Case Details
- Citation: [2023] SGHC 196
- Title: Lau Sheng Jan, Alistair v Lau Cheok Joo Richard & Anor
- Court: High Court (General Division)
- Originating Application No: 492 of 2022
- Statutory/Procedural Context: In the matter of Section 18(2) of the Supreme Court of Judicature Act 1969
- Date(s): 1, 29 March 2023; 19 April 2023; Judgment reserved; 21 July 2023
- Judge: Goh Yihan JC
- Applicant: Lau Sheng Jan, Alistair
- Respondents: (1) Lau Cheok Joo Richard; (2) Sng Gek Hong Cynthia
- Legal Areas: Trusts; Unlawful trusts/illegality; Sham trusts; Saunders v Vautier
- Statutes Referenced: Criminal Justice Act 1993
- Judgment Length: 46 pages; 14,698 words
Summary
This High Court decision concerns an application by a sole beneficiary to terminate a family trust and obtain transfer of the trust property to him. The applicant, Lau Sheng Jan, sought a declaration that a trust deed dated 27 July 2020 should be terminated and that the property held by the respondents as joint trustees should be vested in him. The respondents were his parents; the second respondent did not object, but the first respondent opposed the application.
Although the applicant invoked the well-established rule in Saunders v Vautier to bring the trust to an end, the case turned on contested facts about the purpose of the trust. The first respondent alleged that the trust was either a sham or an unlawful arrangement intended to avoid Additional Buyer’s Stamp Duty (ABSD). The court held that the trust was not a sham and, crucially, that it was not constituted for an illegal purpose. As a result, the applicant’s entitlement to terminate the trust under Saunders v Vautier was not defeated by illegality.
Beyond resolving the immediate dispute, the judgment is significant for its treatment of the illegality defence in the trusts context. The court reviewed the traditional “formal reliance” approach associated with Tinsley v Milligan, considered developments in other jurisdictions, and adopted a modified analytical framework for illegality in trusts cases, drawing on the two-stage approach in Ochroid Trading Ltd v Chua Siok Lui. This provides a structured method for future courts when illegality is raised against trust enforceability and restitutionary recovery.
What Were the Facts of This Case?
The applicant, a 26-year-old Singaporean, lived at the trust property together with his mother (the second respondent) and his sister. His father (the first respondent) lived separately at another flat. The property in question was purchased in July 2020 pursuant to an option to purchase dated 13 July 2020 for a total consideration of $4.925m. At the time of purchase, the respondents were in their mid-50s and the first respondent had retired. The purchase price was funded through various loans, which were later repaid through the sale of three other properties and liquidation of some personal assets.
After the purchase arrangements were in place, the respondents jointly engaged solicitors from Lee & Lee to draft and execute a trust deed in July 2020. The trust deed provided that the respondents would hold the property (or, alternatively, the net proceeds of sale) on trust as joint trustees for the applicant’s sole benefit. The solicitor, Ms Sharon Tay, advised on the conveyancing process and the preparation of the trust deed. The parties agreed that Ms Tay had advised that the trust could be “collapsed”, but they disputed what that advice meant and what the respondents intended when creating the trust.
The central factual dispute concerned the purpose of the trust. The applicant and the second respondent said the trust was created as a gift or legacy for the applicant while the respondents were still alive. In contrast, the first respondent alleged that the trust was created to avoid ABSD. He claimed the respondents believed it would be better for the applicant to beneficially own the property so that the respondents could “buy” time to dispose of other assets and avoid ABSD they could not afford. The first respondent also alleged that Ms Tay advised that the trust could be “collapsed” after the ABSD period ended, after which the respondents could “take back” the property if they chose to do so.
Complicating matters, the parties also disputed the existence and effect of an alleged loan agreement dated 4 August 2020. The first respondent claimed the applicant and the respondents signed a loan agreement under which the respondents loaned the applicant $4.925m to purchase the property. The applicant and the second respondent denied that the applicant had signed the loan agreement at all, and they further disputed the loan agreement’s purpose. The first respondent’s position evolved: he initially said the loan agreement protected the applicant; later he said it protected the respondents, not the applicant. The applicant and second respondent maintained that the loan agreement was intended to protect the applicant’s capital in the event of divorce-related claims by the applicant’s future wife.
After the trust was executed, the respondents’ marriage deteriorated. The second respondent commenced divorce proceedings against the first respondent, who moved out to the Lorong Ah Soo flat. In light of the divorce, the applicant wanted to terminate the trust so that the property would vest in him immediately. He said this would prevent further disputes and ensure that the second respondent, his sister, and he would have a place to stay after the divorce proceedings concluded. The second respondent agreed to termination, but the first respondent objected and asked the court to decide.
What Were the Key Legal Issues?
The first legal issue was whether the applicant had established a prima facie case for termination of the trust pursuant to the rule in Saunders v Vautier. That rule generally permits beneficiaries who are absolutely entitled and who are of full age and capacity to require the trust to be terminated and the trust property transferred to them, even if the trust instrument might otherwise suggest a different arrangement. Here, the applicant relied on his status as sole beneficiary and his capacity to terminate the trust.
The second legal issue was whether the trust deed should be invalidated as a sham. The first respondent alleged that the trust was not intended to operate as a genuine trust arrangement but was instead a façade to achieve tax avoidance or other improper ends. If the trust were a sham, it would not be enforceable as a trust, and the applicant’s Saunders v Vautier claim would fail at the threshold.
The third issue was whether the trust should be unenforceable for illegality. The first respondent argued that the trust was created to avoid ABSD, which would render the trust illegal or contrary to public policy. The court therefore had to consider how the illegality defence operates in the trusts context, including whether the traditional “formal reliance” principle should apply and, if not, what analytical framework should govern.
How Did the Court Analyse the Issues?
On the Saunders v Vautier point, the court approached the application as one that, while straightforward in statement, was complicated by disputes of fact. The judge emphasised that the resolution of factual disputes would determine not only whether termination was available under Saunders v Vautier, but also whether the trust deed was a sham and whether illegality affected enforceability. Accordingly, the court directed cross-examination to resolve key factual matters, particularly those relating to the purpose of the trust and the parties’ intentions when executing the deed.
Regarding the sham allegation, the court’s analysis focused on whether the trust deed reflected the parties’ real intentions. The judge ultimately concluded that the trust was not a sham. In reaching that conclusion, the court accepted that the respondents intended to benefit the applicant through the trust. The court also treated the alleged loan agreement as supportive of the trust deed being a bona fide instrument rather than a mere pretence. In other words, the court found that the documentary and contextual evidence was more consistent with a genuine trust arrangement than with a façade designed solely to mislead or circumvent legal requirements.
Having determined that the trust was not a sham, the court turned to illegality. The first respondent’s illegality argument was that the trust was constituted for an illegal purpose—specifically, to avoid ABSD. The court therefore had to decide whether the trust was enforceable or whether illegality rendered it unenforceable. This required the court to examine the development of illegality doctrine in Singapore and how it should be applied in the trusts context.
A key part of the judgment is its discussion of the “formal reliance principle” associated with Tinsley v Milligan. Under that approach, the court would ask whether the claimant’s case required reliance on the illegal transaction in a formal sense. The judge noted that Singapore authorities had previously applied this formal reliance principle in certain contexts, but the court also considered later developments, including Ting Siew May’s rejection of the formal reliance principle and its reformulation of the illegality defence in the contractual context. The court then considered the two-stage framework in Ochroid Trading, which distinguishes between (1) whether the contract or arrangement is enforceable, and (2) whether restitutionary recovery is available even if enforceability is denied.
Importantly, the judge did not simply transplant the contractual illegality framework into trusts law without adaptation. Instead, the court adopted a modified Ochroid Trading framework tailored to the trusts context. Under this modified approach, the first stage asks whether the trust is enforceable, including whether trusts are prohibited, or whether trusts created for an illegal purpose (or arising as an incidental consequence of an illegal purpose) are unenforceable. The second stage addresses, if the trust is not enforceable, whether restitutionary recovery is nevertheless available. This structure allowed the court to address both enforceability and potential remedial consequences in a principled way.
Applying the modified framework, the court concluded that the trust was not constituted for an illegal purpose. The judge’s factual findings on intention were decisive: the court did not accept that the trust was created to avoid ABSD in the manner alleged by the first respondent. As a result, the trust was enforceable at the first stage, and the court did not need to proceed to the second stage on restitutionary recovery. The illegality defence therefore did not bar the applicant’s claim to terminate the trust.
What Was the Outcome?
The court granted the applicant’s application to terminate the trust and ordered that the property held by the joint trustees be transferred to the applicant. The practical effect was that the applicant obtained the absolute interest in the trust property, consistent with the operation of Saunders v Vautier once the trust was found to be genuine and enforceable.
Although the second respondent did not object, the first respondent’s opposition failed on both the sham and illegality arguments. The court’s findings that the trust was not a sham and was not constituted for an illegal purpose meant that the applicant’s rights as sole beneficiary could be exercised without being defeated by public policy concerns relating to illegality.
Why Does This Case Matter?
This case matters because it clarifies how courts should approach illegality arguments in trust disputes, particularly where a beneficiary seeks termination under Saunders v Vautier. While Saunders v Vautier is often treated as a relatively direct mechanism for trust termination, this judgment demonstrates that factual disputes about intention and purpose can open the door to serious defences such as sham and illegality. Practitioners should therefore treat Saunders v Vautier applications as potentially fact-intensive where the trust’s purpose is contested.
From a doctrinal perspective, the judgment is also valuable for its structured treatment of illegality. By moving away from a rigid “formal reliance” approach and adopting a modified two-stage Ochroid Trading framework for trusts, the court provides a clearer analytical pathway for future cases. This is especially relevant in Singapore, where illegality doctrine has evolved and where courts must balance coherence with the policy objectives underlying the illegality defence.
For lawyers advising on trust structuring and dispute resolution, the decision underscores the importance of evidence of genuine intention. The court’s conclusion that the trust was not a sham and was not constituted for an illegal purpose turned on the credibility and coherence of the parties’ accounts and the documentary context, including the alleged loan agreement. In practical terms, trust deeds and related contemporaneous documents should be drafted and maintained in a way that can withstand scrutiny if the trust’s purpose is later challenged.
Legislation Referenced
- Criminal Justice Act 1993
- Supreme Court of Judicature Act 1969 (Section 18(2))
Cases Cited
- Saunders v Vautier (1841) 4 Beav 115
- Tinsley v Milligan
- Ting Siew May
- Ochroid Trading Ltd v Chua Siok Lui
Source Documents
This article analyses [2023] SGHC 196 for legal research and educational purposes. It does not constitute legal advice. Readers should consult the full judgment for the Court's complete reasoning.