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Unjust Enrichment under Malaysian Law

Introduction

Unjust enrichment is a restitutionary remedy which originally also called the law of restitution. Unjust enrichment is a concept which is not a claim for compensation in pursuance of loss but a claim because of the benefit wrongfully gained by a defendant. Therefore, the law grants the Claimant to claim for restoration of benefits against the Defendant at the expense of the Claimant.

In Malaysia, the concept has been recognised by the recent Federal Court decision of Dream Property Sdn Bhd v Atlas Housing Sdn Bhd [2015] 2 MLJ 480 and it is worth remembering the word of Tan Sri Dato’ Sri Azahar Mohamed:-

“In our view, the time has come for this court to recognise the law of unjust enrichment by which justice is done in a range of factual circumstances and that the restitutionary remedy is at all times so applied to attain justice”

This is a case where the defendant entered into a sale and purchase agreement (“SPA”) to buy the plaintiff’s land and to build a commercial complex. Upon execution, the SPA allowed the defendant to commence construction works to build a mall. The mall became a thriving business centre. The defendant failed to pay the balance purchase price within the time frame but the construction of the mall went on unhindered. The plaintiff sued to the defendant for vacant possession and the defendant counterclaimed to be restituted for the prevailing market price of the mall arguing that the plaintiff would be unjustly enriched at the defendant’s expense. The case went up to the Federal Court which for the first time resolved the questions of unjust enrichment as follows:-

“Question 1: Whether as a matter of law if the defendant was in breach of contract for the purchase of the land dated 19 November 2004, whether it precludes the defendant from being awarded restitution pursuant to the doctrine of unjust enrichment in respect of the defendant’s improvement and enhancement of the land, namely by obtaining planning permission, building plan approval and constructing at the defendant’s own cost, effort and experience, upon the land and a shopping mall which subsequently was tenanted with an ongoing business, goodwill and brand name thereupon without the plaintiff (compensating the defendant for having improved the ultimate market value of the land and is the defendant’s remedy merely confined to compensating the defendant merely for the cost of construction of the said shopping mall?

Question 2: What is the measure of restitution for unjust enrichment, in particular, is the measure of restitution calculated merely restricted to the cost of construction of a building, without reference to the enhancement of the market value of the said land?”

For Question 1, the Federal Court answered that the defendant is not precluded from being awarded restitution pursuant to the law of unjust enrichment in respect of the defendant’s improvement and enhancement of the land at the defendant’s own costs, effort and experience.

For Question 2, the Federal Court answered that the measure of for unjust enrichment is the market value of the mall and it is not restricted to the costs of its construction.

The Federal Court case has been affirmed by another Federal Court case of Tenaga Nasional Berhad v Ichi-Ban Plastic (M) Sdn Bhd and other appeals [2018] 3 MLJ 14.

Therefore, the article herein will discuss on the unjust enrichment and how to apply it in Malaysia.

Tort/Contract vs Unjust Enrichment

To start with, the law of contract/tort and the law of unjust enrichment are conceptually and essentially different in kind. The courts have found it necessary to make available, independent of the law of contract and civil wrongs, for the restoration of benefits on the grounds of unjust enrichment.[1]

Unjust enrichment describes a cause of action whereas for the contract, any compensation for breach of contract confers the Claimant for restitution as a remedy. Restitution as a response to wrongdoing is therefore a different topic from restitution as a response to unjust enrichment.

As mentioned by Goff & Jones on The Law of Unjust Enrichment, unjust enrichment is not an abstract moral principle to which the courts must refer when deciding cases, it is an organising concept that groups decided authorities on the basis that they share a set of common features, namely that in all of them, the defendant has been enriched by the receipt of a benefit that it is gained at the claimant’s expense in circumstances that the law deems to be unjust. The reasons why the courts have held a defendant’s enrichment to be unjust vary from one set of cases to another, and in this respect the law of unjust enrichment more closely resembles the law of torts (recognising a variety of reasons why a defendant must compensate a claimant for harm) than it does the law of contract (embodying the single principle that expectations engendered by binding promises must be fulfilled).

How to establish Unjust Enrichment

In the Federal Court case of Dream Property Sdn Bhd v Atlas Housing Sdn Bhd [2015] 2 MLJ 480,[2] it was held that cause of action in unjust enrichment can give rise to a right to restitution where it can be established that :

a) The defendant must have been enriched. In the said Federal Court case the court held that that the market value of the mall far exceeds that of the value of the land, If the mall were to be sold to a third party, the unjust enrichment and undue benefit accrued to the plaintiff would be enormous;

b) The enrichment must be gained at the claimant’s liability. In the said Federal Court case the court held that the defendant had built and continues to build an entire enterprise brand name, goodwill encompassing all that is known as the mall.

c) That the retention of the benefit by the defendant was unjust. In the said Federal Court case the court held that the defendant was not required to benefit the plaintiff by legislations or by contract; and

d) There must be no defence available to eradicate or lessen the defendant’s liability to make restitution.

Formality to be adopted in court

The cause of action must be established in the statement of claim within a proper and specific plea as it is a matter of settled law. In addition, material particulars that give progress to unjust enrichment must be provided in the pleadings.

In this regard, the court should not decide on an issue that was not pleaded by the parties as it is a well-settled legal principle.

Parties are required to set out the factual bases of their respective cases in the pleadings. The most important purpose of pleadings is to plead reasonable cause of action, to define the issues of fact and questions of law to be determined by the court.[3]

Remedy in Unjust Enrichment

In every case where a defendant is unjustly enriched at a claimant’s expense, English law gives the claimant a right to restitution from the defendant. The word ‘restitution’ sometimes used by courts to describe a measure of compensation for civil wrongdoing, and when it is used in this sense the word means ‘restoring the claimant to the position he occupied before he was caused a loss by the defendant’s wrong’.

However, in the context of unjust enrichment, the word ‘restitution’ means something different, namely ‘restoring the value received by the defendant to the claimant’. There is an obvious danger of confusion here, and these two meanings of the word must be kept separate. As Lord Hope said in Sempra Metals Ltd v IRC, ‘the law of restitution is the law of gain-based recovery, just as the law of compensation is the law of loss-based recovery’ and ‘the remedy of restitution differs from that of damages. It is the gain that needs to be measured, not the loss to the claimant. The gain needs to be reversed if the claimant is to make good his remedy’.[4]

Defence in Unjust Enrichment

Following the approach of ‘absence of basis’ by the Federal Court in Dream Property Sdn Bhd v Atlas Housing Sdn Bhd [2015] 2 MLJ 480, a claimant will be entitled to restitution if he can show that the defendant was enriched at his expense and that there was no legal ground for the defendant’s enrichment.

Under these systems a defendant can escape restitutionary liability by showing that there was a legal ground for his enrichment, for example because the claimant was required to benefit the defendant by statute or by contract.[5]

Conclusion

We would like to conclude this article with the judgement held by the Federal Court case in Dream Property Sdn Bhd v Atlas Housing Sdn Bhd [2015] 2 MLJ 480,

This is a good place to point out that remedies for contractual disputes are generally compensatory in nature, with damages assessed based on the loss suffered by the claimant. Restitutionary remedies, on the other hand, focus on any unjust enrichment to a party at the claimant’s expense. It is aimed of restoring that enrichment to the claimant. It is clear on principle and on authority that the idea of justice behind this aim is that no one should be made richer through loss to another.

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1 Paragraph 110 in Dream Property Sdn Bhd v Atlas Housing Sdn Bhd [2015] 2 MLJ 480
2 Paragraph 117 in Dream Property Sdn Bhd v Atlas Housing Sdn Bhd [2015] 2 MLJ 480
3 Paragrpah 96 in Tenaga Nasional Berhad v Ichi-Ban Plastic (M) Sdn Bhd and other appeals [2018] 3 MLJ 141
4 Paragraph 132 in Dream Property Sdn Bhd v Atlas Housing Sdn Bhd [2015] 2 MLJ 480
5 Paragraph 128 in Dream Property Sdn Bhd v Atlas Housing Sdn Bhd [2015] 2 MLJ 480

 

Prepared By:

Abu Daud Abd Rahim (Partner) a.daud@azmilaw.com

Ahmad Syiimir Suffian (Senior Partner) general@azmilaw.com