Citation(2007) 8 SAL Ann Rev 364
Date01 December 2007
Published date01 December 2007

20.1 In the year under review, there was one major decision from the Singapore Court of Appeal dealing with the relationship between the punitive legislative framework and the common law restitutionary claim by a principal against a bribed agent. In addition, several important issues on the shape of the law of restitution in Singapore received some airing in a number of cases. The three most significant issues related to the law on the recovery of contractual deposits, the nature and structure of the claim commonly called ‘knowing receipt’, the defence of change of position and the related potential defence of change of circumstances.

Contractual allocation of risks

20.2 Appeals from Firstlink Energy Pte Ltd v Creanovate Pte Ltd[2007] 1 SLR 1050 were dismissed by the Court of Appeal. The trial judge”s decision on the issue of total failure of consideration (discussed in (2006) 7 SAL Ann Rev 397 at paras 20.2—20.3) was affirmed by the Court of Appeal which concurred with the trial judge”s findings and decision (Creanovate Pte Ltd v Firstlink Energy Pte Ltd[2007] 4 SLR 780 at [31]).

20.3 In Rabiah Bee bte Mohamed Ibrahim v Salem Ibrahim[2007] 2 SLR 655, the High Court dealt extensively with the distinction between the contractual and the restitutionary quantum meruit. The case arose out of a falling out between two siblings. The plaintiff had agreed with her brother the defendant jointly to enter the property market in Greater London through the purchase and refurbishment of residential properties for rent or sale through a number of joint-venture holding companies. Amongst a myriad of claims and counterclaims, the plaintiff had claimed for reasonable remuneration for her efforts in maintaining and managing the properties in London in accordance with an implied term in the contract with the defendant. Judith Prakash J explained (at [123]):

Where there is an express or implied contract which states that there should be remuneration but does not fix the quantum, the claim in

quantum meruit will be contractual in nature. Where, however, the basis of the claim is to correct the otherwise unjust enrichment of the defendant, it is restitutionary in nature.

20.4 The judge further pointed out that there could not be a claim in quantum meruit if there exists a contract for an agreed sum and that there could not be a claim in restitution parallel to an inconsistent contractual promise between the parties (at [123]).

20.5 The court held that the claim succeeded based on an implied term in the contract for remuneration. The quantum meruit claim, therefore, succeeded on the contractual basis (at [126]). There was, therefore, no need to deal with the restitutionary quantum meruit as such. As far as this claim went, the defendant had argued that the restitutionary claim could not succeed in any event because the claim could only be made if the contract was terminated prematurely as a result of the breach of the party against whom the claim was made, and that on the present facts, the contract had been terminated by mutual agreement and not by breach. The court observed that this was a ‘strong point’, but noted that there could be circumstances where even a mutual termination results in one party unfairly suffering loss, which could found a restitutionary claim (at [127]).

20.6 In principle, it should not matter how the contract was terminated. For example, a contract terminated automatically by operation of law under the doctrine of frustration does not prevent restitutionary recovery (now modified under the Frustrated Contracts Act (Cap 115, 1985 Rev Ed)). Where a contract is terminated by mutual agreement, the parties may also have agreed on the restitutionary consequences (including the possibility that no restitutionary consequences should follow). This could be the ‘strong point’, but in the absence of any such contractual agreement, the normal restitutionary consequences ought to follow. The context of the defendant”s argument suggests that the ‘strong point’ could be a reference to the general reluctance of the courts to grant quantum meruit remedy to a party in breach of contract (Sumpter v Hedges[1898] 1 QB 673). This may, however, be contrasted with the more liberal judicial approach to allow the party in breach to recover money paid out on the basis of total failure of consideration (Rover International v Cannon Film Sales Ltd[1989] 1 WLR 912 and Dies v British and International Mining and Finance Corp[1939] 1 KB 724, both cited with approval though distinguished on the facts in Energy Shipping Co Ltd v UDL Shipping (Singapore) Pte Ltd[1995] 3 SLR 25 (CA) at [36]—[40]. See also Mayson v Clouet[1924] 1 AC 980 (PC Singapore)).

20.7 Perhaps more interesting is the observation that in appropriate cases, the loss suffered by the party in breach could be the foundation of

a restitutionary claim. The court had earlier observed that the restitutionary quantum meruit claim was based on correcting the unjust enrichment of the innocent party to the contract. This probably highlights the subtractive nature of this type of restitutionary claim, ie, the enrichment was at the expense of (ie, loss suffered by) the party in breach, although it could also possibly refer to an alternative basis to the law of unjust enrichment, focussing instead on the efforts of the party conferring the benefit as the foundation of the claim. Some have argued, for example, for a principle of unjust reliance (J Beatson, ‘Benefit, Reliance and the Structure of Unjust Enrichment’ in Use and Abuse of Unjust Enrichment (Oxford University Press, 1991) ch 2) or unjust sacrifice (S Stoljar, ‘Unjust Enrichment and Unjust Sacrifice’(1987) 50 MLR 603) in such cases.

Recovery of deposits

20.8 Two Singapore cases dealt with the question of recovery of deposits after a contract has been discharged for breach. As the relevant law is complex, some background exposition is necessary before turning to the discussion of the decisions. A deposit may be recoverable by the innocent party to the breach of contract under an express or implied contractual right, or under the law of restitution. This chapter is concerned with the recovery of a deposit by the party in breach of contract. The defaulting party ordinarily does not have a contractual right to recover the deposit, and any claim would have to be made under the law of restitution.

Penalty in liquidated damages

20.9 The law on penalties disguised as liquidated damages clauses is fairly clear today, despite a complex history of the mingling of common law and equity. Equity took the first steps to relieve against penalties. Statute law then compelled the common law courts to relieve against common money bonds and penal bonds to enforce covenant ((1705) 4 & 5 Anne c 16, ss 12—13 and (1696) 8 & 9 William III c 11, s 8). Taking the lead from equity and statute, the common law fashioned its own rules after equity. The pre-Judicature common law is exemplified in Kemble v Farren(1829) 6 Bing 141 at 148; 130 ER 1234 at 1237 where Tindal CJ said:

If therefore on the one hand the Plaintiff had neglected to make a single payment of £3 6s. 8d. a day, or on the other hand the defendant had refused to conform to any usual regulation of the theatre, however minute or unimportant, it must have been contended that the clause in question in either case would have given the stipulated damages of £1000. But that a very large sum should become immediately payable in consequence of the non-payment of a very small sum, and that the

former should not be considered as a penalty, appears to be a contradiction in terms, the case being precisely that in which Courts of Equity have always relieved, and against which Courts of Law have, in modern times, endeavoured to relieve, by directing juries to assess the real damages sustained by the breach of the agreement.

20.10 The penalty rule has been variously described as a common law rule (Bingham LJ in Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd[1989] QB 443 at 439) or an equitable rule (Lord Diplock in Photo Production Ltd v Securicor Transport Ltd[1980] AC 827 at 850), or more correctly, as a mixture of both. Dillon LJ in Jobson v Johnson[1989] 1 WLR 1026 at 1033 said:

Now that the jurisdictional differences between the courts of common law and equity no longer exist, any court, English or Scottish, when faced with a claim for a sum of money payable on default which it identifies as a penalty, must refuse to enforce the penal part of the sum and must give judgment for the claimant merely for the actual damages suffered by the claimant, with, as appropriate, interest and costs.

20.11 Thus, in the modern law, there is no practical need to distinguish between common law and equity as far as the penalty rule is concerned, when it comes to the enforcement of liquidated damages. In both cases, the consequence of finding the clause to be a penalty is that the court will not allow the clause to be enforced beyond the legally recoverable damages (Jobson v Johnson[1989] 1 WLR 1026 at 1033—1034, 1040—1041).

Penalty in deposits
The position at common law

20.12 The law relating to the recovery of deposits, however, developed along a different route, and the law, especially the relationship between common law and equity, is still unsettled. Deposits are usually paid upfront to be forfeited upon breach, while liquidated damages are not payable until breach. But this distinction is chronological, and it virtually disappears when the innocent party is suing for an unpaid deposit (see, eg, The Blankenstein[1985] 1 WLR 435 (CA)). The starting point is that, in principle, it appears that the same penalty rule should apply whether the sum involved is found in a liquidated damages clause or a penalty clause. Thus, in Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd[1993] AC 573 (PC, Jamaica) at 578, Lord Browne-Wilkinson said:


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