It is well-established that for a Quistclose trust to arise, the plaintiff must prove that the monies were transferred to the transferee to be applied exclusively to an agreed purpose which subsequently failed.
The issue arises as to what constitutes sufficient evidence for that requirement to be satisfied in any given case.
We successfully acted as counsel for the plaintiff in Wei Ho-Hung v Lyu Jun [2022] 2 SLR 1066 at first instance and subsequently successfully resisted the appeal brought by the defendant. In this article, we summarise the Appellate Division’s decision, paying particular attention to the exclusivity of purpose requirement.
The facts
The plaintiff, a national of the People’s Republic of China (“PRC”) based in Beijing, retired after selling his shares in a dental clinic in the PRC for a substantial sum. The defendant, originally a PRC national, relocated to Singapore in 2014. At the time of the trial, she was a citizen of both the PRC and Grenada.
The duo first met in March 2016. The plaintiff was married while the defendant was a divorcee with 4 children from her previous marriages. They became romantically involved and soon formed an intention for the plaintiff to relocate to Singapore where they would marry and build a life together. However, their relationship soured in 2019 and they parted ways without marrying.
According to the plaintiff, when they were in a relationship, he transferred some S$8,000,000 to the defendant for various purposes some of which however did not eventuate. Those purposes include the following (* denotes that the purpose was not carried out):
- To purchase an apartment in D’ Leedon (the “D’ Leedon Apartment”)
- To purchase a car (the “Car”)
- For the defendant to apply for Grenadian citizenship for herself and her 4 children
- For the defendant to undergo a surrogacy procedure in the US*
- To invest in a dental clinic* (the “1st Clinic Investment”)
- To purchase a shop at Marne Road (the “Marne Road Shop”)
- To invest in another dental clinic* (the “2nd Clinic Investment”)
After they went their separate ways, the plaintiff claimed the return of the monies. He founded his claim mainly (though not exhaustively) on 2 causes of action:
- Where the monies were used to acquire an asset, the defendant held the asset in resulting trust for him.
- Where the monies were transferred for a specific purpose which was not carried out, a Quistclose trust arose.
The defendant initially denied the transfers of the monies to her. She however later admitted in her pleadings that she received some S$7,000,000 but denied any liability to return them insisting that they were the plaintiff’s gifts of love to her.
The decision of the High Court Judge (“the Judge”)
The Judge had to decide, among others, the following issues:
- Whether the plaintiff intended the monies as gifts to her.
- Whether there was a donative intent on the part of the plaintiff (which would negate the presumption of a resulting trust).
- Whether a Quistclose trust arose in respect of the monies transferred to the defendant for a purpose which was not carried out.
Based on the evidence before him, the Judge found as follows:
- There was no donative intent on the plaintiff’s part in respect of the D’Leedon Apartment and the Car; the defendant thus held these assets in resulting trust for him.
- A Quistclose trust arose in respect of the monies transferred to the defendant for the US surrogacy procedure and the 1st Clinic Investment.
- The monies for the defendant and her children to apply for Grenadian citizenship were not a gift to her but a loan.
- The plaintiff paid 80% of the purchase price of the Marne Road Shop, he did not intend a gift of those monies to her and therefore the defendant held 80% of the beneficial interest in resulting trust for him.
- The plaintiff transferred $100,000 to the defendant for the 2nd Clinic Investment which was not carried out, the defendant had returned him $60,000 and was therefore liable to return him the balance $40,000.
The decision of the Appellate Division
The defendant appealed to the Appellate Division which allowed her appeal only in relation to the $40,000 in respect of the 2nd Clinic Investment. It held that the Judge below had appeared to have proceeded on the basis that a Quistclose trust existed; however, the plaintiff’s pleadings showed that he was asserting the existence of a loan agreement for which no evidence was adduced. The Appellate Division dismissed all other aspects of the defendant’s appeal.
Our focus is on its decision to uphold the Judge’s conclusion that a Quistclose trust arose in relation to the monies transferred for the US surrogacy and the 1st Clinic Investment. The defendant contended that there was insufficient evidence to show that the plaintiff intended the funds to be applied exclusively to those 2 purposes.
In rejecting the defendant’s contention, the Appellate Division discussed what precisely such “exclusivity of purpose” entailed. Specifically, what was the type of evidence that would establish this requirement.
To answer this question, the Appellate Division examined the leading decided cases in this area (including Twinsectra Ltd v Yardley [2002] AC 164 and Quistclose itself) and the relevant literature concluding thus:
“51 The long and short of the foregoing discussion is this. By requiring less or more evidence of a lower or higher quality, the court may circumscribe or expand the applicability of the Quistclose trust doctrine. The place at which one lands in this regard depends on the position from which one begins. Cases in which Quistclose trusts have typically been asserted are those involving loans for a particular purpose, with the dispute arising because the borrower does not apply the funds to that specific purpose and later becoming insolvent. One may view cases like these with a certain scepticism and be concerned that what the party asserting the Quistclose trust is trying to do, is circumvent ordinary priority in insolvency. If so, one is more likely to apply a rigorous evidential lens, but, even then, as the foregoing discussion shows, not all courts have chosen to begin their analysis from this position even in commercial cases involving insolvency.
52 This brings us back to the present case. If the extent of evidential rigour to which even commercial cases have been subjected has not been uniformly high, there must necessarily be less room for such rigour in cases like the present involving voluntary transfers of money between individuals in a private non-commercial setting. The law has traditionally taken a sceptical view of such transfers; for example, by shifting the evidential burden of proof, as in the operation of the presumed resulting trust. Alternatively, it may – as was appropriate in this case – require less by way of rigorous proof that money transferred was not intended to be a gift, but rather, to be used exclusively for specified purposes such that the recipient did not have free disposal of the money transferred.”
In other words, it is a fact-centric exercise in determining whether it can be said that the transferor intended the monies to be used for a specific, exclusive purpose.
Adopting this approach, the Appellate Division concluded that the evidence showed that the plaintiff intended to circumscribe the defendant’s use of the monies to the stated purposes, i.e., they were not to be at the free disposal of the defendant. Therefore, a Quistclose trust arose. Among other reasons, the Appellate Division was persuaded by the following matters:
- It was the defendant who asked the plaintiff to transfer her some money to be spent on the stated purposes.
- Initially, the plaintiff expressed concerns over the amount of money he was spending on their relationship in general.
- In response, the defendant persuaded him that she was being as effective as possible in her usage of the funds, stating that the cost of the US surrogacy alone was initially S$1.4m, but that she had managed to allocate this sum towards all 3 purposes (in addition to the 1st Clinic Investment and the US surrogacy, she stated that the monies would also be used to purchase a Cairnhill property).
Concluding remarks
This decision is significant as it informs practitioners that the evidential hurdle to show exclusivity of purpose is one which depends on the nature of the transaction in the first place. The hurdle to prove exclusivity of purpose would be lower for voluntary transfers of money (as in the present case), and higher for commercial transactions. The prospect of an applicant seeking to circumvent the ordinary priority in insolvency would also be a relevant consideration for the Singapore courts.
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