Equity and Trusts
Citation | (2018) 19 SAL Ann Rev 487 |
Published date | 01 December 2018 |
Publication year | 2018 |
Date | 01 December 2018 |
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
… 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
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
(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
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