Ethoz Capital Ltd v Im8ex Pte Ltd: Penalty Clauses, Misrepresentation & Mortgage Redemption

In Ethoz Capital Ltd v Im8ex Pte Ltd, the High Court of Singapore addressed a dispute arising from a loan agreement between Ethoz Capital Ltd (Plaintiff) and Im8ex Pte Ltd (Defendant), along with guarantors Chua Soo Liang and Tan Meng Kim (Respondents). The Plaintiff sought possession of mortgaged properties and claimed outstanding loan amounts, including future interest and default interest. The court, presided over by Justice Andre Maniam, found clauses related to future interest and default interest to be unenforceable penalties and ruled that the Plaintiff had misrepresented the terms of the loan to the Defendant. The court allowed the Defendant to redeem the mortgaged properties by paying the outstanding loan amount with contractual interest up to the redemption date, setting aside the judgment at first instance.

1. Case Overview

1.1 Court

General Division of the High Court

1.2 Outcome

Judgment for the Respondents; judgment at first instance set aside; Respondents allowed to redeem the Facilities and the mortgaged properties.

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

Ethoz Capital Ltd sues Im8ex Pte Ltd for loan default. Court finds penalty clauses, misrepresentation, allows mortgage redemption.

1.7 Decision Date

20 January 2022

2. Parties and Outcomes

Party Name	Role	Type	Outcome	Outcome Type	Counsels
Ethoz Capital Ltd	Applicant	Corporation	Judgment at first instance set aside	Lost	Adrian Wong, Ang Leong Hao, Timothy Ng
Im8ex Pte Ltd	Respondent	Corporation	Allowed to redeem the Facilities and the mortgaged properties	Won	Ranvir Kumar Singh
Chua Soo Liang	Respondent	Individual	Allowed to redeem the Facilities and the mortgaged properties	Won	Ranvir Kumar Singh
Tan Meng Kim	Respondent	Individual	Allowed to redeem the Facilities and the mortgaged properties	Won

3. Judges

Judge Name	Title	Delivered Judgment
Andre Maniam	Judge of the High Court	Yes

4. Counsels

Counsel Name	Organization
Adrian Wong	Rajah & Tann Singapore LLP
Ang Leong Hao	Rajah & Tann Singapore LLP
Timothy Ng	Rajah & Tann Singapore LLP
Ranvir Kumar Singh	UniLegal LLC

4. Facts

Ethoz granted four 15-year term loans to Im8ex, secured by mortgages over four properties.
The Facilities refinanced Prior Facilities granted by Ethoz to Im8ex for the same total principal sum of $6.3 million.
Ethoz represented to Im8ex that the Facilities were on better terms than the Prior Facilities, including a lower interest rate.
The Facilities had a default interest rate of 0.065% per day, compounded monthly, equivalent to an effective rate of 26.08% per annum.
Im8ex defaulted in payment within the first year of the 15-year term.
Ethoz sought immediate payment of the balance of the Advance and Total Interest, relying on clauses in the Facility Agreements.
The Prior Facilities had a lower default interest rate of 0.0273% per day ≈ 10.28% per annum.

5. Formal Citations

Ethoz Capital Ltd v Im8ex Pte Ltd and others, Originating Summons No 30 of 2021 (Registrar’s Appeal No 112 of 2021), [2022] SGHC 12

6. Timeline

Date	Event
2021-01-01	Originating Summons No 30 of 2021 filed
2021-06-29	First hearing before Andre Maniam J
2021-08-13	Hearing of registrar’s appeal before Andre Maniam J
2021-10-22	Adjourned hearing before Andre Maniam J
2022-01-21	Judgment delivered by Andre Maniam J

7. Legal Issues

Penalty Clauses
- Outcome: The court found the clauses which purported to accelerate payment of Total Interest upon default, and the default interest rate of 0.065% per day ≈ 26.08% per annum, to be unenforceable penalties.
- Category: Substantive
- Sub-Issues:
  - Extravagant and unconscionable amount
  - Not a genuine pre-estimate of loss
  - Single lump sum payable on various events
  - Acceleration of future interest
- Related Cases:
  - [1999] 1 SLR(R) 755
  - [2021] 1 SLR 631
  - [1915] AC 79
Misrepresentation
- Outcome: The court found that Ethoz had misrepresented to Im8ex that the Facilities were on better terms than the Prior Facilities, and that Im8ex was induced by these misrepresentations into taking up the Facilities.
- Category: Substantive
- Sub-Issues:
  - False representation of lower interest rate
  - Worse prepayment regime
  - Worse consequences of default
- Related Cases:
  - [2018] 2 SLR 110
  - [1951] 1 KB 805
  - [1993] 2 FLR 97
Equity of Redemption
- Outcome: The court allowed Im8ex to redeem the Facilities and the mortgaged properties by paying the Advance and loan interest at the contractual rate of 3.75% flat per annum for the period prior to redemption.
- Category: Substantive
- Sub-Issues:
  - Right to redeem mortgaged properties
  - Prepayment after default
- Related Cases:
  - [1995] 2 SLR(R) 643

8. Remedies Sought

Possession of Mortgaged Properties
Monetary Judgment for Outstanding Loan Amounts
Default Interest

9. Cause of Actions

Breach of Contract
Enforcement of Mortgage
Recovery of Debt

10. Practice Areas

Commercial Litigation
Banking and Finance
Mortgages
Contract Disputes

11. Industries

Finance
Real Estate

12. Cited Cases

Case Name	Court	Affirmed	Citation	Jurisdiction	Significance
Hong Leong Finance Ltd v Tan Gin Huay and another	High Court	Yes	[1998] SGHC 318	Singapore	Cited for the initial High Court decision regarding default interest and possession of the hawker stall.
Hong Leong Finance Ltd v Tan Gin Huay and another	Court of Appeal	Yes	[1999] 1 SLR(R) 755	Singapore	Cited as the key precedent for determining that the default interest rate of 18% per annum was a penalty.
Ethoz Capital Ltd v T-Pacific Pte Ltd and others	High Court	Yes	HC/RA 350/2019, HC/OS 938/2019 (1 April 2020)	Singapore	Cited as a previous case involving similar loan terms with Ethoz, but the court declined to follow it insofar as it decided that Ethoz was entitled to immediate payment of interest for the whole term of the loan upon default.
Ethoz Capital Ltd v Thistle Energy Pte Ltd and another	High Court	Yes	HC/RA 118/2021, HC/OS 1127/2020 (10 August 2021)	Singapore	Cited as another case involving Ethoz, but the court did not derive any assistance from it in the analysis of the default interest rate.
The Angelic Star	English Court of Appeal	Yes	[1988] 1 Lloyd’s Rep 122	England and Wales	Cited for the principle that an acceleration clause should not include interest for the unexpired balance of the original period of credit, as it would constitute a penalty.
ZCCM Investments Holdings plc v Konkola Copper Mines plc	English High Court	Yes	[2017] EWHC 3288 (Comm)	England and Wales	Cited for applying the principle in The Angelic Star to the acceleration of instalment payments under a Settlement Agreement.
Wallingford v Mutual Society	House of Lords	Yes	(1880) 5 App Cas 685	United Kingdom	Cited by Ethoz as an analogy, but distinguished by the court because in that case, the borrower was obliged to pay the repayment amount that he had bid in all circumstances, whereas in the present case, Ethoz was not entitled to Total Interest in all circumstances.
Denka Advantech Pte Ltd and another v Seraya Energy Pte Ltd and another and other appeals	Court of Appeal	Yes	[2021] 1 SLR 631	Singapore	Cited for affirming the applicability of the principles in Dunlop and reviewing the application of those principles.
Dunlop Pneumatic Tyre Co, Ltd v New Garage and Motor Co, Ltd	House of Lords	Yes	[1915] AC 79	United Kingdom	Cited for the principles used to determine whether a clause is a penalty.
CLAAS Medical Centre Pte Ltd v Ng Boon Ching	Court of Appeal	Yes	[2010] 2 SLR 386	Singapore	Cited for the principle that the burden rests on the defendant to show that a provision is a penalty.
CIFG Special Assets Capital I Ltd v Polimet Pte Ltd and others	High Court	Yes	[2017] SGHC 22	Singapore	Cited by Ethoz, but distinguished by the court because there was unchallenged evidence that private equity funds typically target an internal rate of return of between 20% and 25% per annum.
Broadley Construction Pte Ltd v Alacran Design Pte Ltd	Court of Appeal	Yes	[2018] 2 SLR 110	Singapore	Cited by Ethoz, but distinguished by the court because the present case is one where the misrepresentations were about the effect and contents of the contractual documents.
Curtis v Chemical Cleaning and Dyeing Co	English Court of Appeal	Yes	[1951] 1 KB 805	England and Wales	Cited as an example of a case where the misrepresentations were about the effect and contents of the contractual documents.
Lloyds Bank plc v Waterhouse	English Court of Appeal	Yes	[1993] 2 FLR 97	England and Wales	Cited as another example of a case where the misrepresentations were about the effect and contents of the contractual documents.
Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd	England and Wales Court of Appeal	Yes	[2006] 2 Lloyd’s Rep 511	England and Wales	Cited for the proposition that a plaintiff would not ordinarily be held to be induced by a misrepresentation if the express contractual terms contradict or correct the defendant’s misrepresentation.
Wen Wen Food Trading Pte Ltd v Food Republic Pte Ltd	High Court	Yes	[2019] SGHC 60	Singapore	Cited by the AR, but distinguished by the court because it was not contended that the defendant had misrepresented the effect and contents of the Licence Agreement.
Jin Ling Enterprise Pte Ltd v E C Prime Pte Ltd	High Court	Yes	[2019] SGHC 209	Singapore	Cited by the AR, but distinguished by the court because it was not asserted that there was a misrepresentation as to the effect and contents of the contractual document.
Ma Hongjin v Sim Eng Tong	High Court	Yes	[2021] SGHC 84	Singapore	Cited for the court's express note that no representation as to the contents or effect of the contractual document was alleged.
Pacific Rim Investments Pte Ltd v Lam Seng Tiong and another	High Court	Yes	[1995] 2 SLR(R) 643	Singapore	Cited for the principle that in appropriate cases, the court has the jurisdiction to grant relief against the forfeiture of an interest in land.

13. Applicable Rules

Rule Name
O 56A r 16 of the Rules of Court (2014 Rev Ed)

14. Applicable Statutes

Statute Name	Jurisdiction
Rules of Court (2014 Rev Ed)	Singapore

15. Key Terms and Keywords

15.1 Key Terms

Facilities
Prior Facilities
Total Interest
Advance
Default Interest
Prepayment
Redemption
Mortgage
Penalty
Misrepresentation

15.2 Keywords

mortgage
loan
penalty clause
misrepresentation
redemption
default interest
Singapore

16. Subjects

Contract Law
Banking Law
Mortgages
Civil Procedure

17. Areas of Law

Contract Law
Credit and Security
Mortgage of real property
Equity of redemption
Singapore Civil Procedure
Penalty Clauses
Misrepresentation