Restitution

• Published date: 01 December 2004
• Date: 01 December 2004
• Author: YEO Tiong Min LLB (Hons) (National University of Singapore), BCL, DPhil (Oxford); Advocate and Solicitor (Singapore); Associate Professor, Faculty of Law, National University of Singapore.

Introduction

19.1 Little of significance was decided on the law of restitution in 2004. There was nevertheless a smattering of cases dealing with points relevant to the principles of the law of restitution, sometimes directly, and sometimes indirectly.

Restitution and risk allocation

Contract

19.2 The principle that no restitutionary quantum meruit claim will be allowed if such a claim will be inconsistent with the terms of the parties” agreement was re-affirmed in Bayerische Hypo- und Vereinsbank AG v C K Tang Ltd[2004] SGHC 254. The defendants had engaged the plaintiff as lead manager and underwriter to a proposed securitisation transaction. The deal fell through, and the defendant purported to terminate the services of the plaintiff under an express term of the contract, and offered to make a payment of $275,000 as a goodwill gesture, even though the contract had stipulated $165,000 as the break-up fee. The plaintiff treated the termination as a repudiatory breach and sued for damages for breach of contract, or, alternatively, for reasonable fees of $688,350 for work done, or, alternatively, for the break-up fee of $165,000 in addition to or in lieu of damages or the reasonable fee for work done. MPH Rubin J held that, on the proper construction of the agreement, the defendant was entitled to terminate the contract. The judge also dismissed the claim for restitutionary quantum meruit on the basis that the contract had expressly provided for the payment of a fee upon termination.

19.3 The court relied on the following quotation from Pavey & Matthews Proprietary Ltd v Paul(1987) 162 CLR 221 at 256 (per Deane J):

Indeed, if there was a valid and enforceable agreement governing the claimant”s right to compensation, there would be neither occasion nor legal justification for the law to superimpose or impute an obligation or promise to pay a reasonable remuneration. The quasi-contractual obligation to pay

fair and just compensation for a benefit which has been accepted will only arise in a case where there is no applicable genuine agreement or where such an agreement is frustrated, avoided or unenforceable.

19.4 No significance was placed on the fact that the contract had been terminated, and certainly, restitutionary actions for failure of consideration are generally allowed upon the termination of contracts. However, on the facts as found, remuneration for services already rendered upon the contingency of the transaction being aborted was a risk that had been expressly allocated under the contract through the break-up fee that was payable upon the termination of the agreement by the defendant. This case illustrates that the courts will not allow a contractual allocation of risk to be disturbed by the use of restitutionary actions.

Company articles of association

19.5 The related principle of not allowing restitutionary claims to disturb the allocation of risks made under statutory law is manifested in the context of the articles of association of a company. In Jumabhoy Rafiq v Scotts Investments (Singapore) Pte Ltd[2005] 1 SLR 45, the appellant was a director of the respondent company. The board of directors had passed resolutions which empowered the appellant to perform certain acts on behalf of the company, and which also resolved that the respondent would indemnify the appellant for ‘costs and expenses’. The appellant had sued the respondent in the High Court for remuneration on a time-cost basis and for reimbursement of expenses incurred on behalf of the company. In the alternative, the appellant also sued for remuneration in a quantum meruit action (also on a time-cost basis).

19.6 The trial court dismissed the appellant”s claims for remuneration, but allowed the claim for out-of-pocket expenses incurred on behalf of the company. The appellant appealed, and the only dispute in the Court of Appeal was whether the appellant was entitled to remuneration. The Court of Appeal held that, as a matter of construction, the reference to ‘costs’ in the resolutions did not include a reference to remuneration. The restitutionary quantum meruit claim was dismissed on the ground that such a claim by a director against a company could not be allowed where the articles of association of the company had made express provisions for the remuneration of directors.

19.7 The court also approved of Lord Goff of Chieveley”s dictum in Guinness Plc v Saunders[1990] 2 AC 663, that in highly exceptional

circumstances where doing so would not undermine the law”s objective of holding the director to the duty of loyalty to the company, the court may in its equitable jurisdiction order the company to grant an allowance to the director for services rendered to the company. However, this approval was obiter, because, in the view of the Court of Appeal, the facts did not disclose any exceptional circumstances.

19.8 To the extent that this jurisdiction exists, this equitable allowance, while it has been seen as the reversal of unjust enrichment by the conferment of services, does not fit well into the legal analysis of restitutionary claims. Claims to reverse unjust enrichment, and defences to such claims, are based on principle and not discretion (Lipkin Gorman v Karpnale Ltd[1991] 2 AC 548...