Equity, Trust and Restitution
| Published date | 01 December 2001 |
| Author | TAN SOOK YEE BA, LLB (Dub), Barrister (MT), Advocate & Solicitor (Singapore), Professor, Faculty of Law, National University of Singapore TANG HANG WU LLB (NUS), LLM (Cantab), Advocate & Solicitor (Singapore), Solicitor (England & Wales), Assistant Professor, Faculty of Law, National University of Singapore |
| Date | 01 December 2001 |
12.1 The beneficiary of a trust has property. This basic and simple fact has made the express trust as familiar an institution in the commercial area as it is in the family environs. In the case of the express trust in a commercial setting where the parties involved are also in a contractual relationship, a common problem is whether the intention to create a trust is present. Often this is left to be inferred from the surrounding facts. Hinckley Singapore Trading Pte Ltd v Sogo Department Stores (S) Pte Ltd[2001] 4 SLR 154 (CA); [2001] 2 SLR 556 (HC) is an example. In that case, Hinckley Singapore Trading Pte Ltd (“Hinckley”) had a concessionaire agreement with Sogo Department Stores (S) Pte Ltd (“Sogo”) under which Hinckley exhibited and sold its goods in a specific part of Sogo and in turn Sogo was entitled to deduct 20% of net sales from the proceeds of sale of Hinckley”s goods. When customers purchased Hinckley”s goods they paid for them at Sogo”s cashiers and the proceeds of sale would be mixed with the proceeds of sale of goods either of Sogo or of other concessionaires. General accounting would be done every 15 days when the deduction of the 20% due to Sogo would be paid. The money collected from the sale of Hinckley”s goods was never placed in a separate account and was always banked into a current account of Sogo which was used for all the business of Sogo. Sogo was placed under judicial management on 18 August 2000. Out of the sales made between May and July 2000, a sum of $212,212.99 was the net amount due to Hinckley. Hinckley claimed that this sum was held by Sogo on trust for it. This claim was resisted by the judicial managers who claimed that the sum was merely a debt owed to Hinckley. Judith Prakash J dismissed Hinckley”s application and her judgment was upheld on appeal.
12.2 Both Prakash J and the Court of Appeal acknowledged that Sogo was an agent of Hinckley in regard to the sale of Hinckley”s goods. However, this in itself did not mean that the sale proceeds were held by the
agent on trust for the principal, especially where there was a business arrangement over a period of time, involving a large number of goods. The intention to create a trust of the sale proceeds must either be expressly stated or the facts are such that an intention to create an express trust may be inferred (Re Fleet Disposal Services[1995] 1 BCLC 345, Geh Cheng Hooi v Equipment Dynamics Sdn Bhd[1991] 1 MLJ 293). In the instant case, facts such as the non-segregation of the sale proceeds and the absence of a particular specified cashier to handle the sales of Hinckley”s goods, in the view of the judge in chambers and the Court of Appeal, did not support an inference of an express trust. Chao Hick Tin JA at 164—165 said:
“No general rule may be laid down in this regard. In a case where there is no express term in the agreement on the question of trust, whether the equitable rules would be implied would depend upon what may correctly be inferred to be the expectations of the parties in the light of the commercial context.”
The cases considered and followed by the Court of Appeal included Henry v Hammond[1913] KB 515, Re Kayford[1975] 1 All ER 604, Neste Oy v Lloyds Bank[1983] 2 Lloyd”s Rep 658, Re Holiday Promotions (Europe)[1996] 2 BCLC 618 and Walker v Corboy(1990) 19 NSWLR 382. Where the intention to create a trust is not expressly spelled out, the courts have to be cautious in inferring a trust as such a finding impacts adversely on third parties such as unsecured creditors.
12.3 The facts in Ho Kon Kim v Lim Gek Kim Betsy[2001] 4 SLR 340 were different although the case too was in a commercial setting. (This case is also discussed infra at paras 12.9 and 12.24 and in the review on Land Law at paras 17.26—17.34). In brief, Ho Kon Kim (“Ho”) was an old widow who sold and conveyed her home which was sitting on a large plot of land to Lim Gek Kim (“Betsy”). The plan was that Betsy should subdivide the land into three lots and build a house on each lot. In the beginning the intention of the parties was that Ho should retain one third of the land after subdivision and that only two thirds would be sold to Betsy. However for financing reasons, the proposal was altered and the entire piece of land was to be transferred to Betsy who would then build three houses, one on each subdivided plot and retransfer one of these to Ho. Accordingly, in the agreement for sale, Betsy agreed to transfer to Ho one of the subdivided plots after a house of not less than $700,000 in value had been built on it. The purchase price of the land reflected this future transaction as it did not include the value of the subdivided plot, which was not to exceed 5030 sq ft, to be retransferred to Ho when the house was built. The agreement for sale also gave Ho the right to lodge a caveat in respect of the plot that was to be retransferred to her. OCBC, who first financed the purchase on a legal mortgage over the entire piece of land, had knowledge of the agreement between Betsy and Ho and undertook to discharge the mortgage without any payment, on the subdivided plot to be
retransferred to Ho when a private lot number was given. By the time the sale was completed Ho had already selected the lot that she wanted, which was referred to as Plot 3 on the architect”s layout plan. After the sale, Betsy obtained refinancing for the project from RHB. The mortgage to OCBC was discharged and replaced by one in favour of RHB. Eventually Betsy was made a bankrupt. The project was not completed. Ho then commenced an action against Betsy for breach of trust and against RHB for knowing receipt of trust property and against the lawyers acting for Betsy and RHB for knowingly assisting in a breach of trust. The first issue thus was whether there was a trust in favour of Ho.
12.4 At first instance the judge found that there was no trust between Betsy and Ho; the transaction was only a contractual one. The judge also dismissed the action against RHB referring to ss 47 and 49 of the Land Titles Act (Cap 157, 1994 Ed) and saying that under the Act, notice of a contractual claim did not affect the registered title. The Court of Appeal reversed this decision. The Court of Appeal found that on the facts and the circumstances surrounding the sale of the land to Betsy, a trust of the subdivided plot of the land agreed to be sold could be inferred in Ho”s favour. The Court found the following facts to be significant: the plot to be transferred to Ho had been earmarked, she was allowed to lodge a caveat in respect of this plot when the lot was allotted, and the first mortgagee OCBC had agreed to discharge the plot from the mortgage without any payment when the lot was allotted. L P Thean JA said at 352:
“From the transaction as structured in the sale agreement it was intended that [Ho] should retain and have a beneficial interest in the plot selected by her … and in our judgment, [Ho] has a beneficial interest in that plot and [Betsy] holds the beneficial interest of [Ho] in trust for [Ho].”
12.5 The Court of Appeal also concluded that the sale agreement was closely linked to the overdraft facility provided by OCBC. The provisions of the documentation made express mention of the quantum of the money loaned which was to be used in the construction of the houses. From this the Court of Appeal also inferred that a term of the trust was that Betsy was to use the land as security only for the development of the land. Accordingly, as she subsequently discharged the mortgage to OCBC and obtained a new loan from RHB, which she used for purposes unconnected with the construction of the houses, Betsy was in breach of trust. On the back of this express trust the Court of Appeal went on to hold that RHB was a constructive trustee for Ho. It not only took the mortgage with knowledge of the trust but it also acknowledged that it would discharge the mortgage over Ho”s plot when it was transferred to her. While such behaviour was not within the concept of fraud, it was unconscionable and inequitable.
12.6 It is clear that the Court of Appeal was sympathetic to the plight of Ho and through the inference of an express trust was able to assist her. Although the transaction involved was a commercial one, yet it would not
be out of place to note that the plaintiff was the kind that Equity historically strove to protect. On the issue of RHB being a constructive trustee, the Court of Appeal drew a clear line between a finding of fraud, which under the Land Titles Act requires dishonesty of some sort, and inequitable or unconscionable behaviour (per Thean JA at 362—366). In the context of Torrens legislation, such behaviour can also justify a personal equity or a claim in personam against the registered proprietor (Frazer v Walker[1967] 1 AC 569, Binions v Evans[1972] Ch 359, Lyus v Prowsa Developments[1982] 1 WLR 1044; Bahr v Nicolay (No 2)(1988) 164 CLR 604; United Overseas Finance Ltd v Victor Sakayamary[1997] 3 SLR 211).
12.7 Apart from the inference of an express trust, it is submitted that on the facts, there was a resulting trust for Ho who transferred the entire piece of land including the plot intended for Ho. It was clear that the purchase did not include the plot earmarked for her. Thus, a resulting trust would be created. As for the obligation to construct a house for Ho, this remains a contractual matter which would be enforceable against Betsy under s 46(2)(b) of the Land Titles Act. On such a view, RHB would also be bound on the same ground of a personal equity based on its unconscionable behaviour.
12.8 In Nyo Nyo Min v Aung Khin (Originating Summons 738/2000, HC, unreported judgment dated 28.2.2001), the plaintiff prayed for the following against her estranged husband and one Mrs Khin: (a) a declaration that he held a half share of a flat on trust for her; and (b) a declaration that a particular bank account was held on...
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