Equity and Trusts

• Author: TANG Hang Wu LLB (National University of Singapore), LLM, PhD (Cantab); Advocate and Solicitor (Singapore); Professor, School of Law, Singapore Management University.
• Publication year: 2017
• Date: 01 December 2017
• Published date: 01 December 2017

Express trusts

15.1 BOK v BOL1 was a dispute on the circumstances which led to the signing of a trust deed and whether the trust could be vitiated. The plaintiff was 29 years old at the time when he signed a trust deed which made him and his wife, the second defendant, joint trustees of all his property in favour of their infant son, the first defendant. This trust deed was signed three days after the plaintiff's mother's funeral. The plaintiff's mother was killed at her home in Bukit Timah. It was the plaintiff's case that the second defendant, who was a lawyer, presented him with the trust deed and quarrelled with him when he refused to sign the trust deed. There was some evidence that the second defendant's father, who was a senior lawyer, was also present during this quarrel. Subsequently, the plaintiff filed the present lawsuit to vitiate the trust deed. The plaintiff claimed that the trust deed was vitiated due to the following: misrepresentation, mistake, unconscionable transaction and undue influence. Valerie Thean J allowed the claim on all these grounds. The misrepresentation claim succeeded because she found that the second defendant falsely represented to the plaintiff that the trust would only take effect upon his death and he was entitled to deal freely with all his assets. With regard to the claim based on mistake, Thean J held that the plaintiff was labouring under the mistake that trust deed only operated upon his death and he remained free to deal with his assets in the meantime. Applying Pitt v Holt,2 the learned judge said that this was an operative mistake of sufficient gravity which was a ground to set aside the trust. Thean J also found undue influence on the present facts. Since the second defendant was a trained lawyer who drafted the trust deed, an implied retainer arose between the plaintiff and the second defendant. Therefore, there was an irrebuttable presumption that their relationship was one of trust and confidence. As the trust was manifestly disadvantageous to the plaintiff, the burden fell on the second defendant to demonstrate that she did not exercise undue influence on him. She failed to discharge this burden. With regard to unconscionability, Thean J applied the well-known case of Cresswell v Potter3

(“Cresswell”), which consisted of three requirements: first, the plaintiff must be “poor and ignorant”; second, the transaction must be at an undervalue; and third, the plaintiff must not have received independent legal advice. The first limb posed a potential problem since the plaintiff was very highly educated and extremely wealthy. Despite this, Thean J was prepared to characterise the plaintiff as “poor and ignorant” because he was in a situation of an expectant heir. Thean J stressed on the fact that there was oppression and an abuse of confidence on the present facts due to the plaintiff's acute grief and the second defendant's conduct which amounted to exploitation, extortion or taking advantage of someone else. Therefore, the learned judge was prepared to adopt and adapt the Cresswell test unconscionability and apply it to the present case. It remains to be seen whether this signals a more liberal Singapore approach to construing unconscionability or whether BOK v BOL would be confined to its very unusual facts.

15.2 Lalwani Shalini Gobind v Lalwani Ashok Bherumal4 is an important case which sets out the principles in relation to the law on accounts. Aedit Abdullah JC (as his Honour then was) observed that the accounting procedure serves the following primary purposes: (a) providing information to the beneficiaries; and (b) ascertaining maladministration which might give rise to personal liability on the fiduciary's part. Abdullah JC also endorsed the following propositions of law:

(a) Beneficiaries have a prima facie right to take an account of the trust assets. This right is not contingent on any allegations of a breach of trust.

(b) The duty to account is continuous and on demand. In the context of a deceased's estate, the right to account is not limited to the time of distribution of the trust assets.

(c) The prima facie right to take an account of trust assets is limited if it would be oppressive to require the trustee to account. For example, beneficiaries may not constantly demand an account without a reasonable interval or provide reasonable time for the trustee to furnish relevant information. In addition, if the trustee can provide evidence that a settlement had been entered with beneficiaries as regards the provision of the trust accounts, then the court will not order an account.

(d) Trustees must provide a proper, complete and accurate justification with the supporting documentation for his actions as trustee. Information must be provided as to the current status

of, and past transactions of each constituent trust asset. If there are allegations of breach of trust, more information will likely be required. More will also be required in relation to a professional trustee as compared to a non-professional trustee.

(e) The taking of a common account is different from the taking of an account on a wilful default basis. In the latter, the trustee is required to account for what he has received, but also what he might have received had it not been for the default.

(f) The taking of a common account is distinct from an account of profits. An account of profits is the remedy when there is a breach of trust whereas the taking of accounts is only the first step in establishing a breach.

15.3 Zhao Hui Fang v Commissioner of Stamp Duties5 dealt with the tricky issue of a charitable trust and the imposition of additional buyer's stamp duty (“ABSD”). In this case, there was a charitable trust for, inter alia, the promotion of medical research in Singapore and Malaysia. The settlor bequeathed a property, 37 Chee Hoon Avenue, for the following purposes: (a) to his wife Zhao Hui Fang (“Mdm Zhao”) for her personal use during her lifetime or until she remarries, whichever is earlier; (b) if Mdm Zhao did not wish to use the property, then the property may be used by the settlor's daughter, Ms Chew Hwee Ming (“Ms Chew”), or Ms Chew's children as their personal residence; and (c) when Ms Chew's youngest surviving child becomes 30 years old and neither Ms Chew nor any of her children wish to use the property as their personal residence, the property may be leased or disposed and any income or proceeds will be paid to the charitable trust. Subsequently, an order of court was granted allowing the executors of the settlor's will to sell 37 Chee Hoon Avenue and purchase a property known as the Goodwood property as a substitute. The purchase of the Goodwood property was at the price of $6.56m. A dispute arose as to whether ABSD of 15% was payable on the acquisition of the Goodwood property. The relevant provision is Art 3(bf)(viii) of the First Schedule of the Stamp Duties Act,6 which imposed a 15% ABSD on the total amount of consideration of the residential property “if the grantee, transferee or lessee … is a foreigner or an entity”. Abdullah JC held that Mdm Zhao only had a personal licence, as opposed to a proprietary interest, in the Goodwood property. The Commissioner of Stamp Duties argued that ABSD was payable on three alternative arguments: (a) the persons factually benefiting from the charitable work of the trust are the beneficial owners of the Goodwood property. Since some of the beneficiaries would be foreigners, that is, Malaysian researchers, ABSD

is chargeable; or (b) the trustees are the beneficial owners and the trust is considered to be an “entity”; or (c) the public is the beneficial owner of the Goodwood property. Since members of the public would include an entity or a foreigner, ABSD is chargeable. Abdullah JC rejected all these arguments. The learned judicial commissioner held that there was no active or extant beneficial ownership in relation to the Goodwood property purchased by the charitable trust. Hence, ABSD was not payable.

15.4 In MKC Associates Co Ltd v Kabushiki Kaisha Honjin7 (“MKC Associates”), Woo Bih Li J had to consider whether a trust arose in the context of an equitable mortgage of shares. This point was important because the plaintiff relied on the existence of a trust to ground claims in dishonest assistance and knowing receipt. Woo J rejected the argument that a trust arose over the shares by virtue of the equitable mortgage. The learned judge held that the mortgagee's interest in the mortgaged property is only co-extensive with his interest in the underlying debt obligation. In contrast, the existence of a trust is not dependent on the co-existence of an underlying debt obligation. The secured creditor (namely, the mortgagee) does not have a beneficial interest in the property in a similar manner as a beneficiary of an express trust. Rather, the mortgagee has priority in relation to the mortgaged property for the purposes of satisfying the underlying debt.

15.5 Fong Wai Lyn Carolyn v Kao Chai-Chau Linda8 is part of a long running legal saga which has spawned many reported and unreported judgments. This present case was concerned with, inter alia, the interpretation of a trust deed and the issue as to who owned the beneficial interest of some company shares pursuant to a trust deed. Steven Chong JA found, as a matter of interpretation, that the beneficial interest of the shares vested in the estate of the late Peter Fong. The court then had to consider whether the trustee was obliged to comply with the direction of the executors of the estate of Peter Fong in relation to the exercise of the voting rights attached to the shares and the disposal of these shares. Chong JA held that since the trust deed provided for the trustee to vote according to the directions of the beneficiary, it follows that the trustee is obliged to comply with the direction from the executors of the estate.

Resulting trusts

15.6 The...