S’pore court allows trustee to recoup $1.18m in income that was overpaid to trust beneficiaries
Source: Straits Times
Article Date: 19 Aug 2024
Author: Selina Lum
It was the first time a Singapore court has considered a trustee’s exercise of its right of recoupment.
For almost two decades, many descendants of a wealthy Arab trader who lived in Singapore in the early 1900s received more money than they should be getting from the family trust he set up.
Conversely, other beneficiaries received less than they should be getting.
The trust was established by Yemen-born Shaik Sallim Talib, who made his fortune in Indonesia and made Singapore his home until 1935.
After his death in 1937, income from his large portfolio of properties continued to be divided among his numerous descendants who live all over the world, including Singapore and Yemen.
The trust has been managed by trust company British and Malayan Trustees since 1989. One of the properties currently owned by the trust is the upmarket Treetops Executive Residences in Orange Grove Road.
Due to a misinterpretation of a term of the trust, income was erroneously distributed between November 2001 and November 2019, resulting in overpayments for some and underpayments for others.
The trustee agreed to personally make good the underpayments between May 2014 and November 2019. But contentions remain over the erroneous distribution before May 2014, which amounted to about $1.46 million.
On July 16, 2024, High Court Judge Hri Kumar Nair ruled that the trustee can recoup the overpayment by adjusting the future payments to the overpaid beneficiaries.
This means that those who were overpaid are not being asked to pay back what they received. Rather, monies would be taken from their future entitlements, and paid to the underpaid beneficiaries to make up for the underpayments.
Justice Nair approved the trustee’s proposed plan to redistribute about $1.18 million. This figure takes into account a shortfall of about $286,000 that would not be recouped from overpaid beneficiaries who are dead.
It was the first time a Singapore court has considered a trustee’s exercise of its right of recoupment.
On Aug 8, Justice Nair issued written grounds setting out detailed reasons for his ruling.
The judge said it was undisputed that the overpayments were caused by the wrong interpretation being applied, and the trustee had a duty to exercise this right and recover any overpaid sums as far as possible.
He found that the terms of the proposed plan were reasonable and appropriate to be implemented.
The dispute stemmed from two conflicting interpretations over the question of how the share of a beneficiary who died without offspring should be distributed.
Under the terms of the trust, the net income from the assets would be divided among Mr Sallim Talib’s children after his death. Each son was entitled to two portions and each daughter entitled to one portion.
When his children die, their respective portions would be passed on to their male and female children in a 2:1 ratio. Each portion would continue being passed on.
In the last two decades, the lineages of four beneficiaries have been broken.
The first, a great-grandchild of Mr Sallim Talib, was deemed to have died without children at the time of her father’s death in November 2001, as she was married to a non-Muslim.
The other three were grandchildren of Mr Sallim Talib who died without children in June 2003, June 2008 and May 2014 respectively.
On each occasion, the trustee sought legal advice and decided to divide the shares of these four among all surviving beneficiaries.
However, the siblings of the beneficiary who died in May 2014 challenged this approach, which led the trustee to seek a ruling from the High Court.
In November 2019, after considering the conflicting legal opinions, then Judicial Commissioner Vincent Hoong concluded that the interpretation that had been applied by the trustee was incorrect.
Instead, he ruled that when a beneficiary dies without offspring, his share ought to be divided only among those who were descended from the same child of Mr Sallim Talib.
Since this ruling, the trustee has applied the court’s interpretation in distributing the trust income. Thus, the overpayments were limited to the period between November 2001 and November 2019.
In April 2023, more than 30 beneficiaries who were underpaid after the May 2014 death sued the trustee to hold the company liable for applying the wrong interpretation. A year later, a settlement was reached, and the lawsuit was discontinued.
Without admitting liability, the company agreed to pay about $1.19 million into the trust and distribute the relevant amounts to the beneficiaries who had been underpaid between May 2014 and November 2019.
However, there was no consensus on the overpayments prior to May 2014.
In 2022, the trustee, represented by Ms Mak Wei Munn of Allen & Gledhill, sought directions from the court on how and whether recoupment should be undertaken to resolve this. It proposed a recoupment exercise over a three-year period.
Two underpaid beneficiaries, represented by Ms Lin Shumin of Drew & Napier, argued that the trustee should exercise its right of recoupment.
A group of 20 overpaid beneficiaries, represented by Mr Andy Lem of Harry Elias Partnership, opposed the bid for recoupment.
They argued that the impact on their entitlements would range from 9 per cent to 15 per cent for a year.
But Justice Nair said this was not supported by any calculations; in fact, the trustee had estimated that their entitlements would be reduced by only 5 per cent or less per year.
Source: Straits Times © SPH Media Limited. Permission required for reproduction.
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