Ching Mun Fong (executrix of the estate of Tan Geok Tee, deceased) v Liu Cho Chit (No 2)
[2001] SGCA 36

dismissed Fook Gees claim for the repayment of the alleged loan. However, the she gave judgment for Madam Lim against Lee Tat, for the balance of the purchase price.

The matter was taken to the Court of Appeal, which delivered its judgment on 6 February 1998. The Court of Appeal dismissed Fook Gees appeal. However, the appeal by Lee Tat was allowed, on the ground that Madam Lim never had any interest in the joint venture site, and consequently had no interest in the Property which she could sell.

On 4 June 1998, Madam Ching, as executrix of Mr Tans estate, commenced the present proceedings against Mr Liu seeking to recover the sum of $1,368,420.71 (being the equivalent of US$642,451.04 at the agreed rate of exchange at the time of payment to Mr Liu) as money had and received, on the ground that the US$642,451.04 was paid to Mr Liu under a mistaken assumption that Madam Lim had an interest in the Property. After further litigation, Madam Ching managed to amend her statement of claim to include a claim for a remedial constructive trust.

The trial judge dismissed Madam Chings claims on two grounds. Firstly, it was held that the true contracting parties in the sale of Madam Lims alleged interest to Lee Tat was Madam Lim (as the purported vendor) and Lee Tat (as the purported purchaser). As such, any action for money paid under a mistake ought to have been brought by Lee Tat against Madam Lim. Mr Tans estate was not the proper plaintiff, and Mr Liu was not the proper defendant. Secondly, the trial judge held that in any case, the claim was time barred, and no remedial constructive trust arose.

Madam Ching thus brought the present appeal. On the question of the proper parties to the action, Madam Ching argued that the true contracting party to the joint venture was Mr Liu, and that Madam Ching was purportedly conveyed the joint venture site as Mr Lius nominee. As such, any interest in the joint venture site (and consequently in the Property) was supposed to have been vested in Mr Liu. Conversely, when Lee Tat contracted to purchase the interest in the Property from Mr Liu, it did so as Mr Tans nominee. Madam Ching thus contended that the true contracting parties in the purported sale of Madam Lims interest in the Property to Lee Tat were actually Mr Liu and Mr Tan, so that the parties were properly constituted for the present action.

With regards to the issue of time bar, Madam Ching contended that the mistaken assumption that Madam Lim had an interest in the Property was discovered only on 6 February 1998, when the Court of Appeal pronounced its judgment. Madam Ching therefore claimed that the limitation period began to run only as of that date, so her claim was not time-barred. Alternatively, Madam Ching argued that when the Court of Appeal pronounced its judgment on 6 February 1998, Mr Liu could no longer retain the monies without his conscience being affected. She thus contended that the monies became impressed with a remedial constructive trust as of 6 February 1998.

(1) The true contracting parties were Mr Tan and Mr Liu and nobody else. ( 22-25). Madam Ching as the executrix of the estate of Mr Tan, was thus entitled to bring this action against Mr Liu for the recovery of the sum paid to him. The proper parties were before the court ( 26).

(2) The trial judge was correct in holding that the six year limitation period found in s 6(1)(a) of the Limitation Act applied to Madam Chings claim ( 27). However, if the monies sought to be recovered were paid under a mistake, then by virtue of s 29(1)(c) of the Limitation Act, the limitation period would begin to run only as of the time when the mistake could have been discovered ( 28).

(3) The contention that the mistake underlying the payment could not have been discovered until the Court of Appeal delivered its decision on 6 February 1998 was rejected ( 29). In the 1984 action brought by Madam Lim, Mr Tan asserted in his affidavit, filed on 1 February 1989, that Madam Lim had no interest in the Property. Thus, as of 1 February 1989, if not earlier, he had already discovered the mistake. Even if the limitation period was postponed by virtue of s 29(1)(c) of the Limitation Act, the time bar would have set in by 1 February 1995, at the latest ( 30). Section 29(1)(c) of the Limitation Act states quite clearly that time begins to run once the plaintiff could with reasonable diligence have discovered the mistake. As far as s 29(1)(c) is concerned, it is the plaintiffs means of ascertaining the mistake, and not what the court eventually decides, that is relevant in determining when the limitation period begins to run ( 32).

(4) A remedial constructive trust arises where the court imposes a constructive trust de novo on assets which are not subject to any pre-existing trust as a means of granting equitable relief in a case where it considers just that restitution should be made ( 34). In order for a remedial constructive trust to arise, the payees conscience must have been affected, while the monies in question still remain with him. If the payee learns of the mistake only after the monies have got mixed with other funds or dissipated, no constructive trust in respect of these monies can arise. This is because there would no longer be an identifiable fund for the trust to bite ( 36).

(5) On the facts of this case, there was no ground for imposing a remedial constructive trust on Mr Liu in respect of the US$642,451.04 paid to him. The relationship between Mr Liu and Mr Tan was only that of a vendor and purchaser and was wholly commercial. There was no dishonest conduct on the part of Mr Liu. The sum was paid to Mr Liu in April 1981 with the intent that he was free to deal with it as his money. It was never intended by either Mr Tan or Mr Liu that it should be kept, and it had never been kept, distinct as an identifiable fund. On the basis of Mr Khoos contention that Mr Liu discovered the mistake only in February 1998 or thereabouts, there was a span of some 17 years and the sum paid to Mr Liu must have, in the meanwhile, been spent or mixed with other funds of Mr Liu. There was no sum or fund on which a remedy of constructive trust could be imposed by the court. The sum paid to Mr Liu was certainly not trust property. There was, of course, an obligation on the part of Mr Liu to return the monies to Mr Tan, but that was only a personal obligation ( 37).

Limitation Act (Cap 163, 1996 Rev Ed), ss 6(1)(a), 22(1), 29(1)(c)

JUDGMENT:

Grounds of Judgment

22.    On the facts, there was no doubt that both in the joint venture agreements made in January 1973 and in the sale of the alleged interest in the Property in April 1981, the true contracting parties were Mr Tan and Mr Liu and nobody else. In respect of the joint venture, Mr Tan and Mr Liu were the ones who negotiated with each other and reached an agreement, which was then reduced into four separate agreements. So far as Mr Liu was concerned, his wife, Madam Lim, was merely his nominee. In entering into the joint venture with Mr Tan in 1973, he made use of his wife as a nominal party to the joint venture agreements and signed the agreements on her behalf. She did not even know of the joint venture or of any of the agreements which were made in her name. The same applies to Mr Tan with regard to using his daughter, Collin, and his family company, Lee Kai, in entering into the joint venture agreements. Mr Tan signed the agreements on behalf of Collin and Lee Kai respectively. Like Madam Lim, Collin did not even know of the joint venture or any of the joint venture agreements. In truth and in fact, Mr Liu and Mr Tan were the contracting parties. As Mr Khoo submitted, and we agreed, none of the nominal parties to the joint venture agreements had any independent thought or action as regards any of the agreements. Further, the subsequent dealings in relation to the proposed development on the joint venture site were between Mr Tan and Mr Liu only.

23.    Subsequently, in April 1981, when Mr Liu and Mr Tan negotiated on the sale and purchase of what was then believed to be Madam Lims or Mr Lius interest in the Property, only Mr Liu and Mr Tan were the parties involved in such negotiations. So far as Mr Liu was concerned, his wife was the nominee and the interest acquired was his, and in the negotiations he was acting in his personal capacity as the beneficial owner of that interest. The evidence of Mr Liu was that he negotiated with Mr Tan on the sale of that interest, and they reached an agreement, whereby Mr Tan agreed to purchase that interest at the price of $3.8 m, and in part payment of the purchase price, Mr Tan handed to him the two cashiers orders for the total amount of US$642,451.04. It was Mr Tan who made the payment. Where he got the funds from was immaterial.

24.    Even if it can be said, as it was so argued on behalf of Mr Liu, that Madam Lim was the contracting party and that the sum of US$642,451.01 was a purported part payment, through Mr Liu, to Madam Lim of what was then believed to be her interest in the Property, and thus the payment was made to Mr Liu as the agent for Madam Lim, an action could still be brought, as was brought here, to recover that sum from him. He was the sole recipient and beneficiary of this sum, and the irrefutable evidence was that no part of that sum was ever paid to Madam Lim. He had kept this sum and treated it as his. He could properly be sued, as he was here, for repayment of the money that was paid to him. There is authority for the proposition that, where a payer makes a payment to an agent of the payee under a mistake of fact, the payer can recover the payment from the agent, if the agent has not paid it over to the principal: Kleinwort, Sons & Co v Dunlop Rubber Co (1907) 97 LT 263, at 264 and 265. See also Goff and Jones, The Law of Restitution (5^th edn) (1998) at pp 186 and 833.

25.    Turning to Mr Tan, it was not in evidence that Mr Tan on behalf of Lee Tat entered into the sale and purchase agreement with Mr Liu; there was only an inference that he probably did so, because the Property was then vested in Lee Tat. The undisputed evidence was that it was Mr Tan who negotiated with Mr Liu for the purchase of the alleged interest of Madam Lim or Mr Liu in the Property, that it was Mr Tan who agreed with Mr Liu on the price for the alleged interest, and that it was Mr Tan who paid the monies to Mr Liu. The monies were clearly his, and there was no evidence that the monies were Lee Tats. In any case, Lee Tat was his nominee and his company, and to all intents and purposes the Property was his. There was nothing to prevent him, on his own account, from purchasing what he believed was Madam Lims or Mr Lius interest in the Property and made the part payment. Even if, acting as an agent of Lee Tat, he made the payment to Mr Liu, he did so in the mistaken belief that Madam Lim or Mr Liu had an interest in the Property, which in fact neither of them had. In such circumstances, that mistake was entirely his and not his principals; nor could it be attributed to his principal, and he can recover the monies from the payee: see Goff and Jones, The Law of Restitution (5^th edn) (1998) at pp 183 184.

26.    In our judgment, Madam Ching as the executrix of the estate of Mr Tan, was entitled to bring this action against Mr Liu for the recovery of the sum paid to him. The proper parties were before the court. On this point, with respect, we were unable to agree with the judge below.

27.    With respect to Madam Chings claim for money had and received for a total failure of consideration, the judge held that the cause of action was founded on contract, and s 6(1)(a) of the Limitation Act (Cap 163) applied. As the money was paid to Mr Liu on or about 23 April 1981, the claim for the recovery of this sum had been barred by 22 April 1987. He said:

72 I am of the view that such causes of action are founded on a contract for the purpose of s 6(1)(a) of the Limitation Act (Cap 163) which states:

6 - (1) Subject to this Act, the following actions shall not be brought after the expiration of 6 years from the date on which the cause of action accrued:

(a) actions founded on a contract or on tort;

73 The monies which are the subject of this action were paid pursuant to the oral contract to purchase Mdm Lims interest. The claim for monies had and received are also founded on the oral contract in that it was not as though the monies were received on a basis apart from the oral contract. In addition, the words founded on a contract are wide enough to cover claims for the recovery of monies paid pursuant to a contract where the underlying subject matter of the agreement did not exist or did not materialise.

76 Accordingly these causes of action would be time-barred long before the commencement of the present action on 4 June 1998.

The judges reasoning on this point was, with respect, correct. We agree with him entirely.

28.    We now turn to the claim for recovery of the monies on the ground that the payment was made under a mistake. If the monies were paid under a mistake, then the limitation period for Madam Lims action would have been postponed under s 29(1)(c) of the Limitation Act. The provision states:

29(1) Where, in the case of any action for which a period of limitation is prescribed by this Act

(c) the action is for relief from the consequences of a mistake, the period of limitation shall not begin to run until the plaintiff has discovered the fraud or the mistake, as the case may be, or could with reasonable diligence have discovered it.

29.    It was Mr Khoos contention that payment of the US$642,451.04 was made under a mistake of law, and that this mistake could not have been discovered until this Court delivered its decision on 6 February 1998. He thus argued that the present proceedings, which were commenced in 1998, were not time barred. This argument was rejected by the judge below. We too rejected it.

30.    There was ample evidence before the court that Mr Tan discovered the mistake long before the judgment of this Court was delivered. The judge laid out the evidence as follows:

93 By a letter dated 4 May 1983, M/s Drew & Napier, acting for Fook Gee, demanded the return of the monies paid and interest from Liu on the basis that Fook Gee had lent the monies to Liu.

94 By a letter dated 11 May 1983, M/s Allen Yau, acting for Liu, replied. They said that Liu had received on behalf of Mdm Lim the monies from Lee Tat. They also said that the monies represented part payment of a purchase price for Mdm Lims interest in the Property.

95 By a letter dated 27 July 1983, M/s Drew & Napier asserted that Mdm Lim never had any direct interest in the land.

96 M/s Drew & Napier must have been taking instructions from Tan as Tan was controlling Fook Gee and Lee Tat.

97 Lee Tats and Tans position was reiterated in paragraph 12 of the Amended Defence (of the first three defendants), filed on 7 October 1987, in the 1984 action, which states:

12. Paragraphs 5 and 6 of the Statement of Claim are denied. Further the Statement of Claim discloses no share which the Plaintiff owned at the said date which she could agree to sell. The Defendants reserve the right to plead further hereto when the case is properly particularised.

Apart from the pleadings filed in that action, Mr Tan himself asserted in his affidavit filed on 1 February 1989 that Madam Lim had no interest in the Property. Thus, as of that date, if not earlier, he had already discovered the mistake. That was the most damning piece of evidence against the claim that the mistake was not discovered until the decision of this Court. The judge referred to Mr Tans affidavit and said:

99 Furthermore, paragraph 20(iii) of Tans affidavit affirmed on 1 February 1989 for the 1984 action stated:

(20) In June 1984, 11 years after the alleged Second Agreement was purportedly entered into, the Plaintiff commenced this action to claim the following relief:-

(iii) as against the 1st Defendants and/or myself, she claims specific performance of a purported oral agreement made sometime in April 1981, under which the 1st Defendants and/or myself allegedly agreed to buy her share in Lot 1606 of Mukim 28 for $3.8 million (hereinafter called "the alleged oral Third Agreement").

100 Paragraphs 25(a) and 27 to 29 of the same affidavit stated:

(25) The Plaintiffs claim that the 1st Defendants are holding Lot 1606 of Mukim 28 on trust for her and Collin Tan is also misconceived and cannot be sustained for the following reasons:-

(a) At all material times, the Plaintiff had no proprietory interest in the property;

(b)

(c)

(26)

(27) Further, for any or all of the above reasons, the Plaintiff had no interest in the property and, consequently, nothing for which she could allegedly sell to the 1st Defendants or myself.

(28) Besides, the 1st Defendants were at all material times the de facto and de jure owner of the property (including Lot 1606 of Mukim 28). Even if the alleged oral Third Agreement existed, which is denied, there was no consideration to support it.

(29) At the time of the alleged oral Third Agreement, she had no right whatsoever in the property. For this reason, the alleged oral Third Agreement is invalid for want of consideration. [Emphasis is added]

In view of what had transpired, it was impossible to argue on behalf of Madam Ching that Mr Tan could not have known about Madam Lims want of interest until this Courts decision. At the latest, Mr Tan knew about it by 1 February 1989, when he affirmed the affidavit. Even if the limitation period was postponed by virtue of s 29(1)(c) of the Limitation Act, the time bar would have set in by 1 February 1995, at the latest.

31.    The following argument was, nevertheless, raised by Mr Khoo on behalf of Madam Ching in the Appellants Case:

86. It was held by the Lords in Kleinwort Benson v Lincoln County Council that the date when the local authority interest swap rate transactions proved to be void was when the House of Lords made its decision in Hazell v Hammersmith and Fulham London Borough Council. It is submitted that it is implicit if not express in that judgment that the cause of action to recover a payment made under a mistake of law only accrues when the court determines that there is a mistake of law.

..

89. Therefore it was not until the Court of Appeal judgment of 6^th February 1998 that it was established that there had been a mistake in 1981 when the moneys were paid over to the respondent. The mistake was therefore not "discovered" until the Court of Appeal held that Mdm Lim/the respondents assumed interest was not an interest at all.

32.    We were unable to accept this argument. The provision in question is s 29(1)(c) of the Limitation Act, which states quite clearly that time begins to run once the plaintiff could with reasonable diligence have discovered the mistake. As far as s 29(1)(c) is concerned, it is the plaintiffs means of ascertaining the mistake, and not what the court eventually decides, that is relevant in determining when the limitation period begins to run. While the fact that Madam Lim (or Mr Liu) had no interest in the Property was determined only after this Courts decision on 6 February 1998, Mr Tan obviously knew about the true state of affairs long before that date. In fact, he had already discovered the mistake by the time he affirmed his affidavit on 1 February 1989. In these circumstances, it was impossible to maintain that Mr Tan could not with reasonable diligence have discovered that Madam Lim (or Mr Liu) had no interest in the Property until only after the decision of this Court.

33.    Mr Khoo finally argued that the court should impose a constructive trust on the sum of US$642,451.01 paid to Mr Liu. His argument was along the following line. The money was paid to Mr Liu under a mistake, and although the mere receipt of the money in ignorance of the mistake did not give rise to a trust in favour of Mr Tan at that time, the retention of the money by Mr Liu after he discovered the mistake, i.e. after this Court had delivered its decision, gave rise to a constructive trust, because thenceforward his conscience was affected by the fact that the monies received by him had been paid for no consideration or under a mistake. It was the continued retention of such monies by Mr Liu that gave rise to this remedial constructive trust, which the court should now impose, requiring Mr Liu to return the money to Mr Tan. Mr Khoo then invoked s 22(1) of the Limitation Act, which provides:

No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action

. . . . .

(b) to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use.

34.    A remedial constructive trust arises where the court imposes a constructive trust de novo on assets which are not subject to any pre-existing trust as a means of granting equitable relief in a case where it considers just that restitution should be made (per Slade LJ in Metal Und Rohstoff A G v Donaldson Lufkin & Jenerette Inc and Anor [1990] 1 QB 391, 478. Slade LJ, however, said (at p 479) that the extent to which a constructive can properly be treated as a remedy is far from clearly defined in the authorities, and said at the end of p 479:

While we have had the benefit of very full argument on almost all other aspects of the law involved in this case, we have neither heard nor invited comprehensive argument as to the circumstances in which the court will be prepared to impose a constructive trust de novo as a foundation for the grant of equitable remedy by way of account or otherwise. Nevertheless, we are satisfied that there is a good arguable case that such circumstances may arise and, for want of a better description, will refer to a constructive trust of this nature as a "remedial constructive" trust.

35.    Mr Khoo relied on certain dicta of Lord Browne-Wilkinson in Westdeutsche Landesbank Gironzentrale v Islington London Borough County Council [1996] AC 669. In that case, a bank in June 1987 entered into a swap contract with a local authority, and pursuant to that contract paid certain sums to the local authority. As a result of the decision of the House of Lords in Hazell v Hammersmith and Fullam London Borough Council [1992] 2 AC 1, such a contract was ultra vires the authorities and therefore void. The bank therefore sought the recovery of the sums from the local authority it had paid together with compound interest and succeeded before the trial judge and the Court of Appeal. The local authority appealed to the House of Lords and one of the questions for consideration was whether the bank could get compound interest on the sums recovered from the authority. As the general rule was that, in the absence of fraud, equity would not award compound interest except against trustees or other persons in a fiduciary position in respect of profits improperly made, the bank sought to argue that the sums received by the authority were held on trust for the bank. This argument was rejected and it was held, inter alia, that a recipient of monies under a contract subsequently declared void or as being ultra vires does not hold those monies on a resulting trust and that equity would not award the bank compound interest in aid of their common law claim of restitution. In the course of his speech, Lord Browne-Wilkinson discussed the possibility of a remedial constructive trust being available and distinguished the remedial constructive trust from the normal institutional constructive trust as follows:

Under an institutional constructive trust, the trust arises by operation of law as from the date of the circumstances which give rise to it: the function of the court is merely to declare that such trust has arisen in the past. The consequences that flow from such trust have arisen (including the possibly unfair consequences to third parties who in the interim have received the trust property) are also determined by rules of law, not under a discretion. A remedial constructive trust, as I understand it, is different. It is a judicial remedy giving rise to an enforceable equitable obligation: the extent to which it operates retrospectively to the prejudice of third parties lies in the discretion of the court.

And later at p 716 his Lordship said:

Although the resulting trust is an unsuitable basis for developing proprietary restitutionary remedies, the remedial constructive trust, if introduced into English law, may provide a more satisfactory road forward. The court by way of remedy might impose a constructive trust on a defendant who knowingly retains property of which the plaintiff has been unjustly deprived. Since the remedy can be tailored to the circumstances of the particular case, innocent third parties would not be prejudiced and restitutionary defences, such as change of position, are capable of being given effect. However, whether English law should follow the United States and Canada by adopting the remedial constructive trust will have to be decided in some future case when the point is directly in issue.

36.    Reverting to the case at hand, the judge below held that even if remedial constructive trust applies in Singapore, no remedial constructive trust arose in this case. He said:

141 I am satisfied that on the particular facts before me, the Plaintiff has failed to establish such a trust.

142 The Plaintiffs case was that the payment was made pursuant to a contract of sale of Mdm Lims interest. The Court of Appeal has found that Mdm Lim did not have such an interest.

143 The Plaintiff is in no better position than the depositors in Sinclair v Brougham where the monies were paid pursuant to a void contract.

144 As in that case, when the monies were paid to purchase Mdm Lims interest, it was intended that she should be free to deal with the monies and she was entitled to mix the monies with other monies of hers or anyone else for that matter. Whether it was in fact mixed is irrelevant.

145 The Plaintiffs cause of action is one based on a total failure of consideration and not trust. Mdm Lim has been unjustly enriched and was accountable for the monies received but the relationship was exclusively commercial and the monies were and are not trust property.

We agree with these observations of the judge. A remedial constructive trust is a restitutionary remedy which the court, in appropriate circumstances, gives by way of equitable relief. In order for a remedial constructive trust to arise, the payees conscience must have been affected, while the monies in question still remain with him. If, as was the situation in the Westdeutsche case, the payee learns of the mistake only after the monies have got mixed with other funds or dissipated, no constructive trust in respect of these monies can arise. This is because there would no longer be an identifiable fund for the trust to bite. It is significant to note that the plaintiff bank in the Westdeutsche case expressly disavowed any intention of pursing a claim in constructive trust. The reason for their not having done so was stated by Lord Browne-Wilkinson at p 707:

This is not a case where the bank had any equitable interest which pre-dated receipt by the local authority of the upfront payment. Therefore, in order to show that the local authority became a trustee, the bank must demonstrate circumstances which raised a trust for the first time either at the date on which the local authority received the money or at the date on which payment into the mixed account was made. Counsel for the bank specifically disavowed any claim based on a constructive trust. This was plainly right because the local authority had no relevant knowledge sufficient to raise a constructive trust at any time before the moneys, upon the bank account going into overdraft, became untraceable. Once there ceased to be an identifiable trust fund, the local authority could not become a trustee: In re Goldcorp Exchange Ltd. [1995] 1 A.C. 74. Therefore, as the argument for the bank recognised, the only possible trust which could be established was a resulting trust arising from the circumstances in which the local authority received the upfront payment. [Emphasis is added]

37.    Turning to the facts of this case, we found that there was no ground for imposing a remedial constructive trust on Mr Liu in respect of the sum US$642,451.01 paid to him. The relationship between Mr Liu and Mr Tan was only that of a vendor and purchaser and was wholly commercial. There was no dishonest conduct on the part of Mr Liu The sum was paid to Mr Liu in April 1981 with the intent that he was free to deal with it as his money. It was never intended by either Mr Tan or Mr Liu that it should be kept, and it had never been kept, distinct as an identifiable fund. On the basis of Mr Khoos contention that Mr Liu discovered the mistake only in February 1998 or thereabouts, there was a span of some 17 years and the sum paid to Mr Liu must have, in the meanwhile, been spent or mixed with other funds of Mr Liu. There was no sum or fund on which a remedy of constructive trust could be imposed by the court. The sum paid to Mr Liu was certainly not trust property. There was, of course, an obligation on the part of Mr Liu to return the monies to Mr Tan, but that was only a personal obligation. In our judgment, no remedial constructive trust could and should be imposed on the facts of this case.

38.    In the result, Madam Chings appeal failed, and we dismissed it.