Ting Siew May v Boon Lay Choo

• Jurisdiction: Singapore
• Judgment Date: 26 May 2014
• Date: 26 May 2014
• Docket Number: Civil Appeal No 121 of 2013
• Court: Court of Appeal (Singapore)

Ting Siew May

Plaintiff

and

Boon Lay Choo and another

Defendant

[2014] SGCA 28

Sundaresh Menon CJ

,

Andrew Phang Boon Leong JA

and

Judith Prakash J

Civil Appeal No 121 of 2013

Court of Appeal

Contract—Illegality and public policy—Common law—Option to purchase property backdated to avoid notice issued by Monetary Authority of Singapore restricting quantum of loan which could be granted by bank to purchasers—Whether option unenforceable for illegality

Contract—Illegality and public policy—Statutory illegality—Whether option prohibited by statute—Sections 55 and 71 Banking Act (Cap 19, 2008 Rev Ed)

An option to purchase a property (‘the Option’) was granted by the appellant (‘the Appellant’) to the respondents (‘the Respondents’) on 13 October 2012. The Option was backdated to 4 October 2012 at the Respondents' request. This was so that the Respondents could obtain a loan from a bank (‘the Bank’) for the purchase on the more favourable terms allowed prior to the amendment to MAS Notice No 632 issued by the Monetary Authority of Singapore (‘the MAS’) on 5 October 2012 (‘the 5 October Notice’), which lowered the permissible loan-to-value (‘LTV’) ratio of residential property loans for borrowers in the Respondents' position.

Subsequently, the Appellant withdrew her offer as stated in the Option, stating that she did not want to be a party to any illegality or irregularity. Correspondence between the parties' solicitors ensued. Amongst other things, the Respondents' solicitors proposed exercising the Option on the basis that it was dated 13 October 2012, the actual date of the Appellant's signature, and that the Respondents would obtain financing for the purchase on that basis. However, no resolution was reached.

The Respondents applied to the High Court for a declaration that the Option was valid and binding on the Appellant and an order for specific performance of the Option by the Appellant or, alternatively, damages. The High Court judge (‘the Judge’) granted both the declaration and the order for specific performance sought by the Respondents. The Appellant appealed against the Judge's decision that the Option was declared valid and binding on the Appellant.

Held, allowing the appeal:

(1) The Respondents' objection to the Appellant raising new characterisations of the alleged illegality had no force as the illegality in the present case had been adequately pleaded by the Appellant. Even if the Appellant had not pleaded illegality, the court could take cognisance of an illegality provided that all the relevant facts had been adduced and were before the court, which was the case here: at [30] and [31] .

(2) There was a category of contracts illegal at common law which comprised contracts entered into with the object of committing an illegal act. The court would not permit the ‘guilty party’ to benefit from his own wrong as this would be an affront to public policy: at [42] to [44] and [46] .

(3) Where a contract was entered into with the object of committing an illegal act, the general approach was to examine the relevant policy considerations underlying the illegality principle so as to produce a proportionate response to the illegality in each case. The factors for assessing proportionality in this context included: (a) whether allowing the claim would undermine the purpose of the prohibiting rule; (b) the nature and gravity of the illegality; (c) the remoteness or centrality of the illegality to the contract; (d) the object, intent, and conduct of the parties; and (e) the consequences of denying the claim. This was not necessarily a conclusive list of factors. Moreover, these factors should not be applied in a rigid or mechanistic fashion but should be weighed and considered by the court in the context of the particular facts: at [66] , [70] and [71] .

(4) A clear situation of a contract entered into with the object of committing an illegal act would involve contravention of a statutory provision. A contract which contravened a particular statutory provision but was not prohibited by that provision per se could still be void and unenforceable at common law if one or both parties entered into it with the intention or purpose of contravening the statutory provision in question: at [45] , [75] and [112] .

(5) The Option was a contract entered into with the illegal object of contravening the 5 October Notice. On the Respondents' own evidence, they had requested that the Option be backdated for the purposes of obtaining a bank loan on the more favourable terms allowed prior to the 5 October Notice: at [80] and [81] .

(6) To refuse the Respondents enforcement of the Option was a proportionate response to the illegality, taking into account the relevant factors in assessing proportionality. First, the Respondents' intent from the outset was to use the (false) date stated in the Option for a purpose which they knew was prohibited. Secondly, the illegal act which the Respondents set out to commit was not trivial. Thirdly, allowing the Respondents' claim would undermine the purpose of the 5 October Notice. Fourthly, the Respondents' illegal purpose was not too remote from the Option, given that the stating of a false date in the Option constituted an overt step taken in the contract itself in furtherance of this illegal purpose. Finally, the consequences of denying the Respondents enforcement of the Option would not be so great as to render it a disproportionate response to the illegality: at [82] to [85] , [92] , [93] and [102] .

(7) The Respondents' argument that they had abandoned their original unlawful intention by not drawing down on the loan from the Bank and undertaking to obtain financing in compliance with the 5 October Notice was rejected. Any abandonment of an original unlawful intention could be taken into account only if there was an ignorance of the unlawfulness of the intention in the first place. However, the Respondents knew from the outset that the backdating of the Option was to permit them to circumvent the 5 October Notice. This original intention rendered the contract illegal in its very formation: at [94] to [97] .

(8) It was irrelevant whether or not the Bank was eventually deceived or suffered any damage such that it had a valid cause of action against the Respondents. Once an illegal object of the contract had been established, that object tainted the contract itself and it was no answer to say that the illegal object had not been carried out: at [98] .

(9) In the context of statutory illegality, there were two significant principles which ought to be borne in mind. First, there must have been a contravention of the statutory provision (s) concerned. Second, a contravention of the statutory provision (s) concerned did not, ipso facto, result in the contract concerned being declared as void and unenforceable by the court. The inquiry was whether the statutory provision concerned was intended to prohibit not only the conduct but also the contract as well: at [103] , [105] , [106] and [116] .

(10) In so far as the category of ‘implied prohibition’ was concerned, a court should not hold that any contract or class of contracts was prohibited by statute unless there was a ‘clear implication’ or ‘necessary inference’ that this was what the statute intended. An example of such a ‘clear implication’ would be where a contract had as its whole object the doing of the very act which the statute prohibited: at [110] and [111] .

(11) There was neither express nor implied prohibition of the Option in the present case. The relevant statutory instrument was the 5 October Notice, a notice issued by the MAS pursuant to s 55 of the Banking Act (Cap 19, 2008 Rev Ed) (‘the Act’). Neither the Act nor the 5 October Notice expressly stated that contracts such as the Option should be rendered void and unenforceable. There were also insufficient grounds for holding that such a statutory prohibition should be implied, since the parliamentary intention behind the 5 October Notice was not to interfere with private transactions relating to residential property and this was not a situation where there was a ‘clear implication’ or ‘necessary inference’ that the statute intended to prohibit contracts such as the Option: at [117] and [120] to [123] .

(12) The argument that the Respondents did not have to rely on the backdating of the Option to found their claim against the Appellant was rejected. The reliance principle, as traditionally understood, had a narrow ambit of operation and was usually invoked only by a contracting party seeking to recover (on a restitutionary basis) what it had transferred to the other party pursuant to the (illegal) contract. More importantly, such recovery was traditionally premised upon an independent cause of action, thereby avoiding the need to rely on the (illegal) contract. Further, the reliance principle was not merely literal or descriptive in nature but was a legal principle embodying normative elements. The question therefore was not whether the illegality had to be specifically pleaded by the Respondents, but whether the Respondents were endeavouring to enforce an illegal contract. In the circumstances, there was no room for any argument based on the ‘reliance principle’ once it was found that refusal to enforce the Option would be a proportionate response to the illegality and there was no cause of action other than one based on the Option. Further, permitting the factual argument from ‘non-reliance’ to be made would create enormous uncertainty as parties would seek to characterise the facts in order to make the argument: at [126] to [128] .

(13) The decision of the Court of Appeal in American Home Assurance Co v Hong Lam Marine Pte Ltd[1999] 2 SLR (R) 992 did not stand for the proposition that if a plaintiff's cause of action was founded on the contract itself but the plaintiff did not need to rely on the illegal act or...