Case Summaries

BOM v BOK and another appeal [2018] SGCA 83

SUPREME COURT OF SINGAPORE

29 November 2018

Case summary

BOM v BOK and another appeal [2018] SGCA 83
Civil Appeals Nos 3 and 5 of 2018

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Decision of the Court of Appeal (delivered by Judge of Appeal Andrew Phang Boon Leong):

Outcome: CoA dismisses appeal against High Court’s decision that a deed of trust ought to be set aside for misrepresentation, mistake, undue influence and unconscionability.

Pertinent and significant points of the judgment

1 Undue influence did not operate only where the person exerting the influence was also the person benefitting from the voluntary disposition. There was no reason in principle why the operation of undue influence ought to be confined to situations where the party exerting the influence was also the party benefitting from the voluntary disposition or transaction (at [103]).

2 The narrow doctrine of unconscionability applied in Singapore. But in addition to considering whether the plaintiff was poor and ignorant, the court would also consider situations where the plaintiff was suffering from other forms of infirmities – whether physical, mental and/or emotional in nature – that the other party exploited in procuring the transaction. Crucially, not every infirmity would suffice; it must have been of sufficient gravity as to have acutely affected the plaintiff’s ability to conserve his own interest. Upon the satisfaction of this requirement, the burden was on the defendant to demonstrate that the transaction was fair, just and reasonable. While the successful invocation of the doctrine did not require that the transaction was at an undervalue or that the plaintiff lacked independent advice, these were factors that the court would invariably take into account. In a typical improvident transaction in which the sale was at a considerable undervalue and the plaintiff’s vendor had not received any independent advice, it would be extremely difficult for the defendant to show that the transaction was fair, just and reasonable (at [140]–[142]).

3 The proposed approach as set out in the preceding paragraph ought to be applied through the lens of cases exemplifying the narrow doctrine (eg, Fry and Cresswell) rather than those embodying the broad doctrine (eg, Amadio). This starting point distinguished the narrow doctrine subtly but significantly from the broad doctrine and represented a middle ground based on practical application rather than theoretical conceptualisation (at [144]).

 

Background facts

1 In March 2014, the respondent (“the Husband”) executed a deed of trust (“DOT”) that was drafted by the first appellant (“the Wife”). The effect of the DOT was that the Husband and Wife would hold all of the Husband’s assets on trust for their son, the second appellant (“the Son”). Eventually, the Husband sought to have the DOT set aside on the grounds of misrepresentation, mistake, undue influence and unconscionability. At first instance, the trial judge (“the Judge”) found that all four vitiating factors were made out and set aside the DOT. Dissatisfied with the outcome, the Wife and the Son (collectively, “the Appellants”) appealed against the entirety of the Judge’s decision.

2 The Husband and Wife married in August 2012, but mostly lived apart in the period thereafter. The Husband lived with his mother – who strongly opposed the couple’s marriage – in one of her properties (“the Holland Road Property”), while the Wife stayed with her parents in their family home (“the Stevens Road Property”). In March 2014, shortly before the execution of the DOT, the Husband’s mother was killed at the Holland Road Property, which was subsequently cordoned off by the police. The Husband thus moved into the Stevens Road Property to live with the Wife and her family.

3 On 26 March 2014, three days after the funeral, the Husband and his sister met with their mother’s lawyers to read her will. They discovered that their mother had created a testamentary trust over her assets. Her assets were valued at about $54m and comprised, among other things, two landed properties including the Holland Road Property and another property (“the Bukit Timah Property”). After reading their mother’s will, the Husband and his sister had lunch with the Wife and her mother at the Stevens Road Property. The siblings agreed not to reveal the will’s contents to the Wife. But upon being questioned by the Wife, the Husband lied that his mother had willed all her property to charity. They then discussed the idea of converting the Bukit Timah Property into an art gallery in remembrance of her. After lunch, the Husband and his sister left the Stevens Road Property.

4 When the Husband returned in the evening, the Wife asked him into her bedroom to sign the DOT. It is undisputed that the Husband initially refused to sign the DOT but relented eventually. However, the parties dispute the precise events that took place in the Wife’s bedroom that evening. On the one hand, the Husband claimed that he was ambushed by the Wife, who threatened to kick him out of the Stevens Road Property if he did not sign the DOT. He further averred that she represented to him that the trust would only take effect upon his death, until which time he was free to use his assets (“the Misrepresentation”). On the other hand, the Wife claimed that she had drawn up the DOT at the Husband’s request, and that he had signed the DOT on his own accord.

5 On 9 May 2014, the Husband exercised the option to purchase an apartment, which the couple had identified as their potential family home (“the Scotts Road Apartment”). On the same day, he executed a second trust deed (“the Scotts Road Trust”), under which he declared that he held the Scotts Road apartment on trust for the Son. The Scotts Road Trust further provided that the Husband would be entitled to use of the rental income for his own benefit until the Son turned 21 years old.

6 Approximately a month after the Scotts Road Trust was executed, in June 2014, the Wife sent two e-mails in quick succession to the solicitor who had been appointed to assist with the administration of the Husband’s mother’s estate (“the Solicitor”). In these e-mails, the Wife enclosed a copy of the DOT and asked the Solicitor to take note of it in administering the Husband’s mother’s estate. In December 2014, the Wife sent another e-mail to the Solicitor in relation to the transfer of property from the Husband’s mother’s estate to the Son. The Husband was not copied in any of the Wife’s e-mails.

7 The parties’ relationship quickly fell apart in December 2014. On 18 December 2014, the Solicitor replied to the Wife and copied the Husband, informing them that the matter was best handled by his colleague. After receiving the Solicitor’s e-mail, the Husband sought legal advice on the DOT. And on 11 February 2015, he resolved to leave the Stevens Road Property. He also wrote a letter to the Wife, claiming that he would not have signed the DOT if she and her father (“the Father”) had not pressured him into signing it. The next day, on 12 February 2015, the Husband went back to the Stevens Road Property to deliver the letter to the Wife. This resulted in a heated confrontation between the Husband, the Wife and the Wife’s mother. Their argument was secretly recorded by the Husband (“the Recorded Conversation”), which revealed that the Husband and the Wife disagreed as to whether the Husband had been pressured into signing the DOT, and whether the Wife had asked the Husband to consult a lawyer before signing the DOT.

8 On 30 November 2015, the Husband initiated the present proceedings to set aside the DOT. In the event, the Judge held in the Husband’s favour, holding that the DOT ought to be set aside on the basis of misrepresentation, mistake, undue influence and unconscionability.

Court of Appeal’s decision

Substantive appeal on setting aside the DOT

Misrepresentation and mistake

9 The Court of Appeal found that the Husband had not intended to execute a trust that stripped him immediately of all his assets. In this regard, the Appellants referred to a diary entry, which they claimed to show that the Husband wanted to put his fortune into a trust for his children. But the evidence suggested that the diary entry was made a substantial time after the DOT had been executed, which meant that it shed no light on the Husband’s state of mind at the time that the DOT was signed. Further, it was unlikely that the Husband had the necessary means to fund the purchase of the Scotts Road Apartment (which was purchased at the price of $4.3m) just a few weeks after he had divested all his assets upon the signing of the DOT. This showed that the Husband continued treating the assets as his own to use freely, and supported the conclusion that the Husband had not intended and was ignorant as to the DOT’s true legal effect (at [56]–[63]).

10 The Court of Appeal also affirmed the Judge’s finding that the Husband had a layperson’s understanding of how trusts operated. The Appellant’s argument that the Judge failed to give adequate weight to the fact that the Husband had a Masters of Law (“LLM”) from University College London missed the point. Not only was there no evidence to show that the Husband had passed the module on corporate equity and trusts, the evidence suggested that each module in his LLM course had a basic syllabus and that he only had a very rudimentary understanding of trusts when he signed the DOT. In this vein, the Appellants also pointed to an e-mail dated 27 March 2014, in which the Husband asked the Solicitor about the stamp duty payable on the Scotts Road Apartment in the light of him holding certain properties in his name for the Son. The Appellants claimed that he knew of the DOT’s legal effect, but the Court of Appeal disagreed. The e-mail was drafted by the Wife, and the Husband had simply forwarded it to the Solicitor without second guessing its contents (at [64]–[69])

11 The Court of Appeal further affirmed the finding that the Wife had made the Misrepresentation. Among other things, the Recorded Conversation revealed that the Wife had wanted the Husband to sign the DOT under threat of chasing him out of the Stevens Road Property. Further, the Wife’s contention that the Husband had told her that he wanted to give everything to the Son did not cohere with the objective evidence. The Wife’s sense of urgency in drafting the DOT was also inexplicable given its drastic consequences, especially when one considered the care with which she facilitated the signing of the Scotts Road Trust, which had far less serious consequences than the DOT. In this connection, it was also held that the Judge was correct to prefer the Husband’s account that the Father had helped convince him to sign the DOT in the light of the Father’s unduly evasive behaviour on the witness stand, which undermined his credibility at trial (at [70]–[88]).

12 In the light of the above, the Court of Appeal held that the DOT ought to be set aside for misrepresentation. The Wife made the Misrepresentation, which she knew was false. Additionally, she made it with the intention that the Husband would rely on it to sign the DOT. This led the Husband to sign the DOT, thinking that he would be free to use his assets until his death, but was instead effectively rendered a pauper by doing so (at [91]).

13 Likewise, it was held that the DOT ought to be set aside for mistake. The mistake harboured by the Husband as to the effect of the DOT was engendered by the Wife’s Misrepresentation, and the gravity of the mistake was also sufficiently serious as to make it unjust for the court to refuse relief. The DOT had a completely different legal effect from what the Husband thought it had, and the result was that his assets were completely negated because of his mistake (at [92]).

Undue influence

14 At the outset, the Court of Appeal disagreed with the Appellants that undue influence operated only where the person exerting the influence was also the person benefitting from the voluntary disposition. Citing Bridgeman v Green (1757) Wilm 58 affirmatively, it noted that there was no reason in principle why the operation of undue influence ought to be confined to situations where the party exerting the influence was also the party benefitting from the voluntary disposition or transaction (at [103]).

15 The Court of Appeal upheld the Judge’s decision that “Class 1” undue influence was made out on the facts. The critical question in this regard was whether the Husband was suffering from such acute grief that put him in a vulnerable state. The expert evidence at trial was unanimous that the Husband was suffering from acute grief, which impaired his judgment at the material time. Further, the Appellants’ contention that the Husband did not lack mental capacity was misplaced. There was no requirement that undue influence could arise only from a lack of mental capacity. The law recognised that bullying may sufficiently impair a person’s free will as to constitute undue influence, and the facts of this case exemplified such bullying. The Wife was aware that the Husband was not in an appropriate state of mind to execute a will, that he was a lonely individual, and that the Son and her were the only family that he had left. But that did not stop her from pressuring him into signing the DOT under threat of being chased out of the Stevens Road Property. It was thus clear that the Wife was taking advantage of the Husband’s grief by badgering him into signing the DOT (at [104]–[107])

16 However, the Court of Appeal disagreed with the Judge that the DOT ought to be set aside for “Class 2A” undue influence. Specifically, it found that there was no implied retainer between the Husband and the Wife such that there arose an irrebuttable presumption of a relationship of trust and confidence. It was of the view that the Judge ought to have given more weight to the fact that the Husband and Wife were in a marital relationship that was far removed from the commercial contexts in which implied retainers were typically found. Simply because the Husband had traditionally relied on the Wife for her legal knowledge did not necessarily mean that the Husband reasonably considered the Wife as his solicitor, or that the Wife ought to have known that she was representing the Husband. To hold otherwise would mean that every legally-trained person would have to be careful with the legal knowledge that they share with their spouse. That would have been neither desirable nor consistent with the reality of marital relationships. That being said, the Court of Appeal did not foreclose the possibility of an implied retainer arising as between spouses, and observed only that it would nevertheless be a rare case in which such a scenario would arise (at [108]–[113])

Unconscionability

17 The Court of Appeal observed that the concept of “unconscionability” had at least two meanings within the law. The first was unconscionability as a rationale, which could be construed in the layperson’s sense of a contract being perceived as being unfair. Inasmuch as such an approach towards the concept of “unconscionability” was a mere general underlying justification for a different doctrine, there were few objections. However, the second distinct meaning of “unconscionability”, viz, “unconscionability” as a doctrine was much more problematic. It was by no means clear precisely what legal criteria it embodied and this lack of legal guidance would therefore lead to uncertainty as well as unpredictability. It might further be argued that situations in which the doctrine of unconscionability might potentially apply to could be dealt with better by alternative legal doctrines that were more established from a legal point of view – for example, undue influence and duress (at [117]–[122]).

18 Accordingly, it was observed that the challenge was to distil the general rationale of unconscionability into a legally workable doctrine. To that end, the Court of Appeal identified two doctrines of unconscionability, one narrow and one broad. The narrow doctrine of unconscionability emanated from a strand of cases (eg, Fry v Lane (1888) 40 Ch D 312 (“Fry”) and Cresswell v Potter [1978] 1 WLR 255 (“Cresswell”)) dealing with situations that were known as improvident transactions or bargains. These were situations where expectant heirs were exploited by the other party and were deprived of their respective inheritances. To invoke the narrow doctrine, the plaintiff had to be poor and ignorant. The transaction also had to have been at a considerable undervalue, and the plaintiff must not have had the benefit of independent advice. Upon the satisfaction of these factors, the onus was on the defendant to show that the transaction was fair, just and reasonable (at [127]–[131]).

19 In contrast, the Court of Appeal noted that the broad doctrine (as best exemplified in The Commercial Bank of Australia v Amadio (1983) 151 CLR 447 (“Amadio”)) was phrased in too broad a manner and afforded the court too much scope to decide on a subjective basis. It ought therefore to be rejected. Moreover, it was thought that the broad doctrine came dangerously close to the ill-founded principle of “inequality of bargaining power” as introduced in Lloyd’s Bank Ltd v Bundy [1975] QB 326 (at [132]–[133]).

20 The Court of Appeal held that the narrow doctrine of unconscionability applied in Singapore. But in addition to considering whether the plaintiff was poor and ignorant, the court would also consider situations where the plaintiff was suffering from other forms of infirmities – whether physical, mental and/or emotional in nature – that the other party exploited in procuring the transaction. Crucially, not every infirmity would suffice; it must have been of sufficient gravity as to have acutely affected the plaintiff’s ability to conserve his own interest. Upon the satisfaction of this requirement, the burden was on the defendant to demonstrate that the transaction was fair, just and reasonable. While the successful invocation of the doctrine did not require that the transaction was at an undervalue or that the plaintiff lacked independent advice, these were factors that the court would invariably take into account. In a typical improvident transaction in which the sale was at a considerable undervalue and the plaintiff’s vendor had not received any independent advice, it would be extremely difficult for the defendant to show that the transaction was fair, just and reasonable (at [140]–[142]).

21 The proposed approach as set out in the preceding paragraph ought to be applied through the lens of cases exemplifying the narrow doctrine (eg, Fry and Cresswell) rather than those embodying the broad doctrine (eg, Amadio). This starting point distinguished the narrow doctrine subtly but significantly from the broad doctrine and represented a middle ground based on practical application rather than theoretical conceptualisation (at [144]).

22 In reaching its conclusion that the narrow doctrine was the applicable doctrine, the Court of Appeal also noted that it was arguable that the expansion of the narrow doctrine of unconscionability was historically flawed inasmuch as it proceeded from a non-existent doctrine of unconscionability (this last-mentioned doctrine being, in effect, the then existing doctrine of “Class 1” undue influence). It therefore observed that the development of the broad doctrine of unconscionability was historically unsound, and looked like a broad discretionary legal device which permitted the court to arrive at any decision which it thought was subjectively fair and thus ought to be rejected. It also acknowledged that there was much force in the argument that the narrow doctrine was redundant. But it saw no reason to take special pains to declare that it was not part of Singapore law since its acceptance would not lead to any obvious legal anomalies and since it had been generally accepted across the Commonwealth. Moreover, given the myriad of possible fact situations that might come before the courts, the Court of Appeal found it imprudent to rule out completely situations where the application of undue influence and the narrow doctrine of unconscionability might lead to different results (at [148]–[149]).

23 On the facts, the Court of Appeal held that the Judge was correct to set aside the DOT on the basis of unconscionability. The impairment of the Husband’s mental state due to his acute grief was of such gravity that it constituted an infirmity that the Wife knew about and took advantage of by leveraging on his sense of loneliness (at [154]).

Coda

24 In a coda, the Court of Appeal considered the question of whether an umbrella doctrine subsuming the doctrines of duress and undue influence would be desirable. It acknowledged that there were linkages between the three doctrines. However, it held in the negative, finding that such an umbrella doctrine had no workable criteria and would therefore permit excessive subjectivity on the part of the court that would lead to excessive uncertainty and unpredictability (at [177]).

 

This summary is provided to assist in the understanding of the Court’s judgment. It is not intended to be a substitute for the reasons of the Court. All numbers in bold font and square brackets refer to the corresponding paragraph numbers in the Court’s judgment.


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