Restitution

• Published date: 01 December 2012
• Author: YEO Tiong Min SC (honoris causa) 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.
• Citation: (2012) 13 SAL Ann Rev 407
• Date: 01 December 2012

Introduction

22.1 The year 2013 yielded a small number of cases dealing with the law of unjust enrichment. There was some consolidation. The Court of Appeal disallowed an unjust enrichment claim, inter alia, because it had not been sufficiently pleaded. This underscores the point that the law of unjust enrichment is based on a body of legal principles, much like the law of contract and the law of torts, and should not be seen merely as a source of remedies of last resort. The Court of Appeal also re-affirmed that voluntary assumption of risk undermines a plaintiff's claim based on unjust enrichment, and clarified the issue of the applicability of statutory time-limitations to different types of constructive trustees. Various other decisions touched on different aspects of the law of restitution, as well as its interface with other areas of the law.

Unjust factor

Assumption of risk

22.2 The Court of Appeal re-affirmed the principle of voluntary assumption of risk negating any ground of restitution in OMG Holdings Pte Ltd v Pos Ad Sdn Bhd[2012] 4 SLR 231 (‘OMG Holdings Pte Ltd’). From 1993, the plaintiff had sub-licensed certain intellectual property rights to the defendant under certain arrangements in return for royalty payments. The plaintiff had sued the defendant for certain arrears in royalty payments. The High Court allowed the plaintiff's claim in part, but had also ordered that the plaintiff should make restitution to the defendant of certain royalty payments made by the defendant to the plaintiff between 1999 and 2002, during which the plaintiff did not have any right to sub-license to the defendant, even though no such restitutionary claim had been pleaded or argued. Both parties appealed to the Court of Appeal. The Court of Appeal allowed the defendant's appeal to reverse this order on the ground that this claim for restitution had not been pleaded and had not been argued at the trial, and thus the order had taken the plaintiff by surprise and caused the plaintiff irreparable prejudice.

22.3 The Court of Appeal also noted that it was difficult to sustain the claim on the basis of restitution for unjust enrichment because of the absence of an unjust factor or vitiating factor. This is because the plaintiff, in making the relevant royalty payments despite being fully aware that the payee did not have any right to sub-license, would have voluntarily assumed the risk of the vitiating factor occurring.

Want of authority

22.4 The High Court decision in Tjong Very Sumito v Chan Sing En[2012] 3 SLR 953 (‘Tjong Very Sumito’) dealt with many complex facts and different legal issues, and only an edited version is reported while the full unreported version ([2012] SGHC 125) is available on LawNet. The facts, in so far as they are relevant to the law of restitution, may be stated shortly. The plaintiffs had entered into a contract with a company (‘the Purchaser’) under which the plaintiffs agreed to sell shares in Company A to the Purchaser, in consideration for the payment of US$18m. The payment was to take the form of US$12.25m in cash and the remaining US$5.75m in the form of shares in Company B. Of the cash component, US$6m was to be paid directly to the first plaintiff, US$5.7m was to be paid to the second defendant and US$550,000 was to be paid to the fourth defendant (a company controlled by the fifth defendant). The agreements authorised the second defendant and the fourth defendant to receive the payments on behalf of the plaintiffs. At the time the proceedings commenced, the plaintiffs had received less than US$6m of the total purchase price. Evidence showed that certain sums had been paid to the fifth defendant as well as to the sixth defendant, the wife of the fifth defendant. The plaintiffs claimed against these defendants for restitution of the money received.

22.5 The plaintiffs' claim against the second defendant was dismissed as there was no evidence that it had received the sum of US$5.75m. The court found that the fourth, fifth, and sixth defendants had beneficially received various sums of money respectively. The plaintiffs' personal restitutionary claims against the fifth and sixth defendants also failed because these defendants were not enriched at the plaintiffs' expense; the sums had not been paid by the Purchaser in accordance with its contractual payment obligation. Thus, the Purchaser was still liable to the plaintiffs in respect of those sums. However, the plaintiffs' personal restitutionary claim against the fourth defendant succeeded; the Purchaser's payment to the fourth defendant extinguished the plaintiffs' contractual right of recourse against the Purchaser and at the same time enriched the fourth defendant. Since the court lifted the corporate veil of the fourth defendant on the basis that it was the alter ego of the fifth defendant, both were liable in respect of this claim. The court noted that neither had raised any restitutionary defences.

22.6 What is interesting is the court's identification of the unjust factor to justify the restitutionary claim against the fourth defendant on the basis of unjust enrichment. The court held that on the legal documentation, the fourth defendant was authorised to accept payments on behalf of the plaintiffs but could not retain the benefit of the payments. The court drew support from Goff & Jones: The Law of Unjust Enrichment (Charles Mitchell, Paul Mitchell & Stephen Watterson eds) (Sweet & Maxwell, 8th Ed, 2011) (‘Goff and Jones’) at paras 8–01–8–02 to reach the conclusion that the defendant's lack of authority from the plaintiff to retain the property beneficially constituted the reason to reverse the unjust enrichment. Specifically, the court relied on these extracts (Tjong Very Sumito at [120]):

[A] defendant, D, obtains an enrichment by immediate transfer from a claimant, C, in circumstances where C did not consent to the enrichment. It is also common for a defendant, D, to obtain an enrichment from a claimant, C, more remotely, as a result of the actions of a third party, X, which were neither authorised nor consented to by C …

Where X holds assets subject to duties and powers to deal with them for C's benefit, and acts within his authority, C will have no remedy. But where X acts outside his authority, his “want of authority” will itself constitute a sufficient ground for recovery by C.

[emphasis added by the High Court]

22.7 However, these passages deal with a situation where the claim of the plaintiff, C, is against a defendant, D, who has received property from a third person, X, who, having control over C's assets, acted outside his authority in transferring the assets to D (see further Goff and Jones at paras 8–94–8–96 where this ground of restitution is elaborated). It says nothing about a situation where C is suing D who has been authorised by C to receive money from X and D has no authority to retain the money. It may be thought that there was a simpler explanation for the liability of the fourth defendant. Although the payment to the fourth defendant was described as being ‘akin to a situation where money due to a claimant has been transferred by a third party to the claimant's authorised agent’, there was also a clear finding that the relevant contractual clause created a relationship of agency in respect of the receipt of the cash and shares: Tjong Very Sumito at [93] and [96]–[119]. Where an agent receives payment on behalf of a principal and refuses to pay it over to the principal, the principal may bring an action for money had and received against the agent: Peter Watts & Francis Reynolds, Bowstead and Reynolds on Agency (Sweet & Maxwell, 19th Ed, 2010) at para 6–100. This fundamental principle of the law of agency was applied on less complex facts in Subtle Senses Pte Ltd v Healthtrends Medical Investments Pte Ltd[2012] SGHC 148. The reason for the claim is the agency relationship established by the undertaking of the agent to act on behalf of the principal. There is no need to resort to the law of unjust enrichment.

22.8 A further difficulty with trying to explain the expression ‘want of authority’ as an unjust factor to reverse unjust enrichment in this context is that it cannot be understood on its...