Equity and Trusts

• Date: 01 December 2013
• Citation: (2013) 14 SAL Ann Rev 339
• Author: TANG Hang Wu LLB (National University of Singapore), LLM, PhD (Cambridge); Advocate and Solicitor (Singapore); Professor, School of Law, Singapore Management University.
• Published date: 01 December 2013

Express trust

15.1 Chng Bee Kheng v Chng Eng Chye[2013] 2 SLR 715 was a case which considered the issue of a sham trust. The subject matter of the trust was a two-storey linked house at 7 Robin Walk. The matriarch of the family was Fock and the patriarch was Chng and they had six children. The house was registered in the name of the second eldest child who was the defendant. A trust deed was executed by the defendant on 23 February 1974 declaring that the purchase price was provided by Fock and the defendant held the house for Fock. The trust deed was in Fock's possession and discovered by the other children when they opened her safe deposit box upon her death. Along with the trust deed, a will and the certificate of title to the house were discovered. The will did not deal with the house. The defendant argued that the trust was a sham on the following grounds: (a) the purpose of the trust deed was to protect the house from creditors; (b) the purchase price came from Chng and not Fock; and (c) Fock's subsequent conduct was consistent with the theory that the trust deed was a sham.

15.2 One of the preliminary issues in this case was whether there was the requisite certainty of subject matter to constitute a trust. This was because the trust deed was declared on 23 February 1974 and the defendant only became the registered proprietor of the house on 11 March 1974. Chan Seng Onn J did not think that this was a trust over some future property which had not come into existence. Chan J observed (at [49]) that:

The prohibition against constituting trusts of future property covers, for instance, property that a person may have or will take under the exercise of a special power of appointment, future royalties, or proceeds of any future sale of specific property. The commonality across these types of future property is the fact that they do not exist at the material time and, for that reason, cannot be assigned either at law or in equity or held on trust.

15.3 The learned judge held that a person may establish an express trust even if he is not the absolute owner of the property. At the time when the trust was declared, the defendant already had a beneficial interest in the house by reason of a sale and purchase agreement for the acquisition of the house. Chan J held that a person may declare a trust over such a beneficial interest.

15.4 With regard to the sham argument, Chan J accepted Lord Diplock's formulation of a sham in Snook v London and West Riding Investments Ltd[1967] 2 QB 786 at 802. The judge said (at [52]) that ‘[t]he crux of the sham concept is a common intention to mislead’. It was also accepted that the relevant common intention in the context of a sham trust was the intention of the settlor and the trustee. Applying this test to the present case, Chan J held, after carefully weighing the evidence, that the defendant did not have a shamming intention at the time the trust was declared. The trust was declared because Chng had intended for a trust to protect the house from potential creditors. As the judge observed (at [67]):

[W]hen the property was purchased and the Trust Deed entered into, the Defendant was an obedient son who was merely following his father's instructions … Mr Chng was the mastermind and the Defendant was the pliant executioner.

15.5 In Chiang Sing Jeong v Treasure Resort Pte Ltd[2013] SGHC 126, the court had the occasion to consider the elements of a valid trust. Lim Chong Poon (‘Lim’) claimed that he was entitled to some shares in a company called Treasure Resort Pte Ltd (‘Treasure Resort’) by reason of an oral joint venture agreement with Maxz Universal Development Group Pte Ltd (‘MDG’) and/or a valid trust had been declared over these shares. After Lim closed his case, MDG submitted that it had no case to answer. Tan Lee Meng J dismissed the claim based on the joint venture agreement on the ground that it was unenforceable due to s 6(e) of the Civil Law Act (Cap 43, 1999 Rev Ed). However, Tan J went on to consider the express trust claim. MDG argued that Lim could not succeed on his express trust claim if the joint venture agreement was not proven. Lim's response was that once a trust was constituted, the beneficiary was entitled to enforce it. Tan J agreed with Lim's assertion that once a trust was constituted, the trust may be enforced by the beneficiary even if no consideration was furnished for the trust. After a careful examination of the evidence, Tan J found that the three certainties required for a valid trust were satisfied in the present case. The learned judge also gave short shrift to MDG's allegations of illegality and unclean hands which MDG asserted as a defence to the express trust claim. Tan J applied the well-known case of Tinsley v Milligan[1994] 1 AC 340 and held that Lim could assert his trust claim without having to rely on any illegal act. Therefore, the alleged illegality did not defeat the trust claim.

15.6 Kwee Lee Fung Ivon v Lim Gordon[2013] SGHC 228 is relevant to this section in discerning the court's attitude towards a trust in the context of division of matrimonial assets. In this case, the husband had settled a revocable discretionary trust whereby the potential beneficiaries included the husband and the children. Lai Siu Chiu J refused to consider the trust as part of the matrimonial property. With respect, this holding is controversial (for a fuller discussion of this issue see H W Tang, ‘Let's Call the Whole Thing Off: Divorce and Trusts in Singapore’(2011) 17(9) T&T 855). Furthermore, this decision did not consider the effect of Tasarruf Mevduati Sigorta Fonu v Merrill Lynch Bank & Trust Co (Cayman) Ltd[2012] 1 WLR 1721. In this case, the Privy Council held that a judgment creditor's power of revocation of the trust meant that the judgment creditor may have rights tantamount to ownership of the trust property. A receiver was therefore appointed over the judgment creditor's power of revocation of the trust. Similarly in the present case, it could also be argued that since the husband had the power to revoke the trust, there is a very strong argument to say that the assets in the trust ought to be considered to be matrimonial property subject to division pursuant to the Women's Charter (Cap 353, 2009 Rev Ed).

15.7 Re Singapore Symphonia Co Ltd[2013] SGHC 261 was a case where a trust was terminated pursuant to the rule in Saunders v Vautier(1841) Cr & Ph 240; 41 ER 482. In this case, the Tote Board settled a trust on 28 May 1989 in the amount of $25m. The beneficiaries of the trust were the Singapore Symphonia Co Ltd (‘SSO’) and the Tote Board. There were four trustees and the trust was to end on the 21st year from the death of the last surviving trustee. During the period of the trust, the income would be distributed to SSO and the capital sum would revert to the Tote Board at the end of the trust period. Unfortunately, due to the global financial crisis, the value of the trust fell below $25m and the trustees were unable to pay SSO any income from the trust. SSO and the Tote Board both agreed to bring this trust to an end pursuant to the rule in Saunders v Vautier. Edmund Leow JC granted this application because he could not see any other beneficiary besides SSO and the Tote Board who was entitled to claim any interest in the trust property.

15.8 E C Investment Holding Pte Ltd v Ridout Residence Pte Ltd[2013] 4 SLR 123 (‘E C Investment’) (a more comprehensive note of this case is found in H W Tang, ‘Creditors, Trusts and Insolvency’(2014) 20(4) T&T 383) is to be welcomed because it tackles many tricky issues, from the perspective of Singapore law, on creditors dealing with an insolvent trustee and beneficiary. E C Investment arose from two contested options to purchase granted in relation to the sale of 39A Ridout Road. The first option to purchase was granted by the registered owner, Ridout Residence Pte Ltd (‘Ridout’), to E C Investment Holding Pte Ltd (‘ECIH’). Ridout was essentially a corporate trustee created by Agus Anwar (‘Anwar’) who was the sole director and shareholder and the beneficiary of the trust. After the option was granted, Ridout granted another option to purchase to Thomas Chan. ECIH attempted to exercise the option to purchase but this was resisted by Ridout on various grounds. Both ECIH and Thomas Chan sued Ridout for specific performance. ECIH's prayer for specific performance was eventually dismissed. However, the court held that ECIH was entitled to damages. Instead, the court awarded specific performance to Thomas Chan. Thomas Chan also claimed for damages for late completion. While proceedings were ongoing, a bankruptcy order was made against Anwar. Pursuant to the court's decision, Thomas Chan completed the sale and purchase of the property by discharging the pre-existing mortgage and charge over the property. After paying off these secured interests, there was still an excess of over $4m with respect to the purchase price. Thomas Chan eventually paid this sum into court. In the present proceedings, the following creditors claimed for a share of the money paid into court: (a) ECIH for a claim of damages of $19m; (b) Thomas Chan for $3m as damages for late completion; (c) the property agent, TYF Realty Pte Ltd (‘TYF’), who facilitated the sale to Thomas Chan for the estate agent's fees of $230,000; and (d) the Official Assignee on behalf of Anwar's estate for the benefit of his creditors. Thus, the main issue in this case was essentially a question of priority of claims in the context of a competition between the creditors of a trust and the creditors of the beneficiary of the trust.

15.9 The learned judge, Quentin Loh J, noted that the question of priority between creditors of a trust had not been considered before by the Singapore court. As a starting point, all the parties including the Official Assignee agreed that the claims by ECIH, Thomas Chan and the property agent would take...