Justice Goh Yihan: Speech at the 8th Judicial Seminar on Commercial Litigation

THE 8TH JUDICIAL SEMINAR ON COMMERCIAL LITIGATION

"The State of the Illegality Defence in Singapore"

Thursday, 14 March 2024

The Honourable Justice Goh Yihan*

Supreme Court of Singapore

Introduction

1.               At risk of over-simplification, the debate in the law of illegality broadly comes down to a choice between a discretionary approach and a rule-based approach. The majority in the UK Supreme Court case of Patel v Mirza selected the former approach. In contrast, the Singapore approach following the Court of Appeal decision of Ochroid Trading Ltd v Chua Siok Lui is a more limited discretionary one.

Structure of presentation

2.               My paper traces the recent developments in the illegality defence within Singapore law before setting out some outstanding issues for consideration. In the next 23 mins or so, I will make four main points: (1) recent developments of the illegality defence in Singapore, (2) the differences between the Singapore approach and that of the majority in Patel, (3) the potential application of the illegality defence as developed in Ochroid to different areas of private law, and (4) some further observations.

Recent developments in the illegality defence within Singapore law

Ting Siew May v Boon Lay Choo

3.               With the above background in mind, I turn to discuss two Singapore Court of Appeal decisions that have engaged with the illegality defence.

4.               The first case is the Court of Appeal decision of Ting Siew May.⁽¹⁾ This case arose from an attempt to circumvent property cooling measures that had been imposed by the Singapore government. On 5 October 2012, the Monetary Authority of Singapore (“MAS”) announced a number of measures to cool the residential property market. One of those measures was to reduce the quantum that a bank could extend as a loan for the purchase of residential properties. On 13 October 2012, the respondents entered into an option to purchase the appellant’s property (the “Option”). To circumvent the restrictions, the respondents asked to backdate the Option to 4 October 2012. The appellant agreed at first. However, she later withdrew her offer on the basis that the backdated Option constituted an “illegality”. The respondents then sued to enforce the Option. At first instance, the High Court rejected the illegality defence.

5.               The Singapore Court of Appeal allowed the appellant’s appeal. In a unanimous judgment, Justice Andrew Phang held that the Option was void at common law because it was an agreement entered into with the object of committing an illegal act. Although the contract may not by its terms oblige the parties to commit any unlawful act, it may still be void for illegality for furthering a party’s intention to use the contract for an unlawful end.

6.               Ting Siew May thus makes clear that a contract can be voided for illegality if there is a sufficiently strong connection between the contract and an illegal act that one of the parties is said to have intended to commit. However, how strong must this connection be before the contract is tainted by illegality? In Ting Siew May, Justice Phang held that the answer laid in the “proportionality principle”.

7.               More than a single test, the proportionality principle is an evaluative process that involves weighing competing public policy concerns. According to Justice Phang, this process requires the court to consider a number of general factors that appear on the screen as (a) to (e) (at [70]):

1. whether allowing the claim would undermine the purpose of the prohibiting rule;
2. the nature and gravity of the illegality;
3. the remoteness or centrality of the illegality to the contract;
4. the object, intent, and conduct of the parties; and
5. the consequences of denying the claim.

8.               Applying these principles to the facts of Ting Siew May, Justice Phang located the illegality that could taint the Option in the [r]espondents’ intention to circumvent and contravene the 5 October Notice from the MAS (at [80]). The learned judge therefore concluded that it would not be disproportionate to refuse to enforce the Option because (at [82]–[93]), among other things, there was no doubt that the buyer’s object and intent from the outset was to falsify the date for an unlawful purpose. Further, the nature of the illegal act that the respondents set out to commit was neither trivial nor merely administrative as it contravened a principal measure introduced by the 5 October Notice to foster price stability of residential properties.

Ochroid Trading Ltd v Chua Siok Lui

9.               I turn next to the Singapore Court of Appeal’s decision in Ochroid Trading Ltd v Chua Siok Lui,⁽²⁾ which was again delivered by Justice Phang.

10.               Ochroid was decided against the backdrop of Ting Siew May.⁽³⁾ However, Orchroid dealt with the recovery of benefits passed pursuant to a contract that is void for illegality.

11.               In Ochroid, the claimants sought to recover a sum in excess of $10m on the basis of moneys due under contracts or on the ground of unjust enrichment. According to the claimants, the moneys were “investments” in the defendant’s business, for which the defendants were obliged to pay the claimants a fixed rate of “profit”. Judicial Commissioner Audrey Lim, as she then was, dismissed the claimants’ claims at the High Court. She found that the arrangements were illegal loans made in breach of the Moneylenders Act. Consequently, the claimants’ claim on the ground of unjust enrichment also had to be dismissed so as not to afford them a “backdoor” to enforcing the illegal contracts.

12               On appeal to the Court of Appeal, Justice Phang restated the law on illegality as now shown on the screen. Importantly for present purposes, the court declined to adopt the “range of factors” approach advanced in Patel for a number of reasons.⁽⁴⁾ 

13.               First, the “range of factors” approach is unprincipled⁽⁵⁾ in so far as it overreaches to cover the entire field of common law illegality. As such, the court’s discretion was now extended to situations where it did not previously have such discretion. For example, this would mean a court now has the discretion to permit recovery even under a contract that is void at common law under an established head of public policy, when no such discretion previously existed.⁽⁶⁾ 

14.               Second, and in any case, the “range of factors” approach is not needed in Singapore to address any unfairness from a rigid application of the illegality defence. This is because such flexibility is provided by Ting Siew May, albeit in a more circumscribed manner.

15               Third, the “range of factors” approach results in too much uncertainty.⁽⁷⁾ In this regard, while the proportionality principle does result in uncertainty as well, that uncertainty is restricted since Ting Siew May expressly limits the application of the proportionality principle to the situation where a contract was entered into with the objective of performing an illegal act.

16               Applying the law to the facts, the Court of Appeal dismissed the appeal and affirmed the High Court’s finding that because the parties had at all times intended the transactions to be repaid with fixed (and high) interest rates, the transactions were prohibited by the Moneylenders Act. Since the policy underlying the Moneylenders Act is to preclude unlicensed moneylenders from recovering “any compensation whatsoever for their illegal loans” [emphasis in bold italics in original], it follows from the principle of stultification that the claimants’ alternative recovery in unjust enrichment also failed. This ensures that there was no backdoor to recovery which would diminish the central purpose of the Moneylenders Act to deter unlicensed moneylending.

The differences between Ochroid and Patel⁽⁸⁾ 

17.               At this point, it might be worthwhile to discuss the differences between the approaches taken in Ochroid and by the majority in Patel.

18.               It has been noted that Ochroid differs from Patel in two ways.⁽⁹⁾ First, Ochroid clearly rejects the balancing exercise adopted in Patel through the “range of factors” approach. Instead, Ochroid arguably adheres to the traditional principle-based position, at least in relation to statutory illegality, as well as common law illegality in relation to established heads of public policy. Thus, there remains only a limited scope for a discretionary approach and this is confined to the residuary common law cate¬gory of contracts entered into with the object of commit¬ting an illegal act. This is therefore different from the UK approach, where the remit of discretion extends to the entire field of common law illegality.⁽¹⁰⁾ This may be represented graphically on the screen, first specifically in the law of contract, and secondly, across the whole of private law.⁽¹¹⁾ 

19.               Second, and in a similar vein, the scope for application of proportionality is smaller in Ochroid than in Patel. However, where it does ap¬ply in Ochroid, the principle of proportionality takes centre stage. This is because, in contrast to Lord Toulson’s trio of considerations in Patel, the principle of proportionality as it is applied in Ochroid is “not simply one of the factors to be considered, but applies as an overarching principle”.⁽¹²⁾ 

20.               But more broadly, it might be said that the Patel approach is conceptually an overtly consequentialist one.⁽¹³⁾ It approaches disputes by asking whether a court should assist the plaintiff to enforce their claim (based on a “range of factors” as reasons).⁽¹⁴⁾ This may be contrasted with the Ochroid approach, which, in most circumstances, asks whether a claimant has the right to bring a claim (based on substantive law governing the transaction).⁽¹⁵⁾ Thus, all things considered, it might be said that Ochroid nuances this consequentialism by beginning with a principled analysis, confining outcome-based reasoning to a residual branch of contracts that are ex facie legal but entered into with the objective of committing an illegal act.⁽¹⁶⁾ 

The application of the illegality defence as developed in Ochroid to different areas of private law

21.               Ochroid has since been cited in more than 40 Singapore cases but almost always in the contractual context. However, it has also been applied in other areas of private law, though not all. I will now discuss how it has been applied in foreign law illegality, and how it may be applied to tort law.

Foreign law illegality

22.               Turning first to foreign law illegality, one broad issue that has arisen is whether the domestic framework on the pursuit of non-contractual claims relating to an illegal contract should apply where the contract is governed by foreign law. The Singapore Court of Appeal in Ang Jian Sheng Jonathan v Lyu Yan left this question open but raised a concerning “anomaly” in contrast to the situation where the contract is governed by Singapore law. Suppose A and B enter into a contract governed by the law of Country X, with the intention of violating the laws of Country Z. A pays B, but B refuses to perform. A sues B in the Singapore court. The contract would be void and unenforceable by virtue of the rule in Foster v Driscoll, but A would generally be permitted to recover from B in non-contractual causes of action. Ochroid would not apply since the governing law was Country X’s law, and not Singapore law. Yet if the contract were governed by Singapore law, the contract would be void and unenforceable by virtue of Foster v Driscoll, but the Ochroid approach could additionally bar A’s non-contractual claims against B if the principle of stultification was found to apply. The court saw “no principled reason why recovery via non-contractual means should be narrower for A when the contract is governed by Singapore law, and broader when the contract is governed by foreign law”.⁽¹⁷⁾ 

23.               More broadly, another issue is how do domestic rules of illegality in Ochroid affect our treatment of foreign illegality. In this regard, the Hong Kong Court of Final Appeal has pointed out in Ryder Industries Ltd v Chan Shui Woo that one should be cautious about extending purely domestic rules of illegality to the consequences of the illegal performance of a contract in a foreign country.⁽¹⁸⁾ It might be asked if a forum court can apply a domestic principle of proportionality when it may not have a full understanding of the gravity with which the foreign court may see the illegality.⁽¹⁹⁾ That said, it may well be that a judicious application of the domestic framework, without the need to develop a distinct framework for foreign illegality, may well be the best way forward.⁽²⁰⁾ Indeed, it is not controversial that courts should be mindful of the international dimension of cases involving tainting by foreign illegality even as they apply domestic illegality rules.⁽²¹⁾ For example, the Singapore High Court in EFG Bank AG, Singapore v Surewin Worldwide Ltd accepted that the proportionality principle within the Ochroid framework should apply to foreign illegality, even as it emphasised that the burden is not on the forum to protect the policy objectives of a foreign statute.⁽²²⁾ But even then, the application of domestic rules of tainting does not mean that the same policy considerations behind domestic illegality are being applied when a court considers whether a contract is tainted by foreign illegality. Rather, the effect of foreign illegality engages the different question of forum public policy in protecting international comity.⁽²³⁾ 

Torts

24.               Whether and how the Ochroid approach should apply to torts has not been decided in Singapore. To begin with, this question is complicated by the threshold question of whether illegality even has any place in tort.⁽²⁴⁾ In this regard, corrective justice theorists maintain that illegality is a “conceptual misfit within the law of torts” because many torts are “zero sum” games involving rights violation.⁽²⁵⁾ The idea is that, unlike contracts or trusts will illegal objects,⁽²⁶⁾ where the law’s power-conferring aspect is abused, tort cases generally engage the law’s duty-imposing function where personal or proprietary rights are breached in the context of an illegal transaction. Thus, if the claimant is suing for compensation only, there is no possibility of him profiting from his own wrong.⁽²⁷⁾ However, as has been pointed out, such an argument is too sweeping, and it remains possible to apply the “range of factors” approach, and by extension, the Orchroid approach, in a variety of tort situations.⁽²⁸⁾ 

25.               For example, it is possible for tort law to recognise duties that protect against the illegal activity. As has been pointed out, the question here is the extent to which tort law allows duties which allow the claimant to “shift sanctions” to the defendant. If so, the claimant’s compensation ultimately serves to indemnify the claimant for the consequences of his illegal conduct that may undermine the deterrent or other purpose of the criminal law.⁽²⁹⁾ The English cases of Henderson v Dorset Healthcare University NHS Foundation Trust⁽³⁰⁾ and Gray v Thames Trains Ltd⁽³¹⁾ are good examples of such a situation. They show that it is possible to apply the “range of factors” approach to torts cases of this type. In these cases, allowing a claim for losses occasioned by the imposition of a criminal sentence would mean that a person who is blameworthy of a serious offence like manslaughter can harness tort law as a central tool directed primarily at avoiding the deterrent or retributive function of the criminal law. This would, to use the word preferred in Ochroid, “stultify” the effect of the criminal law.

26.               It appears that a clear application of the “range of factors” approach, or a “principle of proportionality” as required under the Ochroid approach, is preferable to the current state of the illegality defence in torts law. Indeed, the current state of the law suffers from several uncertainties that would be addressed more clearly and obviously through an overt application of the “principle of proportionality”.

Further observations

27.               If, as I have tried to show, the Ochroid approach can be applied, I make some further observations for consideration.

28.               First, apart from the differences pointed out before, it is reasonably clear that the approach in Ochroid is not completely distinct from that “range of factors” approach in Patel.⁽³²⁾ Indeed, Justice Phang acknowledged⁽³³⁾ that the proportionality principle in Ting Siew May overlaps with the majority’s approach in Patel in so far as it requires the court to carry out a discretionary, balancing exercise to determine the legal enforceability of a contract. From this perspective, the approach propounded in Ochroid is perhaps a refinement of, rather than a radical departure from, that of the Patel majority.

29.               Second, while the Court of Appeal in Ting Siew May has provided some relevant factors in the application of the principle of proportionality, it may be necessary to flesh this out further in future cases. Apart from the practical application of this principle, it is also necessary to develop a cohesive theoretical understanding of what it means, so as to guide that application. Indeed, as has been argued, it may even be necessary to draw on lessons learned from the proportionality test in public law to clarify the use of proportionality in private law.⁽³⁴⁾ As we do this, it may be worthwhile to adopt, as has been put, “an attitude of cautious optimism towards the trajectory of proportionality, or in other words, remain ‘proportional about proportionality’”.

30.               Third, while there will be legitimate concerns about uncertainty caused by the use of even a limited principle of proportionality, there will always be some uncertainty in the law. Concepts such as “reasonableness” engender uncertainty. At the very least, as has been pointed out, whether the “range of factors” approach, and by extension, the Ochroid approach, results in greater uncertainty can only be assessed empirically and only time will tell if this is the case.⁽³⁵⁾ But in as much as they do, they also promote flexibility in the law. They enable the courts to do common-sense justice that is in accord with principles of law.

Conclusions

31.               In conclusion, Lord Mansfield’s celebrated dicta in Holman v Johnson, that is, “[n]o court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act”,⁽³⁶⁾ is easy enough to understand. But its application to particular facts has confounded theorists and practitioners for centuries. Perhaps that is a function of real-life facts being messy. But if we accept this to be so in the realm of illegality, it may well be that we also recognise the need for judges to explicitly weigh and consider, within perhaps the limits identified by the Singapore Court of Appeal in Ochroid, the underlying policy considerations and explicitly explain how these lead to the ultimate conclusions. In Singapore, following Ochroid, these policies would have to be limited to those concerned with proportionality. And that may be a nuanced way to balance certainty with clarity.

32.               Thank you very much.

_{*       This paper was delivered at the 8th Judicial Seminar on Commercial Litigation held between 14 March 2024 and 15 March 2024 at Hong Kong. I would like to thank my law clerk, Mr Adam Goh, for all their invaluable assistance in the preparation of this paper. All errors remain mine. Also, the views expressed within are mine alone, and do not represent the views of the Supreme Court of Singapore.
(1)       Goh Yihan, Lee Pey Woan and Tham Chee Ho, “Contract Law” (2014) 15 SAL Ann Rev 217 at [12.82]–[12.94].
(2)       [2018] 1 SLR 363. Discussed in Goh Yihan, Lee Pey Woan and Tham Chee Ho, “Contract Law” (2017) 18 SAL Ann Rev 304 at [12.81]–[12.88].
(3)       [2014] 3 SLR 609.
(4)       Goh Yihan, Lee Pey Woan and Tham Chee Ho, “Contract Law” (2017) 18 SAL Ann Rev 304 at [12.84]. See also Andrew Phang, Goh Yihan and Jerrold Soh, “The Development of Singapore Law: A Bicentennial Perspective” (2020) 32 SAcLJ 804 at 852–853, as well as Andrew Phang, “The Intractable Problems of Illegality and Public Policy in the Law of Contract – A Comparative Perspective” in Essays in Memory of Jill Poole – Coherence, Modernisation and Integration in Contract, Commercial and Corporate Laws (Rob Merkin & James Devenney gen eds) (Informa Law, 2018) ch 12.
(5)       [2018] 1 SLR 363 at [114]–[115].
(6)       Goh Yihan, Lee Pey Woan and Tham Chee Ho, “Contract Law” (2017) 18 SAL Ann Rev 304 at [12.84].
(7)       [2018] 1 SLR 363 at [123].
(8)       Tan Ming Zee, “The Defence of Illegality Defended: Analysing Patel v Mirza in light of Ochroid Trading Ltd v Chua Siok Lui [2018] 1 SCLR 26 at 26.
(9)       Tan Ming Zee, “The Defence of Illegality Defended: Analysing Patel v Mirza in light of Ochroid Trading Ltd v Chua Siok Lui [2018] 1 SCLR 26 at 28.
(10)       Tan Ming Zee, “The Defence of Illegality Defended: Analysing Patel v Mirza in light of Ochroid Trading Ltd v Chua Siok Lui [2018] 1 SCLR 26 at 28.
(11)       Tan Zhong Xing, “The Changing Face of the Illegality Doctrine: How It Matters in Theory and Practice”, a continuing legal education seminar delivered on 15 May 2020 at slide 32.
(12)       [2014] 3 SLR 609 at [68].
(13)       Tan Ming Zee, “The Defence of Illegality Defended: Analysing Patel v Mirza in light of Ochroid Trading Ltd v Chua Siok Lui [2018] 1 SCLR 26 at 28.
(14)       Tan Ming Zee, “The Defence of Illegality Defended: Analysing Patel v Mirza in light of Ochroid Trading Ltd v Chua Siok Lui [2018] 1 SCLR 26 at 28–29.
(15)       Tan Ming Zee, “The Defence of Illegality Defended: Analysing Patel v Mirza in light of Ochroid Trading Ltd v Chua Siok Lui [2018] 1 SCLR 26 at 29.
(16)       Tan Ming Zee, “The Defence of Illegality Defended: Analysing Patel v Mirza in light of Ochroid Trading Ltd v Chua Siok Lui [2018] 1 SCLR 26 at 29.
(17)       [2021] 1 SLR 1091 at [30]–[34].
(18)       [2015] HKCFA 86 at [55].
(19)       Adeline Chong and Yip Man, Singapore Private International Law: Commercial Issues and Practice (Oxford University Press, 2023) at para 7.135.
(20)       Adeline Chong and Yip Man, Singapore Private International Law: Commercial Issues and Practice (Oxford University Press, 2023) at para 7.135.
(21)       Yeo Tiong Min, Commercial Conflict of Laws (Academy Publishing, 2023) at para 12.084.
(22)       [2022] 5 SLR 915 at [291].
(23)       Yeo Tiong Min, Commercial Conflict of Laws (Academy Publishing, 2023) at para 13.076.
(24)       Tan Zhong Xing, “Illegality and the promise of universality” [2020] JBL 428 at 437. For an overview on the defence of illegality in tort law, see Mark Ashley, “The illegality defence in tort” (2016) 4 JPI Law 212.
(25)       Tan Zhong Xing, “Illegality and the promise of universality” [2020] JBL 428 at 437.
(26)       Tan Zhong Xing, “Illegality and professional negligence: applying the ‘range of factors’ approach” (2019) 35 PN 121 at 123–124.
(27)       Tan Zhong Xing, “Illegality and professional negligence: applying the ‘range of factors’ approach” (2019) 35 PN 121 at 123–124, referring to Ernest Weinrib, “Illegality as a Tort Defence” (1976) UTLJ 28 at 50.
(28)       Tan Zhong Xing, “Illegality and the promise of universality” [2020] JBL 428 at 437.
(29)       Tan Zhong Xing, “Illegality and the promise of universality” [2020] JBL 428 at 438.
(30)       [2018] 3 WLR 1651.
(31)       [2009] 3 WLR 167.
(32)       Goh Yihan, Lee Pey Woan and Tham Chee Ho, “Contract Law” (2017) 18 SAL Ann Rev 304 at [12.84].
(33)       [2018] 1 WLR 3208.
(34)       Ernest Lim and Francisco J Urbina, “Understanding proportionality in the illegality defence” (2020) 136 LQR 575 at 597.
(35)       Ernest Lim, “Ex Turpi Causa: Reformation not Revolution” (2017) 80 MLR 927 at 936. See also Ernest Lim, “Tensions in private law judicial decision-making: a case study on the illegality defence” [2016] JBL 325 at 334 and James Goudkamp, “The end of an era? Illegality in private law in the Supreme Court” (2017) 133 LQR 14 at 17.
(36)       (1775) 1 Cowp 341 at 343.}