3 August, 2017
INTRODUCTION
A recent High Court decision, Lalwani Shalini Gobind and another v Lalwani Ashok Bherumal [2017] SGHC 90, has revisited the fiduciary duties owed by an executor/trustee to the beneficiaries of an estate in administering the estate. The fundamental duty of an executor/ trustee is to act impartially in the best interests of the beneficiaries.
In particular, the executor/trustee has a duty to keep accounts of the trust and to allow the beneficiaries to inspect them as requested. The proper discharge of this duty not only allows the beneficiaries to know the status of, and any changes in, the fund, but also to check any misadministration of the estate by the executor/trustee.
This article reviews the High Court’s observations on the extent and nature of the duty owed by an executor/trustee to the beneficiaries of the estate. For the purposes of this article, the term “trustee” will be used for convenience.
FACTS
In 1999, the Testator passed away. His will distributed his assets in the following proportions: 50% to his son; and the remaining 50% to be shared equally between his 2 daughters (“the Plaintiffs”). The Testator appointed his son and his brother as trustees of his estate (“the Estate”). Before the Estate could be administered and the assets distributed, the Testator’s son passed away intestate in 2002. Each of the Plaintiffs thereby became a beneficiary of half of the Testator’s estate. The Testator’s brother (“the Defendant”) became the sole surviving trustee, who was responsible for the distribution of the Estate’s assets.
In 2008, the final Schedule of Assets was filed with the Commissioner of Estate Duties (“the Schedule of Assets”) and permission to distribute the Estate’s assets was granted.
Subsequently, the Plaintiffs took out court proceedings against the Defendant to seek accounts to be taken against the Defendant regarding the Estate’s assets and recovery of sums allegedly misappropriated by the Defendant.
ISSUES
The primary issue in this case concerned the taking of accounts on a common basis. The Plaintiffs submitted that as the sole trustee of the Estate, the Defendant owed fiduciary duties to them as beneficiaries in the administration of the Estate. In this regard, the Defendant was liable to furnish to them accounts relating to the Estate’s assets but had failed to properly account for various of the Estate’s assets.
The Plaintiffs also sought recovery of specific sums which they claimed that the Defendant had misappropriated in breach of his fiduciary duties.
SUMMARY OF DECISION
The High Court (“HC”) granted a number of orders in favour of the Plaintiffs vis-à-vis the taking of accounts and the misappropriation claims. The Defendant has appealed against the HC’s decision.
TAKING OF ACCOUNTS
The HC highlighted the following key aspects of the law on the taking of accounts on a common basis:
- The duty of the trustee to keep accounts of the trust and to allow the beneficiaries to inspect them as requested is a key aspect of the custodial fiduciary relationship;
- The duty of a trustee to furnish accounts to a beneficiary is continuous and on demand, and is not merely discharged at the time of distribution of the trust assets;
- The trustee’s duty to furnish account is not contingent on any allegation of any breach of fiduciary duties by the trustee. In contrast, the taking of accounts on a wilful default basis requires misconduct;
- The trustee’s continuing duty to furnish account on demand is limited in certain situations e.g. where the demand for accounts from the beneficiaries are made without a reasonable interval of time, or without reasonable time, for the Trustee to furnish such information; and
- The trustee must give proper, complete and accurate justification and documentation for his actions as a trustee, including information on the current status and past transactions relating to the assets of the Estate.
On the facts, the HC granted the Plaintiffs’ general claim for the taking of accounts vis-à-vis the bank account designated to receive and hold all monies belonging to the Estate (“ the Estate Account”) and the monies due to the Estate under the Schedule of Assets.
However, the HC had to rule on certain assets of the Estate that were disputed, two of which are examined below:
1. Shareholding in two companies
The Plaintiffs alleged that the Defendant had under-declared the shares in the Schedule of Assets, acted as the director of the companies in a direct conflict of interest with the Estates, and did not declare dividends or attempt liquidation of the shares.
The HC held that the Defendant still had a duty to account for his conduct during his term as a trustee, even though the shares in both companies had been subsequently transferred by the Defendant to the Plaintiffs. Also, the mere disclosure of corporate documents or financial documents was insufficient to discharge the Defendant’s duty to account. Both circumstances did not amount to a settlement of the Plaintiffs’ claim and the Plaintiffs’ request for trust accounts was not so unreasonable or oppressive as to circumscribe a trustee’s continuous and on demand duty to account.
The HC also emphasised that a trustee must provide a full and proper account even though his responsibility can be discharged by providing accounts in the midst of proceedings of such accounts.
2. Property proceeds
This dispute concerned, inter alia, the accounting of the Estate’s share in compensation monies arising from the compulsory acquisition of certain properties.
Although the Defendant claimed that he had fully accounted for the proceeds of these properties, the HC noted the evidence was, at best, ambiguous. The Defendant should have clarified the reasons for his action or inaction regarding the trust assets since he had acknowledged that the Plaintiffs may have been confused about the figures given to them.
The HC held that in any event, the Defendant’s previous disclosure of the state of affairs vis-à-vis such proceeds by a lawyer’s letter and at a meeting did not discharge his duty as a trustee to account, which wascontinuous and on demand. As the Plaintiffs’ request to account was not oppressive or unreasonable, the HC held that its general order as to account included the accounts for such proceeds.
MISAPPROPRIATION OF TRUST FUNDS
The HC held that the Defendant was liable to the Plaintiffs for breach of trust by the misappropriation of certain sums from the Estate Account and a joint account that he had held with the Testator.
1. Unauthorised withdrawals from Estate Account
The Defendant conceded that he had withdrawn a total sum of $118,000 from the Estate Account over 13 occasions but provided two justifications for the withdrawal:
(a) as a loan by the Estate to him pending resolution of the dispute with the Plaintiffs; and
(b) to set-off a debt owed to him by the Estate based on his entitlement to a half-share of certain shares held in a CDP account under the Testator’s sole name. The proceeds of the CDP shares had been deposited into the Estate Account.
The HC rejected both reasons. On the purported loan, the HC held that the Defendant did not cite any legal authority to support his contention that a trustee could unilaterally take a loan from the trust assets. Such a loan would not be in the best interests of the beneficiaries, especially since the Defendant had conceded that it had been taken for his personal use. The HC also noted that the Defendant had not provided any evidence of the beneficiaries’ informed consent to, or the terms of, the
purported loan.
As for the set-off, the HC held that the evidence indicated that the Testator was wholly entitled to the CDP shares. Among other things, the Defendant did not produce any evidence of his contribution to the CDP account or made a caveat of his interest in the CDP shares. Moreover, the Defendant failed to cite any legal authority for his contention that he was entitled to set off a personal claim by him against the property of the trust.
2. Withdrawals from Joint Account with Testator
The Plaintiffs alleged that the Defendant had misappropriated a sum of $136,561.76 from a joint account that he had held with the Testator.
Initially, the Defendant asserted his right to all the monies in the joint account based on the right of survivorship. However, he later dropped this argument during trial and instead claimed that he had used the money from the joint account to pay off the Testator’s funeral expenses, debts and medical bills
The HC observed that a trustee, such as the Defendant, has the right to be reimbursed for expenses properly incurred in managing the trust and such right can take priority over the beneficiary’s claims or even be a personal indemnity against the beneficiary. However, the Defendant was unable to claim for reasonable expenditure or indemnity as he did not provide sufficient evidence of the expenses incurred or satisfy the HC that such expenses were properly incurred.
CONCLUSION
This case illustrates the high standard expected by the Singapore courts of trustees in discharging their fiduciary duties owed to the beneficiaries of an estate.
The importance of keeping thorough detailed accounts throughout the administration of an estate cannot be overstated, as the beneficiaries have a right, to be exercised within reasonable bounds, to ask the trustee to furnish the trust accounts on demand.
For more information, please contact:
Sandra Han, Partner, RHT Taylor Wessing
sandra.han@rhtlawtaylorwessing.com
