Case Update: BOK v BOL [2017] SGHC 316 - Singapore High Court sets aside trust on grounds of misrepresentation, mistake, undue influence and unconscionability, construes scope of living trust
Article By Tedric Chai.
Significance: Singapore High Court sets aside a trust on grounds of misrepresentation, mistake, undue influence and unconscionability, construes scope of living trust to include the plaintiff's interest under a will.
Facts
On the evening of 26 March 2014 (which was 3 days after the funeral of his mother who was killed tragically), the Plaintiff, who was then 29 years old, signed a declaration of trust (“DOT”), which purported to constitute him and his wife (the 2nd Defendant) as joint trustees of all his assets for the sole benefit of their infant son (the 1st Defendant). Pf then sought to set aside the DOT, which had been drafted and presented to him by the 2nd Defendant. Before the 2nd Defendant stopped working in 2012, she had been a practising lawyer for four years before spending two years in the banking industry.
One of the issues was whether the subject of the trust created by the DOT extended to the Plaintiff’s interest under his mother’s will. Under her will, the Plaintiff’s mother had created a testamentary trust over her assets. She had appointed the Plaintiff and his sister as the executors and trustees of her will, and they were to sell the properties only after the twenty-fifth anniversary of her death. Until that date, they were each permitted to withdraw a sum not exceeding $10,000 per month from the estate. On 9 July 2014, the Plaintiff and his sister then entered into a deed of family arrangement, under which they agreed to exercise their right under Saunders v Vautier and to apportion and distribute their respective entitlements under their mother’s will. In November 2014, the High Court allowed their application to terminate their mother’s testamentary trust and distribute the assets according to the deed.
Issues
Plaintiff’s primary case
Should the DOT be set aside because of the circumstances in which it was signed (i.e. because it was procured as a result of misrepresentation, mistake, undue influence or it was an unconscionable transaction)?
Plaintiff’s alternative case
Is the DOT void for not defining the trust property with reasonable certainty?
If the DOT is valid, does the trust property extend to the Plaintiff’s interest under his mother’s will, and if so, what is the scope of that interest which is trust property?
Holding by the Court (Coram: Valerie Thean J)
Issue 1: on the 4 vitiating factors – ratio decidendi
Misrepresentation
The DOT ought to be rescinded on the ground of misrepresentation.
The Plaintiff must establish five elements to succeed in a claim on misrepresentation: (i) a representation of fact made by words or conduct; (ii) the representation was made with the intention that it should be acted upon by the Plaintiff or by a class of persons which includes the Plaintiff; (iii) the Plaintiff acted upon the false statement; (iv) the Plaintiff suffered damage by so doing; (v) the representation was made with the knowledge that it is false or made in the absence of any genuine belief that it is true. (at [80] of the judgment)
In this case, the 1st and 5th elements were established. The 2nd Defendant made a false representation of fact by words in telling the Plaintiff that the DOT would leave him free until his death to deal with the assets which were caught under the DOT, and the court found that the 2nd Defendant knew that it was false at the time she made the representation. (at [81])
The 2nd and 3rd elements were also made out. The 2nd Defendant made the false representation with the intention of persuading the Plaintiff to sign the DOT. The Plaintiff had initially refused to sign the DOT because he did not want to give away all his assets, so she allayed this concern by lying to him that the DOT would take effect only upon his death. The Plaintiff therefore relied on this misrepresentation, as he changed his mind and decided to sign the DOT, and also as he acted as if the DOT had no effect on his assets in the months after he signed it. (at [82])
The 4th element was made out, as the Plaintiff had suffered damage in the form of losing his beneficial interest in all the assets he owned as at 26 March 2014 as a result of signing the DOT. (at [83])
Mistake
The DOT ought also to be set aside on the independent ground of mistake.
In this case, the court held that, because of the 2nd Defendant’s conduct and misrepresentation, the Plaintiff made the mistake that the effect of the DOT was that he remained free to deal with his assets until the time of his death, and that this was a mistake of sufficient gravity as it struck at the heart of the DOT. (at [86])
The Plaintiff believed the misrepresentation because of his altered mental state owing to his grief from his mother’s death as well as the 2nd Defendant’s threat to kick him out of the house if he did not sign the DOT. (at [86])
It was also a causative mistake, as the Plaintiff would not have signed the DOT had he not held his belief in the misrepresentation. (at [86])
The seriousness of this mistake makes it unconscionable for the disposition not to be corrected because it is a disposition of serious consequence, the Plaintiff having been deprived of a significant portion of his assets. (at [86])
Undue influence
The Plaintiff sought to establish undue influence under Class 1 and Class 2A undue influence, and the court held that the DOT should be set aside on both Class 1 and Class 2A undue influence.
Under Class 1 actual undue influence, the Plaintiff must show that: (i) the other party had the capacity to influence the Plaintiff; (ii) the influence was exercised; (iii) its exercise was undue; and (iv) its exercise brought about the transaction which the Plaintiff now seeks to set aside. (at [91])
In this case, the 2nd Defendant had the capacity to influence the Plaintiff because: (i) she was his wife; (ii) she had previously advised him on matters of law; (iii) the Plaintiff was in a state of grief and isolation (the court found that the Plaintiff was an isolated individual whose world revolved around only a small number of individuals with whom he shares a strong relationship, and that this is thus likely to render him vulnerable to their influence); (iv) the 2nd Defendant’s attempt to persuade the Plaintiff was legitimised by her father, who is a senior lawyer whom the Plaintiff respected and who was in their presence on the evening of 26 March 2014 before the Plaintiff signed the DOT. (at [92])
The 2nd Defendant exercised the influence she had by persistently asking him to sign the DOT and by misrepresenting to him its true legal effect. The exercise was undue because the Plaintiff was persuaded to sign the DOT based on a lie that he would remain free to deal with his assets, and the Plaintiff did not have the benefit of independent legal advice before signing the DOT. Finally, the 2nd Defendant’s influence caused the Plaintiff to decide to sign the DOT. (at [93])
Under Class 2A presumed undue influence, the Plaintiff may raise a presumption that undue influence was exercised by proving two requirements: (i) that there is a particular relationship which enabled one party to influence the decisions of the other; and (ii) the resulting transaction was manifestly disadvantageous to the other i.e. one that calls for an explanation. Once these elements are proved, the burden of proof shifts to the Defendant to show that he or she did not exercise undue influence on the Pf. (at [89])
In this case, the court found the existence of an implied retainer between the Plaintiff and the 2nd Defendant at the time the Plaintiff signed the DOT, thus giving rise to a solicitor and client relationship and also raising an irrebuttable presumption of a relationship of trust and confidence. The court held that a retainer might be implied where an intention to enter into such a contractual relationship ought fairly and properly to be imputed to all the parties. The court noted that the 2nd Df was a trained lawyer, was the one who drafted the DOT, had a demonstrable familiarity with the law on trusts, had on many occasions prior to 26 March 2014 advised the Pf on legal matters and the Pf relied upon her. Further, the 2nd Df prepared the DOT for the Pf to sign essentially on her own accord, as the court found that he had never instructed her to draw up such a document. (at [90], [94], [95], [98])
The 2nd Defendant also failed to qualify her work or advice, preferring instead to assert to the Plaintiff misleadingly that the DOT had been written in “plain, simple” English and required no explanation. The court also found that the DOT was manifestly disadvantageous to the Plaintiff because it divested him of all his assets at the time he signed it for nothing in return. Further, the 2nd Defendant failed to discharge the burden of showing that she did not exercise undue influence on the Plaintiff. (at [98], [99])
Unconscionable transaction
The DOT ought to be set aside on the ground of unconscionability.
The court applied the criteria in the English case of Cresswell v Potter [1978] 1 WLR 255 for establishing “a circumstance of oppression or abuse of confidence which will invoke the aid of equity”. The three primary requirements are: (i) the Plaintiff must be poor and ignorant, in the sense that he is of a lower income group and is less well educated; (ii) the transaction must be at an undervalue; and (iii) the Plaintiff must not have received independent legal advice. Alternatively, unconscionability may be established by a separate limb of oppression or abuse of confidence which will invoke the aid of equity. The court noted that the three primary requirements are, taken together, only a non-exhaustive example of a circumstance of oppression or abuse of confidence. The court formulated two requirements for what amounted to oppression or abuse of confidence: (i) there must be weakness on one side, which could arise from poverty, ignorance or other circumstances, like acute grief in the present case, and lack of independent advice would almost always deepen the weakness; and (ii) there must be exploitation, extortion or advantage taken of that weakness, and a transaction at an undervalue would be a necessary component of this requirement. Finally, once these two elements are established, it will be for the Defendant to show that the transaction was fair, just and reasonable. (at [107], [117], [120], [122])
In this case, the first element for establishing oppression or abuse of confidence was made out. The Plaintiff was in a state of weakness at the time he signed the DOT due to his grief and isolation, his relationship with the 2nd Defendant, his lack of independent advice and his trust in her ability as a lawyer (circumstances which created a window of opportunity for oppression). The second element was also made out by the 2nd Defendant deepening that window of opportunity by asking the Plaintiff to leave the house. The 2nd Defendant took advantage of the Plaintiff’s emotionally vulnerable state in order to persuade him to part with the entirety of his assets by misrepresenting to him that the DOT would take effect only upon his death. Lastly, the DOT, being made voluntarily, was a transaction at an undervalue. The court also held that the 2nd Defendant failed to show that the DOT was fair, just and reasonable, or a fair and reasonable means by which the Plaintiff was to provide for his family. (at [123], [124])
Issue 2: whether DOT defines the trust property with reasonable certainty – ratio decidendi
The court held that the DOT defines the trust property with reasonable certainty and includes, at the very least, the assets the Plaintiff owned and the annuity his mother’s will provided him with. Thus, the DOT was a legally valid instrument that could be set aside. (at [35])
In this case, the clause in the DOT that the Plaintiff impugns for uncertainty reads: “…all assets, both personal and immovable, owned by me, whether legally or beneficially…”. The Plaintiff argued that the phrase “owned by me” is ambiguous because it is capable of being combined with a number of auxiliary verbs to read, for example “which are owned”, “which are and shall be owned” or “which may be owned”. As the latter two interpretations cover future property, which cannot be the subject of a trust, and as the DOT does not contain a severability clause which preserves the validity of the DOT as to trust property defined with reasonable certainty, the entire DOT should be invalidated. (at [135])
The court dismissed the Plaintiff’s argument and held that, on a plain reading, the clause in the DOT provides that all the assets the Plaintiff “owned” (in the past simple tense) at the time he signed the DOT would become the subject of the trust created by the DOT. (at [136])
Issue 3: whether trust property extends to Plaintiff’s interest under his mother’s will, and what is the scope of that interest – obiter dicta
The court held that at the time of the signing of the DOT, the Plaintiff, being a beneficiary of his mother’s will, had an equitable right or chose in action to have the deceased’s estate properly administered. Through the DOT, the Plaintiff created a trust over the chose in action. In addition, the disponee (person who receives the disposition under the trust) will be regarded as entitled to the property which the exercise of the chose in action would have granted the disponor (person who gives the disposition). Hence, the trust created by the DOT extends to the Plaintiff’s interest under his mother’s will, and includes, at the very least, the annuity his mother’s will provided him with. (at [138], [139])
However, the court held that it was not necessary to decide whether the trust property under the DOT extended beyond the annuity to the assets the Plaintiff obtained later by the deed of family arrangement he concluded with his sister. (at [35])
