UVJ and others v UVH and others and another [2020] SGCA 49: judgment here; Supreme Court case summary here.
Significance: The Court of Appeal set out the law on account of profits and causation in claim against trustees and executors of a will and estate.
The case illustrates the possible course of action which beneficiaries of an estate may be able to take in holding executors / administrators of estates or wills to account, including for delay in providing information to the beneficiaries upon request and failing to distribute assets from the estate in a timely manner without good reasons.
There are three types of account at [23]:
a. Account of administration on a general or common basis;
b. Account of administration on a wilful default basis;
c. Account of profits.
a. Account of administration on a general or common basis is not based on wrongdoing. The beneficiary has a right per se to an account by the trustee of trust assets: [24]. There are three phases in this process: i. whether the claimant has a right to an account; ii. taking of the account; iii. the court grants consequential relief. The scope of account is for what was actually received by the trustee and his disbursement and distribution of it. If the account discloses discrepancies, the beneficiary can then decide whether to falsify (remove) an entry or surcharge (claim an addition) an account.
b. Account of administration on a wilful default basis is premised on a trustee’s misconduct (wilful neglect or default). The scope of account is wider than on the common basis: in addition, what the trustee might have received had it not been for the default. This is a higher burden of proof. The trustee must explain any suspect transaction, even if that particular transaction has not been complained of by the beneficiary. See [25]-[26]. The plaintiff may then ask for an award of the appropriate amount of compensation, or be content with a monetary award rather than attempt to follow or trace the asset/money: [27].
After taking of an account, if there are discrepancies, a beneficiary may decide to falsify a wrongful expense or loss charged to the account. She may require that the entry in the account be deleted or disallowed. The trustee then has to reconstitute the trust fund in specie or in monetary terms. E.g. if there was a painting that has been lost, the trustee must replace it or pay its value. See [28].
Or the beneficiary may seek to surcharge the account and show that the trustee has received more than the account records indicate. This includes treating the assets which the trustee failed to obtain for the benefit of the trust in breach of trust as having been obtained under the trust. The benefit is added to the account. See [28].
An account of profits is different from a surcharge: the focus is on gain to the fiduciary trustee whereas the latter is on loss to the trust fund. See [29].
An account of profits is a remedy and not a process: [28]. It may be a remedy for a breach of any form of fiduciary duty, regardless of whether the relationship is predicated on the custody of assets: [29].
What are the duties owed by executors of an estate or will? See [56]-[57].
An executor owes beneficiaries of the estate fiduciary duties, a duty to act honestly and in good faith, and a duty of loyalty. Specifically, a duty:
a. To inform beneficiaries of the existence and terms of their interest in the estate and to furnish an account of the estate;
b. To distribute the estate’s assets in a timely manner;
c. Not to place himself in a position of conflict between duties and interests;
d. Not to make a profit from use of the fiduciary position without the beneficiaries’ informed consent.
Executors are under a continuing duty to keep proper accounts and provide these upon request. A failure to voluntarily provide accounts could in and of itself be a breach if it was intentionally to keep beneficiaries uninformed. See [64].
Executors may be in breach of duty by failing to distribute assets of the estate without reasonable justification (and for the executor’s own benefit): [65].
Executors ought not to vote an estate’s shares in a company without informed consent of the beneficiaries: [67]-[69].
In this case, the defendants were directors of a company even before they were executors of the estate. However, this did not exculpate them from their responsibilities as executors. It meant that remuneration or profits earned before they were appointed as executors would not be subject to an account of profits from their breach of duties. The re-appointment and remuneration of directors had also been approved at general meetings subsequent to the deceased person’s demise: [71].
A key question in this case is whether causation between the breach and the directors’ remuneration (including benefits in kind) had to be established. That is, whether the remuneration was attributable to a breach of fiduciary duty as executors. (This is a separate question from whether any loss to beneficiaries needs to be caused before a fiduciary is obliged to account for unauthorised profits.) See [73].
Does the relationship between the profits and the breach be one of but-for causation: 75].
The Court of Appeal held that but-for causation applied: [78]-[87].
The courts have always been able to consider hypothetical counterfacuals, so there is no reason why this cannot be done for an account of profits: [88].
The court therefore held that the profits sought to be disgorged via an account of profits must be caused by the breaches of fiduciary duty, whether this be that the trustee acted in conflict of interest or otherwise: [98].
On the facts of the case, the defendants’ use of the estate’s shares to vote made no difference to the outcome. Even if the estate’s shares had been used to vote against the resolutions re-appointing the defendants as directors and approving their remuneration, the outcome would have been the same because of their majority control.
The court found it speculative to suggest that the plaintiffs would have taken steps to stop the continuation of the defendant directors’ remuneration as the plaintiffs did not give evidence on this. The plaintiffs also only made inquiries a significant time later (about 10 years): [111]-[113]. Even if the plaintiffs would have taken steps to stop the remuneration received by the defendants, that would be the same as saying that the defendants’ breaches of non-disclosure and non-distribution had caused the remuneration. This would assume that the plaintiffs would have been able to establish e.g. minority oppression: [114].
The court upheld the order that the executors be removed and replaced. In addition to their intentional failure to inform and to distribute, their attempt to belatedly include a claim (for the mother’s estate) and their inclusion of a legal expense which was not reasonably incurred (because the OS proceeding was filed because of lack of information supplied by the executors) suggested a want of probity: [129]-[131].