Ting Siew May v Boon Lay Choo & Anor [2014] SGCA 28

In a recent decision, the Singapore Court of Appeal ruled that an option to purchase property could not be enforced as it had been entered into with the intent of committing an illegal act.

Facts

The appellant granted an option (the "Option") to purchase a property to the respondents which was signed by the appellant on 13 October 2012. The Option was backdated to 4 October 2012 in response to a notice from the Monetary Authority of Singapore on 5 October 2012 (the "5 October Notice"), which would have lowered the loan-to-value ("LTV") ratio of the respondents' proposed loan from 80% to 60%. On 15 October 2012, the respondents were offered a loan from their bank at the LTV ratio of 80%, which the respondents accepted. Shortly thereafter, the appellant withdrew her offer, stating that she "did not want to be a party to any illegality or irregularity" in relation to the backdating of the Option. The respondents attempted to resolve the situation through various means including proposing that the Option proceed with the date the Option was signed (i.e. 13 October 2012) and the respondents would obtain financing on that basis. No resolution was reached and on 11 January 2013, the respondents applied for a declaration that the Option was valid and binding on the appellant and an order for specific performance by the appellant of the Option.

High Court decision

The High Court determined that the Option was valid and binding on the appellant and granted the respondents an order for specific performance. The High Court was of the view 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 court also found that the Option was not void and unenforceable for illegality under 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 appellant appealed this decision.

Issues before the Court of Appeal

The Court of Appeal considered that the key question for determination was whether the respondents were 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.

The appellant argued that the Option was not enforceable and relied on the law on illegality in this regard. The court therefore considered these principles at length, noting at the outset that they have traditionally been divided into two broad areas, that of statutory illegality and illegality at common law.

Illegality at common law

The Court of Appeal emphasised that it was clear that a contract would still be void and unenforceable at common law if one or both parties entered into it with the intention or purpose of contravening the statutory provision(s) in question. In such a situation, the court determined that the correct approach would be for the court to undertake an examination of the relevant policy considerations underlying the illegality principle so as to produce a proportionate response to the illegality in each case.

The court identified the factors that should be considered when assessing the proportionality of the response to illegality : (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. Despite setting out these factors, the court was at pains to emphasise that these factors only serve to underscore the very fact-centric nature of the inquiry that has to be undertaken by the court.

Given the above, the court found the illegality in the present case was the intended contravention of a statutory instrument in the form of the 5 October Notice. The respondents' own evidence showed that they had intentionally requested that the Option be backdated for the purposes of obtaining a bank loan on the more favourable terms allowed prior to the 5 October Notice. It was also not denied that the respondents were aware of the 5 October Notice before taking steps to circumvent it. The illegality was in the respondents' intention to use the Option itself to circumvent and contravene the 5 October Notice. The court found that to refuse the respondents enforcement of the Option would be a proportionate response to the illegality.

The court noted that the nature of the illegal act which the respondents had set out to commit was not trivial. The main policy objective of the 5 October Notice was to limit the quantum of residential property loans so as to foster stability in the property market. The part of the 5 October Notice the respondents sought to contravene was directly related to its main policy objective. The court also noted that the illegal purpose was not too remote from the Option. There was an overt step in carrying out the respondents' unlawful intention taken in the Option itself.

The court stated that once an illegal object of the contract has been established, that object taints the contract itself and it is no answer to say that the illegal object has not been carried out. It was the court's view that public policy dictates that the court in this case refuse its assistance to a party who knowingly backdated a contract with the clear purpose of using that false date to contravene the law.

For the reasons above, the court held that the Option was illegal at common law.

Statutory illegality

The court found that there is neither express nor implied statutory prohibition of the Option in the present case. Neither the Banking Act, within which is found the penalty for non-compliance with the 5 October Notice, nor the 5 October Notice itself, expressly states that contracts such as the Option should be rendered void and unenforceable by the courts. The court also noted that there were insufficient grounds to imply such a statutory prohibition.

There was, therefore, no statutory illegality in this case.

Judgment

Having found the Option fell within the head of illegality at common law, the court ruled that the Option was void and unenforceable and allowed the appeal.

Comment

This judgment is a timely reminder of the severe consequences of entering into a contract with the purpose of circumventing the law. In particular, the court emphasised that public policy considerations in prohibiting the enforcement of such a contract may override the parties' individual interests.