order an interim payment to be made in circumstances where great hardship would befall the applicant if the payment was not made – such as, in this case, where the interim payment is necessary for the applicant to properly conduct the litigation and to defend the cross-claim. There could be myriad situations in which the interim payment would be warranted notwithstanding that the respondent has an arguable case with regard to its independent cross-claim. For justice to be done, the approach must be on a case by case basis, something the Shanning interpretation leaves little room for.

[35] The defendants prayed for interim payment of $1,579,098.65 being the sums sought by the defendants through their request for partial withdrawal and/or full surrender of their ILPs or alternatively $1,059,300 being the defendants’ capital invested with the plaintiff. I ordered interim payment of the latter sum less $40,000 which was the amount of capital which had earlier been withdrawn.

[36] At the first stage of the process in deciding whether to grant the order for interim payment, I had to be satisfied that the defendants would obtain judgment for a substantial sum of money. On the terms of the contract, while the plaintiff may rely on the clause (quoted above at [8]) which gives them the right to suspend the partial withdrawal facility, there is no such right with regard to full surrender of policies. For policy surrenders, the following clause governs:

[37] There is nothing in this clause or the aforementioned clause (quoted above at [8]) which gives the plaintiff the right to resist a full surrender of the policy. This makes perfect sense for otherwise it would be at the plaintiff’s complete discretion to simply choose never to repay policyholders even after they have surrendered their policies.

[38] In this regard, barring the question of set-offs, there is no defence to the defendants’ requiring full recovery of the proceeds of their ILPs, which amount to $10,323,621.71, now held in escrow in the joint names of the parties’ solicitors. I turn now to consider the issue of set-offs.

[39] The plaintiff has brought a whole host of claims (set out above in [11]). It is an impressive list of claims of which that for unjust enrichment may be regarded as a set-off against the defendants’ claim for the proceeds of their ILPs. Bearing in mind the test for equitable set-offs expounded by Menon JC in Abdul Salam and Lord Denning’s test endorsed in Pacific Rim Investments, it could be said that the claim for unjust enrichment is so closely-connected to a part of the defendants’ claim for the proceeds of their ILPs that it would be unjust for the latter to succeed on their claim without taking into account the plaintiff’s claim.

[40] I emphasised that there was only a close-connection between the claim for unjust enrichment and a part of the defendants’ claim for the proceeds of their ILPs. This is so because it is critical to note that the claim for unjust enrichment would only impeach the defendants’ claim for the proceeds of their ILPs in so far as the proceeds constituted an alleged unjust enrichment. In this regard, it could not be sensibly argued that the defendants were unjustly enriched by the capital which they had invested with the plaintiffs. As for the claims (b) to (d) in [11] above which revolve around causing loss to the plaintiff in the sense that it had incurred liabilities to the other policyholders, the basis of the alleged loss lies in the allegation that the defendants had taken advantage of the plaintiff’s mistake in determining the Bid Price and had thus made false gains to the detriment of the other policyholders. In short, the other policyholders’ loss is the defendants’ false gain. On this basis, I would still draw the distinction between the defendants’ capital and the alleged false gains. These claims would only go directly to impeach the defendants’ demands for the proceeds of their ILPs in so far as the proceeds represented the false gains. I would thus conclude, again, that these claims could only constitute set-offs with regard to the proceeds of the defendants’ ILPs in excess of the capital they had invested (ie, the alleged false gains). I did not think that these claims could impeach the defendants’ demand for return of their capital.

[41] In the vast majority of situations in which a cross-claim qualifies as a set-off, it is used to set-off the entire claim. In this regard, I acknowledge that my view of the plaintiff’s claim as a set-off against part only of the defendants’ claim may at first blush seem fairly novel. It is, however, a natural consequence of the basis for characterising a cross-claim as a set-off. The cross-claim is regarded as a set-off only where it impeaches the applicant’s demand, that is, where it is so closely connected with its demands that it would be manifestly unjust to allow it to enforce payment without taking into account the cross-claim. Where there is a lack of such a connection, the cross-claim does not qualify as a set-off. What then if the cross-claim is closely connected with only part of the demand? While the defendants’ claim rests on the single ground that it is their contractual right to recover the proceeds of the ILPs, the plaintiff’s cross-claim’s connection with the defendants’ claim lies not in the basis of the latter’s claim but in the nature or character of the proceeds sought to be claimed. There is, in a sense, an asymmetry in the claims in that the plaintiff’s cross-claim is closely connected only with part of the defendants’ claim – that is, the claim for the proceeds of the ILPs in so far as the proceeds are in excess of the capital (ie, the gains arising from the fund switching).

[42] In my view, the doctrine of equitable set-off, as a remedy in equity, is not a blunt tool but an instrument of precision to meet the ends of justice. While it may be unjust to allow the defendants to claim the proceeds in excess of their capital without regard to the plaintiff’s cross-claims which are premised on unjust enrichment and/or the alleged false gains, it would not be unjust to allow the defendants to claim their capital. Consequently, while the plaintiff’s claims may qualify as a set-off against the defendant’s claim for the proceeds of the ILPs in excess of their capital, in my view, it cannot qualify as a set-off against the defendants’ claim for the proceeds of the ILPs in so far as the proceeds represent their capital.

[43] The plaintiff calculated that, using what they contend ought to have been the “proper” Bid Prices, the defendants’ capital would have been reduced to $566,604 by 22 October 2008. On that basis, they argued that the defendants should only be able to recover this amount as their capital. This argument, however, is untenable because it assumes that the defendants would have continued fund switching even if the “proper” Bid Prices were used. This is an unwarranted assumption because the defendants may not have continued to fund switch, they may have continued to fund switch in the same way, or in other ways garnering them even more profits or causing them to make further losses. It could also be argued that the defendants would not have even invested as much as they did if the “proper” Bid Prices were used. We will never know. It is pure speculation to argue that the defendants’ capital would have been diminished to $566,604 had the “proper” Bid Prices been applied. I was therefore prepared to regard the defendants’ capital as that which they had invested initially.

[44] I shall not go through the other claims. Suffice it to say that I did not think that the other claims were so closely connected to the defendant’s claim for the proceeds of their ILPs representing the capital they had invested.

[45] In these circumstances, at the first stage of the analysis, I was satisfied that the defendants would have obtained judgment for the proceeds of the ILPs in so far as the proceeds represented the capital they had invested and that this would have amounted to a substantial amount of money. Before I turn to the second stage of the analysis, I must express the view that even if I was wrong to disagree with the Shanning interpretation, I would still have come to the same conclusion after taking into account all of the plaintiff’s claims at the first stage. This is so because I was satisfied on a balance of probabilities that the plaintiff would have obtained judgment for the proceeds of their ILPs even taking into account the plaintiff’s claims. While the plaintiff has an impressive list of claims (set out above at [11]), the issue at the heart of the matter is a simple one. It is this: did the plaintiff really make a mistake in calculating the Bid Price for the fund switch transactions?

[46] If the plaintiff’s calculation of the Bid Price in the past fund switching transactions by the defendants was in accordance with the terms of the contract between the parties, then there would be no mistake and, accordingly, the plaintiff would have no claim. It is thus appropriate to set out the relevant contractual provisions:

Fund Switches shall be made on the relevant Valuation Day.

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[47] The foregoing provisions suggest that the Bid Price for the fund switching transactions is the Bid Price which is prevailing on the “Valuation Day”. “Valuation Day” is defined as follows:

Thus, the term “Valuation Day” refers to every business day. If the application for a fund switch is received before 2pm (Singapore time) on a particular day, that day is regarded as the “Valuation Day”. If the application is received after 2pm (Singapore time) on a particular day, the next business day would be regarded as the “Valuation Day”.

[48] From the foregoing thus far, it appears that the plaintiff is right to say that the Bid Price ought to be that prevailing on the Valuation Day. This begs the question, however, of what the “prevailing” Bid Price is. Counsel for the plaintiff placed much emphasis on the fact that the valuation was described as being on a forward pricing basis (in the clause quoted above at [46]). There is, however, no magic to this description. This is so in light of the fact that there are specific provisions which set out the method by which one could calculate the prevailing Bid Price on a particular Valuation Day. These provisions are as follows:

[49] The prevailing Bid Price on a particular Valuation Day shall thus not be less than the Fund Value divided by the number of Units held in the Fund on the day before the Valuation Day. The following clause provides for how the Fund Value should be calculated:

[50] The provisions clearly state that the Fund Value is based on the value of the assets on the business day immediately preceding the Valuation Day (less the liabilities of the fund on the business day immediately preceding the Valuation Day and the management fee or the appropriate equivalent charge). Therefore, Knight’s view of the method by which the Bid Price is to be calculated is wrong. His explanation (quoted above at [12] and repeated here) is as follows:

[51] There are two errors in Knight’s method in calculating the Bid Price. First, in accordance with the clause quoted above at [48], the Bid Price on Wednesday is calculated by the Fund Value on Wednesday divided by the total number of Units in the Fund “on the day before the Valuation Day”. This would be Tuesday and not Wednesday. Second, in accordance with the clause quoted above at [49], to calculate the Fund Value on the Wednesday, one would have to use the value of all the assets in the fund “on the business day immediately preceding” the Valuation Day. This would also be Tuesday and not Wednesday. In summary, the proper method of calculating the Bid Price (if a Fund Switch application is received by the plaintiff before 2pm on Wednesday) is as follows:

(a) Valuation Day = Wednesday (see explanation above at [47]).

(b) Bid Price on Wednesday = Fund Value on Wednesday divided by the total number of Units in the Fund on the day before Valuation Day. This would be a Tuesday (see clause quoted above at [48]).

(c) Fund Value on Wednesday = Value of assets in the Fund on the business day immediately preceding the Valuation Day (day preceding Wednesday: Tuesday) less liabilities of the Fund on the business day immediately preceding the Valuation Day (day preceding Wednesday: Tuesday) less any applicable proportionate management fees (see clause quoted above at [49]).

[52] Therefore, I conclude that it was not a mistake to apply “one-day old” prices to the fund switching transactions: it was in accordance with the contractual provisions. Quite apart from the question of contractual interpretation, I note also that the plaintiff had been using “one-day old” prices since the inception of the Investment Linked Policies and for fund switches made by other policyholders as well, a fact which counsel for the plaintiff conceded.

[53] Turning back to the contract, even if it were not clear from the contractual provisions that the Bid Prices which had been applied in the past transactions was correct, the provisions would at the least have to be regarded as being ambiguous with the result that the contra proferentum rule would apply against the plaintiff. After all, this was a standard form contract drafted by the plaintiff and entered into with the defendants who had no say in varying the foregoing terms. In the final analysis, it would appear that the plaintiff had not made a mistake in using “one-day old” prices – the use of these prices was in accordance with the contract. Accordingly, the plaintiff has no claim. If this were an application for summary judgment, I would have, at the most, granted the plaintiff conditional leave to defend. Therefore, even under the Shanning interpretation, I would have been satisfied that the defendants would succeed in obtaining judgment for a substantial amount. I thus had the power to order the plaintiff to make interim payment to the defendants. I turn now to consider whether, in the exercise of my discretion, I ought to do so and, if so, the quantum of such payment.

[54] Given the broad wording of the proviso which governs the second stage of the analysis, the court has a wide discretion in deciding whether to exercise its power to grant an interim payment. It must be remembered that the objective of interim payments is to mitigate the hardship to the applicant which may exist during the period from the commencement of an action to the trial. Indeed, the circumstances call for the grant of such payment to alleviate the hardship which the defendants are facing.

[55] Given the size of the loans which the defendants took to finance their investments, and the defendants having exhausted all their means to properly service the loans, the defendants face a very real risk of bankruptcy proceedings being initiated against them which would cripple their ability to pursue their rights in these proceedings. This is especially so for Lim who, in his affidavit filed on 12 January 2009 at [22] to [29], has detailed the ramifications of having his investments locked up. He faces the risk of being made a bankrupt, and he has had difficulty in finding a job again as a full-time teacher due to his financial situation. In the meantime, he has had to take up an adjunct teaching position for which he gets much lower pay. He also does not have any staff welfare benefits and misses out on regular increments or prospects of progressing in his career.

[56] These factors, especially the fact that if the defendants are deprived of the interim payment sought, they would be severely prejudiced and handicapped in their ability to advance their case, weigh heavily in favour of granting the order for interim payment.

[57] While under O 29 r 11, the award may not exceed a reasonable proportion of the damages which are likely to be recovered after taking into account contributory negligence, any set-off, cross-claim or counterclaim, there is no such limitation on O 29 r 12. The court is only called upon to take into account any set-off, cross-claim or counterclaim. So while I was free to order an interim payment for the entire proceeds of the ILPs, I chose not to in light of the cross-claims notwithstanding that these claims were, in my view, very weak. I thus saw fit to order interim payment of the capital invested by the defendants with the plaintiff.

[58] In light of the fact that I was only prepared to order interim payment of the capital invested by the defendants (for the foregoing reasons), I chose to grant the applicant’s alternative prayer for such payment and not payment of the $1,579,098.65 which consists partly of profits and partly of capital.