Case: Singapore High Court lays down framework for determining whether to not enforce a trust for illegality

Significance: The General Division of the High Court of Singapore (per Goh Yihan JC as he then was) laid down a legal framework adapted from that in Ochroid Trading* (in which the Singapore Court of Appeal established the framework for illegality in claims in contract and recovery in restitution) for determining whether to not enforce a trust for illegality (see [80]).

Lau Sheng Jan Alistair v Lau Cheok Joo Richard [2023] SGHC 196

* Ochroid Trading Ltd and another v Chua Siok Lui (trading as VIE Import & Export) and another [2018] 1 SLR 363

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March 18, 2020March 20, 2020

Case Update: Cybersquatting, Contracts, Illegality & Public Policy: 3 Corporate Services Pte Ltd v Grabtaxi Holdings Pte Ltd [2020] SGHC 17

A commentary on 3 Corporate Services Pte Ltd v Grabtaxi Holdings Pte Ltd [2020] SGHC 17

By Ronald JJ Wong & Arthur Chin

Photo by Hitarth Jadhav from Pexels

Outline

I. Executive Summary
II. Material Facts
III. Issues before the Court
A. The Enforceability Issue
B. The Relief Issue
C. The Public Policy Issue
IV. Comment

I. Executive Summary

1. In the recent case of 3 Corporate Services Pte Ltd v Grabtaxi Holdings Pte Ltd [2020] SGHC 17 (“Grabtaxi Holdings”), Lai Siu Chiu SJ addressed, among other things, a novel question: whether cybersquatting or abusive registration of domain names is a recognisable head of public policy which can render contracts that run contrary to this policy non-enforceable.

2. Though cybersquatting is not illegal under Singapore law, Lai SJ in this decision opined that the extensive and pervasive use of Internet has rendered the need for the Singapore courts to step in and ensure that the rights of legitimate trademark owners are well protected.

3. At the outset, we note that the case was decided on the issue of whether the offer letter in dispute was a valid and enforceable agreement. Therefore, the court’s findings on cybersquatting is obiter dicta.

II. Material Facts

4. Ho Qiyang Mark (“Mark”) is the sole shareholder and director of the plaintiff, 3 Corporate Services Pte Ltd (“3 Corporate”). 3 Corporate sued Grabtaxi Holdings Pte Ltd (“Grabtaxi”) for specific performance and/or damages, alleging that Grabtaxi had reneged on an agreement to buy over a domain name “grab.co.id” (“the Domain Name”) from 3 Corporate for US$250,000.00.

5. In July 2017, one Priscilla, a friend of Grabtaxi’s CEO Anthony Tan (“Anthony”) informed Anthony that 3 Corporate owned the Domain Name and that this domain could be of interest to Grabtaxi. Grabtaxi then entered into negotiations with 3 Corporate to purchase the Domain Name. In the course of negotiations, Mark allegedly represented to Grabtaxi that an Indonesian company called PT Rajwali (“Rajwali”), which has a substantial interest in Go Jek and a separate taxi business called Rajwali Express, would be keen to purchase the Domain Name from 3 Corporate in a bid to resell it to Grabtaxi at a higher price.

6. Subsequently, Grabtaxi prepared a letter of offer (“the Offer Letter”) addressed to 3 Corporate stating the terms and conditions for the purchase of the Domain Name. Although the letter was addressed to 3 Corporate, it was signed by one Ashwyn Denzil (“Ashwyn”), whom Mark represented as an employee of Top3 Media Pte Ltd (“Top3”), which Mark is a 50% shareholder of.

7. It later transpired that 3 Corporate also controls other domain names, such as “www.grab.com.sg”, “www.grab.com.vn” and “www.grab.ph”. 3 Corporate and/or Top3 have also registered more than 1,000 domain names similar and/or identical to other well-known brands. Grabtaxi felt that Mark’s dealings raised too many questions and so decided against proceeding with the sale and purchase agreement with 3 Corporate.

III. Issues before the Court

8. 3 Corporate alleged that Grabtaxi had wrongfully repudiated the agreement reached between the parties through the Offer Letter. Thus, it claimed specific performance from Grabtaxi of the agreement incorporated in the Offer Letter, and in the alternative, damages.

9. Consequently, there were three (3) issues for the court’s determination (at [114]):

(a) Whether the Offer Letter is a valid and enforceable agreement (“the Enforceability Issue”);

(b) If the Offer Letter is valid and enforceable, what loss has the plaintiff suffered so as to be entitled to damages and if the plaintiff can be awarded specific performance in lieu of damages (“the Relief Issue”); and

(c) Whether 3 Corporate is a cybersquatter and if so, whether the Offer Letter is non-enforceable as being contrary to public policy (“the Public Policy Issue”).

A. The Enforceability Issue

10. The court held that the Offer Letter is not a valid and enforceable agreement as against Grabtaxi. The court found at [126] that although the Offer Letter was addressed to 3 Corporate, it was only signed by Ashwyn, who was not an employee, shareholder or director of 3 Corporate.

11. The court also found at [127] that the Domain Name is at all material times registered under Ashwyn’s name; there was no declaration of trust from Ashwyn that the Domain Name was to be held on behalf of Mark or 3 Corporate; and there was also no director’s resolution from 3 Corporate authorising Ashwyn to execute the Offer Letter on its behalf. Thus, the Offer Letter was not enforceable by the plaintiff.

B. The Relief Issue

12. It is trite that in determining whether to grant any equitable remedy, the court will consider the clean hands doctrine. The court found that neither 3 Corporate nor Mark, as the sole shareholder and director, came before the court with clean hands.

13. In coming to this conclusion, the court found at [131]-[133] that:

(a) Mark had not been truthful to Grabtaxi in the course of negotiations – he had represented to Grabtaxi, through Priscilla, that he was in negotiations with Rajwali and was close to a deal when in actual fact the letter of intent from Rajwali was made well after the Offer Letter to Grabtaxi;

(b) Mark’s conduct was questionable – his brother and his brother’s wife had registered 1,233 domain names through 3 Corporate and its related companies. In this respect, the court made reference to an online article Ashwyn adduced in evidence which distinguished domain name investing (which was purported to be the practice of buying and selling non-trademarked domain names) from cybersquatting (which purportedly involved the purchasing of domains for trademarked names or variations of the same); and

(c) Mark, his brother, and his brother’s wife had registered the domain names in the hope that they could then flip them to buyers for handsome returns.

14. The court also found at [134] that 3 Corporate had not proved that it has suffered any loss. Further, since 3 Corporate does not actually own the Domain Name, it is not entitled to recover the sale price of US$250,000.00 even if the Offer Letter is enforceable.

C. The Public Policy Issue

15. On the Public Policy Issue, the court held at [135] that 3 Corporate is a cybersquatter because it had engaged in “the deliberate, bad faith abusive registration of domain names in violation of rights in trademarks and service marks”.

16. As there is neither a statutory definition of cybersquatting in Singapore nor a universal definition (at [102]), the court considered several English cases on passing off and trademark infringement involving cybersquatting.

17. At [136], the court considered Global Projects Management Ltd v Citigroup Inc and others [2005] EWHC 2663 (Ch) (“Global Projects”) where the English court described the phenomenon of cybersquatting at [12] in the following terms:

“Persons with no connection with a well-known business name would find some permutation containing the name and a suffix, but where that particular permutation had not been registered by the real owner of the business. The person concerned would then register that permutation himself and try to make money through being bought out by the true owner.”

18. The court considered at [138] the English High Court decision of Marks & Spencer v One In A Million [1997] 42 IPR 21 (“Marks & Spencer”) where the court granted injunctive relief against the defendants for registering numerous domain names and then attempting to sell the rights to these names for large sums of money to the companies concerned.

19. The court further considered at [139] British Telecommunications plc v One In A Million [1999] 1 WLR 903 (“BT”) where the court granted the plaintiffs injunction to restrain the defendants’ use of the relevant domain names on the basis of passing off and breach of the plaintiffs’ registered trademarks. Likewise, the defendants specialised in registering domain names incorporating well-known names and trademarks. The plaintiffs were large companies whose household names had been registered and offered for sale by the defendants.

20. Lai SJ found at [140] that 3 Corporate’s conduct in registering domains such as “ubereats.com.sg”, “gooogle.com.sg” and “amyswinehouse.com.sg” would fall within the meaning of cybersquatting as set out in Global Projects, and was the kind of conduct that has been frowned upon by the English Courts in Marks & Spencer and BT.

21. Lai SJ also considered at [102] and [141] the Final Report of the WIPO Internet Domain Name Process titled “The Management of Internet Names and Addresses: Intellectual Property Issues” dated 30 April 1999 (“the WIPO Final Report”).

22. At paragraph 170 of the WIPO Final Report, the Committee said:^[1]

“… . In popular terms, “cybersquatting” is the term most frequently used to describe the deliberate, bad faith abusive registration of a domain name in violation of rights in trademarks and service marks. …”

23. Moreover, the WIPO Final Report states that the registration of a domain name shall be considered to be abusive when all of the following conditions are met:^[2]

(a) The domain name is identical or misleadingly similar to a trade or service mark in which the complainant has rights (“the First Criterion”);

(b) The holder of the domain name has no rights or legitimate interests in respect of the domain name (“the Second Criterion”); and

24. As for when registration and use of a domain name shall be deemed to be in bad faith, the WIPO Final Report states that the following shall be evidence of such conduct:^[3]

(a) An offer to sell, rent or otherwise transfer the domain name to the owner of the trade or service mark, or to a competitor of the owner of the trade or service mark, for valuable consideration;

(b) An attempt to attract, for financial gain, Internet users to the domain name holder’s website or other on-line location, by creating confusion with the trade or service mark of the complainant;

(c) The registration of the domain name in order to prevent the owner of the trade or service mark from reflecting the mark in a corresponding domain name, provided that a pattern of such conduct has been established on the part of the domain name holder; or

(d) The registration of the domain name in order to disrupt the business of a competition.

25. 3 Corporate argued that the Uniform Domain Name Dispute Resolution Policy (“UDRP”) and Singapore Domain Name Dispute Resolution Policy (“SDRP”) are more relevant than WIPO’s Final Report. The SDRP requires the following elements proven against the registrant of a domain name:^[4]

(a) the registered domain name is identical or confusingly similar to a name, trade mark or service mark in which the complainant has rights;

(b) the registrant has no rights or legitimate interests in respect of the domain name; and

26. The SDRP states that evidence of registration and use of bad faith can be found when:^[5]

(a) circumstances indicating that the Registrant has registered or acquired the domain name primarily for the purpose of selling, renting, or otherwise transferring the domain name registration to the Complainant, who bears the name or is the owner of the trademark or service mark, or to a competitor of that Complainant, for valuable consideration in excess of the Registrant’s documented out-of-pocket costs directly related to the domain name;

(b) the Registrant has registered the domain name in order to prevent the owner of the trademark or service mark from reflecting the mark in a corresponding domain name, provided that the Registrant has engaged in a pattern of such conduct;

(c) the Registrant has registered the domain name primarily for the purpose of disrupting the business of a competitor; or

(d) by using the domain name, the Registrant has intentionally attempted to attract, for commercial gain, Internet users to the Registrant’s website or other on-line location, by creating a likelihood of confusion with the Complainant’s name or mark as to the source, sponsorship, affiliation, or endorsement of the Registrant’s website or location or of a product or service on the Registrant’s website or location.

27. The court opined at [146]-[147] that the provisions in the WIPO Final Report and also the SDRP and UDRP were similar to those in the WIPO Final Report.

28. The court found at [148]-[149] that the Domain Name is strikingly similar to the defendant’s many registered trademarks using its GRAB logo; that the plaintiff’s business is not in ride-hailing; and the plaintiff’s usage of the Domain Name had the markings of bad faith and cybersquatting.

29. In response to the plaintiff’s argument that it is not appropriate to establish cybersquatting or abusive registration as a new head of public policy at common law and the court should be cautious of doing so when the legislature has not considered the matter, the court opined that given the wide reach of the Internet today and the pervasive use of Internet websites, the abusive and/or illegal usage of domain names need to be controlled and/or curbed: [143]. Accordingly, the court refused to enforce the Offer Letter on the ground that it was contrary to public policy.

IV. Comment

30. The decision in Grabtaxi Holdings has the potential effect of establishing cybersquatting or abusive domain name registration as a new head of public policy at common law. In this respect, the five-panel Court of Appeal in Ochroid Trading Ltd and another v Chua Siok Lui (trading as VIE Import & Export) and another [2018] 1 SLR 363 (CA) (“Ochroid Trading”) at [30] “emphasise[d] that although the categories of illegality at common law are not closed, the courts will not readily add new categories. There is also always the issue as to whether, as society changes, the existing categories themselves will need to be modified or even (in extreme cases) done away with. The entire legal enterprise in this particular sphere is exacerbated by the fact that, as already noted above, the very nature of public policy is both fluid and problematic.” Indeed, the Court there described at [20] the concept of public policy as having “ofttimes [an] elusive nature … [and is] an unruly horse and must therefore be applied wisely”.

31. As the Court in Orchroid Trading noted at [29], examples of the types of contracts which fall afoul of established heads of common law public policy include “contracts prejudicial to the administration of justice (including contracts to stifle a prosecution and contracts savouring of maintenance or champerty); contracts to deceive public authorities; contracts to oust the jurisdiction of the courts; contracts to commit a crime, tort or fraud; contracts prejudicial to public safety; contracts prejudicial to the status of marriage (including marriage brokage contracts as well as agreements by married persons to marry and agreements between spouses for future separation); contracts promoting sexual immorality; contracts that are liable to corrupt public life; and contracts restricting personal liberty”.

32. The difficulty with accepting cybersquatting as a head of common law policy is that unlike other established heads of public policy, such as those cited above, it is not clearly a matter of violating some public interest or shared values. On the contrary, it is primarily a matter between private parties. And if indeed there is such a dispute between private parties, the party whose rights have been violated can seek legal recourse through the legal process of the SDRP.

33. Further, if all contracts to transfer domain names which may potentially involve cybersquatting are unenforceable for being contrary to public policy, it creates uncertainty for parties who may deliberately choose to contract to purchase and transfer a domain name instead of, e.g. resolving the matter pursuant to the SDRP. Such contracts may increase economic efficiency than if it were otherwise to be resolved by dispute resolution. Moreover, legitimate holders of domain names may find themselves being accused of cybersquatting and unable to otherwise properly negotiate transfers for fair consideration. The uncertainty is aggravated by the multi-factorial fact-specific analysis required to determine whether all the elements in the SDRP or the WIPO Final Report have been fulfilled. Advising on the validity and enforceability of contracts of this type would now be difficult and would require a full-blown analysis of all the relevant elements.

34. It is also peculiar to predicate the finding of a head of public policy, which would render all contracts of a type illegal or unenforceable, on the rules adopted by a private company, namely the Singapore Network Information Centre (SGNIC) Private Limited, and incorporated by reference into the Domain Name Registration Agreement between SGNIC and the domain name registrant or holder.^[6] In other words, quite apart from whether cybersquatting will be legislated as a criminal or regulatory offence, the SDRP rules do not even have the force of law, although they may arguably be quasi-law. It is also noteworthy that the Singapore Parliament has not expressly considered or debated the issue of cybersquatting.

35. Also, the English cases which the court relied on were decided on the basis of applying legal principles on trade mark infringement and passing off to granting injunctive relief in respect of domain names and cybersquatting. However, the authorities appear to suggest that the considerations for trade mark proceedings and SDRP or UDRP are quite different.

36. The lack of certainty in the SDRP analysis is illustrated by the court’s findings at [148]-[149] regarding the Second and Third Criterion. The court found that because the plaintiff’s business is not in ride-hailing, it had no rights or legitimate interests in respect of the Domain Name. However, on the facts, it cannot be said that it must have been necessarily the case that the Domain Name must belong to an operator of a ride-hailing business. On the Third Criterion, the court was not convinced that the words “Grab” and “Grab Essentials!” used the words to such an extent that they were an integral part of the plaintiff’s related design business in Indonesia or that the words were/are used in the company’s advertising campaigns (at [144]) and also found that the word was not used in the plaintiff’s website. This is not only highly fact-specific but also a matter of degree and extent, which can be difficult to assess.

37. In sum, the decision in Grabtaxi Holdings has raised interesting and novel points on public policy and enforceability of contracts, cybersquatting and SDRP rules which are seldom canvassed in the courts. However, perhaps because of this novel nature, it has raised important issues which will impact practices concerning domain names. It is hoped that further clarity will be brought to this area.

^[1] WIPO Final Report at [170], cited in Grabtaxi Holdings at [141].
^[2] WIPO Final Report at [171(1)], cited in Grabtaxi Holdings at [141].
^[3] WIPO Final Report at [171(2)], cited in Grabtaxi Holdings at [141].
^[4] See, e.g., Facebook, Inc v Zheng Zhongxing [2012] SDRP 1. See also Phang Hsiao Chung, “Resolving Domain Name Disputes – A Singapore Perspective” [2002] SAcLJ 14.
^[5] SDRP at paragraph 4(b)(i)-(iv).
^[6] SDRP at paragraph 1(a)-(b).

December 7, 2018February 4, 2020

Ochroid Trading Ltd and another v Chua Siok Lui [2018] SGCA 5 – illegality, contracts and unjust enrichment

Significance

In Ochroid Trading Ltd and another v Chua Siok Lui (trading as VIE Import & Export) [2018] SGCA 5 and another (“Ochroid”), the Court of Appeal established a structured framework for dealing with illegality and contracts in Singapore.

In doing so, the Court categorically rejected the ‘range of factors’ test adopted by the UK Supreme Court in Patel v Mirza [2016] UKSC 42 (“Patel”) and subsequently reaffirmed the approach set out in Ting Siew May v Boon Lay Choo and another [2014] SGCA 28 (“Ting Siew May”). The Court also established that a claim in unjust enrichment as an independent cause of action would not be barred due to a claimant’s reliance on the illegal contract, thus rejecting the contrary position taken previously in Top Ten Entertainment Pte Ltd v Lucky Red Investments [2004] 4 SLR(R) 559 (“Top Ten Entertainment”).

Facts

The appellants (Ochroid Trading) advanced money to the respondents (VIE Import and Export) pursuant to several investment loan agreements, which provided that the loans were to be repaid with a “profit” on the stipulated date. When the respondents defaulted, the appellants sued for breach of contract to recover both the loan amount and the “profit”, and also advanced an alternative claim in unjust enrichment for only the loan amount itself. The appellants further brought claims in tort for fraudulent misrepresentation and conspiracy to defraud. The High Court rejected the appellants’ claims on the basis that the loan agreements were prohibited under the Moneylenders Act (Cap 188) (“MLA“) as the appellants’ were not licensed moneylenders. Their alternative claim in unjust enrichment was also dismissed as it was seen to be a “backdoor attempt” to enforce the illegal contracts. Lastly, their claims in tort were found to be wholly unmeritorious. Upon appeal, the Court of Appeal dismissed the appeal primarily on the same grounds.

Key Principles

The Court of Appeal adopted a two-stage inquiry in dealing with illegality:

First, it must be established whether the contract is prohibited under a statute (impliedly or expressly) and/or an established head of common law public policy. If this is established, no recovery in contract can be made. However, this strict position does not apply to contracts which are not unlawful per se but are entered into with the object of committing an illegal act. For such contracts and only such contracts, the principle of proportionality elucidated in Ting Siew May would apply in determining their enforceability. If the illegality is insignificant and it would be disproportionate to hold the contract unenforceable, recovery may still be possible.
Second, even if the contract is prohibited, a claimant could nevertheless recover benefits on a restitutionary basis, through three possible avenues:

If the parties are not in pari delicto (ie. the claimant was less blameworthy than the defendant). This only applies in three established situations:
1. Where the contract is held void by a statute protecting the class of persons to which the claimant belongs;
2. Where the claimant entered into the contract under fraud, duress or oppression;
3. Where the claimant entered into the contract as a result of a mistake as to the facts constituting the illegality;
Through the doctrine of locus poenitentiae, which would apply if there was a ‘genuine and voluntary’ withdrawal from the illegal enterprise before the illegal purpose is effected. This would not apply where the illegal purpose was frustrated by circumstances outside the claimant’s control, or was rendered unnecessary.
Through an independent cause of action (ie. the claimant does not need to rely on the illegal transaction to make out his cause of action). This could be a claim in unjust enrichment, or a claim in tort or the law of trusts. However, this is subject to whether allowing such a claim to succeed to result in undermining the legislative intent behind the law prohibiting the illegal contract in the first place.

The first stage – is the contract prohibited?

The Court of Appeal considered whether to incorporate into the first stage inquiry the English approach towards illegality established in Patel – better known as the ‘range of factors’ test. The Patel approach applies to only common law illegality and not contracts prohibited by statute. It allows the illegality defence to succeed if enforcing the claim would undermine the legal system. Determining whether this is the case requires the court to conduct a ‘balancing exercise’ and exercise broad discretion by considering the legislative intent of the law which has been broken, any relevant public policy, and whether it would be a proportionate response to deny the claim. This differs from the current ‘Ting Siew May’ approach in Singapore, where there can strictly be no recovery under contract if an agreement is held to be void due to either statutory or common law illegality. In definitively rejecting Patel, the Court took the view that there was no principled reason for adopting different approaches towards common law-prohibited and statute-prohibited contracts. Thus, the law on the first stage of the inquiry in determining whether a contract is prohibited remains unchanged.

The second stage – can the claimant still recover on a restitutionary basis?

The first and second avenues for recovery were not applicable to the present case, and while the Court offered the view that the doctrine of locus poenitentiae only applied if there was a genuine and voluntary withdrawal from the illegal enterprise, it declined to make a definitive pronouncement on the issue.

For the third avenue, Top Ten Entertainment was the only Singapore case prior which had touched on restitutionary recovery through unjust enrichment – albeit through obiter remarks that the “reliance principle” established in Tinsley v Mulligan [1994] 1 AC 340 would preclude a claim in unjust enrichment. The reliance principle is the notion that a claimant cannot succeed if he has to “rely on” the illegal transaction in order to make out his cause of action.

In the present case, the Court rejected the Top Ten Entertainment position on the basis that the reliance on the illegal contract in raising a claim for unjust enrichment is simply a “procedural” one. A restitutionary claim, even if technically “relying” on the illegal contract, merely allows the parties to revert to the position they would have been in if not for entering the illegal contract, as opposed to allowing the claimant to profit from enforcing the agreement.

The Court found that the appellants had satisfied the requirements for a claim in unjust enrichment (that the respondents had been enriched, that the enrichment was at the appellants’ expense, and that the enrichment was unjust as there was a total failure of consideration as the respondents had failed to repay the loans which was the promised counter-performance based on which the loans were disbursed).

However, the independent claim in unjust enrichment could be defeated by the defence of illegality if permitting the recovery of the benefit would stultify or undermine the fundamental policy that rendered the the underlying contract void and unenforceable in the first place.

The appellants’ claim did not succeed as it was held that permitting the restitution of the principal sums would render the prohibition in s 15 of the MLA ineffectual. Allowing unlicensed moneylenders to recover compensation through a claim in unjust enrichment cannot be allowed as it would essentially undermine the fundamental social and public policy behind the MLA, which was enacted to tackle the ‘social menace’ of illegal moneylending in Singapore.

(This case summary was written by Nee Yingxin.)