EC Investment Holding Pte Ltd v Ridout Residence Pte Ltd and Anor (Orion Oil Ltd and others, interveners)

• Jurisdiction: Singapore
• Judge: Quentin Loh J
• Judgment Date: 19 July 2013
• Neutral Citation: [2013] SGHC 139
• Court: High Court (Singapore)
• Docket Number: Originating Summons No 1357 of 2009
• Year: 2013
• Published date: 23 July 2013
• Hearing Date: 30 July 2012
• Plaintiff Counsel: Lee Eng Beng ,SC (Rajah & Tann LLP)
• Defendant Counsel: P Balachandran (M/S Robert Wang & Woo),Alvin Yeo, SC (Wong Partnership LLP),Oon Thian Seng (Oon & Bazul LLP),Lim Yew Jin (IPTO)
• Subject Matter: TRUSTS,Trust Estate
• Citation: [2013] SGHC 139

Quentin Loh J: Introduction

The current proceedings raise questions regarding the priority of unsecured trust creditors inter se as well as vis-à-vis the trust beneficiary. The parties are seeking orders on the distribution of S$4,248,240.91 remaining in court, which is now contested over by Ridout’s unsecured creditors, who collectively and individually claim priority over the Official Assignee (“the OA”).

Background to the dispute

The present Originating Summons had been filed in 2009 by EC Investment Holding Pte Ltd (“ECIH”) seeking specific performance for the sale of 39A Ridout Road (“the Property”), pursuant to an Option to Purchase granted by the 1st Defendant, Ridout Residence Pte Ltd (“Ridout”), on 5 June 2009 (“the 1st OTP”). The 2nd Intervener, Thomas Chan, also sought specific performance for the sale of the Property pursuant to an Option to Purchase granted some 4 months later on 7 October 2009 with Ridout (“the 2nd OTP”).

Ridout was a trust vehicle created by one Mr Agus Anwar (“Anwar”), its sole director and shareholder, who has now been adjudged to be bankrupt.

In EC Investment Holding Pte Ltd v Ridout Residence Pte Ltd and another (Orion Oil Ltd and another, interveners) [2011] 2 SLR 232, I dismissed ECIH’s claim for specific performance, granting specific performance to Thomas Chan but ruled that ECIH was entitled to damages. The transfer of the Property to Thomas Chan was duly completed on 17 December 2010, and following this, Thomas Chan paid the balance purchase sum of S$14,728,240.91 into court after discharging all sums due to the 2nd Defendant, Hong Leong Finance Limited (“HLF”), including HLF’s mortgage over the Property. On appeal, the Court of Appeal in EC Investment Holding Pte Ltd v Ridout Residence Pte Ltd and others and another appeal [2012] 1 SLR 32 (the “CA judgment”) upheld my decision agreeing with some, but not all my grounds. Importantly, the Court of Appeal also held that Ridout held the Property on trust for Anwar.

On 3 January 2011, the 1st Intervener, Orion Oil took out an Originating Summons (OS No 1 of 2011) to enforce its charge over the sale proceeds of the Property, which it had registered on 24 September 2008. The Deed of Charge Over Proceeds had been executed in consideration of a S$10,000,000 loan made to Anwar. By agreement of the parties, I ordered the sum of S$10,500,000 to be paid out to Orion Oil, leaving the balance to which these present proceedings pertain.

Parties’ Claims to the Balance Purchase Price

ECIH filed Summons No 455 of 2012 claiming damages against Ridout comprising the following components: a sum of $17 million, being the difference between ECIH’s agreed purchase price of $20 million, and the purchase price of $37 million paid by Thomas Chan for the Property; a sum of $1.5 million being the option fee paid by ECIH to Ridout; and a sum of $600,627 in stamp duty paid in relation to the sale of the Property to ECIH, if IRAS declines to refund the same.

Thomas Chan’s claim against Ridout (Summons No 475 of 2012) is for late completion interest under the terms of the 2nd OTP. Under Clause 8.2 of the Law Society of Singapore’s Conditions of Sale 1999 (“Clause 8.2”), which is incorporated into the terms of the 2nd OTP, Thomas Chan is entitled to the sum of $3,275,935.81 as interest for late completion of the sale of the Property.

The 3rd Intervener, TYF Realty Pte Ltd (“TYF”), claims (under Summons No 455 of 2012) S$230,000 pursuant to Clause 14 of the 2nd OTP (“Clause 14”) which provides for the estate agent’s service fee or commission upon the successful sale of the Property. It contends that Clause 14 gave Ridout’s solicitors irrevocable authority to deduct this service fee from the sale proceeds so that TYF would have been entitled to direct payment upon completion of sale.

The OA’s claim was made on behalf of Anwar’s estate for the benefit of his creditors following a bankruptcy order on 3 March 2011, since it is attested that Ridout held the Property on trust for Anwar as recognised by the CA judgment at [4] supra.

The claimants, ECIH, Thomas Chan and TYF, and the OA are agreed that their claims should take precedence over the OA’s claim by subrogation, which allows trust creditors to step into the shoes of Ridout qua trustee, thereby latching on to the Ridout’s right to indemnity from the assets held on trust for Anwar, if I should find that the remedy of subrogation is available to these claimants.

Remedy of subrogation of the trustee’s right to be indemnified by the trust assets

ECIH, Thomas Chan and TYF claim the remaining sum paid into court on the basis that they can subrogate to the right of the trustee, Ridout, to be indemnified out of the trust assets for the liability incurred by Ridout to them. This, they say, gives them priority over the beneficial interest of the OA in the trust assets.

Our courts have not considered the question of whether an unsecured creditor of a trustee has a right to be subrogated to the trustee’s right of indemnity. Nonetheless, it is clear that this remedy exists in the common law: see e.g., Octavo Investments Pty Ltd v Knight [1979] 144 CLR 361 (“Octavo”) at 367 and 369-370, Vacuum Oil Co Pty Ltd v Wiltshire [1945] 72 CLR 319 and Dowse v Gorton [1891] AC 190. Since this has not been commonly discussed in local jurisprudence, a brief look at the basic principles may be helpful. While a typical agent who acts on behalf of his principal does not incur any personal liability if acting within his scope of authority, a trustee is in a different position because he acts as principal in connection with the administration of the trust and incurs personal liabilities to creditors whether or not acting in accordance with his powers and duties: John Mowbray, Lewin on Trusts (Sweet & Maxwell, 18th ed, 2008) (“Lewin on Trusts”) at para 21-10.

However, where a trustee incurs a liability towards a creditor in the proper discharge of the trust (a “trust creditor”), the trustee is entitled to an indemnity out of the trust property to meet that liability: Re Grimthorpe [1958] Ch 615 at 623:

… persons who take the onerous and sometimes dangerous duty of being trustee are not expected to do any of the work at their own expense; they are entitled to be indemnified against the costs and expenses which they incur in the course of their office; of course, that necessarily means that such costs and expenses are properly incurred and not improperly incurred. The general rule is quite plain; they are entitled to be paid back all that they have had to pay out. [emphasis added]

This much is undisputed by parties. I would add that a trustee’s indemnity is of two types – a right to be indemnified out of the trust property and a personal indemnity against the beneficiary which extends beyond the trust assets and is based on the principle that the cestui que trust who gets the benefit of the property should bear its burden. Several authorities have sought to explain that the former type of indemnity is effected by a lien or charge over the trust property and conferring an equitable interest in the trust fund to the extent of the amount of the liability: see Jennings v Mather [1901] QBD 109, at 113-114, approved on appeal by the English Court of Appeal in Jennings v Mather [1902] 1 KB 2 (“Jennings”) and Octavo at 367. Further the trustee’s right of indemnity takes priority over the claims of any beneficiary: see Lewin on Trusts at para 21-33; Chief Commissioner of Stamp Duties (NSW) v Buckle [1998] 192 CLR 226 (“Buckle”) at [47] and [48]; Re Firth [1902] 1 Ch 342 at 345.

Typically, and especially if there is no direct dealing between the trust creditor and the beneficiaries, the trust creditor can only institute its claim against the trustee personally, and cannot do so against the assets of the trust: see Jennings at 5 and 7. While there may be instances where a trust creditor has a direct proprietary remedy against the trust assets, for example, by virtue of an express charge over the trust assets, the final position on this is not fully settled. In any case, this does not arise in the present case.

If the trustee does not or is unable to invoke that right of indemnity to pay the creditor, such a creditor, having no direct claim against the trust assets and not being able to levy execution against the trust assets, may obtain an order of court that he be subrogated to the trustee’s right of indemnity. If the court grants this order, the creditor’s in personam right against the trustee is elevated to a claim in rem over the trust assets, and the creditor gains priority over the beneficiaries of the trust assets because equity regards the creditor's claim as having primacy over that of the beneficiary: see In re Johnson; Shearman v Robinson (1880) 15 Ch D 548, In re Pumfrey, Deceased (1882) 22 Ch D 255, In re Blundell (1889) 44 Ch D 1 (“In re Blundell”), In re Raybould [1900] 1 Ch 199 and Lewin on Trusts at para 21-42. It is also clear that the subrogation is not a cause of action, but an equitable remedy which is not granted as a right but in circumstances where it is appropriate to do so: see Lerinda Pty Ltd v Laertes Investments Pty Ltd as Trustee for the Ap-Pack Deveney Unit Trust [2009] QSC 251 at [7].

In our case, Ridout when administering the trust, entered into contracts with each of the three creditors: ECIH, Thomas Chan and TYF. Ridout has clearly breached each of these contracts and there is no doubt that Anwar, the beneficiary as well as the sole shareholder and director of Ridout, is the controlling and directing mind behind Ridout. All the acts complained of by these creditors and which caused these proceedings arose from contracts negotiated and signed by Anwar in his capacity as director of Ridout. On the facts, it is clear that Ridout will be entitled to an indemnity from the trust for liability caused by these breaches of contract and its...