Case Update: Philip Antony Jeyaretnam & Another v Kulandaivelu Malayaperumal & Another [2019] SGHC 214

Article by Ronald JJ Wong.

Significance: Singapore High Court holds a person who assumed responsibility over the well-being and financial affairs of another person who lacks mental capacity to be a fiduciary and imposed an equitable lien over a HDB flat purchased with monies taken from the person lacking mental capacity.

Facts

1. This case concerned one Dr Paul Freda Malliamalar (“Dr Paul”) and her property. Dr Paul was a paediatrician at the Singapore General Hospital. She passed away in 2016 at the age of 87 years old. The Plaintiffs are the executors of the Estate of Dr Paul, and were previously her court-appointed deputies.

2. While Dr Paul was alive, she lived in a property at Haig Road. She got to know and befriended the first defendant, Mr Kulandaivelu Malayaperumal (”Perumal”). Perumal carried out some repair jobs for Dr Paul. He eventually moved in to the Haig Road property with Dr Paul sometime around min-2009, and played a role in the sale of property and the purchase of a second property along Ceylon road.

3. In 2010, Dr Paul effected two cash gifts to Perumal totalling a sum of $2 million. The Honourable Justice Debbie Ong (“Ong J”) had ruled in the main suit that Dr Paul had no mental capacity to make the said gift to Perumal. Her Honour also found that Perumal had exerted influence over Dr Paul and hindered her independence in decision-making.

4. In November 2010, Perumal married one Mdm Pramela d/o Govindasamy (“Mdm Pramela”). Perumal and Mdm Pramela jointly purchased and owned a Housing and Development Board flat (“HDB flat”). The HDB flat is presently held in the names of Perumal and Mdm Pramela as joint tenants. The sale price of the flat was $439,800.

5. On the date of completion on 30 April 2014, Perumal made a payment of $329,812.55 by way of cheque to HDB. This sum amounted to at least 74.99% of the purchase price of the flat. It constitutes a meagre 16% of the $2 million that Dr Paul had given to Perumal. Ong J was satisfied that the sum of $329,812.55 used to pay for the purchase of the HDB flat was monies Perumal received from Dr Paul.

Legal Principles and Findings

1. The Plaintiffs sought to establish an institutional or a remedial constructive trust over the interest represented by the sum of $329,812.55 in the HDB flat. Relying on Ching Mun Fong v Liu Cho Chit [2001] 1 SLR(R) 856, Ong J explained that in an institutional constructive trust, the trust arises by operation of law from the date of the circumstances which give rise to it: the function of the court is merely to declare that such trust has arisen in the past. On the other hand, a remedial constructive trust is a judicial remedy giving rise to an enforceable equitable obligation and this lies at the discretion of the court.

2. In addition, the court also explored the idea of whether an equitable lien over the said sum could be imposed instead of a constructive trust. An equitable lien is a right against property which arises automatically by implication of equity to secure a discharge of an actual or potential indebtedness (Bestland Development Pte Ltd v Manit Udomkunnatum [1997] 1 SLR(R) 177).

3. However, before any trust or equitable lien can be imposed, it must first be determined whether Perumal stands in a fiduciary relationship with Dr Paul, and if so, whether Perumal has breached his fiduciary duties. Ong J held that the nature of the relationship between Perumal and Dr Paul was a fiduciary one. Her Honour grounded the fiduciary relationship on the following basis:

   • Parvathi (the real estate agent) would always be required to get permission from Perumal to visit Dr Paul and that the latter would impose limitations as to what Parvathi could do for Dr Paul;

   • Parvathi had to contact Perumal in order to meet Dr Paul although the sale concerned the property owned by Dr Paul;

   • Dr Paul’s instructions were also mostly conveyed through Perumal;

   • Perumal and Gopal were the ones who would go through the list of potential property and told Parvathi which they were interested to view;

   • The Defendants (Perumal included) have supplied hindrances to Dr Paul’s independence in decision-making. She was cut off from her friends and relatives and was clearly reliant on Perumal and his associates;

   • Perumal had the greatest opportunity for unhindered and near exclusive access to Dr Paul for the years prior to and at the time of making of the gifts and payments;

   • Dr Paul was elderly, physically weak, in need of care and showed signs of mental impairment;

   • Perumal and Dr Paul’s relationship is thus one of trust and confidence and Perumal knew that.

4. Ong J found that Perumal had breached his fiduciary duties by abusing Dr Paul’s trust to enrich himself. He influenced Dr Paul to make the gifts totalling $2 million to himself. Furthermore, Ong J also noted that it appeared that Dr Paul was not well taken care of. Given that Perumal was found to be in breach of his fiduciary duties owed to Dr Paul, an institutional constructive trust arose over the monies received by Perumal from Dr Paul (Guy Neale v Nine Squares Pty Ltd [2015] 1 SLR 1097). Having found that an institutional constructive trust had arisen over the monies, there was no need for Her Honour to decide on the claim for a remedial constructive trust.

5. However, as part of the monies received by Perumal was used to purchase the HDB flat, Ong J had to address whether an institutional constructive trust could arise in respect of the HDB flat. Section 51(10) of the Housing and Development Act (“HDA”) (Cap. 129) provides that:

6. “No person shall become entitled to any protected property (or any interest in such property) under any resulting or constructive trust whensoever created or arising”.

7. Her Honour held that by operation of Section 51(10) HDA, the HDB property which was jointly owned by Perumal and Mdm Pramela is simply incapable of being considered a trust asset. However, Ong J accepted that the imposition of an equitable lien is not prohibited under the HDA. After considering the fact that Mdm Pramela is a joint owner of the HDB flat, Ong J did not order a sale of the flat. Hence, in lieu of a constructive trust, the Court imposed an equitable lien over the sum of $329,812.55 (the monies used by Perumal to purchase the HDB flat).

Significance

1. This case is significant in two respects. The first is that it demonstrates that a fiduciary relationship can arise on an ad-hoc basis. When someone assumes responsibility over the well-being and financial affairs of another who lacks mental capacity, the courts may hold him or her as a fiduciary.

2. This means that the caregiver is encumbered with onerous responsibilities. Besides the usual duty of reasonable care and skill (a non-fiduciary duty), the fiduciary caregiver would be under strict prohibitive rules, namely the “no conflict” and “no profit rule”.

3. The “no conflict rule” (i.e. no conflict of interests) means that a fiduciary should not place his personal interest in the way of his duty to his principal or against the principal’s interests. The “no profit” rule means that a fiduciary should not make unauthorised profits without the knowledge and informed consent of his principal.

4. In Perumal’s case, it was clear that he acted in bad faith and deliberately exploited Dr Paul’s vulnerability. However, it should also be noted that even if one gratuitously undertake to care for a person without mental capacity, and endeavours to discharge his obligations in good faith, he would still be regulated by these strict restrictive rules. Similarly, a donee of a Lasting Power of Attorney would be under an obligation to act in the best interests of a donor.

5. Any inadvertent breach of a fiduciary duty will still attract remedies such as a constructive trust, account of profits or equitable compensation at the first instance. However, in cases where the caregiver has done his best but committed a breach inadvertently, the courts do have a discretion to grant equitable allowance to the caretaker. However, the jurisdiction to grant such relief is exercised sparingly.

6. The second significant point about this judgment is that this appears to be the first case that a court has imposed an equitable lien over a HDB flat. The High Court even appointed a young amicus curiae to assist in the determination of this issue. Because of a statutory prohibition preventing a constructive trust from being claimed over a HDB flat, Ong J had little choice but to impose an equitable lien as the next best alternative remedy.

7. In the case of a HDB flat, the courts would be slow to order a forced sale in order to satisfy a security interest. The policy objective of the HDA is to preserve the home of the HDB owner. In Perumal’s case, his wife Mdm Pramela is a joint owner and also currently living in the HDB flat. Hence, the equitable lien is kept alive until an event (such as a voluntary sale) occurs where the sale proceeds can be used to satisfy the said lien. In such a case, the holder of such an equitable lien is unable to enforce his security unless the HDB is being sold. This could be unsatisfactory to a creditor or someone in the Plaintiffs’ position as the security would be more apparent than real. Nevertheless, the court is between a rock and hard place in such a scenario as it would have to balance the equities and attempt to mete out practical justice. That is, between forcing the sale of someone’s home (considering in particular that the wife was not found to be a party to the wrong) and giving recourse to a wronged person.

This case update was written with the substantial assistance of Tan Weiming. 

This article was first published on https://www.ronaldjjwong.com.