Restitution

• Date: 01 December 2002
• Published date: 01 December 2002
• Author: YEO TIONG MIN LLB (NUS), BCL, DPhil (Oxon), Advocate & Solicitor (Singapore) Associate Professor, Faculty of Law, National University of Singapore

Introduction

19.1 The year 2002 has seen a small but significant number of cases related to the law of restitution. The most significant development was undoubtedly a decision of the Court of Appeal which, noting significant developments in other Commonwealth jurisdictions, accepted mistake of law as a basis of a claim to recover mistaken payments. Following closely on the heels of this decision was an important decision of the High Court applying the law laid down by the Court of Appeal, while noting the limits to such a claim. Other important developments relate to clarifications on the operation of the change of position defence, and a nascent judicial discretion to vary the legal consequences of a transaction affected by illegality.

Management Corporation Strata Title No 473 v De Beers Jewellery Pte Ltd

Mistake of law

19.2 While it has been long established that payments made under a mistake of fact could be recovered in a claim in restitution, the position with respect to payments made under a mistake of law has been much more controversial. While some early cases have allowed recovery for payments made under mistakes of law, Bilbie v Lumley(1802) 2 East 469; 102 ER 448 has often been cited as authority against such recovery. Judicial and legislative developments in other countries had prompted the Singapore Academy of Law”s Law Reform Committee to recommend the abolition of this common law rule (see Paper on Reforms to the Law of Restitution on Mistakes of Law (9 April 2001), available on LawNet”s “Free Resources and References” at http://www.lawnet.com.sg/freeaccess/lrcr/LRC_Mistake_Report_(Full).pdf). The Court of Appeal has, however, pre-empted legislative initiative in this matter, in the very important decision of Management Corporation Strata Title No 473 v De Beers Jewellery Pte Ltd[2002] 2 SLR 1.

19.3 The decision of the High Court, reported in [2001] 4 SLR 90, has been noted in last year”s review (Tan and Tang, “Equity, Trust and Restitution”(2001) 2 SAL Ann Rev 198 at paras 12.34—12.53; Phang, “Contract Law”(2001) 2 SAL Ann Rev 118 at paras 9.48—9.49; and Teo, “Land Law”(2001) 2 SAL Ann Rev 317 at paras 17.35—17.42). Stated briefly, the facts were these. De Beers

had applied to the Management Corporation (“MCST”) for permission to subdivide their four penthouses in the building managed by the MCST. The MCST imposed a number of requirements on De Beers, including a contribution of $200,000 to renovate the lift system (as the subdivision contemplated increased usage of the lifts) and a lump sum payment of $170,000 for increased maintenance costs (as the subdivision would create additional common property). The MCST sued De Beers for arrears for maintenance, whereupon De Beers counterclaimed for the sum of $370,000 as payment made under a mistake of law.

19.4 In the High Court, Judith Prakash J allowed De Beer”s counterclaim. The court found that there was no contract between the parties. The Land Titles (Strata) Act (Cap 158, 1999 Ed) did not justify the MCST”s actions; the MCST had acted ultra vires in making the demands of De Beers. The court held that De Beers” payments were made under a mistake as to the legality of the demands, and recognised mistake of law as a valid basis of a claim in unjust enrichment. It also held that De Beers was not precluded from recovery by any change of position defence because such a defence had not been substantiated by the evidence. There was nothing to show that the subdivision caused additional maintenance and upgrading expenses to be necessary and, moreover, the MCST had acted wrongfully in making the demands. The court rejected the defence of estoppel as no representation had been proven. It held the view that although De Beers” payments were made between 1992 and 1993, the restitutionary claim was not “founded on contract” for the purposes of s 6 of the Limitation Act (Cap 163, 1996 Ed). The court, however, considered laches as an applicable defence but found it not to have been made out on the facts. It rejected De Beers” claim based on colore officii as the MCST was not a public body. The MCST appealed from this decision.

19.5 The appeal was dismissed by the Court of Appeal which, in its judgment, affirmed practically every aspect of the High Court”s decision. The Court of Appeal upheld the interpretation of the relevant provisions of the Land Titles (Strata) Act. Nothing more will be said here of this issue. It follows that the MCST”s demands were not authorised by the statute.

Abrogation of the mistake of law bar

19.6 The Court of Appeal in the De Beers case noted that, hitherto, Singapore law had assumed that money paid under a mistake of law was not recoverable. Although it was not mentioned by the court, there have been some recent judicial stirrings in Singapore since the House of Lords in Kleinwort Benson Ltd v Lincoln City Council[1999] 2 AC 349 abrogated the rule in English common law. Before the House of Lords delivered judgment, the Singapore High Court, in the unreported case of Minah L Mande v Schneider John Edward

(District Court Appeal 43/1997, unreported judgment dated 28.2.1998), had the occasion to observe that the bar against recovery for mistake of law was “too entrenched to be abolished judicially”. Not long after, however, Kleinwort Benson Ltd v Lincoln City Council (supra) was cited to the High Court in PP v Intra Group (Holdings) Co Inc[1999] 1 SLR 803, but it was distinguished on the facts because the issue before the court related to property claims. In interlocutory proceedings in Ching Mun Fong v Liu Cho Chit[2000] 1 SLR 517, the Court of Appeal assumed, without deciding the issue, that a claim to recover payment made under a mistake of law was an arguable one. In subsequent proceedings, the High Court characterised the mistake as one of fact ([2000] 4 SLR 610) so the issue did not arise, but the Court of Appeal ([2001] 3 SLR 10) affirming the High Court decision, appeared to be indifferent whether the relevant mistake was one of fact or law (compare ibid, [24] with [29] to [32]). But any doubt as to the status of the mistake of law bar in Singapore law has now been wholly and boldly swept aside.

19.7 In the De Beers case, the Court of Appeal noted that the mistake of law bar had been abrogated either judicially or by statute in Australia, Canada, England, New Zealand and South Africa. In the light of these developments, the court found to be highly persuasive the reasons given by the English Law Commission in its Consultation Paper No 120 (Restitution of Payments Made under a Mistake of Law (1991)) that were adopted by Lord Goff in Kleinwort Benson Ltd v Lincoln City Council (supra, at 372):

(a) the rule was contrary to justice, which required that money paid under a mistake of law should be repaid unless special circumstances justified its retention by the payee;

(b) the distinction between mistakes of fact and mistakes of law could lead to arbitrary results; and

(c) courts had been tempted to manipulate the fact-law distinction in order to achieve practical justice, and this had led to uncertainty in the application of the rule.

The court also noted that the tide of judicial and academic opinion was in favour of abolishing the distinction between the restitutionary consequences following mistakes of law and mistakes of fact respectively.

19.8 In accepting the arguments for the removal of the mistake of law bar, the Court of Appeal rejected the argument that its abrogation would lead to too much uncertainty because closed transactions would be reopened. Mindful of this problem, however, the court attempted to sketch out the limits of and defences to a restitutionary claim based on mistake of law.

Legislative or judicial reform

19.9 Next, the Court of Appeal considered the question whether reform of the common law rule should be left to Parliament. Three reasons were given why judicial reform was appropriate: first, the mistake of law bar was a common law rule, and its abrogation would not disturb the balance of power between the legislature and the judiciary; secondly, the common law rule did not involve any issue of social policy, so the court would not be usurping the legislative function in abrogating the rule; and thirdly, the courts were not in a position to know if and when Parliament would change the law.

19.10 The court considered but rejected the arguments put forwarded by the Singapore Academy of Law”s Law Reform Committee (see para 19.2 above) that the reform should be legislative. The court noted that the Committee”s principal argument was that Parliament was better able to deal with the potential problem of a flood of litigation that may follow from the abrogation of the rule: in particular, Parliament was better able to answer the question whether the abrogation of the rule should be retrospective; and the question whether limitation periods should be introduced for claims founded on a mistake of law. In respect of the first issue, the Committee had recommended that legislation should allow for retrospective abrogation of the rule, so that past transactions would also have the benefit of the change in the law. On this point, the Court of Appeal thought that judicial abrogation of the rule could achieve the same effect if the court were to rule that a payment under a mistake of law could be recovered even if it had been made under a completed transaction. On the second issue, the Committee had recommended that s 29(1) of the Limitation Act be clarified to bring mistakes of law within its ambit, and to impose an overriding 12-year limitation irrespective of when the payer acquires knowledge of his claim. The Court of Appeal considered this point a non-issue. In its view, no legislative intervention was required for two reasons. First, on the face of it, s 29 already applied to mistakes of law, since it did not differentiate between mistakes of fact and mistakes of law...