Lalwani Ashok Bherumal v Lalwani Shalini Gobind and another

[2] The beneficiaries’ impasse raises two questions: may a fiduciary rely upon his own dereliction of duty to resist a statutory demand; and if not, should a statutory demand be set aside on a technicality of an inaccurate sum, despite there being no substantial injustice to the debtor?

[3] The defendants are two sisters, who are the surviving beneficiaries (“the Beneficiaries”) of the estate of their late father, Mr Lalwani Gobind Bherumal (“the Testator”). The plaintiff, Mr Lalwani Ashok Bherumal, is the sole executor and trustee of the estate (“the Executor”), and is the younger brother of the Testator and uncle of the defendants.

[4] The Testator passed away on 9 July 1999. His son, Lalwani Ameet Gobind, was named as an executor, trustee and a beneficiary under the Testator’s handwritten will (“the Will”), but died on 20 March 2002. With his passing, the Beneficiaries became equally entitled to their father’s estate (“the Estate”), and the plaintiff became the sole executor and trustee of the Estate.

[5] On 7 April 2015 the Beneficiaries commenced Suit 323 of 2015 (“Suit 323”) against the Executor for the recovery of sums misappropriated and for accounts to be taken.

(a) The Executor to account for various assets in the Estate;

(b) The sums of $136,561.76 and $118,000.00 to be repaid to the Estate with interest at 5.33% per annum; and

(c) Costs of $106,000.00 and disbursements of $5,393.91 to be paid by the Executor.

(a) The sums of $136,561.76 and $118,000.00 were to be repaid to the Estate with interest at 5.33% per annum accruing from 8 February 2012 (the “Equitable Compensation Sums”).

(b) The costs awarded to the Beneficiaries in respect of the High Court action were reduced to $80,000.

[9] A demand for payment of the judgment sum was made by letter by the Beneficiaries on 4 April 2018 when the draft judgments were sent to the Executor, requesting a response by 11 April 2018. The draft judgments were engrossed and returned on 6 April 2018 without a response to the demand for payment of the judgment sums. On 11 April 2018, the Executor’s solicitors responded to say that they were in the process of taking instructions, and requested that the Beneficiaries hold their hands in the meantime. After two further weeks passed without any response from the Executor or his solicitors, the Beneficiaries proceeded to issue a statutory demand dated 25 April 2018 under s 62 of Bankruptcy Act (Cap 20, 2009 Rev Ed) (“Bankruptcy Act”). This was served on the Executor on 28 April 2018.

[10] On 11 May 2018, the Executor filed an application to set aside the statutory demand. On 27 June 2018, an Assistant Registrar (“AR”) set aside the statutory demand. The Beneficiaries filed an appeal against that decision on 4 July 2018 and the matter came before me.

[11] Rule 98(2) of the Bankruptcy Rules (Cap 20, R 1, 2006 Rev Ed) (“Bankruptcy Rules”) provides as follows:

[13] The Beneficiaries conceded that there were miscalculations in the debt, and it was common ground that these miscalculations resulted in a technical breach of r 94 of the Bankruptcy Rules. They highlighted, however, that they stood ready to re-calculate the debt and that these irregularities did not warrant a setting aside of the statutory demand.

[16] In my judgment, no prejudice was caused to the Executor by the miscalculation. He would have known as early as 28 March 2018 the sums due under the judgment of the Court of Appeal. In relation to the issue of the sums owed to the Estate, the facts showed that they were in substance owed to the Beneficiaries. The Executor, being a fiduciary of the Beneficiaries, ought not to be able to rely upon his own dereliction of duty as a fiduciary. The payment sought was, on the specific facts presented by the case, one he was duty-bound to make to the Beneficiaries. The statutory demand ought not to be set aside. Instead, the sum outstanding was corrected and the Executor was given a further 21 days, the period allowed under the Bankruptcy Act for payment in respect of statutory demands prior to a bankruptcy application, to pay. He has appealed, and I now elaborate on the reasons for my decision.

[17] It was common ground that the sum specified in the statutory demand was inaccurate (see [13] above); the parties joined issue on the effect of that inaccuracy. The Executor, relying on the mandatory language which r 98(2)(d) puts upon compliance with r 94, argued that this breach would be fatal to the validity of the statutory demand. The Beneficiaries contended that it would not.

[18] I agreed with the Beneficiaries that r 278 of the Bankruptcy Rules gives the court discretion to deal with irregularities in compliance with the rules. Rule 278 states:

[19] As pointed out by Woo Bih Li J recently in Wheeler, Mark v Standard Chartered Bank (Singapore) Ltd [2018] SGHC 205 at [17] and [20], the procedural or technical emphasis of r 98(2)(d) is an anomaly when contrasted with the other four grounds in r 98(2), which relate to reasons of substance; Singapore courts have generally adopted an approach that suggests that a statutory demand will not be set aside if no substantial injustice to the debtor has been caused.

Although the version of the Bankruptcy Act cited in Rasmachayana has since been consolidated into a new revised edition, s 158(1) of the Bankruptcy Act remains unchanged.

[21] In Ramesh Mohandas Nagrani v United Overseas Bank Ltd [2016] 1 SLR 174 (“Ramesh Mohandas”), the debtor applied to set aside the statutory demand. One of the grounds was that the amount claimed in the statutory demand was not the amount due as at the date it was served, but on a specific earlier date. Chua Lee Ming JC (as he then was) held that this was not in compliance with r 94 of the Bankruptcy Rules and that this non-compliance was a ground for setting aside under r 98(2)(d) (see Ramesh Mohandas at [8]). Referring, however, to Rasmachayana, and s 158(1) of the Bankruptcy Act, Chua JC held that there was no evidence of any injustice caused by the defect and that the non-compliance with r 94(1) was not fatal. In iTronic Holdings Pte Ltd v Tan Swee Leon [2018] 4 SLR 359 at [53] and [74]–[85], George Wei J adopted a similarly pragmatic approach in relation to non-conformity with r 94.

[22] In my judgment, the overall effect of non-compliance with r 98(2)(d) of the Bankruptcy Rules is not, as contended by the plaintiff, that a statutory demand would automatically be set aside. Rather, when seen in the context of r 278, and in light of the “underlying philosophy of pragmatism and substantial justice” that is evident in our bankruptcy legislation, the court has the discretion to scrutinise the statutory demand and make appropriate orders to ensure that substantial justice is done as between the parties.

[23] It was common ground that both the orders of the High Court and the Court of Appeal make clear that the Equitable Compensation Sums were owed to the Estate. It was also not disputed that the Estate was not yet fully administered, and that the beneficiaries have no equitable or beneficial interest in any particular asset comprised in an unadministered estate: see Wong Moy (administratrix of the estate of Theng Chee Khim, deceased) v Soo Ah Choy [1996] 3 SLR(R) 27 at [11]; Shaan Taseer and others v Aamna Taseer [2012] 4 SLR 1049 at [20]).

[24] The beneficiaries do, on the other hand, have a right to institute an action to protect the estate in special circumstances: see Fong Wai Lyn Carolyn v Kao Chai-Chau Linda and others [2017] 4 SLR 1018 at [8]–[16]; Roberts (FC) v Gill & Co Solicitors and others [2010] UKSC 22; and similarly Omar Ali bin Mohd and others v Syed Jafaralsadeg bin Abdulkadir Alhadad and others [1995] 2 SLR(R) 407 at [23], [28]–[31]. This was the premise upon which the Beneficiaries brought Suit 323 on behalf of the Estate against the Executor.

[26] At the next hearing on 24 October 2018, I found the following facts from the accounts taken to be of particular significance:

(a) The debts of the Estate have been wholly paid; and if they had not, the relevant limitation period would likely have elapsed as the Testator died on 9 July 1999. The Schedule of Assets for the Estate was filed on 31 December 2008, and as at that date the Commissioner for Estate Duties certified that all estate duties had been paid.

(b) The Estate’s bank account was in surplus, and between 30 September 2014 to 30 April 2017, there had been no activity save for the monthly debit of the bank’s administrative charge and the credit of interest payments into the account. This resulted in a slight increase in amount each month. The Executor had omitted to pay the sum out to the Beneficiaries or to take steps to close the account.

(c) While the Estate was owed monies from three businesses (Bob’s Partnership, Basco Enterprises Pte Ltd and Eltee Development Pte Ltd), again, it would have been the Executor’s responsibility to pursue those debts.

(d) The Will provided for the payment of cash to the Beneficiaries once funeral expenses, debts and taxes had been paid. The Equitable Compensation Sums in the present statutory demand that the court had directed be paid into the Estate (see [8(a)] above) came from a part of the Estate that the Executor had purported to have already distributed. The sum of $136,561.76 arose from the Estate’s half share of the sum in a UOB account which the Testator and the Executor jointly held. The account was closed by the Executor in October 2000 and the sum was pocketed by the Executor instead of being distributed to the Beneficiaries. The sum of $118,000.00 came from thirteen unauthorised withdrawals made by the Executor between December 2010 and February 2012 from the Estate’s bank account. The Executor purported to make a “final distribution” to the Beneficiaries out of the Estate’s bank account on 1 August 2014.

[27] Counsel for the Executor, Mr Assomull, argued that the Will gave the Executor absolute and unfettered discretion whether to disburse money to the Beneficiaries. However, this premise is factually incorrect. The Will states:

[28] In my view, a fair reading of the Will is that the intention of the Testator was for the assets of the Estate to be sold and converted into cash, which would then be distributed to the beneficiaries once the debts of the Estate are settled. It was in the sale and conversion of assets that the Executor has discretion, and this was made clear by the contrast between the express conferment of an “unfettered discretion” to postpone the sale and conversion of any assets into cash and the lack of a similar provision vesting the Executor with discretion to postpone the distribution of cash. While paragraph 3 contains a general power of postponement, any such power must be exercised in line with the Court of Appeal’s guidance in Foo Jee Seng and others v Foo Jhee Tuang and another [2012] 4 SLR 339 (“Foo Jee Seng”), (at [52], [55] and [79]) that a Trustee’s power must be exercised bona fide and in the best interest of the beneficiaries. As such, barring any good reasons to retain cash in the Estate (and no reasons were proffered by the Executor), cash remaining in the Estate ought to have been distributed within a reasonable time.

[30] What were the Beneficiaries to do, faced with the Executor’s intransigence? Rather than to start another action to replace the Executor, they have issued a statutory demand, on the footing that if the debt remained unpaid, his resulting insolvency would lead to the same result. Having the right to institute an action to protect the Estate, they would have the right to issue a statutory demand to compel him to pay the Estate. On that hypothesis, if they so compelled him, they would then also have a right to enforce the terms of the Will. It would follow then, that in circumstances such as these where there are no debts outstanding and no bona fide reason preventing distribution, they would have the right to compel him to distribute monies. Here they have issued a statutory demand for him to pay them directly. This could, so to speak, be viewed as a summation of the otherwise multiple steps. The critical question is hence whether there are any rules or principles that enabled the court to acknowledge the substance of the matter, and regard the Beneficiaries as the creditor.

[31] Mr Prakash’s submission was that the maxim, “equity looks on as done that which ought to be done”, enabled the Beneficiaries to take this route. In HR Trustees Limited v Wembley Plc (In Liquidation), Mr Paul Lorber [2011] EWHC 2974 (Ch) (“HR Trustees”), the claimant sought directions on a scheme amendment made to a pension scheme. The power of amendment contained in the scheme’s trust deed was to be exercised “in writing under their hands”. The declaration ought to have been signed by all five trustees. One failed to do so arising purely from an administrative error. Justice Vos applied the same equitable maxim and decided that the amendment was valid as at the date signed by the four trustees. At [66]–[67] Vos J explained the matter in the following terms:

[32] Justice Vos’s rationale was premised on the enforceability of the trustees’ obligation. This was made clear from his last line in the paragraph prefacing the two extracted above: “as Snell makes clear, the maxim is usually applied where specific performance would be appropriate because there has been an agreement to which effect should be given by a court of equity.” This aspect of specific enforceability was also emphasised in a passage from R P Meagher, J D Heydon, M J Leeming, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (Butterworths LexisNexis, 4th Ed, 2002) that Vos J cited at [56]:

[34] In this context, the case of T Choithram International SA and others v Pagarani and others [2001] 1 WLR 1 (“Choithram”) is pertinent. In Choithram, the donor executed a trust deed for a foundation, and declared, in effect, “I now give all my wealth to the trust”. The Privy Council held that the words were a declaration of trust and that the completely constituted trust was enforceable by the beneficiaries thereunder. The fact that the beneficiaries in that case were volunteers did not affect the enforceability of the trust, as Lord Browne-Wilkinson explained at 11H and 12C:

[35] A second feature of the case was that while the donor named himself as a trustee of the trust which he set up, the gifted assets were not transferred to the rest of the other named trustees. Lord Browne-Wilkinson was of the view that, the donor having appointed himself trustee of the trust property, it would be unconscionable and contrary to the principles of equity to allow such a donor-trustee to resile from his gift, and held that he was bound to give effect to it by transferring the trust property into the name of all the trustees. He explained at 12D–F:

[36] Choithram thus highlights two important principles. First, in the context of a trust relationship, equity will enforce obligations between a trustee and a volunteer beneficiary. Second, a trustee cannot validly take a position inconsistent with his duties as a trustee, and in fact, the court would compel the trustee to perform his duties under the trust.

[37] The principle that a trustee cannot adopt a position that is contrary to his duties as a trustee has also been expressed in other contexts where the rules of equity have been applied. In the context of tracing, for example, where a trustee mixes trust monies with the trustee’s own assets and some of the assets in the mixed fund are dissipated, it is presumed that it is the trustee’s money that has been dissipated, rather than the trust monies (see In re Hallett’s Estate (1880) 13 Ch D 696 at 727–728). The rationale of this rule, as explained by Lord Greene MR in In re Diplock [1948] Ch 465 at 525, was that where a trustee is a party to the tracing action, “he is, of course, precluded from setting up a case inconsistent with the obligations of his fiduciary position”.

[38] In the context of trustee exemption clauses, the English Court of Appeal has held in the case of Armitage v Nurse and Others [1998] Ch 241 that a trustee is not entitled to raise the defence that he has been exempted from a breach of duty by virtue of an exemption clause, if that breach of duty involved a breach of an irreducible core obligation of the fiduciary. Lord Millett stated at 253H–254A:

[39] The underlying principle behind equity’s intervention was summarised by Justice David Hayton, writing extra-judicially, in “The development of equity and the ‘good person’ philosophy in common law systems” (2012) 4 Conv 263–273. Justice Hayton stated at p 268:

[42] Mr Assomull raised one final argument in relation to the Equitable Compensation Sums. He suggested that “Equity … has no role in this matter as the provisions of the Bankruptcy Act and Bankruptcy Rules are clear”. It was also strenuously argued that it was not for the court sitting in its bankruptcy jurisdiction to “transgress” from the High Court judgment and Court of Appeal orders, which expressed the Equitable Compensation Sums as being due to the Estate instead of the Beneficiaries. At its core, both these arguments go to the issue of whether it is open to a court in its bankruptcy jurisdiction to undertake an inquiry into the rights and obligations of the parties, and determine, as the court has done, that the Beneficiary can be viewed, in the eyes of equity, as the true creditor in the present case.

[43] In my view, this is permissible and entirely consistent with the underlying philosophy behind bankruptcy proceedings. The Court of Appeal in Mohd Zain bin Abdullah v Chimbusco International Petroleum (Singapore ) Pte Ltd and another appeal [2014] 2 SLR 446 (“Chimbusco”) at [18] held that it was appropriate to extend the analogy of a summary judgment application to the imposition of conditions for granting a stay of bankruptcy proceedings. In explaining the rationale for this decision, the court stated at [22]:

[44] The reminder from the Court of Appeal that a court exercising its bankruptcy jurisdiction should “avoid taking an overly formalistic approach in exercising its jurisdiction” is consistent with the underlying philosophy of pragmatism and substantial justice in our bankruptcy legislation that was highlighted by the court in Ramaschayana (see [20] above). The suggestion by Mr Assomull, that the rules and principles of equity have no role in matters involving the court exercising its bankruptcy jurisdiction, rings hollow in light of the robust approach espoused by the Court of Appeal.

[45] Bankruptcy proceedings involve the careful balancing of the interests of the creditor, in enabling the creditor to enforce a debt without unnecessary delay, and the protection of the debtor, in ensuring that only undisputed debts are pursued against him. In my judgment, bearing in mind the philosophy espoused in Chimbusco and Ramaschayana, the balance is struck in the present case by assessing whether there is a triable issue as to whether the Equitable Compensations Sums are in substance owed to the Beneficiaries. For the reasons stated above (see [31]–[40]) there was no triable issue, and Mr Assomull’s final argument could not be sustained.

[46] Having dealt with the issue of the Equitable Compensation Sums, I return to address the miscalculated sums.

[50] Mr Prakash clarified at the hearing on 24 October 2018 that taking into account the errors highlighted at [47] and [49] above, the correct sum payable as at 24 October 2018 was therefore $425,338.87. Mr Assomull declined to comment on the sum although opportunity was given to him to do so. His view was that it was not his obligation to assist in ascertaining the sum owed by his client.

[51] In the case at hand, the Beneficiaries had not yet filed any bankruptcy application as at 24 October 2018. Any prejudice to the debtor could be dealt with under r 278 of the Bankruptcy Rules. The court was able to give the debtor an opportunity to pay a rectified sum, so there could be no issue of irreparable prejudice.

[53] In my judgment, while the sum was erroneously calculated, this was not fatal to the validity of the statutory demand. Nor could the Executor mount a defence to the statutory demand that derogates from his fiduciary obligation to pay the corrected sum to the Beneficiaries. He was duty-bound to pay the correct amount on the facts as they stood. The correct sum was stipulated, with a direction given to the Beneficiaries that a further 21 days be given to the Executor to pay, before any bankruptcy application could be filed.