RESTITUTION, FOREIGN ILLEGALITY AND FOREIGN MONEYLENDERS

• Citation: (1996) 8 SAcLJ 228
• Date: 01 December 1996
• Published date: 01 December 1996

Brooks Exim Pte Ltd v Bhagwandas 1

Bhagwandas v Brooks Exim Pte Ltd 2

I. INTRODUCTION

Brooks Exim Pte Ltd v Bhagwandas is an important decision for Singapore law by any account. The Court of Appeal held that a claim will not be enforced if the object of the transaction underlying the claim was to commit a foreign illegality. It also modified its earlier position on the scope of the Moneylenders Act:3 non-resident moneylenders are now seen as subject to the Act and must be licensed to operate in Singapore. However, both the High Court and Court of Appeal decisions failed to explain the basis of the cause of action in question, and left several important questions in the conflict of laws unresolved, leaving in doubt the scope of foreign illegality and of the Moneylenders Act.

A. Decision

The respondent, an Indonesian businessman, wanted to obtain banking facilities from an Indonesian Bank, PT Bank Mashill Utama (BMU), for his business in Indonesia. BMU required a standby letter of credit in its favour as security. The respondent’s own bank, having no branch in Jakarta, was unacceptable to BMU. He approached the appellants, two directors of which were his brothers-in-law, for assistance. US$960,185.11 was transferred from his own account to the appellants to be kept in a deposit account with the appellants’ bank in Singapore, Deutsche Bank (DB). In return, the appellants arranged for DB to open the requisite standby letter of credit through the latter’s Jakarta branch. The respondent had wanted the deposit to be in his own name, but the appellants advised him that it was not possible because DB did not have his signature. The money was thus paid into the appellants’ account with DB. The standby letter of credit was released by BMU a month before its expiry, and the respondent demanded the return of the money. Several compromises were entered into by the parties for instalment payments, but the respondent only received a few interest payments. The respondent sued for the return of the principal sum with interest. He succeeded in the High Court before Lai Siu Chiu JC (as she then was) and the decision was upheld by the Court of Appeal.

B. The Issues

Two main defences invoked by the appellants in the High Court, which were the only two raised in the Court of Appeal, were: that the deposit arrangement was illegal by Indonesian law because the respondent had failed to inform the Indonesian authorities of the existence of deposit, which affected his Indonesian tax liability; and that the arrangement had been converted into a loan which contravened the Moneylenders Act. In respect of the first defence, the purpose of this commentary is to examine the state of private international law in Singapore relating to foreign illegality in the light of this decision and several other related High Court decisions. In respect of the second defence, it is necessary to explore in greater detail the problems relating to the conflictual scope of the Moneylenders Act. Finally, and it is the issue dealt with first, this commentary examines the characterisation of the cause of action in the case, which has implications for the law of restitution, bailment, and conflict of laws.

II. ANALYSIS

A. Cause of Action — Restitution?

Liability did not appear to be in dispute, so the issue of the cause of action received scant attention in the case. Although the Singapore Law Reports classified the case under “restitution”, both the High Court and the Court of Appeal categorised the action as one for “money had and received”4 but made no reference to the principle of unjust enrichment. “Money had and received” is descriptive of a form of action, rather than a cause of action. By itself it does not state the reason why the defendant should pay the alleged sum to the plaintiff.5 Many, though not all, of the actions previously called “money had and received” probably find their modern justification in the principle of unjust enrichment.6

In a restitutionary claim, the plaintiff has to show that the defendant has been enriched at the plaintiff’s expense, and that there is a reason, or unjust factor, for the law to reverse the enrichment, and the defendant may then raise defences to the claim.7 While it is obvious that the appellants had been enriched at the expense of the respondent, it is less clear what

the unjust factor was. There was no mistake or compulsion. The respondent had clearly bargained for and obtained the benefit of the use of the letters of credit, so that absence of consideration8 (which existence as an independent basis of restitution has not been clearly established in the common law9) and total failure of consideration10 are not applicable. In any event, the claim for total failure of consideration only accrues upon the failure of the consideration,11 and it appears that the claim in this case was treated as arising upon the receipt of the money by the appellants.12

A possible restitutionary basis of recovery is failure of the condition underlying the payment. A claim in equity would have been framed on a resulting trust.13 But the common law has not yet developed a remedy for such a situation. Analogy with the action for money had and received in cases of failed purposes is incomplete, as the latter cases can be explained on conventional ground of total failure of consideration.14 One has to generalise farther from these cases and postulate a new common law ground of recovery based on the principle that the basis of the payment has fallen

away.15 But there is no hint in the judgments that this is the path charted for the law of restitution in Singapore: no such concept was discussed in the case; and the Courts proceeded on the basis that the debt was due from receipt rather than from the termination of the basis of the payment.

Putting aside the financial machinery, it is easy to characterise the transaction as a bailment, and the action as the demand for the return of the bailor’s property.16 There are indications of this analysis: the “deposit” was said to be converted into a loan, suggesting a prior bailment relationship; and the award of accrued interest would be appurtenant to a claim for return of property that had always belonged to the bailor. There are, however, difficulties on the facts in the way of such a characterisation. Bailment of money is only possible when a specific tangible sum is accepted on terms to return the identical sum, without alteration or substitution.17 In view of the machinery chosen for the arrangement, it can hardly be supposed that the respondent intended or expected the identical money to be returned.18 Where money is not lent, but “bailed” on the terms that an equivalent sum will be returned, a gratuitous quasi-bailment or mutuum is created.19 In such a case title and possession passes to the bailee, and the bailor only has personal rights against the bailee.20 Where money is concerned, the pleading is probably in money had and received to the plaintiff’s use.21 In practice, the mutuum has been superseded by the simple

loan,22 and it is rarely encountered in modern case law.23 In a mutuum arrangement, the only obligation of the quasi-bailee is to return equivalent property upon demand,24 and no claim for interest, in the absence of express stipulation,25 could arise from the mutuum itself.26 No such concept was discussed in the judgments. The interest award, premised on the finding that there was no agreement as to interest,27 suggests that either no reliance was placed on this ground, or that there was a sub silentio change to the law of quasi-bailment.

The view that a debtor-creditor relationship was created at the outset is consistent with the holding that the cause of action arose upon the receipt of the money, though it is also clear that the courts did not take this approach. If this view is correct, the claim for money had and received would have been misplaced,28 sustainable only on the assumption that the contract was void under the Moneylenders Act or for contravening foreign law, which was not the strategy adopted in this case. Such claims have been pleaded in quasi-contract on this basis before, but the common law has consistently held them to be barred by same public policy that avoided the contract.29

B. Choice of Law Considerations

A possible motivation for pleading in quasi-contract instead of debt is to dodge the application of Indonesian law. If framed as a debt arising from agreement, then the proper law of the agreement, not being chosen, is the law with the closest and most real connection with the transaction and the parties. The transaction might have been treated as an essentially Indonesian one — the purpose being to open a letter of credit through an Indonesian branch of an international bank for an Indonesian bank as security for the provision of Indonesian banking facilities for Indonesian business activities — and thereby governed by Indonesian law. On the other hand, pleading in quasi-bailment or contract debt is not necessarily fatal to the respondent’s claim: it could also be argued that the transaction stood on its own, money to be repaid in Singapore whether as money had and received or debt, and was governed by Singapore law. The rest of the arrangement can be treated, and indeed was so treated by both Courts, as extraneous.

Choice of law was not considered by either Court. The applicable law was marginalised because the Courts based their decision on the application of the lex fori either on the basis of forum public policy or a forum mandatory statute. If the point had arisen, it would not have been immediately apparent that the (restitutionary) claim was governed by Singapore law. If the claim does not arise in connection with a contract,30 then under Singapore private international law, prima facie Singapore law as the law of the place of enrichment is applicable.31 However, it is arguable that the receipt in Singapore...