Singapore: Write-Up On The Ida v Singtel Case

On 30 May 2002, the High Court of Singapore rendered an important judgment relating to the law of restitution and the legal concept of a mistake of law. Following the Court of Appeal case of Management Corporation Strata Title No 473 v De Beers Jewellery Pte Ltd [2002] 2 SLR 1 which introduced the concept of mistake of law into the Singapore legal framework, the Info-communications Development Authority of Singapore ("IDA") claimed that it had made a mistake of law in grossing up for tax the compensation it paid to Singapore Telecommunications Ltd ("SingTel") for modification of SingTel’s licence pursuant to the former Telecommunications Authority of Singapore ("TAS") Act. This mistake led to an alleged overpayment by TAS to SingTel in the amount of $388 million.

The High Court rejected IDA’s claim. In doing so, the Court expanded considerably the local jurisprudence on the various defences available to a defendant resisting a claim founded on unilateral mistake. The Court also drew significant distinctions between the concepts of mistake of law and mistake of fact and recognised the need to establish clear boundaries to the otherwise far-reaching effects of allowing recovery based on a mistake of law.

The facts of the case were briefly as follows.

On 1 April 1992, TAS, the predecessor authority to IDA, granted SingTel a licence pursuant to s26 of the TAS Act (the "Licence") to provide telecommunication services to Singapore until 2017 with monopoly rights for the provision of basic telecommunication services until 2007.

In 1996, the Government of Singapore decided to liberalise the telecommunications sector to allow competition in the provision of basic telecommunication services as from March 2000, 7 years ahead of the expiry of SingTel’s monopoly in these services in March 2007. Various meetings took place between representatives of TAS, SingTel and the Ministry of Communications ("Mincom") to discuss the process of liberalisation (which would necessitate a modification of SingTel’s licence to allow competition in basic services) and to assess the compensation payable to SingTel for loss of its monopoly rights. Section 28 of the TAS Act provided, inter alia, for a notice to be issued by TAS to the licencee proposing the manner in which the modifications to the licence would be made and the compensation payable for any damage caused thereby.

Both TAS and SingTel appointed financial consultants to assess the quantum of damage caused by the modifications. Numerous interchanges took place between the parties to ascertain the appropriate figure which would be payable by TAS to SingTel.

In a letter of 11 May 1996, TAS gave official notice (pursuant to s8) of its intention to modify SingTel’s licence and stated that the compensation payable for any damage caused by this modification was assessed by TAS to be S$1.5 billion. SingTel were given 28 days from the date of service of that letter to make representations on the proposed modification. An exchange of correspondence subsequently took place between TAS and SingTel on 30 May 1996 where TAS and SingTel agreed that SingTel would accept the compensation of $1.5 billion in "full and final payment".

However, on 4 October 2000, at a meeting involving SingTel and IDA, SingTel were told that the Inland Revenue Authority of Singapore ("IRAS") had ruled that no tax would be payable on the compensation and that since the compensation was grossed up for tax in the amount of $388 million, SingTel would have to repay that amount to TAS. This was rejected by SingTel. IDA then commenced an action against SingTel for restitution of the amount of $388 million which they had allegedly paid under a mistake of law.

The defences raised by SingTel against IDA’s claim involved a variety of issues all of which were dealt in great detail by the Court. There were two strands to SingTel’s defence: firstly, there were arguments that disputed that IDA had made any legally relevant mistake at all which entitled it to restitution, and secondly, there were the actual defences to recovery of sums paid on the basis of a mistake of law.

IDA’s pleaded case was that TAS made an erroneous assumption that SingTel "would have to pay tax on the compensation sum". Applying established principles, the Court reasoned that this erroneous assumption was not a "mistake", in the legally relevant sense of the word, but rather a misprediction that tax would be determined by IRAS to be payable. It therefore referred to a future contingency of a tax determination by IRAS. The Court accepted the principle that IDA would only have a case for recovery of the $388 million if it had made a mistake as to the state of the law as at the time of payment and not at any future time. A claimant could not recover payment based on a misprediction because he would, in those circumstances involving a future contingency, be deemed to have taken a risk that his prediction would not materialise and would hence have to bear a risk of disappointment. The Court also accepted that IRAS’ determination was an administrative decision, which, unlike a determination of a Court, could not support the argument that tax was not payable as a matter of law, which would entitle IDA to restitution on the basis of a mistake of law.

Finally, the Court included in its ratio (which is unprecedented in the Commonwealth) its view that as the law was unclear as to the taxability of the compensation at the time of payment by IDA, then IDA could not have made a "mistake" as to taxability. The fact that the law was grey (which was established at trial by various experts in the area of tax who were called by SingTel) meant that IDA had paid pursuant to a prediction involving a future event that tax would be determined by the IRAS to be taxable and that this determination would be upheld by a Court on appeal. A payment made on the basis of a prediction of what the law would turn out to be was irrecoverable.

The Court accepted that even if IDA had made a legally relevant mistake, it would be precluded from recovery on the basis of the variety of defences raised by SingTel. The Court reviewed in detail the evidence adduced by both parties in relation to the legal nature of the interchanges which took place between the parties which led to the figure of $1.5 billion being determined as the appropriate quantum of compensation. The Court held that the conduct by IDA was one that suggested its overwhelming desire for closure of the transaction and to prevent SingTel from re-opening the transaction or any of its underlying assumptions. The Court reasoned that by its conduct in spurning an obvious line of investigation into the taxability of the compensation and by its desire to close the transaction, IDA had assumed a risk that its assumptions, including tax assumptions, may subsequently turn out to be different in nature or incorrect. By assuming this risk, IDA, according to established principles was precluded from recovering the amount of $388 million allegedly overpaid for tax.

The Court also made findings of fact that the interchanges between the parties, which included the various meetings and telephone conferences between representatives of IDA and SingTel to discuss the compensation and the exchange of correspondence between the parties on 30 May 1996 determining the payment as "full and final payment" to be conduct amounting to an intention to create contractual relations and which created a binding contract or compromise between the parties. The Court affirmed established principles of contract law and held that in order to recover payments made pursuant to a contract, the contract had first to be set aside. As IDA had not claimed rescission of the contract, and even if they had, they did not prove that SingTel had shared IDA’s mistake on the taxability of the compensation (mutual mistake being the primary ground for setting aside a contract on the basis of mistake of fact or law), the contract stood and IDA was not entitled to recovery. The Court was not persuaded by IDA’s attempt to set aside part of the contract relating to tax on the basis of total failure of consideration as it held that the contract was not severable and could not be set aside in part.

This case constitutes a meaningful development of the jurisprudence on mistake of law and the defences to a claim for restitution on this basis. The High Court’s judgment has also established clear and proper boundaries to a claim founded on mistake of law against the policy background of preserving the sanctity of contracts legitimately entered into by commercial enterprises.

Allen & Gledhill are pleased to have represented the successful defendant in this case.