LAW AND COMMERCE
tracts which are not unlawful per se but entered into with the object of committing an illegal act (and only in this category), the proportionality principle laid down in Ting Siew May ought to be applied to determine if the contract is enforceable.’22 Ting Siew May had identified five factors to be considered when assessing proportionality: (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.23 At the second stage, and notwithstanding that the contract was prohibited under the first stage, the court would consider granting damages on a restitutionary basis24. This would be possible via three legal avenues: (a) where parties are not in pari delicto; (b) where the doctrine of locus poenitentiae applies because there has been timely repudiation by the plaintiff of the illegal contract, and (c) where the plaintiff brings an independent cause of action for the recovery of the benefits conferred under the illegal contract which does not allow the plaintiff to enforce, and thereby profit from, the illegal contract. Moreover, the availability of restitutionary damages would be subject to the principle of stultification, which considers whether allowing the claim would undermine the fundamental policy that rendered the underlying contract void and unenforceable in the first place. The facts of the case are as follows: Ochroid Trading Ltd had provided ‘loans’ to VIE Import & Export pursuant to over 700 agreements, and VIE had failed to pay Ochroid back. Ochroid sued VIE for breach of contract and unjust enrichment. VIE relied on the defence of illegality, arguing that the sums were loans and the plaintiff was not a licensed moneylender under the Moneylenders Act (Cap 188, 2010 Rev Ed) (“MLA”). In the first stage of inquiry (the ‘claim in contract’), the court held that the moneylending contracts were unenforceable under the MLA; as such, Ochroid’s claims failed, and the court did not have to apply the principle of proportionality. In the second stage of inquiry (the ‘claim for restitution’), the avenues for recovery on in pari delocto and locus poenitentiae bases were not relevant. However, the requirements for the third avenue – avenue (c) as pointed out above – were satisfied: (i) the defendant had been enriched; (ii) the enrichment was at the
28
22
Ochroid (n 2) [176] (emphasis added).
23
(n 9) [70].
24 Relief is only by way of restitution; it does not allow the plaintiff to enforce or profit from the illegal contract: Ochroid (n 2) [42].
plaintiff’s expense; and (iii) the enrichment was unjust since there had been a total failure of consideration. The court then considered the principle of stultification. It held that to permit recovery would stultify the social and public policy against unlicensed moneylending undergirding the MLA, specifically under section 14(2)(a).25 In particular, the court referred to the strong need to deter illegal moneylending due to its status as a serious social menace, and the need to maintain the integrity of Singapore as an international finance centre.26 As such, the alternative claim in unjust enrichment could not succeed.
Comparing the Two Approaches Ochroid differs from Patel in two key ways: its principle-based approach; and its treatment of proportionality. First, Ochroid rejects the balancing exercise adopted in in Patel, and instead keeps in line with the traditional principle-based position. Any scope for a discretionary approach is confined to the residuary common law category of contracts entered into with the object of committing an illegal act. This is contrasted to the UK approach, where the remit of discretion extends to the entire field of illegality.27 Second, the scope for application of proportionality is smaller in Ochroid than in Patel, but where it does apply, it takes centre stage. In Patel, the majority applied the balancing exercise (which included considerations of proportionality) to all cases of illegality at common law28. This would include scenarios where even a common law head of claim is transgressed. Whereas in Ochroid, proportionality is relevant only where a contract is tainted by illegality but not prohibited by an established head of common law. In other words, once a contract is prohibited by common law, it must fail under the defence of illegality. However, within this residual scope, the concept of proportionality takes centre stage in the balancing approach; it is ‘not simply one of the factors to be considered, but applies as an overarching principle’29. This is contrasted to Patel, where the majority adopted a more general test, considering Toulson’s broader ‘range of factors’ approach (in which proportionality is just one factor). The Patel approach is an overtly consequentialist one. It approaches disputes by asking whether a Court should assist the plaintiff to enforce their claim (based on a 25
Ochroid (n 2) [215].
26
ibid [219].
27
ibid [110].
28 Notably, the balancing exercise does not apply to statutory illegality: Patel, at [109]. This is the position of Singapore law in Ochroid as well: Ochroid (n 2) [40]. 29
Ting Siew May (n 9) [68].