Deposits – Two Senses of Refundability: Simpson Marine (SEA) Pte Ltd v Jiacipto Jiaravanon  SGCA 7
This commentary visits a decision of the Singapore Court of Appeal, Simpson Marine (SEA) Pte Ltd v Jiacipto Jiaravanon  SGCA 7 concerning a common scenario: the refundability of a deposit remitted for the purpose of reserving goods. This short article describes the “promissory” and “consequential” senses of refundability and examines their application in the context of the decision. It concludes that while the deposit in the case was classified as a pre-contractual one, it would be more accurate to refer to it as a non-contractual one instead.
The failure of the basis of an agreement, contractual or not, can ground an unjust enrichment claim. However, while the identification of contractual bases was more or less straightforward (the Court would presumably apply the ordinary contractual canons of interpretation and construction), the approach to identifying non-contractual bases has been left wanting.
The Court’s approach for how to construct such a basis has recently received some attention in Simpson Marine (SEA) Pte Ltd v Jiacipto Jiaravanon  SGCA 7 (Jiaravanon (CA)). While this issue was not the particular focus of the decision of the High Court below1Jiacipto Jiaravanon v Simpson Marine (SEA) Pte Ltd (2017) SGHC 288. (Jiaravanon (HC)), Jiaravanon(CA) goes some way to ameliorating that deficit in Singapore law.
Jiaravanon concerned a yacht dealer’s (the Appellant, Simpson Marine (SEA) Pte Ltd) (Simpson) retention of the value of a deposit in circumstances where it had on a (potential) buyer’s instructions remitted the deposit to a third-party yacht manufacturer (Azimut) for the purposes of reserving two yachts. That potential buyer was Mr Jiaravanon. The intention for the deposit was for Jiaravanon to then later decide (subject to a deadline) whether to purchase the two yachts. However, when Jiaravanon did not proceed with the purchase of either of the two yachts, he asked for his deposit back from the Simpson. Simpson said no – it had already remitted the deposit to Azimut. Was Jiaravanon entitled?
In end April 2013, Jiaravanon transferred €1 million to Simpson as a holding deposit to secure two yachts, a 100-ft series Leonardo (hull number 15) and a 100-ft series Grande (hull number 12) (a 100L #15 and a 100G #12) respectively. However, on 30 April 2013, Jiaravanon was informed that the 100G #12 had been sold.
At this point, it was common ground on appeal that Jiaravanon was entitled to his deposit back. The money had not been paid over to Azimut yet, and since in any event the deposit did not secure both yachts, there was a total failure of basis and the buyer was entitled to restitution.2Jiaravanon (CA) at (60).
Instead of returning the money to Jiaravanon, however, Simpson’s representatives met Jiaravanon on 8 May 2013 and on 9 May 2013, Simpson remitted the entire €1 million deposit to Azimut. What happened during that meeting, the purpose for the remittance and whether it was authorised by Jiaravanon was disputed by the parties.
On 31 July 2013, Jiaravanon agreed with Simpson that half of the deposit would be applied to the purchase price of a separate yacht, an Azimut 64. The remainder, however, was left outstanding (the Remainder).
The issue before the Courts was whether Jiaravanon was entitled to restitution of the Remainder.
In the High Court, the issue centred around whether the parties agreed on 8 May 2013 that the deposit was to be non-refundable. The High Court held that Jiaravanon did not agree that the Remainder would be non-refundable in that it would be forfeited if he did not buy either the 100L #15 or the 100G #15, or a separate larger yacht.3Jiaravanon (HC) at (77)-(78). Consequently, Jiaravanon was entitled to restitution of the Remainder.
The Court of Appeal allowed the appeal in respect of the Remainder.
It held that the crucial inquiry for the purposes of an unjust enrichment claim was not “whether the parties had expressly agreed on 8 May 2013 that the Deposit would be non-refundable” but rather whether “the original basis having failed by 30 April 2013, the parties had agreed on a new basis for the Deposit to be paid on 8 May 2013, and whether this basis had failed.”4Jiaravanon (CA) at (60). Further, Jiaravanon had on 8 May 2013 authorised Simpson to remit the €1 million to Azimut and that the context strongly supported a finding that the parties had agreed that the Deposit was to reserve the 100L #15 (the initial yacht that was supposed to be reserved in April) and another yacht, a 100G #15, until 31 May 2013.5Jiaravanon (CA) at (72).
Because Jiaravanon did not elect to purchase either of the two yachts, the basis did not fail and hence Jiaravanon was not entitled to restitution of the Remainder.
This commentary touches upon two aspects of these cases that are far from settled. The first aspect is the concept of the “refundability” of monies paid (whether as a deposit or otherwise) and, second, the correct approach for the construction of the basis of a non-contractual agreement. It finishes with an observation on the test for the implication of bases when no express basis can be found.
Refundability is a confusing and elusive concept.
In one sense, monies advanced by one party to another may be “refundable” in that the remedy of restitution of the value of the money is available to the payor by way of a successful unjust enrichment claim (the “consequential” sense). In another independent, promissory sense, “refundable” might mean that the monies advanced were subject to an agreement that they would be returned to the payor upon the occurrence of some event. A third, albeit rare, alternative is that the monies may be recoverable by way of a claim for debt or damages for breach of contract.
Even though the effect of a successful claim in the three situations outlined above is generally that the plaintiff would get back the value of his payment, it is important to distinguish them for a number of reasons.
First, the reasons that justify why the monies will be refunded are normatively different. In the first case, it is the payee’s gain; the second, the upholding of the promise or obligation; and the third, at least insofar as the “damages” limb is concerned, the payor’s loss.
Second, as a matter of orthodoxy, where monies are paid, received and/or retained pursuant to a valid contractual obligation, and that contract still subsists, it might be the case that that in itself precludes a claim in unjust enrichment. This is known as the “presence of basis” bar, a “justifying ground” or a “juristic reason”.6 G. Virgo, The Principles of the Law of Restitution (OUP, 3rd Ed, 2015), ch. 7; J. Edelman and E. Bant, Unjust Enrichment (Bloomsbury, 2016), ch. 7; C. Mitchell et al, Goff & Jones: The Law of Unjust Enrichment (Sweet & Maxwell, 9th Ed, 2016), part 2. This would inform how the claim is framed in the pleadings and ultimately affect how the respective ingredients are proved at trial.
Third, and in connection with the second point, whether the parties have agreed or are silent on the refundability of monies paid pursuant to their agreement is arguably a relevant factor for determining the allocation of the risks of the transaction viewed as a whole, which would have implications for the unjust enrichment claim. Indeed, where the risk of the non-fulfilment of a contingent condition lies on the payor, then that risk would undercut his claim in unjust enrichment for failure of basis.
If parties did agree that monies advanced would be non-refundable (for instance, because the monies were meant to operate as security for performance), then of course no claim would lie in unjust enrichment because any restitution of the value of those monies would be tantamount to the Court rewriting the parties’ allocation of risks. The availability of the restitutionary remedy undercuts the parties’ agreement and would be an unjustifiable inroad into the general policy in upholding promises. It would also make a nonsense of the purpose for which the monies were paid.
Taking the “deposit as security” example mentioned above, the fact that the monies will not be refunded in the event of the payor’s inadequate performance is the “state of affairs contemplated as the basis or reason for the payment”.7Peter Birks, An Introduction to the Law of Restitution (OUP, 1989) at p 223 (cited at Jiaravanon (CA) at (47)). In such a case, the monies would have been “non-refundable” in a promissory sense but also “non-refundable” in the unjust enrichment sense. Therefore, whether parties had expressly or impliedly agreed that monies advanced are non-refundable is quite an important requirement. It feeds into the construction of the allocation of risks between the parties, which would inform the availability of the unjust enrichment claim.
Applying the observations above to the facts of the case, the Court of Appeal’s statement that “crucial inquiry” was not “whether the parties had expressly agreed on 8 May 2013 that the Deposit would be non-refundable” but rather whether a basis was agreed and “whether this basis had failed”8Jiaravanon (CA) at (60). should be understood in its context. The words should simply be understood as that whether there was an agreement that the deposit was non-refundable is not the legal test to be applied in an unjust enrichment case and therefore should not be taken as prescribing a binding principle applicable to the construction of bases in all deposit cases.
This conclusion has to be correct. This is because the Court of Appeal itself accepted that the non-refundability of the Simpson-Azimut remittance was important.9Jiaravanon (CA) at (64(c)). It should not be forgotten that the principle governing the refundability of monies from Azimut to Simpson are the same unjust enrichment principles governing the refundability of monies from Simpson to Jiaravanon that were applied by the Court of Appeal. In light of that, it would be inconsistent to say that non-refundability is not crucial in one context (ie, the Jiaravanon-Simpson transaction) but say that it is so in another (ie, the Simpson-Azimut remittance). Rather, the more accurate description is that the non-refundability of the Simpson-Azimut remittance is the more important factor and in fact was what a reasonable person in the parties’ person would have understood.
It would be correct in one sense to shift the focus away from finding a promise of non-refundability in the Jiaravanon-Simpson transaction. As mentioned above, there are at least two senses of the word is used: the promissory and the consequential sense. Absolute non-refundability in the promissory sense is quite an absurd conclusion because that would be indistinguishable from an unconditional gift. If we further assume and layer on an agreement between Jiaravanon and the dealer that the deposit, once remitted to Azimut, was absolutely non-refundable, then that would mean that Azimut was free to sell the yachts and keep the monies. This would be quite an odd state of affairs. It would effectively mean that after the monies had been transferred, the risk of the basis’ failure lay with Simpson and not Jiaravanon. This is at odds with the observations of the Court of Appeal that “there was no reason why the [dealer] would have taken such a significant business risk by remitting the Deposit to Azimut without Jiaravanon’s instructions” and that “more weight should have been placed on the [the yacht dealer’s] interest in ensuring that it could “cover its own position” and “no party [is] exposed””.10Jiaravanon (CA) at (72).
In the truest sense, the deposit paid in Jiaravanon was not a pre-contractual deposit ie, it was not a deposit that was paid as “an expression of seriousness of intention on the part of the prospective purchaser” that would be recoverable at any time he changes his mind.11 C. Mitchell et al, Goff & Jones: The Law of Unjust Enrichment (Sweet & Maxwell, 9th Ed, 2016) at (14-06) Such deposits would be recoverable any time the payor or the payee changes his mind in way that causes the basis of the agreement to fail. Rather, it was a deposit paid clearly pursuant to what Simpson, Azimut and Jiaravanon himself thought was a binding agreement to keep the yachts reserved and unsold until Jiaravanon comes up with the balance of the purchase price.12 See Robinson v Lane (2010) EWCA Civ 384 at (11) & (14) So while the deposit was not a pre-contractual one, it was likely to have been a non-contractual one.13 Jiaravanon (CA) at (47). See also Sharma v Simposh (2011) EWCA Civ 1383, where the deposit was a non-contractual deposit, not a pre-contractual one.13 Whether it was in fact so was not canvassed by the Court of Appeal. Nevertheless, if that is the correct way to characterise the Jiaravanon-Simpson transaction (for example, because the agreement lacked consideration), so be it. The fact remains that there was, quite clearly, an option agreement that provided a basis for the transfer.
The Court of Appeal had held in Benzline Auto Pte Ltd v Supercars Lorinser Pte Ltd  SGCA 2 that where the Court seeks to imply a basis, that basis “must be fundamental to the transaction, or otherwise obvious to an objective observer”.14Benzline at (67)
While it was not explicitly said whether the basis in Jiaravanon was an express or an implied one, it does appear that, reading the judgment as a whole, it was an express one – the Court’s approach centred around whether the parties had an agreement as opposed to what an existing agreement was impliedly based on. It follows that the Court’s silence on the Benzline requirement, applicable only to the identification of implied bases, does not thereby signify its abandonment.
However, I previously argued that the Benzline requirement should be seen in light of a criterion based on “reasonableness”15 Darren Low & Daniel Boon, “Pre-Contractual Payments and Liability in Unjust Enrichment” (Singapore Law Blog, 4 April 2018); available at http://www.singaporelawblog.sg/blog/article/208, and the Court of Appeal has recognised that the reasonableness inquiry applies to the identification of both an express and implied basis, saying:16 Jiaravanon (CA) at (49)
“A basis may be expressed, but it may also be implied. The task of identifying the basis objectively is very similar to the approach taken in determining the formation and construction of contracts. It involves inquiring into what a reasonable person in the position of the parties would have understood the words and conduct of the parties to mean.”
It therefore still remains to be seen whether implying a basis is permissible if the basis to be implied is neither fundamental nor otherwise obvious but is nevertheless what a reasonable person in the position of the parties would have understood the words and conduct of the parties to mean.
In the context of “refundability”, the answer to this question is arguably even more important. While refundability in the contractual sense may, depending on the construction of the contract, carry with it a sense of obligation, refundability in the unjust enrichment sense merely stipulates the consequence of an application of the law and does not venture into what the parties were in fact obliged to do. So while a reasonable person might have understood the words and conduct of the parties to mean that the deposit was refundable, whether “refundability” was the basis of the parties’ transaction or was “fundamental or otherwise obvious” is really quite a separate and ultimately different inquiry.
Ultimately, the decision reached in Jiaravanon (CA) was the right one. Dealers, agents and practitioners should familiarise themselves with this area of law, which is slowly gaining a foothold in regulating the conduct of non-contractual financial arrangements.
|↑1||Jiacipto Jiaravanon v Simpson Marine (SEA) Pte Ltd (2017) SGHC 288.|
|↑2||Jiaravanon (CA) at (60).|
|↑3||Jiaravanon (HC) at (77)-(78).|
|↑4||Jiaravanon (CA) at (60).|
|↑5||Jiaravanon (CA) at (72).|
|↑6||G. Virgo, The Principles of the Law of Restitution (OUP, 3rd Ed, 2015), ch. 7; J. Edelman and E. Bant, Unjust Enrichment (Bloomsbury, 2016), ch. 7; C. Mitchell et al, Goff & Jones: The Law of Unjust Enrichment (Sweet & Maxwell, 9th Ed, 2016), part 2.|
|↑7||Peter Birks, An Introduction to the Law of Restitution (OUP, 1989) at p 223 (cited at Jiaravanon (CA) at (47)).|
|↑8||Jiaravanon (CA) at (60).|
|↑9||Jiaravanon (CA) at (64(c)).|
|↑10||Jiaravanon (CA) at (72).|
|↑11||C. Mitchell et al, Goff & Jones: The Law of Unjust Enrichment (Sweet & Maxwell, 9th Ed, 2016) at (14-06)|
|↑12||See Robinson v Lane (2010) EWCA Civ 384 at (11) & (14)|
|↑13||Jiaravanon (CA) at (47). See also Sharma v Simposh (2011) EWCA Civ 1383, where the deposit was a non-contractual deposit, not a pre-contractual one.|
|↑14||Benzline at (67)|
|↑15||Darren Low & Daniel Boon, “Pre-Contractual Payments and Liability in Unjust Enrichment” (Singapore Law Blog, 4 April 2018); available at http://www.singaporelawblog.sg/blog/article/208|
|↑16||Jiaravanon (CA) at (49)|