Case: Singapore High Court lays down framework for determining whether to not enforce a trust for illegality

Significance: The General Division of the High Court of Singapore (per Goh Yihan JC as he then was) laid down a legal framework adapted from that in Ochroid Trading* (in which the Singapore Court of Appeal established the framework for illegality in claims in contract and recovery in restitution) for determining whether to not enforce a trust for illegality (see [80]).

Lau Sheng Jan Alistair v Lau Cheok Joo Richard [2023] SGHC 196

* Ochroid Trading Ltd and another v Chua Siok Lui (trading as VIE Import & Export) and another [2018] 1 SLR 363

At the first stage, the court should consider whether the trust in question is illegal in itself and therefore void and unenforceable. A trust is illegal in itself when it is expressly or impliedly prohibited by statute or falls within an established category of situations that renders it void and unenforceable.

The latter includes trusts which are adverse to religion and morality (In re Watson, decd [1973] 1 WLR 1472), and trusts contrary to succession law (Attorney-General v Pearson (1817) 3 Mer 353).

Second, if the trust is not illegal in itself, the court should then consider whether the trust concerned is created for an illegal purpose, or which arose as an incidental consequence of the illegal purpose. If so, the proportionality analysis applies to determine a proportionate response to the illegality, and the factors to be considered include (derived from Ting Siew May v Boon Lay Choo and another [2014] 3 SLR 609 at [70]):

(i) whether allowing the claim would undermine the purpose of the prohibiting rule;

(ii) the nature and gravity of the illegality;

(iii) the remoteness or centrality of the illegality to the trust;

(iv) the object, intent, and conduct of the parties; and

(v) the consequences of denying the claim.

Third, if the court decides that the trust was created for an illegal purpose and should not be enforceable, the court may consider if the party seeking to enforce the trust in question can nonetheless establish an alternative basis for enforcing a proprietary interest by the operation of trusts law, such as by a resulting trust if his claim to enforce an express trust fails because the express trust is found to be unenforceable.

In considering this, the court should apply the principle of stultification to determine if, in allowing the claim, the fundamental policy that prohibited the trust in question in the first place would be undermined.

The court left open the possibility that the second stage of the Ochroid Trading framework could still apply in the trusts context, where the party seeking to enforce the trust can make out his claim by some other independent cause of action: see [79].

Click to access [2023]%20SGHC%20196.pdf

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.