Equity and Trusts

Date01 December 2018
AuthorTANG Hang Wu PhD, LLM (Cambridge), LLB (National University of Singapore); Advocate and Solicitor (Singapore); Professor, School of Law, Singapore Management University. TAY Yong Seng MA, BCL (Oxford); Advocate and Solicitor (Singapore); Partner, Allen & Gledhill LLP, Singapore.
Publication year2018
Published date01 December 2018
Citation(2018) 19 SAL Ann Rev 487
Express trust

15.1 Lakshmi Prataprai Bhojwani v Moti Harkishindas Bhojwani1 contains valuable observations with respect to a trustee's duties vis-à-vis discretionary beneficiaries. In this case, the testator settled a discretionary trust which named members of his family as the potential discretionary beneficiaries. One of the discretionary beneficiaries asked the executor of the will for an account of the estate. George Wei J observed that there are two types of discretionary trusts. The first type of trust involved named beneficiaries whose benefits are to be decided at the discretion of the trustee. The second type of discretionary trust posits a large number of possible beneficiaries, namely, anyone in the world. Wei J held that the former type of discretionary beneficiary would be entitled to an account, whereas the latter discretionary beneficiary would have no such right. In this judgment, Wei J noted there is conflicting characterisation of the discretionary beneficiary's interest in the trust property. Without ultimately deciding this issue, Wei J held that a named discretionary beneficiary in the first type of trust is prima facie entitled to an account of the estate.

15.2 Cheong Soh Chin v Eng Chiet Shoong2 dealt with, inter alia, a trustee's right to indemnity from the trust assets. Vinodh Coomaraswamy J endorsed the analysis in Lewin on Trusts3 that the general principle is trustees have a right to be indemnified out of the trust property for expenses properly incurred in the course of their office. However, corollary to this general principle is that a trustee is not entitled to be indemnified for costs and expenses incurred without

authority, either in the trust instrument or from the other beneficiaries. An exception to the corollary principle is that:4

… a trustee may nevertheless be entitled to claim an indemnity out of the trust property for unauthorised transactions which benefit the trust estate and which the trustee incurred in good faith.

Coomaraswamy J's view was that this exception is not a matter of right but within the province of the court's discretion. In other words, this discretion is exercised in light of the totality of the trustee's conduct. On the facts, the learned judge found that the trustee had behaved egregiously in several instances and, therefore, the unauthorised transactions were disallowed.

15.3 The 2017 Ann Rev covered the High Court decision of BOK v BOL.5 That case was significant because it dealt with various vitiating factors that the court found to set aside a deed of trust executed by the settlor (“the Settlor”) in a state of acute grief, just days after the loss of his mother. The court considered the application and interplay of the following vitiating factors to set aside a trust: misrepresentation, mistake, undue influence and unconscionability. To recap, the Settlor, a wealthy young man, suffered the loss of his mother due to tragic circumstances. Shortly after, the Settlor's wife (“the Wife”) (who was a lawyer) persuaded the Settlor to sign a trust deed, making the Settlor and herself joint trustees of all of the Settlor's assets in favour of their infant son. Subsequently, the marriage fell apart. The Settlor then brought an action to set aside the trust deed on the grounds of misrepresentation, mistake, undue influence and unconscionability. The High Court set aside the trust deed on all four grounds.

15.4 BOK v BOL went on appeal in 2018, and was heard by a five-judge panel of the Court of Appeal in BOM v BOK.6 The Court of Appeal dismissed the appeal against the High Court's decision. With regard to misrepresentation, the Court of Appeal agreed with the High Court's findings that the Settlor had no intention to execute a trust, as the Wife had falsely represented to the Settlor that trust deed only took effect after his death. Similarly, the mistake claim succeeded as the misrepresentation by the Wife and the seriousness of the consequences (“which effectively renders him a pauper”)7 warranted the vitiation of the trust deed. On undue influence, the Court of Appeal agreed with the High Court that there had been “Class 1” undue influence exerted by the Wife on the Settlor. Class 1 undue influence, also known as actual

undue influence, impugned a transaction because of the undue influence exerted upon the plaintiff by the defendant. To do this, the plaintiff has to demonstrate that: (a) the defendant had the capacity to influence him; (b) the influence was exercised; (c) its exercise was undue; and (d) its exercise brought about the transaction.8 The Court of Appeal recognised that the Settlor's acute grief as well as his sense of loneliness following his mother's death placed him in a position of susceptibility to this form of undue influence. However, the Court of Appeal disagreed with the High Court's finding that there was an implied solicitor–client retainer between the Settlor and the Wife, giving rise to an irrebuttable presumption of a relationship of a trust and confidence for Class 2A undue influence. Under Class 2A undue influence, there are relationships that the law irrebuttably presumes to give rise to a relationship of trust and confidence. Such relationships include solicitor–client relationships but exclude husband–wife relationships. Once the plaintiff shows that his relationship with the wrongdoer triggers the presumption and that the impugned transaction calls for an explanation, there is a rebuttable presumption that the wrongdoer has exerted undue influence.9 The Court of Appeal preferred to use the contractual analysis framework of a putative solicitor and client relationship in Anwar Patrick Adrian v Ng Chong & Hue LLC10 to determine if there was Class 2A undue influence. On the facts, the Court of Appeal found that there was no such retainer. Although the Settlor looked to the Wife for her legal knowledge, that did not necessarily mean he reasonably considered her as his solicitor. The Court of Appeal also cautioned that a court should be slow to impose contractual obligations in marital arrangements between husband and wife, citing Balfour v Balfour.11 Nevertheless, the court noted that although rare, it was not impossible to find an implied retainer between spouses.

15.5 Finally, the Court of Appeal agreed that the trust deed was vitiated on the ground of unconscionability. The Court of Appeal held that a broad doctrine of unconscionability (such as in The Commercial Bank of Australia Ltd v Amadio12 or Alec Lobb (Garages) Ltd v Total Oil Great Britain Ltd)13 was too uncertain and subjective to be a substantive legal doctrine and should be rejected. Nonetheless, unconscionability had a place in Singapore law if distilled into a very limited form of a “narrow doctrine of unconscionability”, modified from the English

approach of improvident transactions in Fry v Lane14 (“Fry”) and Cresswell v Porter15 (“Cresswell”). The contours of the narrow doctrine of unconscionability in the Singapore context were outlined by the Court of Appeal as follows:

(a) A situation where the plaintiff is poor or ignorant or suffering from other forms of infirmities whether physical, mental or emotional in nature. This is an intensely fact-sensitive inquiry. The infirmity that the plaintiff was suffering from must have had sufficient gravity to acutely affect the plaintiff's ability to conserve his own interests, adopting the High Court of Australia's reasoning in Blomley v Ryan.16 Such infirmity must also have been, or ought to have been, evident to the other party procuring the transaction. Thus, the Court of Appeal affirmed the High Court's expansion of situations that could be considered “unconscionable” beyond the traditional approach of poverty and ignorance in Fry and Cresswell.

(b) If the sale is at a considerable undervalue, this would be an important (though not mandatory) factor in determining unconscionability.

(c) If the vendor of the transaction did not have independent advice at the time of the transaction, this would be an important factor in determining unconscionability. Again, this lack of independent advice is not a mandatory requirement but would weigh heavily in favour of a finding of unconscionability. Although not mandatory, requirements (b) and (c) will often underscore and highlight the exploitation of an infirmity that renders a transaction improvident.

(d) Once the plaintiff proves that he or she was suffering from such an infirmity that the other party exploited in procuring the transaction, the burden of proof moves to the defendant to prove the transaction is fair, just and reasonable.

15.6 The Court of Appeal recognised that the degree of overlap between the narrow doctrine of unconscionability with the doctrine of Class 1 undue influence was extensive, as to result in both doctrines being virtually coincident with or identical to each other. Where Class 1 undue influence (actual undue influence) is successfully pleaded, there is necessarily unconscionable conduct. Nevertheless, the Court of Appeal maintained the narrow doctrine of unconscionability as a separate and independent vitiating factor in Singapore law due to the

myriad of possible fact situations which may come before the courts. In a coda to the judgment, the Court of Appeal considered whether duress, undue influence and unconscionability should be merged under an umbrella doctrine of unconscionability (assuming the legal viability of the broad doctrine of unconscionability, which had been rejected earlier in the judgment). Ultimately, the Court of Appeal decided that such an approach should be rejected for being practically unworkable. BOM v BOK is certainly a landmark review of vitiating factors in the law of express trusts. It underscores the willingness of the courts to apply different vitiating factors to meet the requirements of different factual scenarios (including applying the “narrow” doctrine...

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