Restitution

Citation(2011) 12 SAL Ann Rev 409
Published date01 December 2011
Date01 December 2011
Introduction

21.1 The most significant case on the law of restitution in 2011 was undoubtedly the Court of Appeal's decision in Skandinaviska Enskilda Banken AB (Publ) Singapore Branch v Asia Pacific Breweries (Singapore) Pte Ltd[2011] 3 SLR 540 (Skandinaviska) (Chan Sek Keong CJ, Andrew Phang Boon Leong and V K Rajah JJA), involving cross-claims between two victims of a massive fraud. Other cases continue to contribute to the incremental development of the law of restitution in Singapore.

General

21.2 Skandinaviska is a landmark case on the issue of vicarious liability in tort and agency law. It also presents a challenging factual matrix for the law of unjust enrichment. The High Court decision ([2009] 4 SLR(R) 788) has been discussed in (2009) 10 SAL Ann Rev 433 at paras 21.121.28 and paras 21.5321.59. In brief, the facts are that C, an employee of APBS, had managed to defraud APBS, as well as SEB, a bank, of millions of dollars by taking loans from SEB purportedly on behalf of APBS and moving funds around to deceive both sides. The restitutionary claims in question involved money kept in APBS's account with OCBC Bank. During the relevant period, C withdrew S$45m from the OCBC account and paid it into an account kept at SEB bank. The latter account was opened by C as part of the scheme to defraud SEB. During the same period, C transferred some S$45.3m from the SEB account to the OCBC account. A portion of the sum from the OCBC account had been used to repay drawings under a loan facility fraudulently procured by C from SEB, which drawings formed part of the S$45.3m paid into the OCBC account. SEB claimed that the balance owed (some S$29.5m, being part of the S$45.3m) had been paid into the OCBC account under a mistake induced by C's fraud, and sought to recover the same from APBS in restitution. APBS denied liability, and asserted a restitutionary counter-claim against SEB for the S$45m paid from the OCBC account to the SEB account which it would only pursue if SEB succeeded in the restitutionary claim for S$29.5m.

21.3 The Court of Appeal set out the elements of a restitutionary claim to reverse unjust enrichment (Skandinaviska at [110]):

(a) the defendant has received a benefit (ie, he has been enriched);

(b) the enrichment is at the plaintiff's expense;

(c) it is unjust to allow the defendant to retain the enrichment;

and

(d) there are no defences available to the defendant.

Enrichment

21.4 The Court of Appeal in Skandinaviska confirmed the holding of the High Court that APBS had been enriched, but only to the extent of the S$0.3m difference between the two sums that crossed in the OCBC account, though not entirely for the same reasons.

21.5 The Court of Appeal affirmed the High Court's reasoning that APBS was only enriched to the extent of S$0.3m since of the S$45.3m paid into the OCBC account, S$45m had gone to discharge C's restitutionary debt owed to APBS for defrauding APBS of the same sum. Therefore, APBS was not enriched to that extent. The position taken by the Singapore Court of Appeal was that the receipt of a benefit which is instantaneously applied to discharge a liability owed to the defendant goes to the issue of liability (enrichment) and not defence. The distinction is a significant one, as the latter approach would require the defendant to prove the defence of bona fide purchase. It is not clear that the case goes so far as to hold that every receipt of funds which purports to operate as a discharge of a liability owed to the defendant raises an issue of enrichment. If that were so, there would be little scope for the operation of the bona fide purchaser defence in the law of restitution. It should be noted that in the circumstances of this case the defendant had not even been aware of the alleged enrichment at the time of the receipt. Suppose that X misappropriates S$1m from Y and then repays Y S$1m which Y knows that X has misappropriated from Z. Z may well have an independent action against Y based on knowing receipt which is arguably based on wrongdoing. However, as far as the law of unjust enrichment is concerned, it is not clear that the right legal conclusion is that Y has not been enriched at all.

21.6 On the approach of the High Court as confirmed in the Court of Appeal, C's unilateral intention to repay a restitutionary debt that is owed to APBS (whether APBS knew of its existence or not) and the fact of receipt were sufficient to discharge that debt: Skandinaviska at [118]. A restitutionary debt obviously does not involve a contractually stipulated method of payment in order to amount to discharge. The question is whether the recipient needs to be aware of the purpose of the payment, and the answer given by the courts is in the negative. It is not clear whether this is a universal proposition of law on how restitutionary debts may be discharged generally, and one should be mindful of the facts of the case. The Court of Appeal had pointed out in its reasoning that the round-tripping of the funds by C had been opaque to both APBS and SEB: Skandinaviska at [119]. The practical effect of this line of reasoning is that as between the two innocent parties defrauded by the same person, the loss lies where it falls.

21.7 This analysis is useful in cases involving the manipulation of funds by a fraudster moving the funds in and out of an account without the victim's knowledge. It avoids having to analyse the individual instances of enrichment flowing in opposite directions, and focuses attention on the net effect of the fraud. This is consistent with the general tenor of the Court of Appeal's judgment. The effect of the unilateral subjective intention of the payor in other situations may not be the same. For example, if X, having stolen S$100 from Y, subsequently makes a birthday gift of S$100 to Y with the subjective unilateral intention of repaying the restitutionary debt, the gift may well be regarded objectively as a distinct transaction.

21.8 The Court of Appeal confirmed the High Court's rejection of the argument by SEB that APBS had been enriched on the principle that the loan disbursed by SEB had been adopted by APBS and used to APBS's benefit. The Court of Appeal rejected SEB's argument for four reasons.

21.9 First, the court stated that, as a matter of common sense, APBS could not have adopted any benefit at least to the extent of S$45m paid into the bank when APBS had itself been defrauded of that same sum. The practical result of C's fraud was that (apart from S$0.3m) APBS was left neither better nor worse off: Skandinaviska at [122].

21.10 Secondly, the court rejected the adoption of benefit argument insofar as it was based on the principle that a plaintiff has a right of recovery against a defendant who benefits from money fraudulently obtained from a plaintiff by a fraudster, on the basis that the cases establishing that principle did not deal with the case at hand where a plaintiff had also received money of which the same fraudster had deprived a defendant. To the court, this was a critical feature which distinguished the present case: Skandinaviska at [123]. This reinforces the point made above that the factual context of this case is very important.

21.11 Thirdly, APBS could not have adopted any benefit of any sum which had gone into discharging C's debt to APBS: Skandinaviskaat [124]. This appears to follow logically from the court's earlier conclusion that APBS could not be enriched by the receipt of a sum of money which immediately discharges a liability owed to APBS.

21.12 Fourthly, even if C had used the money from SEB to pay off APBS's debts, given that APBS had not requested for the sum from SEB to be paid into its OCBC account, had not authorised C to obtain such payment, had known about the payment, the mere fact of APBS receiving a benefit is not sufficient to give rise to an equity against APBS to make restitution to SEB: Skandinaviska at [124]. This line of reasoning (based on a...

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