Ting Siew May v Boon Lay Choo and another

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ
• Judgment Date: 26 May 2014
• Neutral Citation: [2014] SGCA 28
• Court: Court of Appeal (Singapore)
• Docket Number: Civil Appeal No 121 of 2013
• Year: 2014
• Published date: 04 June 2014
• Hearing Date: 25 February 2014
• Plaintiff Counsel: Alvin Yeo SC, Ong Pei Chin, Hong Jia (WongPartnership LLP), M P Kanisan and P Balagopal (M P Kanisan & Partners)
• Defendant Counsel: Tang Hang Wu and Ng Lip Chih (NLC Law Asia LLC)
• Subject Matter: Contract,Illegality and Public Policy,Land,Sale of Land
• Citation: [2014] SGCA 28

Andrew Phang Boon Leong JA (delivering the judgment of the court): Introduction

This is an appeal against the decision of the judge (“the Judge”) in Boon Lay Choo and another v Ting Siew May [2013] 4 SLR 820 (“the Judgment”).

This appeal concerns the enforceability of an option to purchase a property granted by the Appellant to the Respondents, which was backdated at the request of the latter. It was common ground that such backdating was effected for the purpose of enabling the Respondents to obtain a higher bank loan in circumvention (as well as contravention) of MAS Notice No 632, a notice prescribed by the Monetary Authority of Singapore (“the MAS”) pursuant to s 55 of the Banking Act (Cap 19, 2008 Rev Ed) (“the Act”). This notice was prescribed for the purpose of regulating residential property loans. The Judge held that the said option was enforceable at the instance of the Respondents.

As we shall see, the present appeal necessitates the consideration of the applicable legal principles in relation to one of the most confused (and confusing) areas in the common law of contract – that of illegality and public policy. Indeed, in this appeal, we would need to consider the legal principles with regard to not only statutory illegality but also illegality at common law.

Before proceeding to set out the applicable legal principles as well as applying them to the facts of the present appeal, it would be appropriate – by way of background – to first set out the relevant facts, the decision of the Judge, the relevant issues which arise in the present appeal, as well as a summary of the parties’ respective cases.

Facts Background to the dispute

The Appellant is the sole owner of 30 Jalan Angin Laut Singapore 489226 (“the Property”). The Respondents are husband and wife. In October 2012, the Appellant granted the Respondents an option to purchase the Property (“the Option”), which was backdated to 4 October 2012.

Around mid-2012, the Respondents were interested in purchasing a landed property and approached their banker at United Overseas Bank (“the Bank”), Mr Leslie Ong (“Ong”), about the financing of such a purchase. On 12 July 2012, the Bank granted the Respondents in-principle approval for a loan capped at the loan-to-value (“LTV”) ratio of 80%. At that time, this was the prevailing limit imposed by MAS Notice No 632 on the quantum of residential property loans for borrowers in the Respondents’ position.

On 5 October 2012, the MAS issued an amendment to MAS Notice No 632 (“the 5 October Notice”), the effect of which was that the LTV ratio of the Respondents’ proposed loan from the Bank would have to be lowered from 80% to 60%. It was not in dispute that the Respondents knew about the 5 October Notice around the time it was announced.

On 10 October 2012, the Respondents made an oral offer to the Appellant to purchase the Property. On or about 12 October 2012, the parties agreed on the purchase price of S$3.68m. On 13 October 2012, the Appellant signed the Option which was backdated to 4 October 2012. According to the Respondents, they had been advised by Ong to ask their property agent to check with the Appellant if she was willing to backdate the Option to 4 October 2012 so that they could obtain a loan for the purchase on the more favourable terms allowed prior to the 5 October Notice. The Respondents’ position was that Ong had told them that “a lot of buyers” were backdating their purchases to dates prior to 5 October 2012 for that reason and that this was simply “common practice”.

On 15 October 2012, the Respondents were offered a loan from the Bank at the LTV ratio of 80% and on 19 October 2012, they accepted the offer. On 24 October 2012, one day before the expiry of the Option, the Appellant’s solicitors wrote to the Respondents’ solicitors, stating that the Appellant “[did] not want to be a party to any illegality or irregularity” and was withdrawing her offer. According to the Appellant, she only learnt about the 5 October Notice on 19 October 2012 and was then advised not to proceed with the sale of the Property.

The Respondents’ solicitors responded on 24 October 2012, stating that the Appellant had no right to withdraw the offer as stated in the Option. On 25 October 2012, the Respondents’ solicitors unsuccessfully attempted to exercise the Option at the offices of the Appellant’s solicitors. A series of correspondence between the parties’ solicitors ensued. Amongst other things, the Respondents’ solicitors, in a letter dated 6 December 2012, proposed that the parties proceed with the exercise of 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 also obtain financing for the purchase of the Property on that basis. However, no resolution was reached.

On 11 January 2013, the Respondents applied for: (a) a declaration that the Option is valid and binding on the Appellant; and (b) an order for specific performance by the Appellant of the Option or, in the alternative, damages.

The proceedings below

In the proceedings below, the Appellant argued that the backdating of the Option for an illegal purpose (ie, to obtain a loan at the LTV ratio of 80% in contravention of the 5 October Notice) rendered the Option void and unenforceable. The Appellant also argued that the Respondents were not entitled to an order for specific performance because they had “unclean hands”.

Conversely, the Respondents contended that the Option was valid and binding on the Appellant, since it was not illegal per se but was capable of being performed lawfully. Further, the Respondents argued that they had “washed their hands” and repented from any alleged illegality (relying on the doctrine of locus poenitentiae) by voluntarily undertaking to perform the contract in full compliance with the 5 October Notice.

The Judge held that the Option was valid and binding on the Appellant and granted the Respondents an order for specific performance of the Option. The Judge considered that there was no statutory illegality since there was no express or implied legislative intention that the backdating of the Option would render it unenforceable. The Judge also found that the Option was not void and unenforceable for illegality at common law since the illegal manner in which the Respondents intended to procure financing was too remote from the contract and the Respondents did not need to rely on the backdating to found their claim against the Appellant.

The issues before this court

The key question in this appeal (as alluded to at the outset of this judgment) is whether the Respondents are entitled to enforce the Option despite the fact that it was backdated for the purposes of enabling the Respondents to obtain a larger credit facility than they were otherwise entitled to under the 5 October Notice. Accordingly, the following issues need to be determined: Whether the Option is void and unenforceable at common law for being contrary to public policy, in particular: Whether the Option is void and unenforceable for being a contract to commit the tort of fraud or deceit; and Whether the Option is void and unenforceable for being a contract that was entered into with the object of committing an illegal act. Whether the Option is expressly or impliedly prohibited under statute.

We pause to note that, although the parties’ respective cases (and, indeed, the Judgment in the court below) considered the issue of statutory illegality first, for reasons which will be apparent in the following analysis, we think that it is more appropriate to commence with a consideration of the issue relating to illegality at common law – hence, the framing of the issues in the order set out in the preceding paragraph.

We also pause to note that there were two other possible issues which were not taken up on appeal. One related to the applicability of the doctrine of locus poenitentiae. This particular issue was mentioned but was not (correctly, in our view) pursued by counsel for the Respondents, Prof Tang Hang Wu (“Prof Tang”) (if nothing else, because the facts did not, in our view, permit such a doctrine to be invoked in the first place). The other issue related to the Judge’s findings on specific performance. Again, given our analysis and decision that follow, this issue has been rendered moot in any event.

The parties’ respective cases – a summary

The Appellant first characterised the nature of the illegality committed by the Respondents as not only the abetment of an offence by the Bank under s 55 of the Act, but also as the offence of attempted cheating under s 415 read with s 511 of the Penal Code (Cap 224, 2008 Rev Ed) (“the Penal Code”). The Appellant submitted that the Option, which was backdated in order to circumvent the 5 October Notice, was impliedly prohibited by the Act since the policy objective of the 5 October Notice was to protect the public by avoiding a property “bubble” that would destabilise Singapore’s financial system.

Alternatively, the Appellant argued that the Option was illegal and unenforceable at common law because it was intended to be used for the illegal purpose of cheating or deceiving the Bank. The Appellant submitted that the illegality in this case was not too remote, given that the procuring of financing was central to the Respondents’ ability to perform their obligations under the Option and the instrument of the Respondents’ deception of the Bank was the backdated Option itself.

The Respondents argued that any illegality was now irrelevant since the loan from the Bank was never drawn down and since they had already expressed their unequivocal intention to obtain financing in compliance with the 5 October Notice. They also argued that the Appellant had shifted her case on appeal by raising new characterisations of the alleged illegality and that she should...