Cheong Soh Chin and others v Eng Chiet Shoong and others

• Jurisdiction: Singapore
• Judge: Vinodh Coomaraswamy J
• Judgment Date: 10 July 2015
• Neutral Citation: [2015] SGHC 173
• Court: High Court (Singapore)
• Hearing Date: 05 September 2013,29 July 2013,24 July 2013,26 July 2013,03 September 2013,06 September 2013,18 July 2013,04 September 2013,01 August 2013,30 July 2013,16 January 2014,23 January 2014,09 September 2013,22 July 2013,29 January 2014,28 April 2014,27 May 2014,25 July 2013,31 July 2013,02 August 2013,22 January 2014,19 July 2013,24 January 2014,23 July 2013,28 January 2014,21 April 2014,21 January 2014,12 May 2014
• Docket Number: Suit No 322 of 2012
• Plaintiff Counsel: Philip Jeyaretnam SC, Foo Maw Shen, Daryl Ong, Chu Hua Yi, Charmaine Kong and Jansen Aw (Rodyk & Davidson LLP)
• Defendant Counsel: Alvin Yeo SC, Koh Swee Yen, Jared Chen, Ho Wei Jie, Keith Han and Jill Ann Koh (WongPartnership LLP)
• Subject Matter: Agency,Duties of agents,Accounts,Equity,Fiduciary relationships,When arising,Duties,Restitution,Subjective devaluation,Quantum meruit,Unjust enrichment,Trusts,Bare trusts,Express trusts,Certainties,Constitution,Formalities,Quistclose trusts,Resulting trusts,Presumed resulting trust
• Published date: 22 July 2016

Vinodh Coomaraswamy J: Introduction

Between 2003 and 2005, the plaintiffs entrusted US$111m¹ to the first and second defendants to be invested on the plaintiffs’ behalf in 15 private equity (“PE”) funds² and five direct investments.³ These investments were held through a web of special purpose vehicles (“SPVs”) controlled by the first and second defendants but established and maintained by them using the plaintiffs’ funds.

In this action the plaintiffs seek the following principal relief against the defendants:⁴ The transfer to the plaintiffs of ownership and control of all of the plaintiffs’ investments, including all of the SPVs holding those investments (“the transfer order”);⁵ An account of all the money the plaintiffs entrusted to the defendants or to SPVs owned or controlled or managed by them and all necessary inquiries (“the accounting order”);⁶ An order that the plaintiff is entitled to trace all such monies and payments into the hands of the defendants and elsewhere as they may be found (“the tracing order”); and⁷ An order that the defendants pay to the plaintiffs all sums found to be due upon the taking of the account and for judgment to be entered for the said sums together with interest (“the payment order”).⁸

The defendants accept that the 15 PE funds, the five direct investments and the majority of the SPVs through which the plaintiffs’ entire portfolio is held belong to the plaintiffs. Yet, they oppose entirely all of the relief which the plaintiffs seek. In addition, the defendants advance a counterclaim against the plaintiffs for US$18m said to be management fees and related expenses due to the defendants in connection with having managed the plaintiffs’ investments for these several years.

I have given judgment for the plaintiffs in the following terms:⁹ I have made the transfer order, the accounting order and the payment order. I have declined to make the tracing order because I consider tracing to be premature.¹⁰ This does not preclude the plaintiffs from pursuing tracing or other appropriate relief once the account has been taken.¹¹ I have dismissed¹² the entirety of the defendants’ counterclaim save that I have ordered the plaintiffs to pay to the defendants, as expressly agreed, management fees of US$450,000 per annum from the year 2009–2010 until the date on which the defendants transfer to the plaintiffs the PE funds which form the subject-matter of the agreement.¹³

The plaintiffs and the defendants have both appealed against parts of my decision. I now give my grounds of decision.

The facts The parties

The plaintiffs are all ultra high net worth individuals. The first plaintiff is the mother of the second and third plaintiffs.¹⁴

The first and second defendants are husband and wife.¹⁵ The third defendant is a Singapore company which the second defendant incorporated in September 2005¹⁶ to provide “integrated services to families on wealth protection and wealth creation”.¹⁷ The second defendant is the sole shareholder¹⁸ of the third defendant and is its executive director.¹⁹ The first defendant is neither a shareholder nor a director of the third defendant but has rendered services to it since October 2005 pursuant to a consultancy agreement.²⁰

The plaintiffs did not name the third defendant as a defendant when they commenced this action. It became a defendant on its own application some months later.²¹ All three defendants adopt a common position in this litigation and are jointly represented.

Although the first plaintiff is a joint owner of the money which the plaintiffs entrusted to the first and second defendants, she plays only a residual role in the underlying facts. So too, it is my finding that the third defendant operated as the first and second defendants’ vehicle and did not have any legally significant role in the underlying facts separate from that of the first and second defendants. For ease of exposition, therefore, I shall use the collective term “the parties” to refer only to the second and third plaintiffs on the one hand and first and second defendants on the other.

The relationship between the parties

The second defendant’s relationship with the plaintiffs is a long-standing one.²² She was the trusted private banker to the first plaintiff’s husband.²³ The plaintiffs, especially the first plaintiff, came to treat the second defendant not just as the family’s banker but also as a trusted family friend.²⁴ After the first plaintiff’s husband passed away in 1992, the second defendant’s professional relationship with the plaintiffs came to an end, but she continued to keep in touch with them.

The first defendant’s relationship with the plaintiffs began for present purposes in 2003 through the second defendant’s introduction.²⁵ At that time, the first defendant worked for the Government of Singapore Investment Corporation (“GIC”) as a senior vice-president of GIC Special Investments Pte Ltd, a position he had held since 2000.²⁶ GIC Special Investments Pte Ltd is the arm of GIC which specialises in PE investments.²⁷

Although the second and third plaintiffs are, and were in 2003, sophisticated investors, they were then unfamiliar with PE funds as an asset class. The first defendant introduced them to world of PE funds. He told them of the “obscene” profits which this asset class offered investors.²⁸ They wanted to know more. The first defendant obliged. Over the course of 2003 and 2004, he schooled them on PE funds. He taught them how PE funds are structured and how fund managers and investors make their profits. He told them of his expertise in investing in PE funds and of the close personal relationships he had forged during his 14-year career with GIC with the key principals at the world’s leading PE fund managers.²⁹ He offered to introduce the plaintiffs to these fund managers so they could invest directly in PE funds rather than through intermediaries, thereby eliminating an unnecessary layer of fees. The second and third plaintiffs were impressed by the first defendant’s knowledge and fascinated and intrigued with the prospect of investing in PE funds.³⁰ They saw him as their trusted mentor³¹ in this field.

The WWW concept

By early 2004, the first defendant had hit upon what he called “the WWW concept.”³² The WWW concept was, in essence, a way for the plaintiffs and the first defendant to combine the first defendant’s considerable industry knowledge and personal relationships with the plaintiffs’ considerable capital and healthy appetite for risk to enable all of them to profit from PE investments both as a fund manager and as an investor.

The ultimate goal of the WWW concept was for the second and third plaintiffs and the first defendant to find fledgling fund managers, provide them seed capital to start a new fund and assist them in finding investors for the fund. The WWW concept would also finance the customary investment which each fund manager would make in its new fund to align the fund manager’s incentives with the investors’ and to signal the fund managers’ personal commitment to the fund’s success.

The WWW concept would thereby entitle the second and third plaintiffs and the first defendant, through their stake in the fund manager, to a share of the fund manager’s total profit arising from all of the various one-off and recurring fees it would earn over the life of the fund and also to a share of the fund manager’s profit as an investor in its own fund.

The plaintiffs’ first PE investments

The WWW concept was a long-term vision that the parties had a common intention to work towards. Because it was a long-term vision, rather than an immediate executable plan, and because of the close personal relationship of trust and confidence that subsisted between the parties at that time, the parties did not have a binding agreement in the contractual sense – whether oral, written or arising from conduct – governing their rights and obligations in connection with the steps they would take towards the WWW concept and what would happen if it failed. That fact does not, however, detract from the importance of the WWW concept as the factual framework within which the parties took the steps that they did.

The first step which the parties took to get the WWW concept off the ground was to build a track record for themselves in PE investments. Without a track record, they would have no credibility with the fledgling fund managers they hoped to invest in, or with the investors whom they hoped to attract and introduce to the fledgling fund managers.

To establish that track record, the second and third plaintiffs and the first defendant began to work towards setting up their own PE fund. The plaintiffs were to provide all the necessary capital for the fund. The first defendant was to provide the industry expertise and relationships and to oversee and manage the fund’s investments. This initial fund was to be a fund of funds. In other words, the asset class chosen for this initial fund to invest in was other PE funds. Once the fund had a history of good performance, it was to become the first fund under the WWW concept and the plaintiffs would sell down part of their investment to external investors.

Some time in late 2004 or 2005, the first defendant brought to the plaintiffs investment opportunities in PE funds managed by some of the world’s leading PE fund managers.³³ Using the plaintiffs’ SPV Sky Genius Investments Ltd (“Sky Genius”), the plaintiffs made an initial investment of US$30m in five PE funds.³⁴ I shall call this amount the “Initial PE Investment” and these first five funds “the Initial PE Funds”. The Initial PE Funds were meant to be the plaintiffs’ personal fund of funds, outside the WWW concept.

It is common ground that the plaintiffs agreed to pay the first defendant a management fee of 1.5% of the Initial PE Investment, or US$450,000, per annum, for managing the...