Introduction

With globalisation, it is increasingly important for businesses to understand not just the rules of domestic illegality but also foreign illegality. While a transaction might not contravene Singapore law, it might nevertheless breach the laws of a friendly foreign country. This could trigger the application of the rules of foreign illegality, a technical and complex doctrine that has vexed many companies with a global reach.

In Esben Finance Ltd and others v Wong Hou-Lianq Neil [2022] SGCA (I) 1 (Esben), a five-judge panel in the Singapore Court of Appeal (CA) clarified the effect of foreign illegality. There, the CA upheld the decision of the Singapore International Commercial Court (SICC) to dismiss the plaintiffs’ claims in unjust enrichment, dishonest assistance, knowing receipt and unlawful means conspiracy. In a two-part commentary, we shall discuss the plaintiffs’ unjust enrichment claims (UE Claims) with Part I focusing on the effect of foreign illegality on the law of unjust enrichment and Part II focusing on the guiding principles for recognising lack of consent as an unjust factor.

Background

The plaintiff companies commenced an action to recover 50 allegedly unauthorised payments (totalling US$20,278,565.41 and S$4,473,100.52) (the Payments) made by the plaintiffs to the defendant. These Payments occurred at a time when the defendant’s father was in charge of the plaintiffs’ day-to-day management. While the defendant admitted to receiving the Payments, he argued that the plaintiffs’ claims were either time-barred or could not otherwise be established.

At first instance, the SICC found that the plaintiffs’ claims to the Payments were time-barred, save for the last payment. For completeness, however, the SICC also considered the recoverability of the Payments in the absence of time-bar. On that basis, the SICC found that 36 of the Payments (36 Payments) would not have been recoverable, as they were made as a part of a wider practice (involving the use of structured intercompany payments) to evade taxes in Malaysia (Practice). However, the remaining 14 payments (14 Payments) would have been recoverable, as there was no or insufficient evidence to support the defendant’s case that they were either sums to which he was entitled and/or gifts from his father. The plaintiffs appealed against the SICC’s decision.

Decision of the Court of Appeal on the unjust enrichment claims

Dismissal of the plaintiffs’ UE Claims for the 36 Payments

The CA found that the plaintiffs’ UE Claims were not time-barred under the Limitation Act and were also not barred by the doctrine of laches.

However, the CA dismissed the plaintiffs’ UE Claims for the 36 Payments on the basis that there was no enrichment at the plaintiffs’ expense. The plaintiffs’ own assets were never depleted or put at risk by making the 36 Payments pursuant to the Practice, as both the making of the payments and the wherewithal for making such payments stemmed from the Practice itself.

Whether illegality bars a defence to the unjust enrichment claims for the 36 Payments

The CA observed that there was nothing preventing the court from recognising the fact that something was done pursuant to an illegal arrangement, as opposed to enforcing the illegal arrangement itself. Thus, the illegality of the Practice (which was made to evade taxes in Malaysia) did not prevent the defendant from pleading it as a fact, nor did it prevent the Court from finding as a fact that the Practice existed and that the 36 Payments were made pursuant to it. As the plaintiffs failed to establish the UE Claims for the 36 Payments, the CA did not have to decide whether the illegality doctrine – specifically the principle that a claim ought to be unenforceable if it offended the policy of international comity (the Comity Unenforceability Principle) – barred the defendant from raising the Practice as a defence to the UE Claims.

Nevertheless, the CA provided its provisional views on this issue so that they could be considered in an appropriate case in the future. First, the Comity Unenforceability Principle, which was articulated in the context of proscribing a contractual claim, ought to be extended to apply to unjust enrichment claims as well. Second, the CA considered that there are merits to arguing that, subject to the principle of stultification, the Comity Unenforceability Principle should also apply to bar defences in unjust enrichment. In the present case, the defendant would, thus, not be allowed to rely on the Practice as a defence if the success of that defence would require the courts to stultify the policy of international comity. However, the CA did not need to decide this issue for the reasons mentioned above.

No unjust factor for the remaining 14 Payments

The CA further dismissed the plaintiffs’ UE Claims for the remaining 14 Payments founded on the plaintiffs’ lack of consent as an unjust factor. Part II of our commentary summarises the CA’s decision on this issue.

Conclusion

In light of the provisional views expressed in Esben, it is likely that the Comity Unenforceability Principle could be applied to defeat not just contractual claims but also claims and defences in unjust enrichment. This is a significant decision given the continuous development of unjust enrichment as a distinct and important branch of the law of obligations.

It will be prudent for businesses that operate in two or more jurisdictions to immediately seek legal advice once it discovers some possible wrongdoing. The discovery of any such impact should lead to further considerations to deal with any civil or criminal risks that may arise, such as: is there a need to report the transactions to the authorities? What is the likelihood of the transactions being rendered unenforceable? Are there fundamental policies that could be stultified by the transactions in question?

Dentons is a global law firm operating in 82 countries with 207 offices, and will be able to seamlessly assist not only on aspects of domestic illegality but also foreign illegality. If you would like to find out more about the effect of illegality and how it impacts on your business, please reach out to us.