Case Summaries

UVJ and others v UVH and others and another [2020] SGCA 49

SUPREME COURT OF SINGAPORE

18 May 2020

Case summary

UVJ and others v UVH and others and another [2020] SGCA 49
Civil Appeals Nos 127 of 2019 and 172 of 2019

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Decision of the Court of Appeal (delivered by Justice Woo Bih Li):

Outcome: CoA sets out the law relating to account of profits and causation, and allows the executors’ appeal in part.

Pertinent and significant points of the judgment

  • CoA addresses the requirement of causation in an account of profits.

1 Civil Appeals Nos 127 of 2019 and 172 of 2019 were appeals against the decision of the High Court in UVH and another v UVH and others [2019] SGHCF 14 and UVH and another v UVJ and others [2019] SGHCF 22.

Facts

 

2 The two plaintiffs (“the Sisters”) and the three defendants (individually referred to as “B1”, “B2”, and “B3”, and collectively as “the Brothers”) are five children of the patriarch of the family (“the Patriarch”). After the Patriarch’s death on 30 May 1997, the grant of probate was issued and the Brothers were appointed the executors and trustees of the Patriarch’s will (“P’s Will”). Under P’s Will, each of the Siblings received 10% of the Estate, while their mother (“the Mother”) received 50%. The Mother passed away in November 2015 and the Brothers were also appointed executors and trustees under her will. The parties were also beneficiaries under the Mother’s will.

3 On 17 March 2016, the Sisters sent a letter to the Brothers seeking a statement of account of the Patriarch’s estate (“the Estate”). The Sisters were not satisfied with the account that was subsequently provided and commenced HCF/S 6/2016. Subsequently, the Sisters filed a summary application for an account to be taken of the Estate on a wilful default basis. The judge below (“the Judge”) granted an order for an account to be taken on a wilful default basis, substantially on the terms of the application (“the April 2017 Order”). The Brothers provided an account pursuant to this order and a further hearing was held in February 2019. After the hearing, the Judge made a number of orders which formed the subject of the cross-appeals:

  1. Directors’ remuneration: The Estate held shares in four companies: “A Trading”, “B Development” and “T Investments” (collectively, “the three companies”) and “HS”. The Estate’s shareholding in each of the three companies was between 0.19% to 2.22%. However, the Estate owned 12.5% of the shares in HS, which in turn held 34% of the shares in A Trading and 37.92% of the shares in B Development. A Trading in turn held 97.56% of the shares in T Investments. While the Brothers also owned shares in each of the three companies (save that B1 did not own shares in T Investment), these were insubstantial (between 0.10%-0.14% each). In contrast, they owned 29.17% of HS’s shares each. The Brothers had voted the Estate’s shares in favour of the directors’ remuneration from the three companies without the informed consent of the Sisters. The Judge found that the Brothers had intentionally kept the Sisters uninformed for their own benefit, and that this placed them in a position of conflict. She ordered that the Brothers account for the profits they received as directors’ remuneration over the 20-year period from the three companies and to pay the sum of $20,978,689.90 to the Estate.
  2. Benefits-in-kind: Further, B1 and B2 rented two properties at Shelford Road owned by HS below annual value. The Judge ordered that the Brothers pay to the Estate $174,000 and $360,000 being benefits-in-kind enjoyed by B1 and B2 from these rentals.
  3. Sale of land in Johor Bahru, Malaysia: The Estate held a piece of land in Johor Bahru, Malaysia (the “JB Land”), which was sold in 2011 for $879,800. The Brothers distributed $1m (comprising the sale proceeds of the JB Land and some dividends received by the Estate from shares in various companies) to the Siblings but nothing to the Mother. The reason why this was done was disputed. The Judge did not accept the Brothers’ claim that the sum of $1m was owing to the Mother’s estate, and ordered that this debt be falsified.
  4. Legal fees and costs: Under P’s Will, there was a pecuniary legacy to two other individuals (“the half-siblings”). On 4 September 2002, the half-siblings filed an originating summons to compel the Brothers to provide copies of the most recent accounts of the Estate and to state on affidavit what steps, if any, had been taken in administering the Patriarch’s estate (“the Estate”). This originating summons was subsequently resolved with no substantive orders, although costs were ordered against the Brothers on the basis that it was the lack of information from the Brothers that had led to the application. The Brothers charged these costs and their own legal fees to the Estate. The Judge found that these should not have been charged to the Estate and ordered that they be falsified.
  5. Interest: the Judge ordered that the Brothers pay to the Estate interest on the sums representing the directors’ remuneration, the benefits-in-kind and the legal fees and costs charged to the Estate at 5.33% per annum from the date of the Writ until payment. This was the subject of the Sisters’ appeal in CA/CA 172/2019 as the Sisters wanted interest to accrue from an earlier date.

Decision on appeal

Procedural challenge

4 The Brothers contended that the Judge had gone beyond the scope of the April 2017 Order when she decided that they were liable to render an account of profits, as well as to remove them as executors of the Estate (at [21]). The court held that the Judge had erred on the scope of the April 2017 Order when she held that it sufficiently dealt with all the remedies arising out of the taking of the account. The paragraphs of the April 2017 Order referred to by the Judge merely stated that an account would be taken of the Estate’s assets on a wilful default basis and did not deal with any remedy thereafter (at [37]). The February 2019 hearing was not a hearing of the main action. Instead, it seemed that the Judge had concluded that the continuation of the trial was unnecessary in light of the evidence that had already been adduced and had then proceeded to make final orders (at [45] to [47]). The court accepted that the Judge was entitled to consider and hear evidence on the Brothers’ remuneration and benefits-in-kind (at [47]). The Brothers had been given sufficient notice, time and opportunity to make all relevant arguments and there was no good reason to require a discrete summons or to revert to the trial (at [49] and [52]). While the Brothers appeared to suggest that the Sisters would have to give evidence first at the trial, that was not necessarily the case and the Sisters could have elected to stand or fall by the evidence already available (at [50] and [52]). The court therefore concluded that the Judge was entitled to proceed as she did (at [53]).

Breach of fiduciary duties

5 The Judge found that the Brothers had intentionally kept the Sisters uninformed for their own benefit, and that this was in breach of their core duties of loyalty and fidelity and placed them in a position of conflict. This inference by the Judge did not warrant appellate intervention (at [64]).It followed from this that the Brothers did not have good reason for their delay in distributing the assets held by the Estate (at [66]).The Brothers appeared to accept that they ought not to have voted the Estate’s shares in favour of the directors’ remuneration without the informed consent of the Sisters and that a conflict of interest arose from the fact that the Brothers’ remuneration drew on funds that might otherwise have been distributed to shareholders as dividends (at [67] and [68]). In the circumstances, the court held that the Brothers ought to have disclosed to the Sisters the Estate’s shares in the three companies, distributed the Estate’s assets in a timely manner, and in the interim, ought not to have voted the Estate’s shares to approve the remuneration (at [69]).

6 The court therefore held that the Brothers had breached their duties in three ways, specifically in (at [69]):

  1. intentionally keeping the Sisters uninformed of the Estate’s shares in the three companies and HS for their own gain;
  2. not distributing the shares to the Sisters in a timely manner; and
  3. using the Estate’s shares to vote in favour of the directors’ remuneration.

Whether profits were made by the Brothers

7 Any appointment of the Brothers as directors of the companies prior to the Patriarch’s death did not exculpate them from their responsibilities as executors of the Estate. This only meant that the remuneration or profits earned before they became executors would not be subject to an account of profits. The re-appointment and remuneration of directors had also been approved at general meetings subsequent to the Patriarch’s demise (at [71]).The material question raised by the Brothers was whether the profits the Judge ordered to be repaid to the Estate were attributable to any breach. This was a question of “causation” (at [72]).

Whether causation is necessary

8 There was no question that there had to be some relationship between the profits for which the fiduciary is ordered to account and the breaches of fiduciary duty. Instead, the question was whether the relationship needs to be one of but-for causation. Put in another way, the question was whether the profits would have been made by the fiduciary in any event without the breach (at [75]). This was a distinct question from whether any loss to the beneficiaries needs to be caused before a fiduciary is obliged to account for unauthorised profits (at [73]). The case of Mona Computer Systems (S) Pte Ltd v Singaravelu Murugan [2014] 1 SLR 847 held that the order for an account of profits is unrelated to whether the fiduciary’s conduct caused loss to the principal. However, on a correct reading of the case, it did not say that causation was irrelevant to the question of the fiduciary’s profit, ie, that it did not matter if the breach did not cause the profit (at [80]). While loss to the beneficiary and gain to the fiduciary are often two sides of the same coin, this is not necessarily true of all cases. Indeed, part of Mona Computer was suggestive of but-for causation (at [83] and [84]).

9 The concern that, for policy reasons, courts decline to investigate hypothetical situations as to what would have happened if the fiduciary had performed his duty had intuitive force. However, courts routinely consider the question as to what might have happened but for a wrongful act, eg, in ordering equitable compensation. There is no reason why this investigation cannot be carried out in situations involving an account of profits and is also no answer as to why, in situations where the counterfactual can be determined, this should not be a limit on the scope of the fiduciary’s liability to account. Deterrence should not be a password to avoid causation (at [88]).

10 The court therefore held that the profits sought to be disgorged via an account of profits must be caused by the breaches of fiduciary duty, whether this be that the trustee acted in conflict of interest or otherwise (at [98]).

Orders made

11 Directors’ remuneration: The Brothers’ use of the Estate’s shares made no difference to the outcome. Even if the Estate’s shares had been used to vote against the resolutions re-appointing the Brothers as directors and approving their remuneration, the outcome would have been the same. Shareholder approval was a foregone conclusion because those voting were receiving the remuneration voted upon, and because HS’s stake in A Trading and B Development was much larger than the Estate’s (at [108]). The Brothers were majority shareholders in HS and were entitled to use their shares to remain as directors in HS, and thereafter to use the votes of HS in the resolutions of A Trading and B Development to remain as directors of those two companies and to vote on the directors’ remuneration. They were also entitled to use the votes of A Trading in T Investments to remain as directors in T Investments and vote on the directors’ remuneration. Whether they acted in breach of duty qua directors of the respective companies or had acted oppressively in the affairs of the companies are separate issues (at [109]).

12 While the Judge concluded that it was the non-disclosure by the Brothers that allowed the continuation of the remuneration for many years, it was speculative to suggest that the Sisters would have taken steps to stop the continuation of the directors’ remuneration since the Sisters did not give evidence. The Sisters also only made inquiries from March 2016 despite the fact that they had known that they were beneficiaries of the Estate, having received distributions in 2006 and 2011 (at [111] and [113]). In any event, the court was not persuaded that even if the Sisters would have taken steps to stop the remuneration received by the Brothers, that would be the same as saying that the Brothers’ breaches of non-disclosure and non-distribution had caused the remuneration. This would assume that the Sisters would have been able to establish a good case of, for example, minority oppression. Further, even if the remuneration had been distributed as dividends instead, the Brothers would still have received a significant portion of the latter (at [114]).

13 Benefits-in-kind: there was no evidence that B1 and B2 used the Estate’s shares in HS to fix the rent which they paid. It appeared that they simply paid whatever rent that they thought would be appropriate. Issues such as the rental of the properties owned by a company would not, in most cases, be approved by the shareholders. The fact that the Sisters would have known of the properties and been entitled to ask what was happening with them was plainly insufficient. The court therefore held that the Sisters’ claim for the Brothers to account for the benefits-in-kind also fails (at [117] and [118]).

14 $1m allegedly owing to the Mother’s estate: The court upheld the Judge’s finding that the sum of $1m is not owing to the Mother’s estate and that the alleged $1m debt should be falsified (at [122]). The only basis for the Brothers’ assertion that the Mother had agreed only to defer receiving her share was their own evidence (at [123]). This was not corroborated by any documentary evidence, and the accounts of the Estate did not reflect that this amount was to be paid to the Mother at a later date (at [124]).

15 Legal fees and costs: The court held that the sum of $5,500.65 should be falsified as the expenses were not reasonably incurred; OS 1241 was filed because of the lack of information from the Brothers (at [126]).

16 Removal of the Brothers as executors: The court agreed that the Brothers ought to be removed and replaced as executors of the Estate. In addition to their intentional failure to inform and to distribute, their attempt to belatedly include a claim for the Mother’s estate and their inclusion of the $5,500.65 as an expense of the Estate suggested a want of probity. There may also be valid claims that can be brought on behalf of the Estate, as a shareholder, against the Brothers in their capacity as directors. Replacement executors should be appointed to consider these courses of action (at [129]-[131]).

17 Interest: the court observed that the Sisters’ appeal for interest to be imposed before the date of the Writ carried less significance given its decisions on the directors’ remuneration and the benefits-in-kind. The court agreed with the Judge’s reasons for not allowing interest before the Writ, and noted that the Sisters had delayed making inquiries and taking action (at [132] and [133]).

 

This summary is provided to assist in the understanding of the court’s grounds of decision. 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 grounds of decision.

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