Lau Sheng Jan Alistair v Lau Cheok Joo Richard
Jurisdiction | Singapore |
Judge | Goh Yihan JC |
Judgment Date | 21 July 2023 |
Docket Number | Originating Application No 492 of 2022 |
Court | High Court (Singapore) |
[2023] SGHC 196
Goh Yihan JC
Originating Application No 492 of 2022
General Division of the High Court
Trusts — Unlawful trusts — Beneficiary applying to terminate trust pursuant to rule in Saunders v Vautier(1841) 4 Beav 115 — Whether trust deed was sham instrument — Whether settlors set up trust to avoid additional buyer's stamp duty
Trusts — Unlawful trusts — Beneficiary applying to terminate trust pursuant to rule in Saunders v Vautier(1841) 4 Beav 115 — Whether trust was unenforceable for illegality — Whether formal reliance principle in Tinsley v Milligan[1994] 1 AC 340 should be rejected — Applicable test for illegality defence in trusts context — Whether there was any express or implied statutory prohibition of trust — Section 4(1)(a) of and Art 3(bf)(iii) of First Schedule to Stamp Duties Act 1929 (Cap 312, 2006 Rev Ed)
Trusts — Unlawful trusts — Beneficiary applying to terminate trust pursuant to rule in Saunders v Vautier(1841) 4 Beav 115 — Whether trust was unenforceable for illegality — Whether formal reliance principle in Tinsley v Milligan[1994] 1 AC 340 should be rejected — Applicable test for illegality defence in trusts context — Whether trust fell into any existing categories that rendered it illegal in itself
Trusts — Unlawful trusts — Beneficiary applying to terminate trust pursuant to rule in Saunders v Vautier(1841) 4 Beav 115 — Whether trust was unenforceable for illegality — Whether formal reliance principle in Tinsley v Milligan[1994] 1 AC 340 should be rejected — Applicable test for illegality defence in trusts context — Whether trust was created for illegal purpose
Held, granting the application:
(1) The applicant established a prima facie case for the termination of the Trust pursuant to the rule in Saunders v Vautier. First, he was 26 years old and was therefore an adult of full age. Second, he had undergone a medical check-up before a registered psychiatrist, who had certified that he did not suffer from any mental disability. Third, he was absolutely entitled to the Property under the Trust as he was the sole beneficiary of the same. Thus, the applicant's entitlement to have the Property transferred to him would only be defeated if the first respondent's arguments that the Trust was a sham instrument or illegal succeeded: at [18] to [22].
Whether the Trust Deed was a sham instrument
(2) A trust deed was a sham where it was never intended by the settlors to create an arrangement for them to divest themselves of the aspects of beneficial ownership in the manner that was provided for in the trust, while intending to give that false impression to third parties or to the court: at [24].
(3) The crux of a sham trust was a common intention to mislead, with the relevant common intention generally being that of the settlor and the trustee. In ascertaining this intention, a subjective test was used. In applying the subjective test, two further points might be made. First, the person alleging that a document was a sham had the burden of proving that the parties intended the document to be a pretence. Second, there was a very strong presumption that the parties intended to be bound by the provisions of the agreements into which they entered: at [25] to [27].
(4) The Trust Deed was not a sham instrument. The Trust was set up by the respondents to transfer beneficial interest in the Property to the applicant and functioned exactly as the respondents intended it to. In this regard, the fact that the trust arrangement additionally allowed the respondents to save on ABSD was an incidental benefit that did not detract from their overall intention to gift their elder child and only son a legacy property while the both of them were still living. Moreover, the Loan Agreement supported the conclusion that the Trust Deed was a bona fide instrument. The purpose of the Loan Agreement was to reduce the net value of the Property as a matrimonial asset by $4.925m if the applicant were to be embroiled in divorce proceedings in the future. This mechanism would only make sense if the applicant held the beneficial interest in the Property: at [28] and [33] to [36].
Whether the Trust should be unenforceable for illegality
(5) It was clear that the formal reliance principle in Tinsley v Milligan[1994] 1 AC 340 (“Tinsley”) had been the subject of strong judicial disapproval and should not be applied. Instead, the framework laid down by the Court of Appeal in Ochroid Trading Ltd v Chua Siok Lui[2018] 1 SLR 363 (“Ochroid Trading”) should broadly apply in the trusts context with the appropriate modifications: at [54], [55] and [67] to [69].
(6) The Ochroid Trading framework, as applied in the context of trusts, comprised only the first stage. The second stage of the Ochroid Trading framework should not apply in the trusts context where the claim was for the enforcement of a proprietary interest, as it would not make sense to ask whether there could be restitutionary recovery in that context: at [77] and [78].
(7) In so far as the first stage was concerned, the court should first consider whether the trust in question was illegal in itself and therefore void and unenforceable; a trust was illegal in itself when it was expressly or impliedly prohibited by statute or fell within an established category of situations that rendered it void and unenforceable: at [71], [76], [78] and [81(a)].
(8) Second, if the trust was not illegal in itself, the court should then consider whether the trust concerned was created for an illegal purpose or arose as an incidental consequence of the illegal purpose. If so, the proportionality analysis applied to determine a proportionate response to the illegality, and the factors to be considered included: (a) whether allowing the claim would undermine the purpose of the prohibiting rule; (b) the nature and gravity of the illegality; (c) the remoteness or centrality of the illegality to the trust; (d) the object, intent and conduct of the parties; and (e) the consequences of denying the claim: at [72] to [76], [78] and [81(b)].
(9) Third, if the court decided that the trust was created for an illegal purpose and should not be enforceable, the court might consider if the party seeking to enforce the trust in question could nonetheless establish an alternative basis for enforcing a proprietary interest by the operation of trusts law, such as by a resulting trust if his claim to enforce an express trust failed because the express trust was found to be unenforceable. In considering this, the court should apply the principle of stultification to determine if, in allowing the claim, the fundamental policy that prohibited the trust in question in the first place would be undermined: at [78], [79] and [81(c)].
(10) The Trust was not unenforceable for illegality. The Trust did not fall into any established categories that would render the Trust illegal in itself. From s 4(1)(a) read with Art 3(bf)(iii) of the First Schedule to the Stamp Duties Act 1929 (Cap 312, 2006 Rev Ed), there was also no express statutory prohibition of trusts created to avoid ABSD obligations, and it was difficult to conclude that there was a necessary or clear implication that such trusts were illegal. Furthermore, following from the conclusion that the Trust Deed was not a sham instrument to avoid ABSD, the Trust was not created for an illegal purpose: at [82] to [84].
AG v Pearson (1817) 3 Mer 353 (folld)
Al-Dowaisan v Al-Salam [2019] 2 BCLC 328 (refd)
Beard, Re [1908] 1 Ch 383 (folld)
Bowmakers Ltd v Barnet Instruments Ltd [1945] KB 45 (not folld)
Chng Bee Kheng v Chng Eng Chye [2013] 2 SLR 715 (folld)
Hall v Hebert [1993] 2 SCR 159 (refd)
Kliers v Schmerler [2018] EWHC 1350 (Ch) (refd)
Knight v Knight [2019] 2 P & CR D33 (folld)
Nelson v Nelson [1995] 132 ALR 133 (refd)
Neoh Raymond Dennis v Liew Leong Wan [2011] SGHC 179 (folld)
Ochroid Trading Ltd v Chua Siok Lui [2018] 1 SLR 363 (folld)
Pankhania v Chandegra [2013] 1 P & CR 238 (folld)
Patel v Mirza [2017] AC 467 (refd)
PP v Intra Group (Holdings) Co Inc [1999] 1 SLR(R) 154; [1999] 1 SLR 803 (not folld)
Saunders v Vautier (1841) 4 Beav 115 (folld)
Singapore Symphonia Co Ltd, Re [2013] SGHC 261 (folld)
Snook v London and West Riding Investments Ltd [1967] 2 QB 786 (folld)
Ting Siew May v Boon Lay Choo [2014] 3 SLR 609 (folld)
Tinsley v Milligan [1994] 1 AC 340 (not folld)
Watson, Re [1973] 1 WLR 1472 (folld)
The applicant was a 26-year-old Singaporean. The first and second respondents are the father and mother of the applicant, respectively. On 13 July 2023, the respondents entered into an option to purchase the Property for a total consideration of $4.925m. At that time, the respondents were in their mid-50s, and the first respondent had retired.
Subsequently, the respondents jointly engaged solicitors to draft and execute a Trust Deed dated 27 July 2020 (the “Trust”). Pursuant to the Trust, the respondents were to hold the Property, or alternatively, the net proceeds of the sale of the Property, on trust as joint trustees for the applicant's sole benefit. The Trust was said by the first respondent to be for the purpose of avoiding additional buyer's stamp duty (“ABSD”), whereas the applicant and first respondent took the position that the Trust was created to gift the applicant, the respondents' elder child and only son, a legacy property while the respondents were still alive.
According to the first respondent, after the execution of the Trust, a loan agreement (the “Loan Agreement”) dated 4 August 2020 was signed by the applicant and the respondents. By the terms of the alleged Loan Agreement, the respondents were said to have agreed to loan the applicant the sum of $4.925m to purchase the Property. However, whether the Loan Agreement was signed to begin with was disputed by the applicant and the second respondent. On another point, the...
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