The Singapore Law Gazette

Consciously Uncoupling: Court of Appeal Becomes Conscious to Unconscionability in BOM v BOK

The Singapore Court of Appeal’s decision in BOM v BOK was groundbreaking because it recognised and applied a narrow form of the doctrine of unconscionability in Singapore. This has wide-ranging implications for legal practitioners for whom a new vitiating factor represents a new string to their bow in litigation or arbitration proceedings.

Introduction

BOM v BOK and another appeal [2018] SGCA 83 (BOM) involved a scintillating tale of a wife who was formerly a practising lawyer (the Wife) who, together with her father (the Father), sought to deprive her husband (the Husband) of almost all his assets in the aftermath of an extremely traumatic event in the Husband’s life. Legally, it is an important and illuminating decision which dealt with the application of four vitiating factors, viz, fraudulent misrepresentation, unilateral mistake, undue influence, and unconscionability.

While the first three factors are well-recognised and established, the last vitiating factor of unconscionability is not. In fact, the Singapore Court of Appeal had previously commented that the doctrine of unconscionability was still in flux and its relationship with economic duress and undue influence had yet to be worked out.¹Sandar Aung v Parkway Hospitals Singapore Pte Ltd (trading as Mount Elizabeth Hospital) and another (2007) 2 SLR(R) 891 at (39).BOM is therefore all the more remarkable because the Singapore Court of Appeal not only acknowledged a limited form of unconscionability as an independent vitiating factor distinct from the others but also decided in favour of the Husband on this ground.

In this article, we will first summarise the facts and reasoning of the Court of Appeal before providing a short analysis of the implications arising from BOM. We will conclude by providing some comments on the doctrine of unconscionability as approached by BOM. As we do so, we will also briefly explore the Australian approach to the doctrine.

Background Facts

In March 2014, the Husband executed a Deed of Trust (DOT) which the Wife drafted. The effect of the DOT was that the Husband and Wife would hold all of the Husband’s assets on trust for their son (the Son). Eventually, the Husband sought to have the DOT set aside on the grounds of misrepresentation, mistake, undue influence and unconscionability.

The High Court found that all four vitiating factors were established by the Husband and hence set aside the DOT. Subsequently, the Wife and the Son appealed against the High Court Judge’s decision.

The parties were married in August 2012, but mostly lived apart thereafter. The Husband lived with his mother in one of her properties (the Holland Road Property), while the Wife stayed with her parents in their family home (the Stevens Road Property).

In March 2014, shortly before the execution of the DOT, the Husband’s mother was murdered at the Holland Road Property. The Husband thus moved into the Stevens Road Property to live with the Wife and her family.

On 26 March 2014, three days after the funeral of the Husband’s mother, the Husband and his sister met with their mother’s lawyers to read her will. They discovered that their mother had created a testamentary trust over her assets which were valued at about $54 million and comprised, amongst other things, two landed properties including the Holland Road Property and another property (the Bukit Timah Property).

Having read their mother’s will, the Husband and his sister met the Wife and her mother at the Stevens Road Property. Although the siblings agreed not to reveal the will’s contents to the Wife, the Husband lied to the Wife that his mother had willed all her property to charity upon being questioned by the Wife.

When the Husband returned home in the evening, the Wife asked him to sign the DOT which she had drafted. It is undisputed that the Husband initially refused to sign the DOT but relented eventually. However, the parties disputed what exactly transpired that evening. The Husband’s position was that he was ambushed by the Wife, who threatened to kick him out of the Stevens Road Property if he did not sign the DOT, and the Wife had represented to him that the trust would only take effect upon his death, until which time he was free to use his assets (the Misrepresentation). The Wife’s position was that she had drawn up the DOT at the Husband’s request, and that he had signed the DOT on his own accord.

On 9 May 2014, the Husband exercised the option to purchase an apartment, which the couple had identified as their potential family home (the Scotts Road Apartment). On the same day, he executed a second trust deed (the Scotts Road Trust), under which he declared that he held the Scotts Road Apartment on trust for the Son. The Scotts Road Trust further provided that the Husband would be entitled to use of the rental income for his own benefit until the Son turned 21 years old.

In June 2014, approximately a month after the Scotts Road Trust was executed, the Wife sent two emails to the solicitor who had been appointed to assist with the administration of the Husband’s mother’s estate (the Solicitor). The Husband was not copied in these emails. In these emails, the Wife enclosed a copy of the DOT and asked the Solicitor to take note of it in administering the Husband’s mother’s estate. In December 2014, the Wife sent another email to the Solicitor in relation to the transfer of property from the Husband’s mother’s estate to the Son.

The parties’ relationship deteriorated quickly in December 2014. On 18 December 2014, the Solicitor replied to the Wife and copied the Husband, informing them that the matter was best handled by his colleague. After receiving the Solicitor’s e-mail, the Husband sought legal advice on the DOT.

On 11 February 2015, the Husband decided to leave the Stevens Road Property. He also wrote a letter to the Wife, claiming that he would not have signed the DOT if she and the Father had not pressured him into signing it.

The next day, on 12 February 2015, the Husband went back to the Stevens Road Property to deliver the letter to the Wife. This resulted in a heated confrontation between the Husband, the Wife and the Wife’s mother. Their argument was secretly recorded by the Husband (the Recorded Conversation), which revealed that the Husband and the Wife disagreed as to whether the Husband had been pressured into signing the DOT, and whether the Wife had asked the Husband to consult a lawyer before signing the DOT.

On 30 November 2015, the Husband initiated the present proceedings to set aside the DOT.

The High Court Decision

In the High Court, Valerie Thean J granted judgment in favour of the Husband on the basis of misrepresentation, mistake, undue influence, and unconscionability. Her judgment is summarised as follows:

1. Misrepresentation: The Wife had represented to the Husband that the DOT would leave him free to deal with his assets until his death. This was a false representation as the DOT had the effect of depriving the Husband of his assets with immediate effect. This was something that the Wife, as a legally-trained person, would have known to be false.²BOK v BOL and another (2017) SGHC 316 at (81). The evidence showed that the Wife had made this representation with the intention of persuading the Husband to sign the DOT.³BOK v BOL and another (2017) SGHC 316 at (82). As a result of the misrepresentation, the Husband suffered damage.⁴BOK v BOL and another (2017) SGHC 316 at (83).
2. Mistake: Since the Husband had made the mistake of thinking that he was free to deal with his assets until his death despite signing the DOT, and this misapprehension was caused by the Wife’s conduct, this is a mistake of sufficient gravity that struck at the heart of the DOT.⁵BOK v BOL and another (2017) SGHC 316 at (86). The High Court thus found that the Husband had established his case on mistake.
3. Undue influence: The Wife had previously advised the Husband on matters of law and the Husband was in a state of grief and isolation, which the Wife was aware of. The Wife’s attempt to persuade the Husband to sign the DOT was legitimised by the Father, who was a senior lawyer whom the Husband respected. The Wife then exercised the influence she had by persistently asking the Husband to sign the DOT and misrepresenting to him its true legal effect while the Husband did not have independent legal advice.⁶BOK v BOL and another (2017) SGHC 316 at (93). Finally, the Wife influenced the Husband to sign the DOT. For these reasons, the Husband succeeded on undue influence.
4. Unconscionability: The High Court found that for unconscionability to be established, there must be weakness on one side that arises from poverty, ignorance, or other circumstances such as acute grief.⁷BOK v BOL and another (2017) SGHC 316 at (120). There must then be a second requirement of exploitation, extortion, or advantage taken.⁸BOK v BOL and another (2017) SGHC 316 at (121). Once these two elements were established, it was for the Wife to show that the transaction was fair, just, and reasonable. On the facts, the Husband was weak when he signed the DOT due to his grief and isolation, his relationship with the Wife and his trust in her legal advice, and his lack of independent legal advice.⁹BOK v BOL and another (2017) SGHC 316 at (123). As the DOT was a transaction at an undervalue, the burden fell on the Wife to show that the DOT was fair, just, and reasonable, which she could not do.¹⁰BOK v BOL and another (2017) SGHC 316 at (124). Thus, the DOT was also set aside for unconscionability.

Specifically on unconscionability, the High Court made it clear that the test based on the English decision of Cresswell v Potter¹¹Cresswell v Potter (1978) 1 WLR 255. (Cresswell) required the following elements to be established: (a) the claimant must be shown to be poor and ignorant; (b) the sale must be at a considerable undervalue; and (c) it must be enquired whether the claimant had independent legal advice. These factors would on the appropriate facts collectively constitute circumstances of “oppression or abuse of confidence which will invoke the aid of equity”.¹²BOK v BOL and another (2017) SGHC 316 at (107).

The High Court however took care to emphasise that while it had adopted and adapted the test in Cresswell, it had “deliberately avoided” the English requirement of morally reprehensible conduct on the defendant’s part.¹³BOK v BOL and another (2017) SGHC 316 at (125).

The Court of Appeal Decision

On appeal, the High Court’s decision was upheld by the Court of Appeal. Specifically on the issue of unconscionability, the Court of Appeal adopted a slightly different approach from the High Court and held as follows:¹⁴BOM v BOK and another appeal (2018) SGCA 83 at (114).

1. There are multiple meanings of “unconscionability”. The first use of the word is as a rationale that refers to the spirit of justice and fairness underlying or undergirding a particular substantive legal doctrine.¹⁵BOM v BOK and another appeal (2018) SGCA 83 at (118). The second use of the word is as a legal doctrine which has as its historical roots situations which by any reasonable standard would be termed grossly unfair whether from a layperson view or lawyer’s view.¹⁶BOM v BOK and another appeal (2018) SGCA 83 at (120).
2. “Unconscionability” as a legal doctrine is unclear as it lacks legal criteria. This leads to uncertainty and unpredictability. To the extent that the doctrine is virtually indistinguishable from its very general rationale, it is unsurprising that the doctrine will simply be too general to provide the guidance, certainty, and predictability that a substantive doctrine ought to provide.¹⁷BOM v BOK and another appeal (2018) SGCA 83 at (125).
3. Historically, the roots of a narrow doctrine of unconscionability have been limited to the well-defined categories of expectant heirs and improvident transactions.¹⁸BOM v BOK and another appeal (2018) SGCA 83 at (127). This was to prevent the improvident from spending or ruining their estates before they inherited it without needing to show proof of fraud.¹⁹BOM v BOK and another appeal (2018) SGCA 83 at (127).
4. In Cresswell, Megarry J held that to invoke the narrow doctrine of unconscionability, the claimant needed to show (i) the claimant was poor and ignorant; (ii) the sale was at a considerable undervalue; and (iii) the claimant lacked independent legal advice.²⁰BOM v BOK and another appeal (2018) SGCA 83 at (130). The Court of Appeal further observed that even though the narrow doctrine applied on the basis of the claimant’s poverty and ignorance, these factors were not exhaustive; there might be circumstances of oppression or abuse of confidence which would invoke the aid of equity.²¹BOM v BOK and another appeal (2018) SGCA 83 at (131).
5. In contrast, the Australian High Court in The Commercial Bank of Australia Limited v Amadio and Another²²The Commercial Bank of Australia Limited v Amadio and Another (1983) 151 CLR 447. (Amadio) held in favour of a broad doctrine of unconscionability in which the Court’s jurisdiction extends generally to circumstances in which (i) a party to a transaction was under a special disability when dealing with another with the consequence that there was an absence of any reasonable degree of equality between them; and (ii) that disability was sufficiently evident to the stronger party to make it unfair to procure the weaker party’s assent to the impugned transaction in the circumstances in which it was procured.²³BOM v BOK and another appeal (2018) SGCA 83 at (132).
6. The broad doctrine of unconscionability was phrased in too broad a manner as it afforded the court too much leeway to decide on a subjective basis. It should be rejected in favour of the narrow doctrine of unconscionability with appropriate modifications to include fact-specific situations where the claimant is suffering from other forms of infirmities that are of sufficient gravity so that the claimant’s ability to “conserve his own interests” is acutely affected.²⁴BOM v BOK and another appeal (2018) SGCA 83 at (141). Additionally, the second and third requirements of whether the sale was at a considerable undervalue and whether the vendor had independent advice would not be mandatory, although they would be very important factors that the court would take into account.²⁵BOM v BOK and another appeal (2018) SGCA 83 at (141).

In summary, the narrow doctrine of unconscionability would apply in Singapore and to invoke this doctrine, the following requirements must be shown:

1. the claimant must show that he was suffering from an infirmity that the other party exploited in procuring the transaction; and
2. the burden is then on the defendant to demonstrate that the transaction was fair, just, and reasonable.

Comments

We make a few observations on the Court of Appeal’s judgment.

BOM is Principled in its Development

First, the Court of Appeal demonstrated its commitment to developing the law in a principled manner. For starters, it focused on the historical development of the doctrine of unconscionability as a starting point of its analysis. This is unsurprising. In Lau Siew Kim v Yeo Guan Chye Terence and another,²⁶Lau Siew Kim v Yeo Guan Chye Terence and another (2008) 2 SLR(R) 108. the Court of Appeal recognised the need for equitable principles to be developed to meet the requirements of modern society, although developments, it emphasised, must be borne out of principles derived from precedent.²⁷Lau Siew Kim v Yeo Guan Chye Terence and another (2008) 2 SLR(R) 108 at (30).

This process was amply demonstrated in BOM. The doctrine of unconscionability, interestingly, stemmed from a wish to protect expectant heirs from exploitation from others seeking to deprive them of their vast inheritance.²⁸BOM v BOK and another appeal (2018) SGCA 83 at (127). This seemingly runs counterintuitive to the modern-day narrative where protection from exploitation often centres around the impoverished. The contrast between nobility and poverty could not be more stark.

Yet, as the subsequent cases have shown, the common theme undergirding the cases decided on the doctrine of unconscionability (at least in its narrow conception) is that of oppression or abuse of confidence.²⁹BOM v BOK and another appeal (2018) SGCA 83 at (130). This, as the Court of Appeal identified, constituted the raison-d-etre for the doctrine of unconscionability. It would seem that such an underlying concern is no respecter of persons insofar as financial circumstances are concerned. The prince and the pauper may both suffer from an impairment rendering them vulnerable to oppression or abuse of confidence regardless of their station in life. We would do well to parse the facts of each case and identify precisely what is the impairment which renders each individual vulnerable to oppression or abuse of confidence.

Hence while the Court of Appeal acknowledged the requirements of (a) poverty and ignorance; (b) sale of an asset at a considerable undervalue; and (c) lack of independent legal advice can establish that unconscionable conduct was present, it declined to limit the doctrine of unconscionability to these factors exclusively. Indeed, the Court of Appeal remarked that Fry v Lane³⁰Fry v Lane (1888) 40 Ch D 312. had stressed the non-exhaustive nature of these three factors and acknowledged that there may be circumstances of oppression or abuse of confidence which would invoke the aid of equity.

In BOM, the Court of Appeal chose to acknowledge that unconscionability can arise where the victim was suffering from other forms of infirmities that were of sufficient gravity to affect the victim’s ability to look after his own interests and this infirmity was evident to the other party in procuring the improvident transaction.³¹BOM v BOK and another appeal (2018) SGCA 83 at (141). Such a development, it is submitted, is an excellent example how the Court of Appeal develops the law of equity in an incremental manner based on principle derived from precedent.

BOM is Rigorous and Provides a Robust Framework Against Which the Doctrine of Unconscionability Can Develop

Second, the Singapore Court of Appeal’s approach is commendable because it requires courts to eschew idiosyncratic notions of what is fair and just in cases of unconscionability. Indeed, the Australian case of Louth v Diprose³²Louth v Diprose (1992) 175 CLR 621. highlights the dangers of the broad doctrine of unconscionability being developed in an unprincipled manner and according to the subjective discretion and value judgment of judges.

In that case, Mr Diprose, a solicitor, became infatuated with Ms Louth. Although they had a brief affair, she was not interested in a relationship.

Mr Diprose gave Ms Louth many gifts including a house. However, when he finally realised that there was no possibility of a relationship with Ms Louth, he sought to impugn the gift based on unconscionability.

The Court accepted that a lover’s infatuation constituted a “special disability” within the terms of the test in Amadio.³³TheCommercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447. It found that Ms Louth knew that Mr Diprose was emotionally dependent on her and she had deliberately manufactured an atmosphere of crisis to take advantage of him.

This decision was greatly criticised because on another reading of the facts, it may be said that it was Mr Diprose who was the exploitative solicitor and Ms Louth who was the vulnerable helpless victim.³⁴ The article by Lisa Sarnas, ‘Storytelling and the Law: A Case Study of Louth v Diprose’ (1994) Melbourne University Law Review 701 sets out a compelling critique of how the official court stories in Louth v Diprose relied on stereotypes surrounding gender and class. It shows the dangers of adopting a broad notion of unconscionability which renders adjudication difficult since the same set of facts can be characterised very differently when viewed through different lenses.

This difficulty is avoided by BOM because the Singapore Court of Appeal has made it clear that the broad notion of unconscionability as espoused by Amadio will be rejected in favour of the narrow approach. The narrow approach has at its heart the inquiry whether the claimant has suffered from any infirmity that is sufficiently grave such that his ability to protect his own interests is seriously affected. This confines the enquiry to sufficiently certain parameters. These parameters then provide a sufficiently robust and certain framework against which the doctrine of unconscionability may be developed incrementally.

BOM Shows that Unconscionable Behaviour is a Fact-Specific Enquiry

Third, the Singapore Court of Appeal’s practical approach demonstrates that determining what is unconscionable is inherently a fact-specific endeavour. The range of possible factual scenarios are not capable of a close-ended definition.

With regards to fact patterns, the Court of Appeal remarked that Class I undue influence and unconscionability “often do overlap to a considerable extent or may even be coincident with or identical to each other”.³⁵BOM v BOK and another appeal (2018) SGCA 83 at (151). Given this observation, the following observations on the difference between undue influence and unconscionability from the Australian High Court case of Thorne v Kennedy (Thorne) may serve as useful reminders that the two doctrines are similar, but not the same:³⁶Thorne v Kennedy (2017) HCA 49 at (40).

1. Although one way in which the element of special disadvantage for a finding of unconscionable conduct can be established is by a finding of undue influence, there are many other circumstances that can amount to a special disadvantage which would not establish undue influence.
2. Although undue influence cases will often arise from the assertion of pressure by the other party which may amount to victimisation or exploitation, this is not always required.

The possible ranges of fact patterns in which unconscionability can be established is perhaps well exemplified by applying the BOM approach to Thorne,³⁷Thorne v Kennedy (2017) HCA 49. a recent Australian decision on unconscionability which also involves a couple. As will be seen in the following paragraphs, the facts of Thorne are likely to establish the presence of unconscionability under the BOM approach.

Mr Kennedy and Ms Thorne (both pseudonyms) met online in 2006. Ms Thorne, an Eastern European woman then aged 36, was living overseas in the Middle East. She had no substantial assets. In contrast, Mr Kennedy, then aged 67 and a divorcee with three adult children, was an Australian property developer with assets worth over $18 million.

Shortly after they met online, Mr Kennedy told Ms Thorne that, if they married, “you will have to sign paper. My money is for my children“.³⁸Thorne v Kennedy (2017) HCA 49 at (5). After a few months, Ms Thorne moved to Australia to live with Mr Kennedy with the intention of getting married. Just 11 days before their wedding, Mr Kennedy took Ms Thorne and her sister to see an independent solicitor to sign a pre-nuptial agreement while Mr Kennedy waited in the car outside. He made it clear to her that if she did not sign the agreement, then the wedding would not go ahead.

It was during this appointment that Ms Thorne first became aware of the contents of the agreement. By this time, Ms Thorne’s parents and sister had been flown to Australia from Eastern Europe and accommodated for the wedding by Mr Kennedy. Mr Kennedy’s ultimatum was not accompanied by any offer to assist them to return home. By this time, guests had been invited to the wedding. Ms Thorne’s dress had been made. The wedding reception had been booked.

However, the independent solicitor advised Ms Thorne that the agreement was drawn solely to protect Mr Kennedy’s interests and that she should not sign it. Ms Thorne understood the advice to be that the agreement was the worst agreement that the solicitor had ever seen. However, she relied on Mr Kennedy for all things and believed that she had no choice but to enter into the agreement. On 26 September 2007, four days before their wedding, Ms Thorne and Mr Kennedy signed the agreement. The agreement contained a provision that, within 30 days of signing, another agreement would be entered into in similar terms. In November 2007, the foreshadowed second agreement was signed.

The couple separated in August 2011. Ms Thorne subsequently commenced proceedings seeking orders setting aside both agreements. On appeal, the Australian High Court unanimously allowed Ms Thorne’s appeal on the basis that the agreements should be set aside for unconscionable conduct. It held that unconscionable conduct required the innocent party to be subject to a special disadvantage which “seriously affects the ability of the innocent party to make a judgment as to [the innocent party’s] own best interests” which the other party knew or ought to have known of the existence and effect of.³⁹Thorne v Kennedy (2017) HCA 49 at (38). The Court ultimately was persuaded that unconscionability was established because:

1. Ms Thorne came to Australia leaving behind “her life and minimal possessions … If the relationship ended, she would have nothing. No job, no visa, no home, no place, no community.”⁴⁰Thorne v Kennedy (2017) HCA 49 at (100).
2. Ms Thorne’s special disadvantage was that she was powerless and believed she had no choice other than to sign the agreement.⁴¹Thorne v Kennedy (2017) HCA 49 at (62). This was in part created by Mr Kennedy as he created the urgency with which the prenuptial agreement was to be signed and the haste surrounding it.⁴²Thorne v Kennedy (2017) HCA 49 at (65).
3. Ms Thorne and her family had been brought to Australia for the wedding and Mr Kennedy did not accompany his ultimatum with any offer to assist them to return home. This increased the pressure which contributed to the substantial subordination of Ms Thorne’s free will in relation to the agreement.⁴³Thorne v Kennedy (2017) HCA 49 at (65).
4. The independent solicitor advising Ms Thorne had assessed the agreement to be inappropriate and inadequate and Mr Kennedy took advantage of Ms Thorne’s vulnerability to sign the agreement.⁴⁴Thorne v Kennedy (2017) HCA 49 at (65).

Ultimately, while Thorne was decided on the Australian test for unconscionability which is broader and more liberal than the Singapore test, it is likely that based on these facts, the test preferred in BOM would have been satisfied even though it is based on a narrower conception of unconscionability than the Australian approach. One observes that Ms Thorne’s powerlessness arose not only from her lack of financial equality, but also from her lack of permanent status in Australia at the time, her reliance on Mr Kennedy for everything, her emotional connectedness to their relationship and the prospect of motherhood, her emotional preparation for marriage and the publicness of her upcoming nuptials. Against this context, it is unsurprising that Mr Kennedy could easily oppress Ms Thorne into signing the agreement.

Such facts would tend to show that an infirmity was suffered by one party which the other exploited in procuring the agreements. It would also seem that Mr Kennedy would be unlikely to succeed in showing how the transaction would be fair, just, or reasonable given the opinion of the independent solicitor that the agreement was inappropriate and inadequate. These would then give rise to the presence of unconscionability under the BOM approach as well.

Conclusion

In conclusion, BOM may be one small case in the Commonwealth, but it is one big step for Singapore law. One can certainly expect that BOM will not be the last word on the doctrine of unconscionability. We look forward to future developments in this space.