Rajabali Jumabhoy and Others v Ameerali R Jumabhoy and Others

• Judge: Chao Hick Tin J
• Judgment Date: 20 May 1998
• Neutral Citation: [1998] SGCA 35
• Citation: [1998] SGCA 35
• Defendant Counsel: Chong Boon Leong (Rajah & Tann),Jules Sher QC and Edwin Tong (Allen & Gledhill),Davinder Singh SC, Ameera Ashraf and Harpreet Singh (Drew & Napier)
• Subject Matter: Settlor,Whether trustees in breach of trust in effecting share swap,Trustees precluded from investing in shares in Singapore,Breach of trust,Whether court has inherent jurisdiction to sanction 1991 share swap,Sale of property by trustees for fully paid shares,Whether court has to give effect to settlor's intention,Inherent jurisdiction of court,Constructive trusts,Whether trustees can invoke s 63 Trustees Act (Cap 337) to relieve them from liability,Variation,Liability exemption clause,Express trusts,Trustees effect share swap in breach of trust,Trusts,Whether s 59(1) of Trustees' Act (Cap 337) can be invoked to sanction transaction expressly prohibited by trust instrument,s 63 Trustees Act (Cap 337),Whether such investments prohibited by terms of settlement -Whether prohibition falls within 'contrary intention' within s 2(2) of Trustees Act,Trust for sale,Power given to trustees to decide on when to sell property,Whether jurisdiction limited to emergency situations,Whether court has inherent overriding jurisidiction to rewrite trust,Whether such power prevents creation of a trust for sale,Construction of settlement,Whether share swap saved by s 11(4) of the Trustees Act,Whether a constructive trust arises automatically on shares swapped by trustees because of breach,s 2(2)Trustees Act (Cap 337),s 59(1) Trustees Act (Cap 337),Investment in breach of trust,Whether trustees acted reasonably and honestly in executing the 1991 share swap
• Plaintiff Counsel: Terence Etherton QC, Harry Wee and Leong Why Kong (Braddell Brothers)
• Published date: 19 September 2003
• Court: Court of Three Judges (Singapore)

Judgment:

LP THEAN JA

Cur Adv Vult

(delivering the judgment of the court): Introduction

1.Originally there were two appeals before us. There was CA 137/97 in which Rafiq Jumabhoy (Rafiq), the second respondent abovenamed, appealed against that part of the decision of Judith Prakash J, in which she set aside the option granted to him by Scotts Investments (Singapore) Pte Ltd (SIS), the fourth respondent abovenamed, to purchase certain shares in a public quoted company, Scotts Holdings Ltd, on the ground that the option was procured by Rafiq, who was, and is, a director of SIS, and approved by the other directors, in breach of their fiduciary duties. The second appeal is the present appeal, which is against that part of the decision of Judith Prakash J, in which she declared that SIS is the legal and beneficial owner of all the shares which it currently holds in Scotts Holdings Ltd. At the commencement of the hearing, counsel for Rafiq informed the court that Rafiq and the abovenamed appellants, who, inter alios, were the parties to CA 137/97, had reached an amicable settlement and sought leave to withdraw that appeal. As part of the settlement, the appellants abovenamed in the present appeal would not pursue their appeal against him, and leave was also sought to withdraw the appeal against Rafiq. Accordingly leave was granted to Rafiq to withdraw CA 137/97 and to the abovenamed appellants to withdraw their appeal against Rafiq in the present appeal.

2.There is one other matter which we should mention at this stage. Quite independently of what had transpired between the appellants and Rafiq, the solicitors for SIS applied by Notice of Motion 46/98 for leave to be discharged on the ground that SIS had not paid their legal fees, and we granted them the discharge. Thus, at the hearing of this appeal SIS was not represented, but the case filed on its behalf would stand.

3.The contest in the present appeal is essentially between the appellants on the one hand, and the first and third respondents on the other. For ease of reference, we shall refer to both these respondents as `the respondents`, unless otherwise expressly stated. Rafiq is concerned only on one minor issue which turns on the outcome of the appeal. The respondents had claimed an indemnity against Rafiq in the event that they should be held to be liable for any breaches of trust. This issue would only arise for determination, if it is held that the respondents are liable for a breach of trust.

4. Facts

The facts leading to the dispute have been comprehensively set out by Judith Prakash J in her judgment, reported in [1997] 3 SLR 802. All the respective parties to the appeal adopt the facts as set out there. However, it is useful to replicate here briefly the relevant facts and events leading to the present appeal.

5.All the parties in the present appeal are very closely related. The first appellant, Rajabali Jumabhoy (Rajabali), is the patriarch of the family and is just over 100 years old. The second, third and fourth appellants are the children of Rajabali and his wife, Fatimabai, now deceased. The second appellant, Yusuf Jumabhoy (Yusuf) is their second son, and the third appellant, Mustafa Jumabhoy (Mustafa), their third son. The fourth appellant, Perin A Mooraj (Perin), is their youngest child and the only daughter. The remaining appellants are the sons of Mustafa, being Anwar Ali Jumabhoy (Anwar), Faez Jumabhoy (Faez) and Saleem Ali Jumabhoy (Saleem). As for the respondents, the first respondent, Ameerali Jumabhoy (Ameerali), is the eldest son of Rajabali and Fatimabai, and the second and third respondents, Rafiq and Iqbal Jumabhoy (Iqbal), are the eldest and second sons of Ameerali respectively. The fourth respondents, SIS, is the family investment holding company in which the appellants and the first, second and third respondents have an interest.

6.Sometime in 1956, Rajabali and Fatimabai each decided to make irrevocable trusts in respect of their properties, No 8 and No 6 Scotts Road (the Scotts Road properties) for the benefit of their children. No 8 Scotts Road was owned by Rajabali and No 6 Scotts Road by Fatimabai. Their intention was to settle the two properties on irrevocable trusts for the benefit of their children with the intention that the capital and income of the trust funds of the settlements would be held intact and would only be distributed to the beneficiaries on the expiry of the period of accumulation.

7.Fatimabai made her settlement earlier. She executed her deed of settlement on 23 November 1956 whereby she appointed Ameerali and Yusuf as trustees and conveyed to them No 6 Scotts Road, to be held on, inter alia, the following trusts: with her consent during her lifetime, to sell the property and to hold the proceeds of sale and invest them in any investments authorised by the terms of her settlement, and to hold the investments during her life or for the period of 20 years from the date of the settlement, whichever was the longer. The other terms of this settlement were identical with corresponding terms of the settlement of Rajabali, of which more will be said.

8.On 17 January 1957, Rajabali executed his deed of settlement (the settlement). Under the settlement, Rajabali appointed Ameerali and Yusuf as the trustees of the settlement and conveyed to them No 8 Scotts Road to be held on, inter alia, the following trusts: to permit Rajabali and Fatimabai to reside there during their joint lives and the survivor of them during his or her life; with the consent of Rajabali and his wife or the survivor of them to sell the property in such manner as the trustees may think proper; to hold the proceeds of sale and invest them in any of the investments authorised by the terms of the settlement and to hold the investments and the income (the trust funds) during the joint lives of Rajabali and his wife or the survivor of them, or for the period of 20 years from the date of the settlement, whichever is the longer (the period of accumulation). At the expiration of the period of accumulation, the surviving children of Rajabali would be entitled to the trust funds in equal shares absolutely, but if during that period one or more of the children had died then if he left a surviving child or children who attained the age of 21 years, that child or children would take the share which his parent would otherwise have taken. The power of appointing new trustees was vested in Rajabali and his wife during their joint lives or the survivor of them.

9.The settlement by cl 5 conferred express powers on the trustees to invest the trust funds in authorised investments and also by cl 6 exonerated them in certain circumstances from any loss occasioned by a breach of trust. Both these provisions will be considered and dealt with in detail in a moment. On the basis of the settlement, Rajabali`s four children are the primary beneficiaries and any children of the primary beneficiaries born during the period of accumulation would be the contingent beneficiaries.

10.In 1964, Fatimabai passed away. Under the terms of her settlement, the subject matter of the trust, No 6 Scotts Road, would vest in the beneficiaries 20 years after date of the settlement, namely, on 23 November 1976.

11.After Fatimabai`s death, Rajabali on 29 March 1966 in exercise of the power of appointment contained in the settlement appointed his third son, Mustafa, a trustee. Subsequently, in 1988 and 1993 he appointed his two grandsons, Asad and Iqbal Jumabhoy respectively as trustees. At the hearing below, an issue was raised as to who were in fact the trustees of the settlement during the period between the 1988 and 1993. Mustafa resigned as a trustee sometime in September 1992 but was re-appointed in 1993. The learned judge found that when Mustafa resigned as a trustee, Asad had already been validly appointed a trustee. After Mustafa resigned, Iqbal was then appointed a trustee. However, Asad resigned as a trustee sometime in 1992. Hence, by the time Mustafa was re-appointed a trustee sometime in 1993, he became the fourth trustee of the settlement. It is now not disputed that at all material times the four trustees of the settlement were Ameerali, Yusuf, Mustafa and Iqbal.

12.The Scotts Road properties are centrally located in Singapore`s prime shopping and hotel district, and Ameerali saw great potential in them. By 1975 Ameerali, Yusuf and Mustafa were seriously considering what they should do with the two trust properties. In 1978, Ameerali put forward a proposal to redevelop the two sites, to which Rajabali, Yusuf and Mustafa agreed. However, as the proposed development was not within the powers of investment conferred upon the trustees under the settlement, it was agreed between the trustees, namely, Ameerali, Yusuf and Mustafa on the one hand, and Rajabali himself on the other that a limited company should be formed to carry out the redevelopment. Consequently, on 29 March 1979, Scotts Holdings Pte Ltd (SHL) was incorporated for this purpose. Ameerali, Yusuf and Mustafa, together with Rafiq became the directors of SHL with Ameerali being the chairman and managing director.

13.Following the incorporation, SHL in April 1979 purchased the Scotts Road properties from the trustees of the settlement and Fatimabai`s settlement respectively. The purchase price for both the properties was $625 per square foot which, according to Ameerali, was considered by the trustees as representing the fair market value of the properties at that time. Based on this unit rate the purchase price of No 8 Scotts Road was $25,039,375 and that of No 6 Scotts Road was $25,103,750. These two sums were satisfied as follows:

(a) in respect of the sum of $25,039,375 (representing the purchase price of No 8 Scotts Road) by the issue and allotment of 25,039,375 fully paid redeemable non-cumulative 5% preference shares of $1 each to the trustees of the settlement; and

(b) in respect of the sum of...