The Singapore Law Gazette

Potential Pitfalls in a Settlement Agreement

Introduction

Use of Mediation as a Therapeutic Justice Tool – But Remembering That Terms Reached During Any Settlement Must be Legally Enforceable

Statistically, the Family Justice Court’s (FJC) caseload for probate cases has seen a 16 per cent increase from 2020 to 2021. The rates for probate cases which are disposed three months to conclusion, however, show a positive (albeit minute) one per cent increase from 2020 to 2021.¹“Let’s Go”: Family Justice Courts Workplan 2022, delivered by the Honourable Justice Debbie Ong on 18 March 2022 <https://www.judiciary.gov.sg/docs/default-source/news-and-resources-docs/pj-workplan-address-2022-18-mar-2022-(final).pdf?sfvrsn=4623c015_2>

In the current climate where a renewed vision of family justice informed by principles of therapeutic justice has been created, it follows that the mediation process serves as a productive and useful tool which enables and encourages parties to participate in finding solutions for themselves.

As most contested probate cases involve powerful emotions where parties’ most private and intimate family affairs come into play, it is often that mediation is used as a tool to resolve such familial disputes in probate proceedings, especially when the assets are substantial.

More often than not, successful mediation would result in the execution of a settlement agreement, i.e. a contract that binds and outlines the terms and conditions of the dispute resolution reached by the parties.

However, in many of these settlement agreements, parties may reach a landing on issues relating to distribution of real property and pending a full completion of all outstanding matters in the probate proceedings, parties may then sometimes agree to settlement terms that may not be legally enforceable, which may lead to further complications and further litigation going forward.

Case Analysis

HC/OS 1053/2018

The case of HC/1053/2018 is a good reminder that when parties reach a settlement in respect of probate proceedings, the terms of the settlement agreement must be legally enforceable, even though parties may feel that such terms are the best way forward to resolving a family dispute.

In HC/1053/2018 which involved a dispute between stepmother and stepson (over the distribution of their late husband’s/father’s estate which comprised both local and foreign assets with a value of tens of millions), parties attended mediation (for a contested probate proceeding), and after a lengthy mediation session whereby parties were represented by solicitors, the parties eventually reached a settlement on how the assets of the estate of the deceased would be distributed.

Amongst the terms negotiated and agreed to between the parties (as canvassed in a Settlement Agreement executed by parties) was one which allowed the stepson to lodge a caveat over a residential property and two commercial properties belonging to the deceased.

In the mind of the stepson, this negotiated term was the stepson’s attempt to:

1. Ensure his stepmother’s compliance with the remaining terms of the settlement agreement which, amongst other things, stipulated how the stepmother was to distribute the other assets of the estate (spelt out in the Schedule of the Settlement Agreement); and
2. Provide security for damages if loss is suffered by the stepson in the event of the stepmother’s breach.

However, about 15 months after the parties entered into and executed the said Settlement Agreement, the stepmother filed an application in the High Court, under section 127(1) of the Land Titles Act (Cap. 157) (LTA), for the removal of the caveat lodged over the residential property, on the basis that the stepson did not have a caveatable interest in the said property.

In the hearing of HC/OS 1053/2018, the stepson reiterated his position that the terms of the Settlement Agreement conferred the stepson with a caveatable interest under section 115 LTA.

At the hearing before the Court, reference was made to the Singapore District Court case of Abdul Hamid Bin Mohamed Ismail and Others v Shaik Raheem s/o Abdul Shaik Shaik Dawood and Another Action [2005] SGDC 28 (Abdul Hamid Bin Mohamed Ismail), to argue that the scope of interests that would allow a caveat to be lodged (under section 115(3) of the LTA) would include “… interests other than proprietary interests or what [are] traditionally [understood] as interests in land …”.

To support the contention that a caveat could be lodged for interests (which are not of a proprietary nature) arising from a settlement reached between the parties (to allow for the caveat to be lodged), Counsel also argued that the Learned District Judge (in Abdul Hamid Bin Mohamed Ismail) also stated that:

“… Considering the way section 115(3)(a) has been drafted, it leads to the irresistible conclusion that there would be categories of interests in proceeds of sale of land which would not come within the general interest in land. It has been recognised by textbook writers that the rights covered by section 115(3)(a) are not really interests in land …”

Further, Counsel also canvassed (at the Hearing of HC/OS 1053/2018) that to not lift the caveat so filed would give effect to the parties’ intention for some form of assurance and protection to be afforded to the stepson, pending the distribution of all the assets in the estate.

In short, even though the stepson had no proprietary interest in the property to which a caveat had been lodged, not lifting the caveat would give effect to the intention of parties in respect of the settlement reached between the parties during the mediation.

At the hearing of HC/OS 1053/2018, Counsel for the stepson also tried to argue that the stepson should be accorded some form of equitable and/or beneficial interests in the residential property simply because the parties agreed to a caveat to be lodged against the property for a stipulated period of time (i.e. until the full distribution of the assets of the estate had been completed).

This is because, according to Counsel for the stepson, that such agreement (i.e. in respect of the lodgement of the caveat) was made in consideration of the stepson agreeing to terms of the settlement which included, inter alia, the appointment of the stepmother as sole administratrix of the Estate (and also the discontinuance of the stepson’s suit against the stepmother and the lifting of an injunction granted against, inter alia the stepmother).

In reply to these arguments raised by Counsel for the stepson, Counsel for the stepmother then argued, amongst other things, that despite parties agreeing to the caveat being lodged, such agreement to the lodgement of caveat does not create a caveatable interest under section 115 LTA. As such, the Court must make an order to lift the caveat.

After hearing the substantive submissions of parties, the Honourable Justice Choo Han Teck agreed even though the parties had agreed (after mediation) that a caveat could be lodged against a property (when there is no beneficial or legal interest in the property created in respect of the property in the settlement), such an agreement in itself does not create an interest under section 115 LTA that would allow for the lodgement of a caveat, and consequently ordered that the caveat so lodged be removed.

Conclusion

The important learning point in this case would be that parties to a settlement agreement in probate proceedings must remember that even if they have reached settlement on certain issues so as to move matters forward, these agreed terms may eventually be subjected to challenge in court in respect of their legality and enforceability.

Thus, it is important for lawyers to, apart from having probate practice procedures at their fingertips, also be cognisant of developments which have evolved in other areas of law such as tax and land law to avoid the nasty pitfall of providing inaccurate advice, or having terms agreed in a settlement being unenforceable or set-aside.