Case Update: Chng Weng Wah v Goh Bak Heng [2016] SGCA 09 – Singapore Court of Appeal clarifies and applies law on order for account and equitable defence of laches
Significance: Singapore Court of Appeal clarifies law on order for account under equity and equitable doctrine or defence of laches.
Order for Account
The accounting procedure under the law of equity is often used for a variety of purposes. In a case involving a violation of fiduciary duties, the court may order an account of profits in order to disgorge profits wrongfully gained by the defendant. There are also accounting procedures that are specific to the type of instrument in question, such as, for instance, mortgage accounts, where a mortgagee in possession is made to account to the mortgagor or any other party having an interest in the equity of redemption. The present case concerned only with the accounting of funds, specifically that of a general or common account: [20].
[21]: Where a party has custody of a fund which it is obliged to administer for the benefit of another, such as in the case of a trust, one of the methods by which equity polices the due administration of the funds is by holding the fiduciary to account. The procedure for the accounting of funds may be further broken down into two separate categories:
(a) general or common accounts, where no misconduct has been alleged; and
(b) accounts on the footing of wilful default, which involves a breach of duty on the part of the fiduciary.
[22]: The claim for a common account may be divided into the following three stages (see John McGhee gen ed, Snell’s Equity (Sweet & Maxwell, 33rd Ed, 2015) (“Snell’s Equity 2015”) at para 20–014):
(a) whether the claimant has a right to an account;
(b) the taking of the account; and
(c) any consequential relief.
In determining whether a claimant has a right to an account, the court has to first ascertain whether the defendant has received property in circumstances sufficient to import an equitable obligation to handle the property for the benefit of another. The claimant does not have to establish any mishandling of the property, or breach of trust, on the part of the defendant before a duty to account can arise: [23].
Thereafter, the defendant bears the burden of establishing that it has been released from the duty to account by a settlement. Snell’s Equity 2015 summarises the position as such:
(2) Settled accounts. It is a good defence to a claim for an account for the defendant to prove that they have been released from their duty to account by a settlement. If the accounts have been settled then the claim will be defeated unless the beneficiary can show that the settlement was obtained by fraud or imposition, or that it contains sufficient errors of sufficient magnitude to warrant setting it aside and taking the accounts from the beginning. If the claimant can only prove errors of a lesser number or magnitude then they will be granted liberty to surcharge and falsify. By this order the master is only directed to rectify specific errors in the settled account, the onus falling on the claimant.
A distinction has to be drawn between the case of a trustee having to establish that he no longer owes a duty to account as a result of there being settled accounts between the parties and the case of a trustee having to give an actual account in the course of defending a claim for an account. While it is accepted that a trustee may, at the first stage of the claim, be able to prove that he or she no longer owes a duty to account by providing an actual account in the course of legal proceedings, that is only but one method by which the trustee is able to resist a claim for an account: [38].
Equitable Doctrine of Laches
The doctrine of laches has been summarised in Cytec Industries Pte Ltd v APP Chemicals International (Mau) Ltd [2009] 4 SLR(R) 769 at [46] (and cited with approval by this court in eSys Technologies Pte Ltd v nTan Corporate Advisory Pte Ltd [2013] 2 SLR 1200 at [37]–[38] and Dynasty Line Ltd (in liquidation) v Sukamto Sia and another and another appeal [2014] 3 SLR 277 at [58]) as follows:
Laches is a doctrine of equity. It is properly invoked where essentially there has been a substantial lapse of time coupled with circumstances where it would be practically unjust to give a remedy either because the party has by his conduct done that which might fairly be regarded as equivalent to a waiver thereof; or, where by his conduct and neglect he had, though perhaps not waiving that remedy, yet put the other party in a situation in which it would not be reasonable to place him, if the remedy were afterwards to be asserted (Sukhpreet Kaur Bajaj d/o Manjit Singh v Paramjit Singh Bajaj [2008] SGHC 207 at [23]; Re Estate of Tan Kow Quee [2007] 2 SLR(R) 417 at [32]). This is a broadbased inquiry and it would be relevant to consider the length of delay before the claim was brought, the nature of the prejudice said to be suffered by the defendant, as well as any element of unconscionability in allowing the claim to be enforced (Re Estate of Tan Kow Quee at [38]).
The basis for equitable intervention by way of the doctrine of laches is ultimately found in unconscionability. The inquiry should be approached in a broad manner, as opposed to trying to fit the circumstances of each case within the confines of a preconceived formula derived from earlier cases: [44].
The principle that laches and delay will generally not be a bar to a claim by a beneficiary against trustees for the recovery of trust property was developed in the context of “an ordinary trust by way of gift to trustees for the benefit of the beneficiaries”. It was not intended to cover trusts which arise in the course of a normal commercial relationship: [58].
A distinction ought to be drawn between a case where there are no factual disputes as regards the beneficiary’s entitlement to the trust property and a case where such disputes exist. The principle that laches will not be applicable in a claim by a beneficiary against trustees for the recovery of trust property should not be extended to the latter scenario, especially where the factual disputes had arisen due to the loss of evidence over time: [59].
On the facts, the Court held that the defence of laches applies. The delay in the commencement of legal proceedings had resulted in the loss of evidence, primarily the ability of the defendant to recall the events that had taken place. As a result, there are factual disputes concerning the plaintiff’s entitlement to any shares or sale proceeds that may still be in the defendant’s possession. This is not a case involving a straightforward claim for an ascertained property in the trustee’s possession. The Court found that it was is unconscionable for the plaintiff to now seek an account from the defendant after such an inordinate delay, especially when both parties had conducted their joint investment on a relatively informal basis with limited documentation: [59].