Restitution

• Author: YEO Tiong Min LLB (Hons) (National University of Singapore), BCL, DPhil (Oxford); Advocate and Solicitor (Singapore); Yong Pung How Professor of Law, School of Law, Singapore Management University.
• Date: 01 December 2008
• Published date: 01 December 2008

Introduction

20.1 There was no single ruling or decision of signal importance to the law of restitution in 2008. Instead, there were a number of decisions which tested the boundaries of various aspects of the law, sometimes only incidentally.

20.2 At the outset, P T Panasonic Gobel Indonesia v Stratech Systems Ltd[2009] 1 SLR 470 (Judith Prakash J) provides a timely reminder that failing to plead restitutionary relief and merely addressing the court on the issue only in closing submissions could prove fatal to the restitutionary claim, as such a course of action prejudices the defendant in not conducting its case to meet the claim (at [87]). The law of restitution does not reflect a general appeal to the sense of justice of the court; it is a developing body of law that is co-extensive with the law of contract and torts.

Duress

20.3 In Tam Tak Chuen v Khairul Bin Abdul Rahman[2008] SGHC 242 (Judith Prakash J), a number of interesting legal propositions were discussed by the court in the course of dealing with arguments to set aside a contract on the basis that it had been procured by economic duress. The decision is relevant to the law of restitution in two ways. First, in cases where benefits have been conferred under a contract, the contract needs to be set aside before the restitution of the benefits on the ground of duress can be successful. Secondly, if the duress exerted resulted in the transfer of benefits in a transaction that is short of a contract, the same principles of economic duress are relevant to determine whether there is legal ground for restitutionary recovery. An example of economic duress giving rise to both contractual and non-contractual transactions is Dimskal Shipping Co SA v International Transport Workers Federation[1992] 2 AC 152.

20.4 In the present case, the plaintiff and the first defendant were partners in a medical practice. The first defendant, having procured

video evidence that the plaintiff had been carrying on an affair with a clinical assistant, persuaded the plaintiff to sell his share in the practice to the first defendant for $50,000. The first defendant had suggested that the video files would be tendered as evidence for winding up the partnership otherwise (thus rendering the affair public). After the plaintiff discovered that his wife had already been informed by the first defendant of the affair, he successfully applied to the High Court to set aside the agreement for economic duress. Three points are of interest to this review.

20.5 The first point of interest relates to the role of ‘manifest disadvantage’, a concept more commonly associated with the doctrine of undue influence, in economic duress. In the context of undue influence, it has been made clear manifest disadvantage has no role to play in actual undue influence (CIBC Mortgages Plc v Pitt[1994] 1 AC 200) and at best plays an evidential role in presumed undue influence in indicating that there is something in the transaction that calls for an explanation: Royal Bank of Scotland Plc v Etridge (No 2)[2002] 2 AC 773. Economic duress is closely analogous to actual undue influence (Royal Bank of Scotland Plc v Etridge (No 2)[2002] 2 AC 773 at [8]), and it would have been expected that economic duress will have little or nothing to do with the concept of ‘manifest disadvantage’ at all.

20.6 It is, therefore, surprising to see in the instant case an argument by defendant”s counsel that the plaintiff”s claim in economic duress should fail at the threshold because of the absence of manifest disadvantage: Tam Tak Chuen v Khairul Bin Abdul Rahman[2008] SGHC 242 at [23]. The argument was rejected by the court on the basis that there was manifest undervalue to the plaintiff in the transaction. The only support for the legal proposition advanced was a passage from N Enonchong, Duress, Undue Influence and Unconscionable Dealing (London: Sweet & Maxwell, 2006) at p 34 (quoted in Tam Tak Chuen v Khairul Bin Abdul Rahman[2008] SGHC 242 at [22]), which, when read in context, indicated that the author was merely using the concept as an illustration of what could turn a threat of lawful action into illegitimate pressure. A close reading of the judgment indicates that the court did not actually accept the argument as a matter of law; there was simply no factual foundation for the legal argument to succeed in the first place.

20.7 The second point of interest is the test of causation applied by the court. The court accepted Barton v Armstrong[1976] AC 104 (PC, New South Wales), a case on duress to the person, as authoritative for economic duress as well: Tam Tak Chuen v Khairul Bin Abdul Rahman, at [62]. Thus, it was ‘up to the defendant to prove that the pressure had contributed nothing to the plaintiff”s decision’ to enter into the transaction: Tam Tak Chuen v Khairul Bin Abdul Rahman, at [62]. Two points follow from this. The first is that after the plaintiff

has established the illegitimacy of the pressure, the burden shifts to the defendant to prove that it did not cause the plaintiff to enter into the transaction. Secondly, the test for causation is based on the analogy of misrepresentation; the duress need only be ‘a reason’ rather than the ‘but for’ reason. This differs from what appears to be the current thinking in the English common law that, for economic duress, the burden remains on the plaintiff and the burden is to show not only that the plaintiff would not have entered into the transaction but for the duress, but also that the duress was a significant reason for the plaintiff”s decision: Huyton SA v Peter Cremer GmbH & Co[1999] 1 Lloyd”s Rep 620 (QBD). In that case, Mance J (now Lord Mance) thought that, in duress to the person, the burden justifiably shifted because in such cases there is usually little doubt that the threats were made in bad faith and operated to achieve their intended effect; in contrast, the range of circumstances that could amount to economic duress is much wider. Underlying the judgment is a concern for certainty in commercial transactions. Mance J also relied on Dimskal Shipping Co SA v International Transport Workers Federation[1992] 2 AC 152 for the proposition that the duress had to be a significant cause.

20.8 In the present case, it is by no means clear that a different conclusion would have been reached if the Singapore court had followed the English approach. The indications go the other way; there was no evidence of any other reason why the plaintiff would sell his share of the partnership at all. The English cases were not cited in the present case, and the test of causation did not appear to have been contested. In the circumstances, it would be too much to read this case as settling the point. The arguments on the correct test under Singapore law must await another case.

20.9 The third point of interest is the court”s acknowledgment that it has the judicial discretion to award damages in lieu of rescission of the contract for economic duress. The question whether damages are available for economic duress is a contentious and unsettled point in English law, where there has been no authoritative judicial decision either way. There are occasional references to the ‘tort’ of economic duress (eg, Huyton SA v Peter Cremer GmbH & Co[1999] 1 Lloyd”s Rep 620 (QBD) at 638; Alec Lobb (Garages) Ltd v Total Oil (Great Britain) Ltd[1985] 1 WLR 173 (CA) at 177), but they could be referring to situations where the same facts also amount to the recognised tort of unlawfully causing economic harm. The strongest statement that economic duress is actionable as a tort is that of Lord Scarman in Universe Tankships Inc of Monrovia v International Transport Workers Federation[1983] 1 AC 366 at 400, but that needs to be contrasted with Lord Diplock”s explicit denial of that proposition (at 385).

20.10 This point was, as in the case of the other two points above, not the subject of considered argument, and the court ultimately decided that it would order rescission anyway as no reasons had been given why an award of damages was the more appropriate relief: Tam Tak Chuen v Khairul Bin Abdul Rahman[2008] SGHC 242 at [79]. There is thus support by way of the court”s observation (only) that damages are available as an alternative to rescission, but it is not clear what the basis of the claim for damages was. If indeed it were based on tort, then it is not a matter of judicial discretion; tort damages are a matter of right. It is up to the plaintiff whether he wants to claim damages or not and, absent bad faith (Rickshaw Investments Ltd v Nicolai Baron von Uexkull[2007] 1 SLR 377 (CA) at [47]), no amount of good reason by the defendant can confine the plaintiff to his tort claim in substitution for his contractual one. It is also hard to see it as equitable compensation as the relief sought was not equitable; economic duress is a common law doctrine. Even if it is equitable rescission that is invoked in equity”s auxiliary jurisdiction to come to the aid of the common law in unwinding the transaction, it is not clear that there is judicial discretion to award damages in the alternative; it is to be noted that the damages in lieu of rescission for misrepresentation is a statutory remedy (Misrepresentation Act (Cap 390, 1994 Rev Ed), s 2(2)); as in the case of damages in lieu of specific performance or injunction (Supreme Court of Judicature Act (Cap 322, 2007 Rev Ed), s 18(2), First Sched, para 14). Historically, there was no question of equitable compensation for a common law wrong. Although the court is entitled to expand the scope of equitable jurisdiction to award equitable compensation, much in the same way that the court has expanded the equitable jurisdiction to grant account of profits for a statutory wrong in Ng Bok Eng Holdings Pte Ltd v Wong Ser Wan[2005] 4 SLR 561 (CA) (noted in (2005) 6 SAL Ann Rev 443 at 447—451, paras 19.11—19.21), this needs to be a measured and...