The Singapore Law Gazette

Unjust Enrichment: At Whose Expense?

The Singapore and UK Approaches to a Three-party Situation

The law on unjust enrichment has suffered from much uncertainty – especially in a three-party situation where the claimant is the transferor of a benefit through an intermediary, and the defendant is the recipient of that benefit. With respect to the “at the expense of” requirement for unjust enrichment, the English decision in Tecnimont Arabia Limited v National Westminster Bank plc [2022] EWHC 1127 has emphasised analysing the “transactional reality” rather than the “economic reality”. This is examined alongside the recent Singapore Court of Appeal decision in Esben Finance Ltd v Wong Hou-Lianq Neil [2022] SGCA(I) 1.

1. Introduction

To establish a claim in unjust enrichment, the claimant must show that: (a) the defendant was enriched; (b) the enrichment was at the claimant’s expense; and (c) the enrichment was unjust.¹Banque Financiere de la Cite v Parc (Battersea) Ltd (1999) 1 AC 221 at 227. While the law of unjust enrichment has suffered from much uncertainty,²ITC at (38). the Singapore Court of Appeal in Wee Chiaw Sek Anna v Ng Li-Ann Genevieve (sole executrix of the estate of Ng Hock Seng, deceased) [2013] 3 SLR 801 (Anna Wee) has provided much needed explication on the three broad elements. However, the principles in Anna Wee have yet to be applied locally to a three-party scenario where the claimant is the transferor of a benefit through an intermediary, and the defendant is the recipient of that benefit.

In England, the “watershed”³Tecnimont at (108). decision of the UK Supreme Court in Investment Trust Companies v Revenue and Customs Commissioners [2017] UKSC 29 (ITC) established a “more precise criteria”⁴ITC at (38). to determine whether the “at the expense of” requirement was satisfied in a three-party scenario. The crux of the inquiry was whether the set of related transactions operated in a co-ordinated way to form a single scheme or transaction, such that to consider each of the individual transactions separately would be unrealistic.⁵Ibid at (61). The ITC approach was further developed by the English High Court in Tecnimont Arabia Limited v National Westminster Bank plc [2022] EWHC 1127 (Comm) (Tecnimont). There, the English High Court distinguished between “transactional reality” and “economic reality”.⁶Tecnimont at (115). “Transactional reality” examines whether the set of related transactions operated in a co-ordinated way to form a single scheme (as set out in ITC).⁷Tecnimont at (116). Contrarily, “economic reality” considers whether there is a connection between the parties’ respective benefit and loss.⁸ITC at (59). The analysis “must focus on the transactions and not the effect of the transaction”.⁹Tecnimont at (130(a)). Therefore, the “transactional reality” should be examined instead of the “economic reality”.¹⁰Ibid.

In the intervening period between ITC and Tecnimont, an unjust enrichment claim in a three-party scenario came before the Singapore Court of Appeal in Esben Finance Ltd and others v Wong Hou-Lianq Neil [2022] SGCA(I) 1 (Esben Finance). However, as the claim was between the intermediary and the eventual recipient of the benefit, the Court of Appeal did not need to determine the applicable test where the claim was brought by the originator of the transfer and the ultimate recipient.¹¹Esben Finance at (158). Nevertheless, the Court of Appeal did not disagree with the ITC approach,¹²Ibid at (152)-(156). and a future Singapore court may accept the “transactional reality” analysis in Tecnimont to determine whether the “at the expense of” requirement is satisfied.

2. Esben Finance: The Singapore Approach to Establishing Transfer of Benefit

In Esben Finance, the Singapore Court of Appeal considered a claim by the appellants who were four offshore companies incorporated in the British Virgin Islands and Liberia. These appellants were related to the WTK group of companies (WTK Group) which were managed by one WKN from 1993 until his death in 2013. The respondent was WKN’s son. Following WKN’s death, 50 payments made from the appellants’ bank accounts to the respondent’s personal bank account were discovered, and the appellants sued to recover these 50 payments. Thirty-six out of the 50 payments were made in connection with an alleged “practice” by which companies in the WTK Group, including the appellants, structured intercompany payments to avoid paying Malaysian taxes (the Practice).¹³Ibid at (24).

The Practice involved companies in the WTK Group and/or controlled by the respondent that were engaged in the timber logging business (Logging Companies).¹⁴Ibid at (25). The Logging Companies routed their sales of timber logs through the appellants such that the appellants held the revenue received from the end buyers of these timber logs.¹⁵Ibid. The appellants retained some revenue and paid part of the logging fees “offshore”. The remaining logging fees were paid by the Logging Companies “onshore” in Malaysia. The splitting of logging fees into “onshore” and “offshore” components resulted in lower income, and consequently lower taxes payable in Malaysia.¹⁶Ibid at (25(a)). The 36 payments were for the “offshore” components paid into the respondent’s Singapore bank account, made in respect of services the respondent’s companies provided as well as the respondent’s directors’ fees and/or dividends.

One key question before the Singapore Court of Appeal in respect of these 36 payments was whether the respondent was enriched at the appellants’ expense.¹⁷Ibid at (146). Preliminarily, the Court observed that it was not apparent how the respondent was enriched at the appellant’s expense: the Practice was a means to avoid paying Malaysian taxes, and the payments were made for services rendered by the respondent’s companies to other companies in the WTK Group.¹⁸Ibid at (147). The appellants were neither the recipient nor the provider of the services in respect of which the 36 payments were made, which prima facie indicated that the appellants were used as intermediaries for channelling funds from entities in or related to the WTK Group to the respondent personally.¹⁹Ibid at (148). The Court referred to ITC, noting that in some situations, a claimant may claim in unjust enrichment for the benefit transferred through intermediaries to the defendant if the “substance of these transactions” is an arrangement reflecting a “transfer of value” from the claimant to the defendant.²⁰Ibid. However, implicit in this reasoning is that the intermediaries have no right to mount an unjust enrichment claim for the same value as that would amount to double recovery.²¹Ibid.

Examining several English cases, the Singapore Court of Appeal observed that the common thread underlying the cases where unjust enrichment was established was a “causal link” between the resources expended by the transferor and the resources eventually transferred to the recipient.²²Esben Finance at (153). This accorded with the principles espoused earlier by the apex court in Anna Wee. There, to establish that the defendant received a benefit at the expense of the claimant, there must be a “nexus between the value that was once attributable to the claimant and the benefit received by the defendant”.²³Esben Finance at (154) citing Anna Wee at (113). Applying this to a three-party situation with an intermediary claimant, if a benefit is transferred from an entity to an intermediary with the purpose of having the intermediary transfer the benefit to the eventual recipient, “there is in actuality no subtraction” from the intermediary’s assets.²⁴Esben Finance at (154). In other words, there was no causal link between the resources expended by the intermediary and the resources transferred to the eventual recipient. Therefore, any enrichment by the recipient is “[not] made at the intermediary’s expense”.²⁵Ibid at (154).

Here, the appellants were the intermediaries by which the payments flowed from the Logging Companies to the respondent. The Singapore Court of Appeal found that the appellant’s own assets were never depleted or put at risk by making the 36 payments pursuant to the Practice since “both the making of the 36 payments and the wherewithal for making said payments stemmed from [the Practice] itself”.²⁶Ibid at (155). Therefore, the Court of Appeal thus held that in making the 36 payments pursuant to the Practice, the respondent was not enriched ‘at the expense’ of the appellants.²⁷Ibid at (159).

Nevertheless, as Esben Finance concerned a claim between an intermediary and a recipient, the Court emphasised that it made no determination on the applicable test in three-party situations between a recipient and transferor where the transfer of benefit is not prima facie direct.²⁸Ibid at (158). To that end, the recent English High Court case of Tecnimont may shed some light on how a future Singapore court might decide the issue of how a transfer of benefit is determined between a transferor and recipient when the benefit passes through an intermediary.

3. Tecnimont: The UK Approach to Establishing a Direct Transfer of Benefit

In Tecnimont, Tecnimont Arabia Limited (TAL) was the victim of an authorised push payment (APP) fraud. The fraudster gained access to the e-mail account of the Group Finance Director within the global Tecnimont group, and sent an e-mail instructing TAL to transfer US$ 5 million into the fraudster’s account with National Westminster Bank (NatWest).²⁹Tecnimont at (1),(21). The payment was effected by an offshore transfer from Saudi British Bank SJSC (SABB) via Citibank in the US (SABB’s intermediary bank) to NatWest in London, communicated using SWIFT messages.³⁰Ibid at (16). TAL commenced an action against NatWest on the grounds of, inter alia, unjust enrichment to recover the lost sums from NatWest. The English High Court subsequently dismissed the unjust enrichment claim. While the Court dealt with all elements of unjust enrichment, this article focuses specifically on the Court’s treatment of the “at the expense of” requirement.

In examining whether there was a transfer “at the expense of” TAL, the English High Court applied the criteria set out in ITC. There, the UK Supreme Court established a “more precise criteria” to determine whether an enrichment was “at the expense” of the claimant (the ITC Approach):³¹ITC at (37)-(38).

1. Preliminarily, “transfer of value”, while too general to serve as a legal test, means that the defendant has received a benefit from the claimant and the claimant has suffered a loss through his provision of the benefit.³²Ibid at (43). The Court in Tecnimont further noted that without such a transfer, there is no unjust enrichment.³³Tecnimont at (110(a)). This coheres with the position taken by the Singapore Court of Appeal in Anna Wee (as cited in Esben Finance).³⁴See: Esben Finance at (154) referring to Anna Wee at (113),(119).
2. A “transfer of value” would generally arise where parties have dealt directly with one another or with one another’s property.³⁵ITC at (46).
3. A “transfer of value” may also arise even where parties may not have dealt directly with one another or with one another’s property. These would be situations where the distinguishing factors are “more apparent than real”.³⁶Ibid at (47).
4. Simply examining the connection between the parties’ respective benefit and loss as a matter of “economic reality” is insufficient to determine whether the “at the expense of” requirement is satisfied.³⁷Ibid at (59). As restitution aims to reverse the defective transfer and not to compensate for loss, identifying the party suffering economic loss is not the correct way in principle to identify the appropriate claimant.³⁸Ibid at (60).

The ITC Approach was affirmed in Tecnimont,³⁹Tecnimont at (110). with the English High Court also providing several examples in which a claimant can satisfy the court that the defendant had been unjustly enriched at its expense. For instance, where the claimant and the defendant had direct dealings,⁴⁰Ibid at (113(a)). directly dealt with each other’s property,⁴¹Ibid at (113(c)). or where the claimant could trace an interest into property provided by a third party.⁴²Ibid at (113(d)). Alternatively, where there are no direct dealings but the “substance” of their dealings was such that the law would treat them as direct.⁴³Ibid at (113(b)).

In Tecnimont, there was clearly no direct transfer between SABB and NatWest, and both parties did not deal directly with the other’s property. Therefore, the main issue pertained to the substance of the dealings (or transactional reality) – whether the transactions should be viewed as a single scheme and treated as a direct transfer because it would be unrealistic to treat them in any other way.⁴⁴Ibid at (128).

To that end, the English High Court further developed the ITC Approach, providing several factors that should be considered to determine whether the transaction should be treated as direct (the Tecnimont Approach):⁴⁵Ibid at (130).

1. The need to focus on the transactions rather than the effect of the transactions to avoid considering the “economic reality” of the transaction;
2. The substance, purpose and genuineness of the transaction rather than its form – this reflects “transactional reality”;
3. The nature of the transaction; and
4. The number of parties providing the funds.

Applying the above factors, the English High Court found that:

1. First, focusing on the transaction rather than its effect, the transaction was an international foreign currency transfer that was a standard, well-recognised transaction taking place every day in a controlled financial environment. The actual mechanism involves the “adjustment of balances” rather than the transfer of funds between two pairs of banks: SAAB and Citibank; and Citibank and NatWest.⁴⁶Ibid at (131)-(132).
2. Second, on the substance, purpose and genuineness of the transaction, its purpose was to make funds available in the NatWest account (belonging to the fraudster), and no step was interposed to obtain a collateral benefit for either party.⁴⁷Ibid at (133)-(134).
3. Third, on the nature of the transaction, transactions of this sort were commonplace, and the generally recognised position was that international payments of this type were not
   “at the claimant’s expense”.⁴⁸Ibid at (135)-(136). This was because tracing funds at common law was impossible, and there was no suggestion of proxy, agency or other basis on which international transfer payments would be treated as direct payments.⁴⁹Ibid at (136).
4. Fourth, on the parties providing funds, the funds were made available following the adjustments to interbank balances between SABB and Citibank, and between Citibank and NatWest. Therefore, the funds were provided by three parties rather than a single provider.⁵⁰Ibid at (138).

Considering the above factors and taking an overall view of the transaction, the English High Court refused to treat the international inter-bank transactions as forming a single scheme or transaction.⁵¹Ibid at (139). To hold otherwise would be taking a broad and impermissible of “economic reality”.⁵²Ibid at (140). Therefore, NatWest was not enriched “at the expense” of TAL.

Commentary

Academic Debate

The “at the expense of” requirement has been the subject of much academic debate. Previously, it was thought that the “close relationship” between enrichment and loss “necessitates a broad test for attribution” in the form of “the ‘but for’ counterfactual between enrichment and loss”.⁵³Eli Ball, Enrichment at the Claimant’s Expense: Attribution Rules in Unjust Enrichment (Hart Publishing, 2016) at p 44. This position was held by Goff & Jones⁵⁴Goff & Jones: The Law of Unjust Enrichment (Sweet & Maxwell, 8^th Ed, 2011) (“Goff & Jones”) as cited in Anna Wee at (124). – that what is required is a “but for” causal connection between the claimant’s loss and the recipient’s gain.⁵⁵Anna Wee at (124) citing Goff & Jones at (6-27).

Conversely, Professor Andrew Burrows has argued that a mere a causal link is insufficient.⁵⁶Anna Wee at (127) citing Andrew Burrows, The Law of Restitution (Oxford University Press, 3^rd Ed, 2011) at p 65. Rejecting a broad test of causation, Professor Burrows proposes that the “at the expense of” requirement should refer to a “direct conferral of a benefit” by the claimant on the defendant.⁵⁷Andrew Burrows, In Defence of Unjust Enrichment (2019) C.L.J. 523 at p 537. Incidental and consequential benefits do not generally constitute a direct conferral of a benefit.⁵⁸Ibid. This also addresses the concern that a mere causal test “would extend the ambit of unjust enrichment too far”.⁵⁹Anna Wee at (127) citing Andrew Burrows, The Law of Restitution (Oxford University Press, 3^rd Ed, 2011) at p 65.

After Tecnimont, it is clear that Professor Burrows’ “direct conferral of benefit” approach is preferred by courts. First, both ITC and Anna Wee have rejected the broad test of “but for” causation, with Anna Wee cautioning that the “at the expense of” requirement is “not a carte blanche to substitute any sort of connection, causal or otherwise”.⁶⁰Anna Wee at (128). More importantly, in ITC, the UK Supreme Court held that generally, a direct transfer of value is required for a claim in unjust enrichment.⁶¹ITC at (50). Subsequently, the English High Court in Tecnimont further developed this via its “transactional reality” analysis – examining whether a series of transactions should be deemed as direct and providing several guiding factors.

Indeed, following Tecnimont, English law has found clarity on the “at the expense of” requirement in a three-party situation. However, in such a three-party situation locally, the question remains: unjust enrichment, at whose expense?

The Local Approach to Three-Party Situations

As discussed above, the Singapore Court of Appeal in Esben Finance “ma[d]e no determination” on the applicable test in a three-party situation between a claimant transferor and a defendant recipient where the transfer of benefit is not prima facie direct⁶²Esben Finance at (158). (as was the case in Tecnimont). This was because Esben Finance only concerned a claim between an intermediary and a recipient: between the offshore companies and WKN, instead of between the Logging Companies and WKN.

Nevertheless, the Singapore Court of Appeal did not disagree with the ITC Approach. Noting that “academic debate is rife” on what constitutes enrichment “at the expense” of another, ⁶³Esben Finance at (157), citing ITC at (37). the Court of Appeal examined ITC at length.⁶⁴See: Esben Finance at (148), (152)-(156). While ITC was ultimately distinguished on its facts,⁶⁵Esben Finance at (156). the Court of Appeal expressed no disagreement with the ITC Approach. To that end, it is submitted that it remains open to the local courts to accept the Tecnimont Approach by examining “transactional reality”.

First, both the Singapore Court of Appeal in Anna Wee and the UK Supreme Court in ITC have recognised that unjust enrichment is not concerned with compensation for losses, but the reversal of defective transfers of value.⁶⁶Anna Wee at (112), citing Goff & Jones: The Law of Unjust Enrichment (Sweet & Maxwell, 8^th Ed 2011) at (1-15); ITC at (60). Hence, looking to see who has suffered an economic loss is not, in principle, the correct way of identifying the appropriate claimant.⁶⁷ITC at (60). Accepting the Tecnimont Approach would appear to be doctrinally consistent with the underlying principles of unjust enrichment – whether there is a direct transfer of value, and whether this should be reversed.

Second, the Singapore Court of Appeal’s analysis in Esben Finance does not preclude consideration of the factors set out in Tecnimont. Taking an overall view of the transactions, the Court of Appeal held that the 36 payments “could not be viewed in isolation from the other transactions comprised in [the Practice]”.⁶⁸Esben Finance at (155). This was because the payments were “part of a series of coordinated transactions to ‘evade taxes in Malaysia’”.⁶⁹Ibid. The Court of Appeal examined the substance, purpose, and genuineness of the transaction – which were precisely the factors set out in the Tecnimont Approach.

In closing, while an inquiry into “transactional reality” may seem overly legalistic and unpragmatic,⁷⁰See: Tecnimont at (140). it provides a precise criteria that facilitates consistent and predictable outcomes while being doctrinally consistent with the underlying principles of unjust enrichment. A more structured legal framework examining “transactional reality” may provide clarity on what has been, thus far, an unsettled area of law.