Case Update

Armco Inc & Ors v Donohue & Anor [2000] 2 SLR 87

High Court — Suit No 1325 of 1999 (Summons In Chambers No 8986 of 1998 & 678 of 1999)
Lai Kew Chai J
16 March, 9 April, 19 May 1999

Foreign proceedings — Use of information obtained from local proceedings in foreign proceedings — Exercise of discretion

Indranee Rajah and Emily Low (Drew & Napier) for the plaintiffs.
Kenneth Tan SC (instructed) and Benjamin Goh (Bernard, Rada & Partners) for the first defendant.

The plaintiffs were leaders in the steel industry. The first defendant was a permanent resident of Singapore. Numerous proceedings against the defendants were commenced in the United States, United Kingdom and Hong Kong over the management buy-out of the North Atlantic Group, in which the first defendant was the chairman. The plaintiffs also commenced an action in Singapore against the first defendant for damages for fraud and restitutionary relief. Their twin objectives were to freeze the assets of the first defendant by a worldwide Mareva injunction and to trace his assets. The plaintiffs were granted a Mareva injunction against the first defendant in October 1998. The court directed him to file an affidavit disclosing his assets and assets representing the proceeds of payments made to him by any of his corporate vehicles. The plaintiffs gave the court an undertaking in writing not to, ‘without the leave of the court, use information obtained as a result of this order or any subsequent order of the court in this jurisdiction for the purpose of civil or criminal proceedings in any other jurisdiction’. The plaintiffs then took out two applications seeking the leave of court to allow the plaintiffs to use the information supplied by the first defendant for the deposition processes in the United States’ proceedings. In the meantime, there was also a dispute between parties as to which was the most appropriate forum.

Held, postponing the decision to permit the use of the information in the US court:

The first defendant should be freed from any worry or further pressure from that front until the question of the proper forum was settled. The public purpose when exercising the judicial discretion was to assist the proper forum. The court was also anxious to relieve the first defendant from any anxiety that there might be a rush for judgment in default if his affidavits made under the Singapore court orders were made use of. The first defendant, in the opinion of the court, ought to be left alone to concentrate his energy and resources to assist his professional advisers in the anti-suit proceedings before the English court. The court could see no prejudice to the plaintiffs if the decision to permit the use of the information given under compulsion by the first defendants was postponed.

Pinetree Resort Pte Ltd v Comptroller of Income Tax [2000] 2 SLR 43

High Court — District Court Appeal No 25 of 1999 (Income Tax Board of Review No 2 of 1996)
Tan Lee Meng J
18 November 1999, 17 February 2000

Initiation deposits — Whether an interest free loan — Whether ‘contractual buy-back scheme’ — Whether a mutuum

See REVENUE LAW.

Law Society of Singapore v Ng Chee Sing [2000] 2 SLR 165

High Court — Originating Summons No 1778 of 1999
Yong Pung How CJ, LP Thean And Chao Hick Tin JJA
25 February, 13 March 2000

Show cause action — Grossly improper conduct — Whether respondent guilty of grossly improper conduct under Legal Profession Act (Cap 161, 1997 Ed) s 83(2)(b) — Whether respondent guilty of misconduct unbefitting of an advocate and solicitor under s 83(2)(h) — Appropriate penalty

Mohan R Pillay and Emiley Yeow (Wong Partnership) for the applicants.
Respondent absent.

The respondent and another person agreed to procure nominal purchasers to purchase two properties at Trevose Crescent. They intended to use the sale proceeds from the purported sale of the two properties for their personal investments. Foo and Chan were approached by the respondent to purchase the properties as the respondent’s nominees. Mortgage loans were obtained from Public Finance to finance the two purchases. At all material times, Public Finance was under the impression that the loans extended to Foo and Chan were straightforward mortgage loans. The respondent acted for Public Finance, the mortgagee and the nominal purchasers at all material times. The respondent failed to register the mortgages over the two properties despite frequent reminders from Public Finance, nor did he inform Public Finance that Foo and Chan were in fact his nominees. When requested by Public Finance to account for and return the loan sums disbursed, he failed to do so.

The Disciplinary Committee found the respondent guilty of two charges of grossly improper conduct in the discharge of his professional duty under s 83(2)(b) of the Legal Profession Act (Cap 161, 1997 Ed) and guilty of two charges of misconduct unbefitting of an advocate and solicitor under s 83(2)(h) of the Act. As a result of the Disciplinary Committee’s findings, the Law Society of Singapore applied for the respondent to show cause as to why he should not be dealt with under s 83 of the Act in such manner as the Court of Three Judges deem fit.

Held, striking the respondent off the rolls:

Grossly improper conduct in the discharge of a solicitor’s professional duty under s 83(2)(b) of the Act was conduct which was dishonourable to him as a man and dishonourable in his profession. The respondent was guilty of grossly improper conduct by deliberately concealing the true nature of the transaction from Public Finance and had thus acted dishonestly and in a manner opposed to his clients’ interests. The respondent was also guilty of grossly improper conduct by failing to ensure the proper disbursement of the loan sums forwarded by Public Finance. The respondent did not account for these sums nor did he even reply to letters from Public Finance requesting him to do so.

The standard of unbefitting conduct is less strict and a solicitor need only be shown to have been guilty of conduct that would render him unfit to remain as a member of an honourable profession. The respondent’s persistent delay in not registering the mortgages despite several reminders amounted to such conduct. Such behaviour was irresponsible and inexcusable as it could potentially affect the rights of Public Finance as mortgagees. The respondent’s delay in responding to Public Finance also constituted unbefitting conduct. Unlike delay in an isolated case, excessive delay in both contentious and non-contentious work was serious enough to constitute conduct unbefitting an advocate and solicitor.

Where an advocate and solicitor had acted dishonestly, the court would order that he be struck off the rolls. When deciding on the appropriate penalty, the public dimension must be borne in mind. The court must protect the public and register its disapproval of the conduct of the solicitor in order to deter other solicitors from committing similar defaults. The fact that the respondent was an inexperienced solicitor recently called to the bar was not a relevant mitigating consideration.

Pinetree Resort Pte Ltd v Comptroller of Income Tax [2000] 2 SLR 43

High Court — District Court Appeal No 25 of 1999 (Income Tax Board of Review No 2 of 1996)
Tan Lee Meng J
18 November 1999, 17 February 2000

Income tax — Collection of initiation deposits — Whether taxable income

Stanley Lai (Lee & Lee) for the appellants.
Foo Hui Min (for the respondent).

The appellants were sole proprietors of the Pinetree Town & Country Club, which members have had to pay an entrance fee to join. The constitution of the club was amended so that potential members were required, when joining the club, to pay a fee, of which 15% constituted the entrance fee and 85% an ‘initiation deposit’. The dispute between the respondent and the appellants was over the initiation deposits.

The respondent took the view that the initiation deposits were taxable as they were part of the consideration paid by members to join the club. On the other hand, the appellants asserted that the initiation deposits were interest-free loans from members of the club and were not subject to tax so long as they remained in the accounts as a deferred liability.

The appellants’ appeal to the Income Tax Board of Review against the decision of the respondent was unsuccessful. The appellants appealed against the decision of the Board.

Held, dismissing the appeal:

Under s 10 of the Income Tax Act (Cap 134, 1996 Ed), income which accrued to the taxpayer was subject to tax. The main issue here was whether the appellants were right in contending that the initiation deposits did not accrue to them in the year of payment because they were interest-free loans from members of the club. If the initiation deposits could not be characterised as interest-free loans and if the question of quasi-bailment did not arise, the appeal had to be dismissed. The fact that the appellants’ accountants had classified the initiation deposits as ‘deferred liabilities’ could not, without more, be conclusive of the matter.

As it was elementary that a loan was repayable to the lender in due course, the club’s stringent limitations on the right of members to claim a refund of their initiation deposits and the club’s rules on forfeiture of initiation deposits made it impossible for the appellants to contend that the initiation deposits were interest-free loans from the members of the club. The rule that a member’s initiation deposit was forfeited if he or she committed an offence other than a traffic offence, or was in arrears in his or her dues, or was bankrupt, clearly pointed to the initiation deposit being not an interest-free loan. The fact that a member of the club had to resign in order to get his initiation deposit back also militated against the initiation deposit being an interest-free loan. The court agreed with the Board’s view that the situation was a ‘contractual buy-back’ scheme and not the refunding of interest-free loans.

The appellants also attempted to avoid payment of tax by classifying an initiation deposit as a mutuum. A mutuum was a loan of something which was not to be returned in specie but to be replaced by something similar and equivalent. In this case, there was a real likelihood that the initiation deposits may not be refunded at all, either because they had been forfeited or a claim for its return had not been be made within six months after the 30th year of membership. As such, the question of a mutuum did not arise.