Restitution

• Date: 01 December 2020
• Author: YIP Man LLB (Hons) (National University of Singapore), BCL (Oxon); Advocate and Solicitor (Singapore); Associate Professor, School of Law, Singapore Management University.
• Publication year: 2020
• Published date: 01 December 2020

I. Introduction

25.1 Two observations may be made of the 2020 cases on the law of unjust enrichment and restitution. First, there were a number of cases that examined the relationship between the law of unjust enrichment and other branches of the law, such as contract law, equity and statute. These cases help to define the boundary of the law of unjust enrichment which was developed belatedly1 and grew rapidly to threaten the traditional territorial scope of more established subjects.2 Second, there continue to be cases in which the High Court has accepted “lack of consent” as an applicable unjust factor under Singapore law. Each case will now be examined in detail.

II. “At the expense of”

25.2 In Compañia De Navegación Palomar SA v Koutsos, Isabel Brenda3 (“Compañia De Navegación Palomar”), the plaintiff companies sought to recover from the defendant US$2.75m, which was transferred by the defendant's brother, who was a director of each of the plaintiff companies, to the defendant. Other than mounting a claim for knowing receipt, the plaintiff companies also brought an action for unjust enrichment against the defendant, claiming that the transfer was made without the plaintiffs' knowledge and/or consent. In her pleaded defence, the defendant argued that the moneys came from pre-existing funds, contained in a bank account, that belonged to her brother, before the plaintiffs' moneys were transferred into the same account.

25.3 The defendant was clearly an indirect enrichee, a matter which related to the “at the expense of” element of the unjust enrichment claim. As the High Court explained, “[t]he difficulty in claims involving third-party scenarios is naturally that it will be harder to prove a relevant nexus between the plaintiff's loss and the benefit received by the third-party defendant”.4 However, the relevant nexus could be established via the tracing process to show the requisite proprietary links between the plaintiff's assets and what has been received by the defendant.5

25.4 On the evidence, the High Court found that regardless of whether the US$2.75m received by the defendant came from pre-existing funds in the bank account or was taken from the plaintiff's moneys which were transferred into the account, the sum still belonged to the plaintiff companies. This is because the pre-existing funds in the bank account, as established on the facts, belonged to two of the plaintiff companies.6

24.5 In Quoine Pte Ltd v B2C2 Ltd7 (“Quoine”), a high-profile dispute concerning algorithmic trading of virtual currencies, the Court of Appeal, hearing an appeal from the Singapore International Commercial Court (“SICC”), affirmed the lower court's ruling that the unjust enrichment action in the case failed because it was barred by the valid trading contracts. The facts have been summarised in the 2019 review which discussed the SICC decision.8 In brief, the case concerned cryptocurrency trades carried out on the defendant's currency exchange platform as a result of a prior technical glitch on the platform.9 It resulted in the plaintiff selling Ethereum for Bitcoin at a rate that was approximately 250 times the then prevailing market rate, and the sale proceeds were automatically credited to the plaintiff's account. On the defendant's discovery of the technical glitch and the trades that had been consequently made, it unilaterally cancelled the trades and reversed the debit and credit transactions.

25.6 The unjust enrichment claim was mounted by the defendant as a defence which failed before the SICC. The defendant claimed that it was entitled to cancel the trades because the plaintiff would otherwise be unjustly enriched at the expense of the counterparties to the trades and/

or the defendant. Given the Court of Appeal's dismissal of the defendant's defences based on unilateral mistake at law and in equity and common mistake, the trading contracts remained valid and enforceable, and they thus barred the action in unjust enrichment.10 This line of reasoning may be reframed as the bar against “leapfrogging” over a valid contract, a principle that is dealt with under the “at the expense of” inquiry.11 In Quoine, there was a contract between the defendant and the counterparties to the trading contracts; and the counterparties had entered into contracts with the plaintiff. There was also a contract between the defendant and the plaintiff, but this is not the material contract to focus on because the enrichment was transferred pursuant to the trading contracts between the counterparties and the plaintiff. The defendant could not leapfrog over the contract between the counterparties and itself.

25.7 Nevertheless, the Court of Appeal went on to consider the elements of the unjust enrichment action. Whilst agreeing with the lower court that the proper party to bring the claim ought to be the counterparties to the trading contracts (and not the defendant),12 it acknowledged that the plaintiff's enrichment could be said to be indirectly at the expense of the defendant, on the assumption that the counterparties were able to claim against the defendant for losses they might have suffered as a result of the trades.13 This point merits closer analysis, although Quoine was not the occasion for it in view of the Court of Appeal's finding on the validity of the trading contracts. However, a proper analysis bears on the theoretical account which underlines the “at the expense of” inquiry under Singapore law.

25.8 In Wee Chiaw Sek Anna v Ng Li-Ann Genevieve14 (“Anna Wee”), the Court of Appeal had rejected a causal connection approach to the “at the expense of inquiry”.15 It said that the law of unjust enrichment is focused on “the claimant's loss or deprivation”, and “loss” is defined as “a benefit to which [the claimant] is legally entitled or which forms part of [the claimant's] assets and which is reflected in the recipient's gain” [emphasis in original].16

25.9 The Court of Appeal's analysis of the “at the expense of” element in Quoine, on the other hand, appears to be based on the “economic reality” of the situation.17 If the defendant had compensated the counterparties to the trading contracts for their losses suffered in relation to the trades, the Court of Appeal's analysis rested on the basis that, in economic terms, the defendant could be considered the enricher. The decision, by the same stroke, also acknowledged that it is possible for an enrichment to be gained at the expense of both, the direct enricher and the indirect enricher.18

25.10 The approach in Quoine may draw some support from Geoffrey Henderson J's approach in the English case of Investment Trust Companies v The Commissioners for Her Majesty's Revenue and Customs19 (“Investment Trust Companies”). In Investment Trust Companies, the claimants paid, pursuant to their contract obligations with the managers, value added tax (“VAT”) to the managers in respect of the latter's supply of services to the claimants. The managers would then pay VAT to Her Majesty's Revenue and Customs (“HMRC”), pursuant to the belief that they could deduct their input tax (tax in respect of taxable supply of services which the managers received in the course of their business) from the output tax (tax in respect of their taxable supply of services). Where the input tax exceeded the output tax, the managers would be entitled to a credit from HMRC. Where the output tax exceeded the input tax, the managers were obliged to pay the surplus to HMRC, but they could retain the balance. It later became clear that VAT was not payable under European Union law. The claimants sought restitution of the amount of VAT that they had paid to the managers but which the latter could not recover under the Value Added Tax Act 199420 (“the 1994 Act”) from HMRC. The 1994 Act only permitted the managers to recover the amount that they had actually paid to HMRC (that is, the surplus of their output tax over their input tax). It is clear that in this case, HMRC was enriched directly at the expense of the managers. Nevertheless, Henderson J allowed the claimant's unjust enrichment claim, holding that the enrichment in reality came at the expense of the claimants. This was upheld by the English Court of Appeal.

25.11 Nevertheless, the Court of Appeal's analysis in Quoine differs from Henderson J's approach in one crucial aspect. There is clearly a causal connection between the claimants' payment to the managers and the payment from the managers to HMRC. The same cannot be said

in respect of the Court of Appeal's analysis in Quoine, which appears to operate more similarly to subrogation.21

25.12 Importantly, the UK Supreme Court adopted a different approach in Investment Trust Companies. The unjust enrichment claim was dismissed on appeal. Lord Reed, who delivered the judgment of the court, explained as follows:22

A more fundamental difficulty with an approach based on economic reality arises from the fact that the purpose of restitution is not to compensate for loss, but to reverse the defective transfer. Looking to see who has suffered an economic loss is therefore not, in principle, the correct way of identifying the appropriate claimant.

Lord Reed opined that there were two separate transfers that occurred in the case: first, a transfer of enrichment from the claimants to the managers pursuant to a contract; and secondly, a transfer of enrichment from the managers to HMRC. According to his Lordship, “these two transfers cannot be collapsed into a single transfer of value from the lead claimants to the commissioners”.23 On the UK Supreme Court's approach in Investment Trust Companies, the unjust enrichment claim in Quoine would fail. Crucially, the UK Supreme Court's approach is consistent with the approach expounded by the Court of Appeal in Anna Wee.24

II. Failure of consideration

A. Shared basis in multi-party cases

25.13 There were two cases in 2020 that concerned...