Equity and Trusts

Citation(2020) 21 SAL Ann Rev 531
Published date01 December 2020
Date01 December 2020
I. Express trust

16.1 Baker, Michael A v BCS Business Consulting Services Pte Ltd1 is an important case on express trust and illegality. The claim involved the late Chantal Burnison who invented a skincare compound called Ethocyn which was said to make the skin look younger and better toned. The rights to Ethocyn were assigned to companies incorporated in the US owned by Chantal. Unfortunately, these companies were put in Chapter 11 bankruptcy in the US. Pursuant to these bankruptcy proceedings, an independent creditors' committee was set up to interest prospective buyers to purchase the assets of the company which included rights over Ethocyn. There were no bidders for the assets save for a New Zealand corporation, Renslade Holdings Limited (“Renslade (NZ)”), which was interested in buying the rights over Ethocyn. As there were no other bidders, the bankruptcy court in the US approved the sale. Subsequently, the Ethocyn rights were transferred to a Singapore company called Renslade Holdings Pte Ltd (“Renslade (S)”). Renslade (S) was a company controlled by the second defendant, Marcus Weber. Unknown to the Bankruptcy Court, Chantal was the primary driver behind the acquisition of the Ethocyn rights. Chantal entered into an agreement with Weber for him to acquire the Ethocyn rights from Renslade (NZ) and hold any revenue generated from the rights on trust for Chantal. Under this agreement, Renslade (NZ) would transfer the Ethocyn rights to Renslade (S). It was agreed that Weber would be paid 5% from the income generated by the Ethocyn rights. Pursuant to this agreement, the Ethocyn rights were transferred from Renslade (S) to another company, the first defendant, called BCS Business Consulting Services Pte Ltd (“BCS”). BCS became the trustee over the Ethocyn rights whereby Chantal was the sole beneficiary. Subsequently, Chantal passed away. The estate of

Chantal instituted a claim premised on an express and/or resulting trust against the defendants over the Ethocyn rights since Chantal provided the funds to purchase these rights from the companies. In response to the present suit, the defendants' principal defence was that the trust was illegal under US law and/or contrary to the public policy of Singapore.

16.2 Thus, Quentin Loh J, and Carolyn Berger and Dominique Hascher IJJ, in a joint judgment, had to decide whether the trust was unenforceable by reason of illegality. As a matter of finding of fact, the learned judges found that Chantal had indeed made a false declaration in the US bankruptcy proceedings that she was not involved in the acquisition of the Ethocyn rights. In deciding the issue of illegality and an express trust, the judges applied the framework laid down in Ochroid Trading Ltd v Chua Siok Lui.2 The judges found that the trust agreement was not prohibited by any Singapore statute, nor was it prohibited by any established heads of common law public policy. However, that was not the end of the matter as the judges considered whether the trust agreement was tainted by illegality. Quoting BCBC Singapore Pte Ltd v PT Bayan Resources TBK,3 a Singapore court will not enforce a contract “if its object or purpose would involve doing an act in a foreign and friendly state which would violate the law of that state”.4 The learned judges did not find that the main purpose of the trust agreement was to deceive the creditors and Bankruptcy Court by keeping Chantal's assets out of their reach. While the trust agreement might have been tainted by the false declaration, the learned judges applied the principle of proportionality to this case and held that it would be disproportional to refuse to enforce the trust agreement. The nature and gravity of the false declarations were not so severe as to weigh against the enforcement of the trust agreement since there were no other potential buyers for the Ethocyn rights. Furthermore, the learned judges found that false declarations were too remote from the trust agreements as the declarations were made sometime before the trust agreement was reached. The learned judges also considered whether enforcing the trust agreement would undermine the purpose of the prohibiting rule by subverting or making a mockery of the bankruptcy proceedings. According to the learned judges, there was no evidence that Chantal had purchased the Ethocyn rights at an undervalue.

16.3 The learned judges went on to hold that even if the trust agreement was prohibited under a common law head of public policy, there was still an independent cause of action under Singapore law pursuant to a resulting trust. It is interesting that the learned judges found

that Chantal's estate did not need to rely on the illegality in a normative or substantive sense. Hence, applying Tinsley v Milligan,5 the learned judges held that the plaintiffs may assert a resulting trust claim. Similar to the previous finding above, the learned judges found that there was no stultification if the resulting trust claim was allowed. It is no doubt that this case will be influential on the issue of tainting by foreign illegality.6

16.4 Eller, Urs v Cheong Kiat Wah7 involved an express trust over company shares in relation to a company which was set up by the defendant. Prior to the company being set up, the plaintiff and defendant had a discussion about the plaintiff's interest in the company. Due to a contractual non-compete clause in the plaintiff's employment contract, the plaintiff could not formally register his interest in the company. Hence, the parties executed a trust deed whereby the defendant held 50 shares in the company on trust for the plaintiff. Clause 3.3 of the trust deed provided that the trustee shall exercise his rights in relation to the shares pursuant to the instructions of the beneficial owner. After the trust deed was executed, the defendant caused the company to issue 350,000 additional shares in his own name, which diluted the plaintiff's interest. Unhappy with this development, the plaintiff sued the defendant contending that it was a breach of the terms of the trust and sought equitable compensation suffered from the dilution of his shareholding without his consent.

16.5 Vincent Hoong J made some important observations in relation to trust law in this case. On matters of interpretation of trust deeds, Hoong J said that there were no reasons in principle against applying contractual principles to the construction of trust deeds. Both exercises are an inquiry to find “the objectively-ascertained intentions of the parties to the instrument which forms the cornerstone of the interpretative exercise”.8 Thus, Hoong J held that evidence of negotiations by the parties leading to the execution of the trust deed was admissible. On the facts, the learned judge found that the share issuance was not authorised by the plaintiff.

16.6 Hoong J then went on to consider whether the claim was precluded by the doctrine of “unclean hands”. The defendant alleged that there were two instances of unclean hands. First, the present action was a “backdoor route” to collect interest pursuant to a loan by the plaintiff

to the defendant. Second, the plaintiff did not come with clean hands because he had breached his contractual and fiduciary duties through the execution of the trust deed. With regard to the first defence, Hoong J thought this was a non-starter as it was entirely speculative as to the main purpose of the present action. Furthermore, pursuing a particular cause of action is not morally reprehensible, nor does it constitute a legal wrong. As to the second plank of the defence, the learned judge was not satisfied on the facts that the plaintiff was a fiduciary to his former employer or that there was a breach of contract. Hence, the defence based on “unclean hands” was dismissed. In terms of the remedy awarded to the plaintiff, the plaintiff's loss was quantified as the value that the plaintiff's beneficially owned 50 shares in the company would have been had the share issuance not occurred, less the current value of the 50 shares in the company which are beneficially owned by the plaintiff.

16.7 Bhavika Monohar Godhwani v Manohar Hargun Godhwani9 involved a claim concerning allegedly misappropriated funds and securities derived from the plaintiff's inheritance. The plaintiff and the first defendant were husband and wife respectively. In 2006, the plaintiff received US$81.46m as part of her inheritance from her late father. The moneys were transferred into five Singapore bank accounts. Two of these bank accounts were in the joint names of the plaintiff and the first defendant. There were three other bank accounts in the names of the second and third defendants, which were shell companies registered in the British Virgin Islands (“BVI”). The plaintiff and first defendant were directors and equal shareholders of the second and third defendants. Between 2006 and 2012, the plaintiff left the management of the funds in the bank accounts to the first defendant. In late 2012, the plaintiff discovered that the funds had been transferred to five other bank accounts. Three of these bank accounts were in the first defendant's sole name and the rest were bank accounts of companies owned and controlled by the first defendant. The plaintiff sued the first defendant for a breach of trust. The principal defence was that the plaintiff had promised to give her inheritance to the first defendant and the gift was perfected by the transfers to the other bank accounts. On the other hand, the plaintiff vigorously disputed the alleged gift and claimed that the funds in the bank accounts were held on trust for her. After a careful review of the evidence, Kannan Ramesh J concluded that there was no gift from the plaintiff to the first defendant comprising the transfers to the bank accounts. Since the funds from the bank accounts were all derived from the plaintiff's inheritance, there was a resulting trust in favour of...

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