Restitution

Citation(2018) 19 SAL Ann Rev 705
Published date01 December 2018
Date01 December 2018
Introduction

23.1 The year 2018 produced only a handful of cases on the law of unjust enrichment and restitution. However, two are seminal cases and of note to the entire common law world: Ochroid Trading Ltd v Chua Siok Lui1 (“Ochroid”) and Turf Club Auto Emporium Pte Ltd v Yeo Boong Hua2 (“Turf Club”). Ochroid dealt with the hotly debated topic of the illegality defence against a claim in unjust enrichment for the recovery of money paid pursuant to an illegal contract. Rejecting the newly formulated Patel v Mirza3 approach under English law, the Court of Appeal in Ochroid set Singapore law on a different path, leaving a number of questions that need to be addressed in future cases. Turf Club, on the other hand, laid down the principles concerning the availability of Wrotham Park damages for breach of contract under Singapore law. Converging with English law, it rejected the restitutionary account of the award and, diverging from English law, it enunciated a different framework of analysis.

23.2 The last case this chapter examines is the Court of Appeal's decision in Benzline Auto Pte Ltd v Supercars Lorinser Pte Ltd4 (“Benzline”). The dispute concerned the recovery of an advance payment paid in anticipation of a contract that was not ultimately concluded. The claim was brought in unjust enrichment on the ground of “failure of consideration”. The decision illustrates that there are no “hard and fast” rules on the proper characterisation of a deposit payment and the determination of the basis of the transaction – much would depend on the facts of the case before the court.

Ochroid: Clarifying availability of restitution where contract is illegal

23.3 The dispute in Ochroid arose from a series of agreements entered into between the parties that were, on the face of the contracts, concerned with the appellants making an investment – through the provision of “loans” – in the respondents' business. These “loans”, according to the agreements, were to be repaid at a later specified date with a “profit”. The agreements were supported by tax invoices issued by the respondents stating the kind, quantity and price of goods to which they related. Parties conceded that the agreements were not “entirely proper” and that the tax invoices were fabricated documents which did not relate to genuine transactions performed by the respondents.5

23.4 The Court of Appeal, agreeing with the High Court, found on the evidence that these agreements were disguised as part of a joint venture investment and that the appellants (and the second appellant's wife) had in fact always intended the transactions to be loans. As the appellants were unlicensed moneylenders, the Court of Appeal, upholding the High Court's decision, ruled that these agreements were in contravention of the Moneylenders Act6 and thus unenforceable.

23.5 The follow-on issue that the court had to address was whether the claim in unjust enrichment for the recovery of the moneys paid under these unenforceable moneylending contracts should be allowed.7 In dealing with this claim, the court had to consider the impact that the contractual illegality had on an independent unjust enrichment claim and more broadly, therefore, to clarify the Singapore position on the illegality defence. In particular, the court would have to confront with the question of whether Singapore law should follow the “range of factors” approach enunciated by the majority of the UK Supreme Court in Patel v Mirza.8

Current English approach: Patel v Mirza

23.6 By way of background, Patel v Mirza marked a “pivotal moment” in English private law9 – it overruled the technical reliance approach in Tinsley v Milligan10 and opted for a discretionary approach.

The case concerned a claim in unjust enrichment for sums paid pursuant to an illegal agreement for insider trading. As it turned out, the anticipated insider information did not become available. The Supreme Court allowed the claim, although the panel of nine was divided as to what the applicable test was. Lord Toulson, delivering the majority judgment,11 rejected a “mechanistic process”.12 He enunciated three categories of factors that the court should take into account in its exercise of discretion: the purpose of the prohibition; other relevant public policies; and proportionality.13 He further commented that applying the “range of factors” discretionary approach would mean that it would “be rare” for an unjust enrichment claim to be barred on the basis of illegality.14 In respect of the unjust enrichment claim brought before the Supreme Court, Lord Toulson said:15

… no particular reason has been advanced … to justify Mr Mirza's retention of the monies beyond the fact that it was paid to him for the unlawful purpose of placing an insider bet.

23.7 In Patel v Mirza, Lord Sumption (with whom Lord Clarke agreed), considered the majority's approach to be productive of uncertainty and would thus lead to “wasteful and unnecessary litigation”.16 He was in favour of a rule-based approach to illegality. Whilst he appreciated that parties who intend to engage in illegal activities may not study the case law to derive predictable patterns, Lord Sumption stressed that their legal advisers would desire certainty in the law so as to advise these parties on the effects of the relevant transactions.17 In his view, although certainty is not the only value to be pursued in law, it is a pinnacle value of contract law.18 Nor did he think that an evaluative approach was necessary. He was of the view that the exceptions to the reliance principle, countervailing policies that require the award of a remedy in certain cases, as well as the wider availability of

restitution, would mitigate the harshness of the operation of the principle.19 More importantly, similarly disagreeing with a technical application of the reliance principle, Lord Sumption explained that the outcome in Tinsley v Milligan could be justified differently:20

The true principle is that the application of the illegality principle depends on what facts the court must be satisfied about in order to find an intention giving rise to an equitable interest. It does not depend on how those facts are established. Ms Milligan was entitled to the interest which she claimed in the property because she paid half of the price and there was no intention to make a gift. That was all that the court needed to be satisfied about.

23.8 As such, on Lord Sumption's analysis, a party's reliance on illegality merely for evidentiary purposes would not necessarily defeat its claim. Applying his reinterpretation of the reliance principle, allowing the unjust enrichment claim in the dispute before the Supreme Court would not “give effect to the illegal act or to any right derived from it”.21 On the contrary, allowing the restitutionary claim would return the parties to their pre-transaction position “where they should have always been”.22

23.9 Notably, in Patel v Mirza, the majority did not have to address the issue of whether Mirza could invoke the locus poenitentiae exception to justify his entitlement to restitution. In any event, an evaluative approach that explicitly addresses the policy considerations – of which the “range of factors” approach is certainly an example – does not need to rely on technical exceptions such as the locus poenitentiae principle, as these exceptions are merely “(inflexible) embodiments” of the relevant policy considerations.23 The policy considerations may be directly examined under the “range of factors” approach.24 Lords Neuberger and Sumption, however, consider the exception to be still relevant under English law. A long-held debate concerning this exception related to whether the withdrawal from the illegal project in question needs to be penitent (or voluntary)25 or not.26 On the facts of Patel v Mirza, the parties did not eventually carry out their illegal enterprise because of external circumstances (the non-availability of insider information), as

opposed to their voluntary withdrawal. Importantly, to say that the exception requires penitent withdrawal is to say that the law looks at the moral merit of the parties. Lord Sumption did not think that the law should introduce “a spurious moral gloss on the principle” of locus poenitentiae by requiring that the withdrawal be penitent/voluntary.27
Ochroid: Rejection of discretionary approach in favour of rule-based approach

23.10 Turning back to Ochroid,28 the Court of Appeal flatly declined to follow the Patel v Mirza “range of factors” approach on the grounds that it introduces unprincipled discretion and uncertainty and is unnecessary to achieve remedial justice.29 The court reaffirmed the approach laid down in Ting Siew May v Boon Lay Choo30 (“Ting Siew May”). Post-Ochroid, under Singapore law, where contractual illegality is concerned, the Singapore courts will apply a two-stage approach.

23.11 Under the first stage, the court will ask whether the contract is prohibited and the Ting Siew May principles will guide the court's search for the answer to this question. If the contract is prohibited by statute or is found to be illegal at common law, there can be no recovery of benefits transferred under the contract in contract law. Ochroid's contribution to the jurisprudence related to the clarification of the principles applying at the second stage concerning recovery of the benefits transferred under the illegal contract through an independent claim in unjust enrichment.

23.12 At the second stage, the court emphasised that Ting Siew May has rejected a procedural and formal application of the reliance principle.31 Post-Ting Siew May, similar to Lord Sumption's approach in Patel v Mirza, Singapore law applies a normative and substantive understanding of the reliance principle.32 In other words, the substantive reliance principle is only engaged (and offended) if one “seeks to directly enforce and profit from...

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