Compañia De Navegación Palomar, SA and others v Koutsos, Isabel Brenda [2020] SGHC 59

Introduction

This suit was commenced by the six plaintiff companies (collectively, the “Plaintiff Companies”) against the defendant, Isabel Brenda Koutsos (“Isabel”), for the recovery of US$2.75m, which belongs to the Plaintiff Companies. This action represents the latest salvo in a long-running family dispute. The breakdown in familial ties involves multiple generations and concerns massive sums of money and assets.

The Plaintiff Companies had previously brought Suit No 178 of 2012 (“S 178”) against Ernest Ferdinand Perez De La Sala (“Ernest”), who was a director of each of the Plaintiff Companies at the material time, for the misappropriation of moneys and assets that were valued at CAD 663,033,557.61 as at August 2011. In S 178, Quentin Loh J was the judge at first instance and he found in favour of the Plaintiff Companies in Compania De Navegacion Palomar, S.A. and others v Ernest Ferdinand Perez De La Sala and another matter [2017] SGHC 14 (“the S 178 HC Judgment”). The Singapore Court of Appeal (“CA”) in Ernest Ferdinand Perez De La Sala v Compañia De Navegación Palomar, SA and others and other appeals [2018] 1 SLR 894 (“the S 178 CA Judgment”) heard collectively a number of appeals and summonses relating to S 178.

Arising from S 178, the Plaintiff Companies commenced this action against Isabel for the recovery of the US$2.75m that was transferred from Ernest to Isabel. It is necessary to explain the complex relationships amongst the Plaintiff Companies. The relevant findings in the S 178 HC Judgment and the S 178 CA Judgment will also be germane to this case.

I would like to mention that Isabel chose not to testify in these proceedings and her counsel has submitted that there was no case to answer at the close of the Plaintiff Companies’ case. The Plaintiff Companies called only one witness, namely, James Copinger-Symes (“James”).

The background facts

The Plaintiff Companies are the same plaintiffs in S 178, namely:

(a) the first plaintiff, Compañia De Navegación Palomar, SA (“PAL”), a Panamanian company incorporated in 1958;

(b) the second plaintiff, Cosmopolitan Finance Corporation (“CFC”), a company incorporated in the British Virgin Islands (“BVI”) in 1995;

(c) the third plaintiff, Dominion Corporation SA (“DOM”), a Panamanian company incorporated in 1973;

(d) the fourth plaintiff, John Manners & Co (Malaya) Ltd (“JMM”), a Singapore company incorporated in 1948;

(e) the fifth plaintiff, Peninsula Navigation Company Private Limited (“PEN”), a company incorporated in the BVI in 1995; and

(f) the sixth plaintiff, Straits Marine Company Private Limited (“SMC”), a company incorporated in the BVI in 2008.

The structure of the Plaintiff Companies is relatively complex. PAL owns all the shares in CFC, CFC owns all the shares in PEN, and PEN owns all the shares in PAL. In the S 178 HC Judgment at [3] and the S 178 CA Judgment at [10], they referred to this as an “orphan” or circular structure. This circular structure is legal under Panamanian and BVI laws but not under Singapore law. Further, DOM is owned by a company, Summit Finance Corporation SA, which in turn is owned by PAL. PEN additionally owns SMC, and also owns a company, the Cambay Prince Steamship Co Ltd (BVI), which in turn owns JMM.

The diagrammatic organisational corporate structure of the De La Sala family companies, including the Plaintiff Companies, is reproduced from the Plaintiff Companies’ documents:

Isabel is a director in each of the Plaintiff Companies, save for JMM. She is also the sister of Ernest and she had testified as a witness for Ernest in S 178. The rest of the relationships in the De La Sala family have been meticulously addressed in the S 178 HC Judgment at [7]–[14]. For the present purposes, it is relevant to know the relationships between the key members of the De La Sala family. These were set out in the S 178 CA Judgment at [11]–[12] as follows:

Serious disputes between Ernest and the other De La Sala family members

The main rift in the family arose as a result of a breakdown in relationship between two factions sometime in August 2011. This was between Ernest and Edward De La Sala (“Edward”), Christina De La Sala (“Christina”) and James, collectively known as “ECJ”.

Between 2004 and 2011, ECJ had actively been managing the assets held by the Plaintiff Companies, under the direction of Ernest, as it was time for the next generation to “take on the baton” to run the family business. The relationship between ECJ and Ernest took a nose dive in August 2011, when Ernest instructed ECJ to remit all US dollar deposits held in Singapore to CFC’s account with UBS Bank (Canada) Vancouver, which was under Ernest’s control. Although ECJ were puzzled at these instructions, which left no funds for them to manage in Singapore, Edward testified that they complied as they trusted Ernest and were “generally deferential” to him. However, Ernest then informed ECJ that they were placed on “permanent holiday, [and that] he had made a burden for himself (in reference to [ECJ])”. It was also at this point that Ernest alleged that the Plaintiff Companies’ assets belonged to him. This allegation spurred ECJ to pass resolutions on 8 August 2011 to limit Ernest’s authority to operate as sole signatory for the accounts of PAL, CFC and DOM with UBS Bank (Canada) Vancouver. The effect of these resolutions sent Ernest into a rage, who then complained to Isabel who in turn contacted Edward and Christina’s father, Robert Perez De La Sala (“Bobby”). Eventually, after Isabel had spoken to Bobby, ECJ relented and reversed their earlier resolutions.

Subsequently, in an email marked “lo siento mucho” (translated to mean “I’m very sorry” in Spanish), Edward apologised to Ernest for the role that he had played in passing the resolutions, but Ernest did not respond. ECJ then collectively emailed Ernest to apologise. This also elicited no reply from Ernest. However, ECJ received, inter alia, an email from Isabel via Bobby, berating them for their actions. Over the next few months, ECJ discovered that Ernest had been transferring assets from the various family companies to his UBS Bank (Canada) personal account (the “Personal UBS Account”). These were done without the knowledge of the respective board of directors of the Plaintiff Companies, much less approval. Moreover, Ernest continued to remain silent when ECJ queried him about the assets that were transferred to his Personal UBS Account. However, by then, Ernest had already transferred assets worth a total of CAD 663,033,557.61 (at the material time) into his Personal UBS Account. On 5 March 2012, the Plaintiff Companies eventually commenced S 178 in order to recover the assets from Ernest.

Suit 178

The Plaintiff Companies’ claim

The legal basis for the Plaintiff Companies’ claim in S 178 was essentially that Ernest had breached his fiduciary duties as a director of the Plaintiff Companies by transferring the assets of the Plaintiff Companies into his Personal UBS Account without notifying or seeking the approval of the respective boards of the Plaintiff Companies. There were three main grounds of the claim, namely:

(a) Ernest instructed UBS (Singapore) to transfer approximately S$1,244,308.90 out of JMM’s UBS account to himself, and thereafter to close the JMM UBS account.

(b) Ernest instructed UBS (Singapore) to close the UBS accounts belonging to PAL and CFC, with the balance sums in these accounts likely diverted to Ernest or applied for his benefit.

(c) Ernest diverted to himself, and applied for his own benefit, shares in SMC that belonged beneficially to PEN, and legally to James and Edward.

On these bases, the Plaintiff Companies sought, inter alia, a declaration that the assets listed in the Schedule of Statement of Claim belonged “beneficially and absolutely to the [Plaintiff Companies]” (as found in the S 178 HC Judgment at [38]). These assets were valued at CAD 663,033,557.61 as at August 2011. Crucially, the Plaintiff Companies also sought orders for Ernest to account for the assets that were disposed by him, and also to account for the assets formerly standing to the credit of the JMM, PAL and CFC UBS accounts.

Ernest’s defence and counterclaims

Ernest’s defence in S 178 was essentially a denial of any breaches of director’s duties. He alleged that all the money transfers from the Plaintiff Companies were legitimate as the Plaintiff Companies were his “personal investment holding companies used…to hold and invest his personal funds and assets” (as summarised in the S 178 HC Judgment at [39]).

In Ernest’s counterclaims against the Plaintiff Companies and ECJ, he alleged that ECJ were in breach of trust and their fiduciary duties as they had failed to comply with his instructions in managing his personal assets that were held by the Plaintiff Companies. He also alleged that ECJ had knowingly assisted the Plaintiff Companies in breach of trust by instituting S 178 and the related applications. Ernest further claimed that ECJ was engaged in a conspiracy to injure him by lawful and unlawful means.

Thus, Ernest sought, inter alia, declarations that he was the sole beneficial shareholder of the Plaintiff Companies (in the alternative, of PAL, CFC and PEN), and that the Plaintiff Companies’ assets were beneficially owned by him and held on trust solely for him.

The findings of the CA and the Singapore High Court

The CA and the Singapore High Court (“HC”) in S 178 dealt with an extensive number of issues (both factual and legal). However, only some findings are material to the instant case either directly or by way of context.

Firstly, the central plank in S 178 was to ascertain the owner of the assets that Ernest had removed from the Plaintiff Companies. The CA in S 178 found that the moneys and assets that went into the Personal UBS Account did not belong to him. This was clearly expressed in the S 178 CA Judgment at [116]:

Secondly, the CA’s finding that Ernest was not the beneficial owner of the Plaintiff Companies’ assets meant that he was in breach of fiduciary duties by dealing with the assets in the manner as listed above at [12]. The corollary is that Ernest was required to disclose to the Plaintiff Companies all correspondences with the banks relating to the relevant bank accounts and account to the relevant Plaintiff Companies the assets that were removed by Ernest, including what had become of the same, what interest had been earned thereon and what profits had been made from these assets. He was also required to return the same to the Plaintiff Companies (S 178 CA Judgment at [155] and [231]). An Order of Court dated 22 March 2018 was issued, requiring him to account to the Plaintiff Companies (the “Accounting Order”).

Thirdly, as a result of the above, Ernest’s counterclaims against ECJ failed. As stated in the S 178 CA Judgment at [159]: “[t]he lynchpin of Ernest’s claims against ECJ is his ownership of the Companies’ shares and/or assets. Without that, the factual basis for a fiduciary relationship falls away.”

Finally, in the course of the proceedings, Loh J made certain findings and observations regarding the credibility of various witnesses in S 178. This included Ernest, Isabel, James, amongst others, and his observations were affirmed in the S 178 CA Judgment. I shall make references to these comments in this case at appropriate junctures.

Events following Suit 178

Events leading to the current suit

Following the S 178 CA Judgment, the Plaintiff Companies wasted no time and, in a series of letters all dated 29 March 2018, informed Isabel of the CA’s findings that Ernest had breached his fiduciary duties as director of the Plaintiff Companies. At the same time, the Plaintiff Companies, relying on the findings of the CA in S 178, requested Isabel to return the sum of US$2.75m that was transferred to her by Ernest in breach of his fiduciary duties as director of the Plaintiff Companies.

In S 178, Isabel had initially testified that she had not received any money from Ernest after 2005. However, she subsequently conceded that she had received a sum of approximately $14m that was related to a property transaction (see the S 178 HC Judgment at [239]–[246]). However, this was proven to be a prevarication by subsequent discovery, as stated in the S 178 HC Judgment at [247]:

It is notable that, as stated above in the S 178 HC Judgment at [247(a)], Ernest had attempted to transfer US$50m to Isabel on 6 March 2012. On the very same day, the Plaintiff Companies filed an interim injunction against him. This was one day after S 178 had commenced. As explained by the Plaintiff Companies’ counsel, this attempted transfer had failed to go through only because of banking issues, the large sum of US$50m might also have caused certain “red flags” to be raised. When this transfer failed, Ernest decided to transfer relatively smaller sums to Isabel and these successfully went through.

The sum of US$2.75m is the subject matter of this suit. It is derived from an aggregate of the five transfers from Ernest to Isabel listed in the S 178 HC Judgment from [247(b)] to [247(f)]. When Isabel failed to pay, the Plaintiff Companies commenced the current action against her.

Actions taken by Ernest

On 31 July 2018, Ernest filed an affidavit (“Ernest’s Accounting Affidavit”) to comply with the Accounting Order. In it, Ernest revealed transactions involving two personal accounts namely, the Personal UBS Account and the account with UBS AG (Singapore). Given that the Plaintiff Companies base their claim in the current action on the Personal UBS Account, I shall focus solely on the transactions processed therein.

The sums and transactions in the Personal UBS Account, as detailed in Ernest’s Accounting Affidavit, may be broadly categorised into seven categories:

(a) As at 1 July 2011, there were assets valued at CAD 4,035,697.02 (“CAD 4m”) standing to the credit of Ernest’s Personal UBS Account.

(b) In August 2011, assets valued at CAD 663,033,557.61 were transferred into the Personal UBS Account. These assets, as mentioned above at [19], were those that Ernest had transferred from the Plaintiff Companies to himself in breach of his fiduciary duties.

(c) A total sum of CAD 227,795,690.00 was withdrawn from the Personal UBS Account and transferred to the stake-holding account in JMM’s name with Credit Suisse bank. This was the aggregate sum of a series of transactions to satisfy various court orders, which are as follows:

(i) On 1 April 2013, CAD 201,430,000.00 (US$200m) was transferred in compliance with the Order of Court dated 12 March 2013 (HC/ORC 1709/2013) in Summons No 1098 of 2012.

(ii) On 31 May 2017, CAD 67,522,500.00 (US$50m) was transferred in compliance with the Order of Court dated 19 May 2017 (HC/ORC 3180/2017) in Summons No 672 of 2017.

(iii) On 6 June 2017, CAD 8,818,240.00 (US$6.8m) was transferred to top-up the funds in the stake-holding account to US$250m, as the funds in the stake-holding account stood only at US$243,205,578.00 owing to previous withdrawals having been made.

(iv) On 6 July 2017, CAD 24,950.00 (US$20,000.00) was transferred to ensure that the funds in the stake-holding account remained above US$250m in compliance with the Order of Court dated 19 May 2017 (HC/ORC 3180/2017) in Summons No 672 of 2017.

(d) On 28 February 2017, a sum of CAD 236,980.00 was withdrawn from the Personal UBS Account and transferred to Rajah & Tann LLP. This was the deposit for the transferee’s engagement to act on behalf of the Plaintiff Companies.

(e) Between 29 July 2011 and 30 June 2018, a total sum of CAD 28,564,674.63 was withdrawn from the Personal UBS Account for Ernest’s personal and legal expenses which included the US$2.75m. He had further annexed a table of withdrawals, which will be further elaborated on below (at [56]–[60]).

(f) From 23 February 2012 to 7 June 2017, a total sum of CAD 109,813.53 was withdrawn from the Personal UBS Account allegedly for various expenses relating to the Plaintiff Companies.

(g) From 17 October 2011 to 30 April 2018, a total sum of CAD 1,637,520.78 was withdrawn from the Personal UBS Account allegedly for safekeeping fees for precious metals held in the custody of UBS Bank (Canada).

The parties’ cases

The Plaintiff Companies’ claim

The Plaintiff Companies argue that they are the owners of the US$2.75m, and that Isabel’s receipt from Ernest and continued retention of the money are without any legitimate basis. Isabel had all along known that the US$2.75m originated from assets belonging to the Plaintiff Companies and that Ernest had no authority to transfer this sum to her. Therefore, Isabel cannot argue that the US$2.75m is a gift from Ernest and is thus liable to pay back this sum to the Plaintiff Companies.

The Plaintiff Companies base their claim on three legal grounds. Firstly, they submit that Isabel is liable for knowing receipt of the US$2.75m from Ernest’s misappropriation of moneys and assets from the Plaintiff Companies because she had been aware of the dispute that arose from the management of the assets in the De La Sala family companies since 2012. She had, at various points in time, been informed of the family conflicts either by Ernest or ECJ. As director of the Plaintiff Companies, save for JMM, she also ought to have known that the US$2.75m did not belong to Ernest. This is because she had testified in the HC proceedings in S 178. She had also received two letters dated 29 March 2018 from the Plaintiff Companies’ lawyers; these had the effect of alerting her that Ernest was in breach of his fiduciary duties. Thus, she should return the US$2.75m to the Plaintiff Companies.

In support of their claim for knowing receipt, the Plaintiff Companies argue that the US$2.75m transferred to her by Ernest is traceable to assets that belong to them. They submit that the US$2.75m was withdrawn from the CAD 663,033,557.61 that Ernest had misappropriated from the Plaintiff Companies’ UBS Bank (Canada) account. Regarding Isabel’s allegation in court that the US$2.75m did not come from the CAD 663,033,557.61 of the Plaintiff Companies’ assets but from Ernest’s pre-existing CAD 4m in his Personal UBS Account, the Plaintiff Companies submit that the pre-existing CAD 4m did not belong to Ernest but rather to CFC and PAL of the Plaintiff Companies.

Secondly, the Plaintiff Companies submit that Isabel was unjustly enriched at their expense, as the transfer of the US$2.75m was made without the Plaintiff Companies’ knowledge and/or consent.

Finally, the Plaintiff Companies submit that Isabel is also liable for breach of her fiduciary duties to the Plaintiff Companies, save for JMM. They allege that Isabel had failed to act bona fide in the best interests of the companies in which she was a director and breached her duty to avoid a conflict of interest when she had actively sided with Ernest, who had misappropriated the Plaintiff Companies’ assets, in the course of the dispute with ECJ and the Plaintiff Companies. Further, the Plaintiff Companies allege that she was not authorised to receive the US$2.75m from Ernest and was, thus, in breach of the no-profit rule.

Isabel’s Defence

Isabel, in her pleaded defence, submits that the US$2.75m was a gift from Ernest. Further, she argues that the US$2.75m is not traceable to any assets belonging to the Plaintiff Companies. Instead, she asserts that the US$2.75m transferred to her was from the pre-existing CAD 4m, which she claims belonged to Ernest personally. She submits that there is a presumption that when a fiduciary makes withdrawals from a mixed fund, he does so from his own moneys. In her view, the Plaintiff Companies are not entitled to “pick and choose” whether the US$2.75m is from trust moneys or Ernest’s personal funds as there is sufficient balance from Ernest’s personal funds in his Personal UBS Account to satisfy the US$2.75m.

Isabel’s counsel also submits at trial that the Plaintiff Companies are not entitled to argue that the US$2.75m could be traced to the pre-existing CAD 4m, which also belongs to CFC and PAL of the Plaintiff Companies as this issue had not been pleaded in their statement of claim and, therefore, cannot be raised.

Additionally, Isabel argues that the Plaintiff Companies are not entitled to recover the claimed sum from her, as they already have a claim against Ernest for CAD 663,033,557.61, which the US$2.75m is alleged to have been derived from. To allow further recovery of the US$2.75m would be contrary to the rule against double recovery.

In response to the Plaintiff Companies’ claim for knowing receipt, Isabel submits that she did not know that the US$2.75m was the result of Ernest’s breach of fiduciary duties. She was not involved in the day to day management of the Plaintiff Companies as Ernest had absolute say in the running of the business. As Ernest frequently sent large sums of money to his family members, including Isabel herself, it was “therefore not out of the ordinary for the Defendant … to receive a gift of US$2.75m from Ernest over the course of two years.” Ernest would also regularly gift sums of money to Isabel “throughout her life”. Further, she argues that knowledge of S 178 is not a sufficient basis to make out a claim for knowing receipt. She also submits that she was only a peripheral witness in S 178, and the 29 March 2018 letters from the Plaintiff Companies’ counsel that were sent to her lacked sufficient details to affix her with the requisite knowledge.

In Isabel’s pleaded defence, she merely denies that the Plaintiff Companies are entitled to claim unjust enrichment and breach of fiduciary duties. In court, Isabel’s counsel submits that the enrichment had not come from the Plaintiff Companies’ assets and the benefit she obtained was thus not at their expense. Her counsel also argues that there is no unjust factor as a matter of law, as lack of consent, ignorance and want of authority are factors that have not been recognised or have been rejected in Singapore.

Isabel further argues that she was not in breach of her duty to act in the best interests of the Plaintiff Companies (except for JMM) by reiterating that her “position as a director was entirely nominal” and the transfers were gifts from Ernest. She also did not breach the no-conflict rule as she believed the US$2.75m originated from Ernest’s personal funds. In any event, the Plaintiff Companies had implicitly consented to her position of conflict as they were well aware that she had been receiving funds from Ernest since 1978. Lastly, her counsel argues that she did not breach the no-profit rule as director of the Plaintiff Companies (except for JMM) since the US$2.75m did not have sufficient causal connection to, nor did it arise by reason of, her position as fiduciary of the Plaintiff Companies.

My decision

Issues to be determined

The issues in this case are as follows:

(a) firstly, whether there is a basis for the Plaintiff Companies’ claim against Isabel when Ernest intends to return the CAD 663,033,557.61, which the US$2.75m allegedly came from, to the Plaintiff Companies (“Issue 1”);

(b) secondly, whether the US$2.75m was withdrawn from Ernest’s pre-existing CAD 4m within the Personal UBS Account, or whether it had come from the misappropriated CAD 663,033,557.61 (“Issue 2”);

(c) thirdly, if the US$2.75m was withdrawn from Ernest’s pre-existing CAD 4m, whether the Plaintiff Companies were the beneficial owners of the pre-existing CAD 4m (“Issue 3”);

(d) fourthly, whether Isabel is liable for knowing receipt of the US$2.75m (“Issue 4”);

(e) fifthly, whether Isabel is in breach of her fiduciary duties to the Plaintiff Companies (“Issue 5”); and

(f) lastly, whether Isabel is unjustly enriched by the US$2.75m (“Issue 6”).

The witness and evidence available

Before I address the above issues, I would like to comment on the evidence that is before me. At the trial, the only witness who testified on behalf of the Plaintiff Companies was James. The Plaintiff Companies tried to secure Ernest as their witness but was not successful. Isabel opted not to give evidence and she also did not call Ernest who is the key witness to her defence. Instead she instructed her counsel to make a submission of no case to answer.

The legal implication of this course of action is that the Plaintiff Companies need only establish a prima facie case in order to succeed in their claim. As the CA stated in Lena Leowardi v Yeap Cheen Soo [2015] 1 SLR 581 at [23]–[24]:

James’ testimony was, thus, the only direct evidence that was before me, save for documentary records. While Isabel’s counsel is certainly correct that the court is “in fact under no obligation” to simply take James’ word for it, Isabel did not provide direct evidence to contradict James’ testimony on a number of critical issues. Isabel’s counsel had intensively and extensively cross-examined James and his evidence had substantially remained unscathed. The robust cross-examination did not weaken his testimony and his answers were generally convincing and consistent. I scrutinised and observed James’ demeanour when he testified in court. He convinced me that he is a truthful and candid witness. He did not attempt to be evasive, for instance, when questioned by Isabel’s counsel in relation to the letters sent by Edward and ECJ to apologise to Ernest:

My observations cohere with Loh J’s evaluation of James’ evidence in the S 178 HC Judgment, in which he stated at [382]:

I accept James’ testimony. I shall now deal with each of the issues sequentially.

Issue 1: Whether there is a basis for the Plaintiff Companies’ claim against Isabel when Ernest intends to return the CAD 663,033,557.61, which the US$2.75m allegedly came from, to the Plaintiff Companies

Isabel asserts that the US$2.75m should rightly be claimed from Ernest as the Plaintiff Companies allege that the US$2.75m is part of the CAD 663,033,557.61 that was misappropriated by Ernest and further, he intends to return it to the Plaintiff Companies. The present suit against Isabel, if successful, would be tantamount to double recovery as Ernest is now in the process of returning CAD 663,033,557.61 as ordered by the CA in S 178. Ernest had already instructed UBS Bank to transfer all the assets in his Personal UBS Account to an account belonging to JMM. Further, she argues that the value of the assets being transferred to JMM is more than sufficient to restore the amounts taken from the Plaintiff Companies.

The rule against double recovery is axiomatic. The CA in Chew Kong Huat and others v Ricwil (Singapore) Pte Ltd [1999] 3 SLR(R) 1167, citing Personal Representatives of Tang Man Sit v Capacious Investments Ltd [1996] AC 514 at 522, stated at [36]:

It is, therefore, the prerogative of a claimant to commence overlapping actions to pursue multiple remedies. The caveat to this is that the remedies obtained in a subsequent suit will naturally be limited if the enforcement of a former judgment already satisfies the claimant’s loss.

In the circumstances, I find that the current action does not run afoul of the rule against double recovery. Isabel’s counsel adduced a letter dated 11 December 2019 that was sent from Ernest’s lawyers, Clifford Chance Asia, to one Julie Blazevski from UBS Bank. In that letter, Clifford Chance Asia wrote to confirm Ernest’s instructions to transfer all the assets in the Personal UBS Account to an account belonging to JMM, in compliance with the Order of Court dated 8 July 2019 (HC/ORC 4764/2019).

Isabel produced this letter from Clifford Chance Asia to support her arguments that the Plaintiff Companies are being paid, without calling any witness. Neither Ernest nor his lawyers from Clifford Chance Asia appeared as a witness in these proceedings. Thus, the contents of this letter are technically hearsay and inadmissible.

It is also doubtful whether Ernest’s instruction to his lawyers can be accepted at face value as he has been observed to have displayed a perennial profligacy with the truth in the past. In the S 178 HC Judgment at [195] and [234], Loh J made very scathing remarks about Ernest and the unreliability of his evidence. The CA made similar observations at [132] of the S 178 CA Judgment:

Furthermore, although James acknowledged that his lawyers were in contact with Ernest’s lawyers to effect the transfer of assets to the Plaintiff Companies, he testified that, in truth, Ernest had been very tardy and placed challenges to procrastinate the return of the assets of the Plaintiff Companies.

Isabel’s counsel argues that the total sum that will be restored to the Plaintiff Companies will be about CAD 740,348,628.90, which is “more than CAD 80 million over their original position of CAD 663,033,557.61” [emphasis in original]. However, that is a claim that is based on inadmissible hearsay evidence. Further, this claim was totally unsubstantiated by any evidence before me.

Additionally, James testified that the CAD 740,348,628.90 would be valued at approximately US$560m, when the assets Ernest misappropriated were valued at US$670m at the material time. This means that even if Ernest had returned the full CAD 663,033,557.61 to the Plaintiff Companies, there would still be a shortfall in value of more than US$100m due to the fluctuations in the exchange rate between CAD and US$ in the intervening years. Additionally, James testified that the misappropriation also resulted in lost profits amounting to US$350m.

In any case, the fact of the matter is that CAD 663,033,557.61 has not been fully returned to the Plaintiff Companies. Hitherto, Ernest has only returned US$250m to the Plaintiff Companies. Hence, Isabel cannot argue that the Plaintiff Companies’ right to claim the US$2.75m has already been extinguished or covered by S 178. If the Plaintiff Companies recover the US$2.75m from Isabel, they will naturally not be able to claim this sum from Ernest, and vice versa, a point that both parties agree upon. However, if and until Ernest fully complies with the Accounting Order and returns all of the assets misappropriated, the Plaintiff Companies are entitled to trace the sums of money and elect to commence proceedings against Isabel.

Issue 2: Whether the US$2.75m was withdrawn from Ernest’s pre-existing CAD 4m or the misappropriated CAD 663,033,557.61

Isabel argues that the US$2.75m came from Ernest’s own funds of CAD 4m in his Personal UBS Account before the Plaintiff Companies’ CAD 663,033,557.61 was transferred into this account. Therefore, the key question is: when Ernest transferred the US$2.75m to Isabel, where did the money come from?

The process of tracing normally acts as the precursor to a claim. As Lord Millet explained in Foskett v McKeown [2001] 1 AC 102 at 128:

A finding that the US$2.75m was withdrawn from the misappropriated CAD 663,033,557.61 would set the Plaintiff Companies’ claim on firm ground. This is because it had been established that CAD 663,033,557.61 rightfully belongs to the Plaintiff Companies, which was the CA’s finding in S 178. It should be noted, however, that a finding that the US$2.75m was withdrawn from the pre-existing CAD 4m does not automatically defeat the Plaintiff Companies’ claims against Isabel, as I shall elaborate on below (at [61]–[90]).

I find that the US$2.75m is traceable to the CAD 663,033,557.61 that Ernest had misappropriated and transferred into the Personal UBS Account. The five separate transfers made to Isabel, aggregating US$2.75m, were part of a sum of CAD 28,564,674.63 which Ernest had withdrawn from the CAD 663,033,557.61 for his “personal and legal expenses” , including transfers to Isabel. These spanned from 2011 to 2018, totalling 198 instances of withdrawals. However, save for the first three withdrawals, all other instances of withdrawals started only on or after 30 September 2011, which was after CAD 663,033,557.61 had been deposited into Ernest’s Personal UBS Account on 30 September 2011. These withdrawals include the five transfers made to Isabel, as listed in [23] above, which were done only in 2012 and 2013. This is highly indicative that all the five transfers to Isabel were from the CAD 663,033,557.61 and not the pre-existing CAD 4m.

It should also be recalled that Ernest had transferred these five sums of money to Isabel soon after his previous attempt to transfer US$50m to her had failed. The circumstances surrounding these transfers are highly suspicious for, as stated at [24] above, Ernest had attempted to transfer the US$50m the day after S 178 had commenced. It is clear from Ernest’s actions that through the transfers to Isabel, he intended to dissipate part of the CAD 663,033,557.61. The transfers aggregating US$2.75m were also part of his plan to put the sums beyond the reaches of the Plaintiff Companies.

Therefore, I find that the US$2.75m was withdrawn from the CAD 663,033,557.61, which provides a basis for the Plaintiff Companies’ claim against Isabel.

Issue 3: Who was the beneficial owner of the pre-existing CAD 4m

For completeness, I turn to deal with Isabel’s submission that the US$2.75m was withdrawn from the pre-existing CAD 4m, which in turn allegedly belongs to Ernest. According to James’ testimony, the pre-existing CAD 4m in Ernest’s Personal UBS Account, before the Plaintiff Companies’ assets worth CAD 663,033,557.61 were unlawfully deposited into this Personal UBS Account, belongs to CFC and PAL of the Plaintiff Companies. Therefore, whether the US$2.75m came from the pre-existing CAD 4m or the CAD 663,033,557.61, the US$2.75m still belongs to the Plaintiff Companies.

Whether the issue about the pre-existing CAD 4m has been sufficiently pleaded

I pause to first deal with a preliminary issue in relation to the pleaded case. Although Isabel alleges that the CAD 4m came from Ernest’s pre-existing funds, Isabel’s counsel argues that the Plaintiff Companies’ counsel is not allowed to explain that the pre-existing CAD 4m belongs to the Plaintiff Companies as this has not been pleaded. Isabel’s submission is that the Plaintiff Companies’ pleadings are based on the premise that the US$2.75m came from the misappropriated CAD 663,033,557.61. Isabel’s counsel submits as follows:

With due respect, I disagree with the submissions of Isabel’s counsel. The issue of the US$2.75m being traceable to Ernest’s pre-existing CAD 4m rightly should have been raised by Isabel in her pleadings. This was not done and she now turns around and argues that the Plaintiff Companies cannot rebut her defence as the Plaintiff Companies had not pleaded the rebuttal. If Isabel had properly pleaded it in her defence, the Plaintiff Companies would be able to respond to this allegation. In her pleadings, she merely alleges that the US$2.75m was a gift from Ernest. It would be grossly unfair and prejudicial to disallow the Plaintiff Companies to rebut Isabel’s allegation.

I also disagree with Isabel’s counsel’s argument that a pleaded denial is sufficient because the Plaintiff Companies bear the burden of proving the case. It is not sufficient to simply deny the claims that have been put forth by the Plaintiff Companies. As stated by Choo Han Teck J in Sharikat Logistics Pte Ltd v Ong Boon Chuan and others [2011] SGHC 196 at [8]: “… so long as the defendant knows what cause of action is alleged and what remedies are sought from him, he should file the appropriate defence to deny and demur…”. To allow Isabel’s assertion that she does not have to particularise the defence and then to deny the Plaintiff Companies the opportunity to respond would be grossly unfair. It would also prevent the issues from being properly ventilated.

In any case, I agree with the Plaintiff Companies’ submissions that their pleadings are broad enough to encompass the current issue. In the Plaintiff Companies’ statement of claim, the US$2.75m was referred to as the “Claimed Sum”, upon which the Plaintiff Companies based their substantive claim for knowing receipt, unjust enrichment and breach of fiduciary duties. They had not limited such a claim to the CAD 663,033,557.61, which they referred to as “Misappropriated Assets”. In fact, the statement of claim makes clear that the Plaintiff Companies owned “substantial assets”, which they simply referred to as “Assets”. Such assets presumably go beyond the CAD 663,033,557.61. It is, thus, entirely possible for the “Claimed Sum” to be based on the broader “Assets” and not simply the “Misappropriated Assets”.

The pre-existing CAD 4m were Plaintiff Companies’ assets

Regarding the pre-existing CAD 4m in Ernest’s Personal UBS Account, Isabel argues that it belongs to Ernest as it was there even before the CAD 663,033,557.61 was deposited into the account.

It bears mentioning that this argument (ie, that the US$2.75m is traceable to Ernest’s personal money of CAD 4m) was only raised for the first time at trial. Prior to this, Isabel had always maintained the simple position that the sums amounting to US$2.75m were gifts from Ernest. In fact, in her affidavit of evidence-in-chief, her first reference to the US$2.75m is as follows:

It was only at trial that this new allegation was sprung upon the Plaintiff Companies. In my view, this is an afterthought and should not be accorded any weight, particularly as Isabel did not testify or call any witness to testify in this trial.

Even taking Isabel’s case at its highest, I find that the Plaintiff Companies have adequately proven that the assets worth CAD 4m belong to them. Weighing all the evidence before me, I believe James’ testimony that the assets worth CAD 4m originated from the revocation of a family trust structure, known as the REC-Hasta La Vista trust. The transfer of the CAD 4m to Ernest’s Personal UBS Account only occurred because UBS Bank would not allow the trust money to be returned to the rightful owners, ie, CFC and PAL, but allowed it to be transferred to Ernest’s Personal UBS Account as he was the settlor in the trust instrument. Hence, the CAD 4m, at all times, belong to CFC and PAL and was not meant for Ernest’s personal use. Ernest and ECJ knew that eventually the CAD 4m has to be returned to the Plaintiff Companies as it is not Ernest’s personal money. I shall now explain in greater detail.

It would be helpful to first understand the REC-Hasta La Vista trust and the context behind it. This was dealt with extensively in S 178, and is succinctly summarised by James in his testimony as well as in the S 178 HC Judgment at [452]–[454] and [457] as follows:

The REC-Hasta La Vista trust was thus an experimental structure to ensure the continuity of the De La Sala family legacy. James also testified that although the REC-Hasta La Vista trust was an “off the shelf type”, it served an additional function of being a “fall-back plan” to ensure management of the De La Sala family assets in the event that Ernest was taken out of the picture. However, with the arrival of ECJ in 2004, the REC-Hasta La Vista trust was no longer necessary and the decision was taken to revoke the trust.

The crucial questions that arise then are: firstly, where did the assets in this trust fund originate from; and secondly what happened to these assets after the trust was revoked? Based on the letters written and signed by Ernest, dated 1 March 2005, the assets were transferred to the REC-Hasta La Vista trust from CFC and PAL. This occurred across two transactions:

(a) the amount of US$700,000.00 (value as at 4th March 2005) belonging to CFC was transferred to UBS AG Singapore in the name of REC-Hasta La Vista Corp;

(b) assets belonging to PAL were transferred to UBS AG Singapore in the name of REC La Vista Corp, comprising:

(i) US$1,000,000.00 100% Capital Protected Note 02-17.09.2007 on UBS Currency Portfolio; and

(ii) 1,588.184 units of O’Connor-UBS Currency Portfolio shs J Series 1.

When questioned in cross-examination, James acknowledged that he was not aware of the exact value of the assets and only that Ernest had told him that “5 million” had been placed in the trust. However, the value of these assets at the time the trust was revoked is clear. This is seen from the email from Laurent Rossier, a manager at UBS Bank, to Ernest, dated 27 Apr 2011. It states:

This email was acknowledged by Ernest in a return email, slightly over an hour later.

The email from Laurent Rossier also made reference to a transfer of all funds and closing of the account, which essentially meant the revocation of the REC-Hasta La Vista trust. That statement was made in response to Ernest’s preceding email that has been sent earlier in the day:

From this email thread, it is, thus, clear that upon the revocation of the REC-Hasta La Vista trust, the assets were transferred to Ernest’s Personal UBS Account. This is confirmed by a subsequent letter signed by Ernest dated 29 April 2011, where UBS Trustees (Jersey) Ltd was instructed as follows:

The assets arising from the liquidation of the REC-Hasta La Vista trust were thus transferred into Ernest’s Personal UBS Account, forming the pre-existing CAD 4m. I also accept James’ evidence that these company assets remained company assets at all times and were not meant for Ernest’s personal use. His oral evidence on this point was as follows:

James again asserted that Ernest was not the beneficial owner in his further cross-examination:

The assets derived from the revocation of the trust were initially intended to be transferred back to the companies that they had come from (ie, PAL and CFC). However, this was not possible as UBS Bank only allows the assets to be returned to the individual or entity listed as the settlor of the trust (in this case, Ernest). It was, thus, only for this reason that the assets were transferred to Ernest’s Personal UBS Account and not because they were intended for his personal use.

Although Isabel does not dispute that the assets originally placed in the REC-Hasta La Vista trust originated from CFC and PAL, she asserts that the assets within the trust now belong to Ernest. She bases this assertion on the wording of the REC-Hasta La Vista trust deed. Specifically, Clause 7(a) of the REC-Hasta La Vista trust deed states:

At first blush, the wording of Clause 7(a) does appear to vest the assets arising out of revocation in the settlor, ie Ernest. Clause 7(a), however, cannot be read in vacuo. Clause 7(a) has to be read in the context of the surrounding circumstances of the trust and the manner in which the Plaintiff Companies operated. James’ evidence demonstrates that the manner in which the Plaintiff Companies and the De La Sala family operated was to allow various assets to be held by different members at varying points in time for different reasons. However, this was always done on the basis or assumption that the assets held by the family members would have to eventually be returned to the Plaintiff Companies. The vesting of assets in Ernest by Clause 7(a), thus, does not translate to granting him full beneficial ownership of the assets. The clear understanding was that these assets were always held for or on behalf of the Plaintiff Companies.

Time-barred

I also reject Isabel’s argument that the Plaintiff Companies are time-barred in the present action. Isabel argues that claims for equitable relief of the CAD 4m cannot be brought after the expiration of six years from the date on which the cause of action accrued. This argument by Isabel is totally baseless and must fail for several reasons.

Firstly, this argument completely misses the essence of this suit. The Plaintiff Companies are not seeking an equitable relief against Ernest for the CAD 4m, but a return of the US$2.75m from Isabel. The Plaintiff Companies have the right to rebut Isabel’s latest allegation that the CAD 4m came from Ernest’s own funds. This, in itself, is untrue as the CAD 4m also belongs to the Plaintiff Companies.

Secondly, Isabel’s argument rests on a fundamentally erroneous calculation of time. The present action was commenced by the Plaintiff Companies on 18 April 2018. This was still within the acceptable time-limits for the claim, given that the very first successful transfer to Isabel was made on 30 April 2012, as seen in the S 178 HC Judgment at [247(b)] reproduced above at [23]. I note that in the Agreed Statement of Facts at para 12(a), parties have stated that the first transfer had actually occurred on 23 May 2012. If that is the case, the present action would be well within the time limit of six years.

Thirdly, the argument on time-bar had neither been pleaded by Isabel nor was it raised throughout the entire trial. Instead, this argument surfaced for the very first time in her closing submissions. It is for this very reason that any possible time-bar does not operate to bar the Plaintiff Companies’ claim, as stated in s 4 of the Limitation Act (Cap 163, 1996 Rev Ed) (the “Limitation Act”):

Fourthly, the Plaintiff Companies’ claim against Isabel is for the return of the US$2.75m as they are the beneficial owners when Ernest had fraudulently misappropriated the CAD 663,033,557.61. Ernest then dissipated US$2.75m of this sum to Isabel. This made Isabel the constructive trustee of the US$2.75m. Accordingly, the Limitation Act does not apply to the Plaintiff Companies by virtue of s 22 of the Limitation Act:

Isabel submits that a beneficiary cannot bring an action to recover trust property or in respect of any breach of trust after the expiration of six years from the date on which the right of action accrued. Section 22(2) of the Limitation Act was cited to support the argument, and this provision states:

This argument is wholly erroneous. Firstly, the facts of this case come within s 22(1) of the Limitation Act; this means that the prescribed limitation periods under the said Act do not apply. Secondly, when the Plaintiff Companies found out that Ernest transferred the US$2.75m to Isabel arising from S 178, which would be the date in 2018 that “the right of action accrued”, they immediately acted to recover this sum from Isabel (at [82] above). This action was commenced when Isabel refused to return the US$2.75m. Therefore, there was no delay and s 22(2) of the Limitation Act does not apply.

For the above reasons, I find that the CAD 4m belongs to the Plaintiff Companies and remained so. As a corollary, I reject Isabel’s arguments in relation to the presumption of mixed funds, ie, that when the fiduciary’s personal funds are mixed with trust moneys in the same bank account, there is a presumption that the fiduciary uses his own money first. In such instances, it is presumed that in dealing with the moneys in the account (specifically in relation to withdrawals or leaving money in the account), the intention of the fiduciary is to “preserve the value contributed by the claimant to the mixed fund in the bank account at the expense of the value contributed by the wrongdoer.” (Snell’s Equity, John McGee QC (gen ed), (Sweet & Maxwell, 32nd Ed 2010) at para 30-057). The presumption has been applied to different effects in the oft-cited cases of Re Tilley’s Will Trusts [1967] Ch 1179, In re Hallet’s Estate; Knatchbull v Hallett [1880] 13 Ch D 696, In Re Oatway; Hertslet v Oatway [1903] 2 Ch 356 and Shalson and others v Russo and others (Mimran and another, Part 20 Claimants) [2005] Ch D 281. In analysing these cases, the CA in Sudha Natrajan v The Bank of East Asia Ltd [2017] 1 SLR 141 stated at [63]:

The presumption of tracing is, therefore, relied upon in instances where there is an evidential difficulty. More fundamentally, it is invoked in instances where there is a mixed fund that consists of moneys belonging both to a claimant and to a fiduciary. However, in the present case, no such difficulty arises. Following from my findings that the CAD 4m also belongs to the Plaintiff Companies, all of the assets in Ernest’s Personal UBS Account belonged to the Plaintiff Companies. With there being no mixed fund, or any evidential difficulty, there is no need to rely on any presumptions of tracing.

Given that the CAD 4m belongs to the Plaintiff Companies, Ernest would not be entitled to deal with the assets as if they were his own. He would, thus, not be entitled to transfer the US$2.75m to Isabel. The very fact that he had done so was a breach of the fiduciary duties that he owed, as a director, to the Plaintiff Companies.

Issue 4: Whether Isabel is liable for knowing receipt of the US$2.75m

The constituents of liability for a claim in knowing receipt were set out by the CA in George Raymond Zage III and another v Ho Chi Kwong and another [2010] 2 SLR 589 (“George Raymond”) at [23]:

I am satisfied that the first two elements of disposal and receipt (ie, elements (a) and (b) in the quote above) are made out. The CA in S 178 CA Judgment had specifically found that the assets, valued at CAD 663,033,557.61, were transferred to Ernest’s Personal UBS Account in breach of his fiduciary duties (at [155] and [231]). Furthermore, for reasons explained above, I find that the US$2.75m was transferred to Isabel out of the Plaintiff Companies’ assets of CAD 663,033,557.61. Alternatively, even on Isabel’s submissions that the US$2.75m was from the pre-existing CAD 4m, this sum was not Ernest’s personal money and it belongs to the Plaintiff Companies. Hence, Ernest’s transfer of the CAD 4m would be in breach of his fiduciary duties.

In respect of the last element of knowledge, the relevant consideration is that “[t]he recipient’s state of knowledge must be such as to make it unconscionable for him to retain the benefit of the receipt” (see George Raymond at [23], citing the observations by Nourse LJ in Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001] Ch 437. This concept of unconscionability is not to be determined rigidly but is highly fact-centric and flexible (George Raymond at [32]).

In the present case, the question then is whether Isabel was aware that the US$2.75m that she received was traceable to Ernest’s breach of fiduciary duties, such that it would be unconscionable for her to retain this sum. It is imperative to first clarify the law relating to knowing receipt. Isabel’s counsel argues that what is required is for the Plaintiff Companies to show that Isabel “actually knew at the time she received the [US$2.75m] from Ernest that the money in fact belonged to the [Plaintiff Companies], and was wrongfully taken by Ernest and transferred to her”. This submission, however, makes two fundamental errors in law.

Firstly, in proving the type of unconscionability that would establish the element of knowledge, the inquiry is not confined to one of actual knowledge. This was established by the CA in George Raymond ([91] supra), where the court in cautioning against adopting a rigid approach, stated at [32] as follows:

Secondly, the relevant time period in assessing knowledge is not fixed at the point of receipt by the beneficiary. The requisite knowledge may be formed at a subsequent stage, and that would still be relevant for knowing receipt. As stated in Comboni Vincenzo and another v Shankar’s Emporium (Pte) Ltd [2007] 2 SLR(R) 1020 at [78]–[79]:

Applying these principles to the present case, I find that the last element of knowledge is established. Isabel’s argument here is essentially that she could not have been aware that the funds were transferred in breach of fiduciary duties because she was “not involved in the day to day management of the [Plaintiff Companies]”, and that she had left the entire running of the business to Ernest. As such, she had not questioned when Ernest sent these “gifts” to her. In my view, this is hearsay evidence and is inadmissible as she did not testify.

Be that as it may, Isabel’s assertion is unbelievable. It is true that in S 178, the HC and the CA found that Ernest had become the de facto head of the De La Sala family (see the S 178 CA Judgment at [11] and the S 178 HC Judgment at [388(m)]–[388(n)]). However, that does not establish that Isabel did not have any knowledge whatsoever in relation to his management of assets.

At the outset, it is unlikely that Isabel truly believed that the transfers to her were genuine gifts from Ernest. The practice of describing remittances or transfers to family members as “gifts” appears to have been Ernest’s way of conducting his nefarious activities. This was observed by Loh J in the S 178 HC Judgment at [415] and [444] as follows:

Furthermore, although Isabel was not involved in the day to day management of the Plaintiff Companies, she had always remained as a director in all of them, save for JMM. She would have been kept informed, even if not consulted on the running of the companies. An example of this is the fact that she is listed as a signatory of the bank accounts of several of the Plaintiff Companies. While Isabel’s counsel sought to draw a distinction between the day to day management and the more formal activity of providing a signature, that does not detract from the fact that Isabel would have been kept abreast of the events within the companies. Further, in James’ testimony, her argument of a passive director with no knowledge runs counter to the very allegation that she put forth in a separate suit in Hong Kong:

Far from being a passive member in the family’s business affairs, she had on various occasions, intervened or attempted to intervene. For instance, following the resolutions by ECJ on 8 August 2011 to remove Ernest as a sole signatory, Isabel wrote to Edward as follows:

This was an obvious intervention on her part to salvage the situation in favour of Ernest after Ernest had informed her of ECJ’s resolutions. She had also actively chosen to take Ernest’s side in the running of the business after ECJ had personally phoned her to explain that the resolutions passed were measures to protect the Plaintiff Companies’ assets from Ernest.

Further, it is difficult to believe that she had remained completely unaware and had not asked when Ernest transferred to her the sums of money on five separate occasions. She has a good relationship with Ernest, as observed in the S 178 HC Judgment at [242]:

It is hard to imagine that Ernest had not bothered to explain the reason for his transfers and that Isabel had unquestioningly received the US$2.75m into her account. In fact, in her previous testimony in S 178, she had admitted that any such gifts would always be accompanied by a note from Ernest:

It suffices to say that Isabel had not provided evidence of such notes of the gift payments from Ernest in this instance, despite contrary practice in the past. In fact, this begs the question: if Isabel had clear and consistent evidence or testimony of being left out of the running of the companies, why had she not appeared as a witness in these proceedings?

Isabel’s assertions of her lack of involvement and unawareness must also be seen in the context of her personal attributes. As stated in Re Clasper Group Services Ltd [1989] BCLC 143 at 152: “in considering whether a particular person may be treated as having had knowledge of any of these kinds, the court must have regard to… the ‘attributes’ of that person”. Isabel’s assertions here are also consistent with that in S 178. However, those same assertions were resoundingly rejected by Loh J in the S 178 HC Judgment, with particular reference to her character as follows:

It is also telling that, as mentioned above at [23], the sums transferred to Isabel only came to light in S 178 after she had testified that she had received no further sums from Ernest.

The above goes to show that Isabel, assuming she did not have actual knowledge, must have had constructive knowledge at the time of the transfers that the sums could be traced to Ernest’s breach of fiduciary duties.

However, even if she did not have knowledge at the point of transfers, following the conclusion of S 178, the Plaintiff Companies’ lawyers wrote to Isabel informing her of Ernest’s breach. In the letters, it was also highlighted to Isabel that since she had disclaimed any further entitlement to the assets belonging to the Plaintiff Companies, she would not be entitled to the US$2.75m. Contrary to Isabel’s assertions, I find that these letters contained sufficient particulars for her to be aware that the US$2.75m she possessed were transferred to her under unconscionable circumstances. At this point in time, she would be affixed with the requisite knowledge.

In the remotest possibility that Isabel harboured a genuine belief that the US$2.75m was not traceable to company assets, she must know now or soon after S 178 that Ernest’s breach of fiduciary duties has tainted the US$2.75m. Isabel must, therefore, fulfil the primary duty to return these assets to the Plaintiff Companies as she was a director in all the Plaintiff Companies except JMM.

Issue 5: Whether Isabel is in breach of her fiduciary duties to the Plaintiff Companies

A director’s duty to act bona fide in the interests of the company is axiomatic. In the words of Lord Green MR in Re Smith and Fawcett Ltd [1942] Ch 304 at 306: “[directors] must exercise their discretion bona fide in what they consider – not what a court may consider – is in the interests of the company”. This duty is also enshrined in s 157 of the Companies Act (Cap 50, 2006 Rev Ed) (see Ho Kang Peng v Scintronix Corp Ltd [2014] 3 SLR at [35], citing Multi-Pak Singapore Pte Ltd v Intraco Ltd [1994] 1 SLR(R) 513 at [22]).

I find that Isabel was in breach of her duty to act bona fide in the interests of the Plaintiff Companies (except JMM) and she was also in breach of the no-conflict rule. Isabel is aware that the US$2.75m is an asset belonging to the Plaintiff Companies. Despite such knowledge, she retains the money for her own benefit. Further, when the Plaintiff Companies requested the return of the US$2.75m after the conclusion of S 178, she refused and insisted that they were gifts from Ernest.

I disagree with Isabel’s arguments that the Plaintiff Companies had “implicitly consented and authorised” the existence of the conflict simply because she had always been receiving sums from Ernest since 1978. The evidence is clear that the US$2.75m is made up of transfers from Ernest in breach of his fiduciary duties. The fact that the Plaintiff Companies had commenced S 178, coupled with the findings in S 178, makes it evident that the transfers aggregating US$2.75m were not authorised by the Plaintiff Companies in any instance.

The breaches of her duty to act bona fide in the interest of the Plaintiff Companies (except JMM) make Isabel liable to pay the US$2.75m to the Plaintiff Companies.

Issue 6: Whether Isabel is unjustly enriched by the US$2.75m

Given that I have found that Isabel is liable for knowing receipt and is also in breach of her fiduciary duties, the Plaintiff Companies have succeeded in establishing their claim for the US$2.75m. For completeness, however, I shall examine the merits of the Plaintiff Companies’ claim in unjust enrichment.

The elements required to successfully maintain a claim in unjust enrichment are whether: (a) the defendant has been enriched or benefitted; (b) the enrichment is at the expense of the plaintiff; (c) the enrichment was unjust; and (d) there are any defences (see Wee Chiaw Sek Anna v Ng Li-Ann Genevieve (sole executrix of the estate of Ng Hock Seng, deceased) and another [2013] 3 SLR 801 (“Anna Wee”) at [98]–[99]).

The Plaintiff Companies raise this argument on unjust enrichment as a parallel claim to that of knowing receipt. They argue that Isabel is unjustly enriched by US$2.75m and that “the transfer was without their knowledge and/or consent”. In my view, two contentious issues have to be dealt with as a result of their claim: (a) whether it was at the expense of the Plaintiff Companies; and (b) whether lack of knowledge and/or consent is a valid unjust factor.

Isabel’s receipt of the US$2.75m was at the expense of the Plaintiff Companies

In relation to the first issue, as noted by the CA in Anna Wee at [112]: “the rule that the benefit must have been at the expense of the claimant is less straightforward in a situation involving multiple parties, especially where the defendant is not the immediate recipient of the benefit from the claimant.” That being said, such claims are still possible, as stated in Anna Wee at [113] and [115]–[116]:

The difficulty in claims involving third-party scenarios is naturally that it will be harder to prove a relevant nexus between the plaintiff’s loss and the benefit received by a third-party defendant. This was demonstrated in the case of Anna Wee itself where the plaintiff, Anna Wee (“Wee”), was married to Ng Hock Seng (“Ng”) for 10 years. Throughout the marriage, Wee supported Ng and the family financially as she believed that he was a man of modest means while she came from a wealthy family. When the parties divorced, Wee agreed not to seek a division of assets, allegedly on the basis of representations made by Ng. Subsequently, Wee discovered that Ng had accumulated vast assets, which he placed in offshore companies and trusts. Wee brought a claim, inter alia, against the trustees for unjust enrichment. However, her claim failed, with one of the reasons being that because she had no legal or equitable claim or entitlement to the moneys in the trust, there was no nexus established (see Anna Wee at [155], [158]–[160]).

A similar difficulty arose in the case of Alwie Handoyo v Tjong Very Sumito and another and another appeal [2013] 4 SLR 308 (“Alwie Handoyo”). In that case, Tjong Very Sumito (“Sumito”), the seller of shares in two Indonesian companies, had contracted with the buyer, Antig, such that a portion of the purchase price would be paid to a third-party offshore entity. This entity was controlled by Alwie Handoyo (“Handoyo”) at the time. Sumito subsequently asserted that he was entitled to receive the entirety of the purchase price and sued Handoyo, inter alia, for unjust enrichment over the portion that Handoyo had received from Antig. For the claim in unjust enrichment, the CA held that Handoyo’s enrichment was not at the expense of Sumito, as the money had come from Antig. Sumito’s proper recourse was to sue Antig under the law of contract.

I note also that in situations involving more than two parties, there are differing approaches to dealing with this element of benefit at the plaintiff’s expense. While the CA in Anna Wee did not purport to make a definitive finding on the correct approach (Anna Wee at [123]), it rejected the application of a “causal connection” approach that has been advocated by certain commentators (see Peter Birks, Unjust Enrichment (Oxford: Oxford University Press, 2nd Ed, 2005) at p 89; also Charles Mitchell, Paul Mitchell & Stephen Watterson, Goff & Jones: The Law of Unjust Enrichment (Sweet & Maxwell, 9th Ed, 2016) at pp 160–161). The preferable view according to the CA, with which I agree, is as stated in Anna Wee at [123], [126] and [128]:

It is, therefore, clear that when a plaintiff establishes links via the tracing process, such that a pre-existing equitable title exists, this element of benefit at the expense of the plaintiff is established. The findings in Issues 2 and 3 (at [55]–[90]) are relevant in this regard, such that Isabel’s receipt of the US$2.75m was at the expense of the Plaintiff Companies, as there is the requisite proprietary link.

The unjust factor

This element, that the enrichment was unjust, is one that must be pleaded with sufficient particularity, pointing to a specific unjust factor. As stated in Anna Wee at [134], there is no freestanding claim on the abstract basis that it is “unjust” for the defendant to retain the benefit – there must be a certain recognised unjust factor or event which gives rise to the claim. The Plaintiff Companies rely on the factor of lack of consent to establish their claim. Isabel argues that this is not a recognised unjust factor.

The very existence of this unjust factor of lack of consent is indeed a questionable one, as a matter of Singapore law. I recognise that arguments have been made that lack of consent should be rejected as an unjust factor, drawing on the CA’s rejection of the factor for want of authority in Alwie Handoyo ([120] supra) (see for instance Tang Hang Wu, Principles of the Law of Restitution in Singapore (Academy Publishing, 1st Ed, 2019) at 05.018).

However, in Anna Wee ([116] supra), after noting the academic debate surrounding the recognition of lack of consent, Andrew Phang Boon Leong JA observed at [139] as follows:

It, thus, can be seen that the CA did not express a conclusive view as it was not necessary on the facts of Anna Wee. Since then, there is a High Court decision, AAHG, LLC v Hong Hin Kay Albert [2016] SGHC 274 (“AAHG, LLC”), that appears to be in support of this being an unjust factor.

In AAHG, LLC, Universal Medicare Pte Ltd (“Universal”) obtained a loan from Medical Equipment Credit Pte Ltd (“MEC”). As part of the agreement, 10% of the shares in Universal were registered in the name of MEC’s parent company, DVI Inc (“DVI”). The remaining shares in Universal were held by the defendant, Hong Hin Kay Albert (“Albert”), his brother and a third party. Albert and his brother subsequently cancelled the DVI shares and registered Albert as the holder of these shares instead. When DVI subsequently became insolvent, the assets were transferred to AAHG, LLC, who commenced an action against Albert for conversion and in the alternative, for unjust enrichment. Chua Lee Ming JC (as he then was) allowed the claim for conversion and went on to analyse the alternative claim, observing at [74]:

Subsequently, in Ong Teck Soon (executor of the estate of Ong Kim Nang, deceased) v Ong Teck Seng and another [2017] 4 SLR 819 (“Ong Teck Soon”), Steven Chong JA recognised AAHG, LLC as having applied lack of consent as a factor (at [24]). There was, however, no need for Chong JA to express an opinion on the facts of Ong Teck Soon.

I can accept that lack of consent should be recognised as an unjust factor. On the facts of this case, there is a clear lack of consent from the Plaintiff Companies in relation to the five transfers aggregating US$2.75m to Isabel. As mentioned above at [22], it was only on Isabel’s testimony in S 178 that the Plaintiff Companies came to know about the transfers. This was confirmed by James who testified as follows:

If the Plaintiff Companies had not even been aware of the transactions, they would surely have been unable to provide their consent. I, thus, find that the transfer of the US$2.75m amounts to an unjust enrichment for Isabel.

Conclusion

In summary, I agree with the findings in S 178 that Ernest had misappropriated the CAD 663,033,557.61 from the Plaintiff Companies and he was ordered to return this sum to them. The sum of US$2.75m that was transferred to Isabel came from the CAD 663,033,557.61. Therefore, the Plaintiff Companies have the right to claim against Isabel for the return of the US$2.75m. Her argument that the rule against double recovery prevents the Plaintiff Companies from claiming the sum from her because Ernest intends to return more than CAD 663,033,557.61 to the Plaintiff Companies is unmeritorious. Furthermore, Ernest has been very tardy in his repayment to the Plaintiff Companies since the CA made the order in S 178. As at the date of this present case, Ernest has yet to make full repayment to the Plaintiff Companies. The Plaintiff Companies are not confident that Ernest will make full repayment due to the reasons stated above in [51].

Isabel’s defence that the US$2.75m was a gift from Ernest and that it came from Ernest’s pre-existing assets of CAD 4m and not from the Plaintiff Companies’ CAD 663,033,557.61 has been refuted by evidence which shows that even the CAD 4m belongs to the Plaintiff Companies. Hence, the Plaintiff Companies’ claim against Isabel is made out.

I also find that Isabel, being director of the Plaintiff Companies, save for JMM, is liable for knowing receipt as she knew and ought to have known that the US$2.75m belongs to the Plaintiff Companies. This is particularly the case after the outcome of S 178 was known and after the Plaintiff Companies’ lawyers informed her of Ernest’s breach of fiduciary duty and that she had to return the US$2.75m.

Isabel also breached her fiduciary duties as director of the Plaintiff Companies, save for JMM, as she had breached the no-conflict rule when she received and retained the US$2.75m belonging to the Plaintiff Companies without their consent.

Isabel also unjustly enriched herself at the expense of the Plaintiff Companies as the US$2.75m was not given to her with the consent of the Plaintiff Companies.