Restitution

• Date: 01 December 2017
• Published date: 01 December 2017
• Author: YIP Man LLB (Hons) (National University of Singapore), BCL (Oxon); Advocate and Solicitor (Singapore); Associate Professor of Law, School of Law, Singapore Management University.
• Publication year: 2017
• Citation: (2017) 18 SAL Ann Rev 652

Introduction

23.1 The 2017 decisions on the law of unjust enrichment and restitution raised a number of interesting issues that merit closer scrutiny. These issues include recovery of deposits in the law of unjust enrichment, the establishment of a shared basis in multiparty cases for the purpose of failure of consideration, the good faith requirement for the ministerial receipt defence, and the interplay between law and equity.

Pre-contractual deposit

23.2 In Jiacipto Jiaravanon v Simpson Marine (SEA) Pte Ltd1 (“Jiacipto”), the plaintiff sought to recover a pre-contractual deposit made to the defendant in respect of the purchase of luxury yachts in unjust enrichment. In Jiacipto, the plaintiff had signed two documents: (a) a contract to buy yacht A (“contract A”); and (b) an invoice for the sum of €1m as “holding deposit” for yacht B and yacht C (“the Deposit Invoice”). He then paid €500,000 as deposit for contract A and €1m as payment under the Deposit Invoice. The restitutionary claim related to the €1m deposit.

23.3 As events unfolded, yacht A was sold to a third party and was thus unavailable for sale to the plaintiff. The plaintiff and the defendant agreed to the sale and purchase of yacht B, which increased the purchase price. In accordance with the parties' agreement, half of the €1m paid under the Deposit Invoice was then applied for the payment of the purchase price of yacht B and the remainder purchase price was subsequently paid off by the plaintiff. However, when the plaintiff inspected yacht B, he was not satisfied that it matched the specifications. The defendant, with the plaintiff's agreement, sold yacht B to someone else and paid the balance sale proceeds, after deducting its claims against the plaintiff, to the plaintiff.

23.4 The court stressed that identifying the basis on which the payment was made is crucial in each case as this would enable one to further determine if the basis has failed and therefore entitling the payor to restitution.2 The characterisation of the payment as “a pre-contractual deposit” without more is, on the other hand, not determinative of recoverability.3 This is because the basis upon which a deposit is paid ahead of the conclusion of a contract varies from case to case. It may be: (a) a payment made on the basis that an anticipated contract would be concluded;4 (b) a payment to indicate earnestness;5 or (c) a payment to put an asset off the market while the potential buyer decides whether to buy it.

23.5 Having considered the evidence which included the contractual documents and contemporaneous communications, Loh J concluded that the €1m deposit was paid to the defendant “as a holding deposit” to secure [yacht B and yacht C] until 15 May 2013 and upon the plaintiff's election, the money would then become the initial down payment for the selected yacht. In other words, the case concerned a payment to put the yachts off the market while the plaintiff considered whether to purchase one of them. Accordingly, that no contract was ultimately concluded after 15 May 2013 would not entitle the plaintiff to restitution, as the conclusion of a contract was not the promised performance. However, on the facts, since the two yachts were sold on or around 30 April 2013, there was a total failure of consideration (or basis) and the plaintiff was thus entitled to recover the deposit after 30 April 2013.6

Unjust factors

Ignorance, lack of consent and lack of authority

23.6 Whether ignorance, lack of consent and lack of authority are recognised unjust factors under Singapore law remains unresolved. Two High Court decisions in 2017 seemingly assumed that these are recognised unjust factors under Singapore law: Cristian Priwisata Yacob v Wibowo Boediono 7 (“Wibowo Boediono”) and Tradewaves Ltd v Standard Chartered Bank.8

However, neither decision turned on the application of the said unjust factors. In a third High Court decision, Ong Teck Soon v Ong Teck Seng9 (“Ong Teck Soon”), it was observed that the status of these unjust factors under Singapore law is presently uncertain. The court noted that “lack of authority” was rejected by the Court of Appeal in Alwie Handoyo v Tjong Very Sumito10 and the status of “ignorance” and “lack of consent” was left open in Wee Chiak Sek Anna v Ng Li-Ann Genevieve11 (“Anna Wee”). Notwithstanding that, the court pointed out that lack of consent was very recently endorsed as an applicable unjust factor in AAHG, LLC v Hong Hin Kay Albert12 (“AAHG”). In AAHG, the unjust enrichment claim was brought as an alternative claim to a claim for conversion, in the event that the court found that the plaintiff had no immediate right of possession to the assets to support the primary claim.13 The High Court was satisfied that the action in conversion was established but nevertheless went on to comment that the claim in unjust enrichment, based on lack of consent, would have been made out.14

23.7 In Ong Teck Soon, the plaintiff, an executor of the Testator's will, alleged that the first defendant had issued two unauthorised cheques which led to unauthorised withdrawals from the Testator's bank account. The plaintiff, however, did not plead an unjust factor in support of his claim in unjust enrichment. Whilst acknowledging that lack of consent would have been the applicable unjust factor on the facts, the High Court refrained from deciding if the said unjust factor should be recognised under Singapore law.15 This is because the court had found that the conversion claim would have succeeded if it could be proved that the Testator had not authorised the withdrawals, rendering the unjust enrichment claim unnecessary. Moreover, it did not wish to resolve a controversy without the benefit of full arguments from counsel.16

23.8 The implications arising from recognising ignorance/lack of consent/lack of authority as unjust factors have been considered in great

detail elsewhere.17 In summary, there are two ensuing issues. First, embracing these unjust factors would bring us a step closer to recognising strict liability18 for receipt of property transferred in breach of trust/fiduciary duty that are traditionally dealt with under the equitable doctrine of knowing receipt.19 But recent Australian developments – most notably, the Full Federal Court of Australia's decision in Great Investments Ltd v Warner20 (“Great Investments”) – have shown us that this is no longer an unchartered territory and there are good reasons for recognising strict liability, at least in respect of receipt of corporate assets misapplied in breach of fiduciary duty. The Full Federal Court of Australia, broadly consistent with the preference as expressed by the Court of Appeal in Anna Wee,21 did not recommend supplanting fault-based equitable liability with strict liability in unjust enrichment. It said that knowing receipt is “unnecessary” if the plaintiff is merely claiming the rights or the value of the rights transferred without authority.22 It, however, noted that knowing receipt may be relevant and necessary for the plaintiff company to claim further and alternative relief: consequential losses or an account of profits.23

23.9 The second complication arising from recognising ignorance, lack of consent and lack of authority as unjust factors is the difficulty in establishing that the defendant has been enriched at the expense of the plaintiff in such cases because property would not have passed in such circumstances.24 That property did not pass raises the further question

of whether the recipient has been enriched25 – a separate element for the unjust enrichment claim – in the circumstances. This is ultimately a debate on what constitutes enrichment: value or rights.

Failure of consideration

23.10 In Wibowo Boediono, the High Court said that where “advances were made to further a particular purpose or goal, and the purpose or goal fails … the recipient in general must return the advance”.26 In that case, it was found that the plaintiffs had made advances pursuant to an oral contract for making joint investments in real properties but the said investments were never carried out. In the circumstances, the High Court ruled that the plaintiffs were entitled to recover the money transferred under the agreement by way of an unjust enrichment claim based on the unjust factor of total failure of consideration. The High Court explained that failure of consideration refers to the failure on the part of the promisor to provide the performance that has been promised.27 The focus is on performance and not the bare promise itself. The High Court further affirmed that the unjust enrichment claim of such a nature could arise in both a contractual and non-contractual context.28

23.11 Wibowo Boediono was cited with approval in Zhou Weidong v Liew Kai Lung29 (“Zhou Weidong”). In the latter case, the High Court commented that the failure of consideration (also known as failure of basis) operates on the basis of a “joint understanding that the recipient's right to retain” the benefit is “conditional” and the failure of the condition would entitle the plaintiff to restitution.30 However, the High Court commented that it is unclear as to how a joint understanding is to be established in a multiparty case,31 citing Goff & Jones: The Law of Unjust Enrichment32 (“Goff & Jones”).

23.12 In Zhou Weidong, the plaintiff claimed, inter alia, in unjust enrichment for the restitution of approximately $5.25m that had been

received by the third to fifth defendants.33 The funds were paid pursuant to four investment agreements entered into between the second defendant (a company incorporated by the first defendant to spearhead investments in China) and the plaintiff. However, the plaintiff later learnt that his moneys were not applied for the intended investments. In particular, in respect of two sums of moneys amounting to approximately $1.25m received by the third and fourth defendants, the High...