George Raymond Zage III and Another v Rasif David and Others

• Jurisdiction: Singapore
• Judge: Woo Bih Li J
• Judgment Date: 30 December 2008
• Neutral Citation: [2008] SGHC 244
• Date: 30 December 2008
• Subject Matter: Using overseas bank account for money laundering,Buying precious stones for money laundering,Whether test for dishonest assistance was an objective one,Whether retailer had duty to check background or financial status of customer to prevent money laundering,Whether transfer of money should have aroused suspicion,Acts amounting to assistance,Retailer of precious stones conduit for money laundering,Knowing receipt,Accessory liability,Trusts,Dishonest assistance,Recipient liability
• Docket Number: Suit No 375 of 2006
• Published date: 27 February 2009
• Defendant Counsel: Sixth defendant in person,Hri Kumar Nair SC, Gary Low and Wilson Wong (Drew & Napier LLC)
• Court: High Court (Singapore)
• Plaintiff Counsel: Harry Elias SC, Melanie Ho, Chang Man Phing and Agnes Chan (Harry Elias Partnership)

30 December 2008 Judgment reserved

Woo Bih Li J:

1 The first and second plaintiffs George Raymond Zage III and Kaori Kathleen Zage (“the Plaintiffs”) are husband and wife. They are citizens of the United States of America and Singapore permanent residents.

2 On or about 25 February 2006, the Plaintiffs were granted an option to purchase 35 Belmont Road (“the Property”) at a price of $11.4 million. On or about 8 March 2006, they engaged the law firm of David Rasif & Partners (“the Law Firm”) to act for them in the purchase. The Plaintiffs exercised the option on or about 10 March 2006. Completion of the sale and purchase of the Property was to take place no later than 2 June 2006. The Plaintiffs were initially represented by one David Tan of the Law Firm but from about 8 May 2006, David Rasif (“DR”) himself (who is the first defendant) said that David Tan was taking sabbatical from the Law Firm and henceforth, DR would be handling the transaction.

3 On or about 24 May 2006, the Plaintiffs issued a cheque in favour of the Law Firm for $10,658,240 (“the Plaintiffs’ Money”). The Plaintiffs’ Money was to be used to complete the sale, that is, to pay the balance of 90% of the purchase price, property tax, stamp fees, legal costs and disbursements and interest, if incurred. Any balance was to be refunded to the Plaintiffs.

4 DR is a Singapore citizen and was at all material times practising as an advocate and solicitor in the Law Firm. He was a partner of the Law Firm until about 1 April 2006 and thereafter, was its sole proprietor.

5 According to the Statement of Claim (Amendment No 2), it transpired that between 31 May 2006 and 2 June 2006 (“the Relevant Period”), DR had on various occasions wrongfully withdrawn sums of money totalling $11,327,408 (“the Clients’ Money Withdrawn”) from the Law Firm’s client’s account, which account was supposed to hold money of various clients of the Law Firm. He had misappropriated the same and had absconded from Singapore.

6 The Plaintiffs commenced the present action on 15 June 2006 against seven defendants. The trial before me concerned the Plaintiffs’ claims against the fourth and fifth defendants and the sixth defendant only.

7 The fourth and fifth defendants are Ho Chi Kwong (“Ho”) and Jewels DeFred Pte Ltd (“DeFred”) respectively. Ho is a Singapore permanent resident and a director and shareholder of DeFred, a company incorporated in Singapore, which is engaged in the retail trade of precious stones and jewellery.

8 During the Relevant Period, DeFred had received two sums of money totalling $2,088,000 from DR for the purchase of precious stones and jewellery. It was not disputed that the $2,088,000 was part of the Clients’ Money Withdrawn. The Plaintiffs assumed that the entire $2,088,000 was part of the Plaintiffs’ Money although the Plaintiffs’ Money was about 94.09% of the Clients’ Money Withdrawn.

9 The sixth defendant is Lim Soon Kiang (“D6”). He is a Singapore citizen. He had received US$620,000 from DR being part of the Clients’ Money Withdrawn. The Plaintiffs also proceeded on the basis that the entire US$620,000 was part of the Plaintiffs’ Money.

10 The Plaintiffs’ claim against DeFred was that it had knowingly received the $2,088,000 and/or dishonestly assisted DR to misappropriate this sum such as to render DeFred liable as constructive trustee to the Plaintiffs for this sum. As Ho is the directing mind of DeFred, the Plaintiffs urged the court to lift the corporate veil and render Ho personally liable as well to the Plaintiffs. Mr Harry Elias, SC was the lead counsel for the Plaintiffs and Mr Hri Kumar, SC was the lead counsel for DeFred and Ho.

11 The Plaintiffs’ claim against D6 was also for knowing receipt and/or dishonest assistance in respect of US$620,000. D6 represented himself initially at the beginning of the trial but subsequently decided not to turn up as I shall elaborate later.

12 I will deal first with the claim against DeFred and Ho and then with the claim against D6. However, before I elaborate on the rest of the circumstances leading to the respective claims, I will deal briefly with the law.

The Law

13 In Barnes v Addy (1874) LR 9 Ch App 244, Lord Selborne LC said (at 251-2):

Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort, or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees.

14 Mr Elias and Mr Kumar accepted, as I do, that the elements of knowing receipt and dishonest assistance were as set out by the Court of Appeal in Caltong (Australia) Pty Ltd v Tong Tien See Construction Pte Ltd [2002] 3 SLR 241 (“Caltong”). In that case, Chao Hick Tin JA said at [31] and [33]:

31 To be liable for knowing receipt which would render the recipient a constructive trustee, three elements must be proved, and in the words of Lord Hoffmann in El Ajou v Dollar Land Holdings [1994] 2 All ER 685 at 700; [1994] 1 BCLC 464 at 478:

the plaintiff must show, first, a disposal of his assets in breach of fiduciary duty; secondly, the beneficial receipt by the defendant of assets which are traceable as representing the assets of the plaintiff; and, thirdly, knowledge on the part of the defendant that the assets he received are traceable to a breach of fiduciary duty.

32 …

33 The elements which must be proved to establish dishonest assistance are (see Royal Brunei Airlines v Tan Kok Ming Philip [1995] 2 AC 378; [1995] 3 All ER 97):

(1) that there has been a disposal of his assets in breach of trust or fiduciary duty;

(2) in which the defendant has assisted or which she/he has procured;

(3) the defendant has acted dishonestly;

(4) resulting loss to the claimant.

15 There may be some overlapping between these two causes of action and hence, a person may in some circumstances be liable for both knowing receipt and dishonest assistance.

16 What then is the kind of knowledge that may render a person liable for knowing receipt?

17 There was a five-fold categorisation of knowledge by Peter Gibson J in Baden and others v Societe Generale pour Favoriser le Developpement du Commerce et de L’Industrie en France SA [1993] 1 WLR 509 but, generally, this categorisation has not been favoured in subsequent decisions.

18 In BCCI (Overseas) Ltd v Akindele (CA) [2001] Ch 437(“BCCI v Akindele”), Nourse LJ favoured a single test, ie, whether the recipient’s state of knowledge was such as to make it unconscionable for him to retain the benefit of the receipt.

19 In Rajabali Jumabhoy v Ameerali R Jumabhoy [1998] 2 SLR (“Rajabali Jumabhoy”), the Court of Appeal said at [107] to [108]:

107 … There is no clear definition of a constructive trust. The learned authors of Snell’s Equity (29th Ed) define a constructive trust at p 192 as follow:

The constructive trust imposed by law is not capable of precise definition and is continually developing. For the present it is sufficient to say that a constructive trust is a trust which is imposed by equity in order to satisfy the demands of justice and good conscience.

In Carl Zeiss Stiftung v Herbert Smith & Co & Anor (No 2) [1969] 2 Ch 276 (“CZS No 2”), at p 300, Edmund Davies LJ said:

… English law provides no clear and all-embracing definition of a constructive trust. Its boundaries have been left perhaps deliberately vague, so as not to restrict the court by technicalities in deciding what the justice of a particular case may demand.

However, his Lordship identified ‘want of ‘probity’ as a useful touchstone in considering the circumstances giving rise to a constructive trust. He said at p 301:

The concept of ‘want of probity’ appears to provide a useful touchstone in considering circumstances said to give rise to constructive trusts, and I have not found it misleading when applying it to the many authorities cited to this court It is because of such a concept that evidence as to ‘good faith’, ‘knowledge’ and ‘notice’ plays so important a part in the reported decisions. It is true that not every situation where probity is lacking gives rise to a constructive trust. Nevertheless, the authorities appear to show that nothing short of it will do. Not even gross negligence will suffice.

108 Where a person acquires a trust property, whether gratuitously or for valuable consideration, in breach of trust on the part of the trustee, and has knowledge of the breach of trust whether actual, constructive or imputed, then he would be liable as a constructive trustee to account to the beneficiaries under the trust. Such a constructive trust is based on ‘knowing receipt’ ie knowledge of the recipient that the property received is trust property and is in breach of trust. Such knowledge is absolutely essential to found a constructive trust based on knowing receipt.

20 At [119], the Court of Appeal in Rajabali Jumabhoy concluded that the conscience of one of the defendants was not so affected as to give rise to the imposition of a constructive trust.

21 More recently, in Comboni Vincenzo and another v Shankar’s Emporium (Pte) Ltd [2007] 2 SLR 1020, Kan Ting Chiu J referred to Rajabadi Jumabhoy and in Re Montagu’s Settlement Trusts [1987] Ch 264 and BCCI v Akindele and concluded that conscience/probity is the proper test for a constructive trust. With respect, I agree that that is the proper guide. Indeed, neither Mr Elias nor...