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Members may be interested to note the decision of the Singapore High Court in PP v Intra Group (Holdings) Inc, reported in [1999] 1 SLR 303, which deals with the question of whether it is possible to obtain a proprietary remedy on either breach of directors' duties where no fraud is demonstrated, or mistake of law. This case arose, unusually, in the course of a disposal inquiry in a criminal revision.

The brief facts: H was the managing director of Intra (a foreign company ). Under the Residential Properties Act (the Act), a foreigner cannot purchase a dwelling house (or landed property) save in specified circumstances e.g. obtaining the relevant approval. Both H and Intra were foreigners within the meaning of the Act. In 1979, H, on Intra's instructions, was to purchase a dwelling house at S$245,000 to hold on trust for Intra. The monies came from Intra. H obtained approval to purchase but did not disclose that he was holding it as a nominee for Intra. In 1994, H contracted to sell the house at over S$ 11 million, without informing Intra and Intra lodged a police report when discovered. H was convicted for acquiring the property with the intention of holding it on trust for Intra (a foreigner), an offence under the Act, and was sentenced.

About $7.8 million representing the proceeds of the sale were seized by the Commercial Affairs Department. Following H's conviction and sentence, a disposal inquiry was held to determine who was entitled to the $7.8 m. The competing claimants were H, Intra, and the State. The state argued that the sums should be forfeited under the Criminal Procedure Code. In the end, the High Court held that sums should be forfeited to the state. It was important to note that the court had to determine, between H and Intra, who was entitled to the proceeds. Only then can the court determine whether the sums should be forfeited under the Criminal Procedure Code.

The Court held that Intra did not have a proprietary interest in the proceeds of sale. There was no express trust arising in 1979 when the property was acquired by H by virtue of the provisions of the Act which prohibit an express trust from arising. A constructive trust was not prohibited by the Act and a constructive trust in monies used to purchase residential property would survive the provisions of the Act. However the Court held that Intra had to show that, in 1979, the transfer of monies to H for the purpose of buying the property was induced by fraud. On the facts H did not fraudulently induce the company to purchase the property in his name. At the worst, H was negligent as to the legal consequences of the purchase. Accordingly there was no breach of fiduciary duty and hence no constructive trust arising in 1979. As Intra's claim in 1979 was limited to a personal action for negligence, or alternatively, the recovery of monies paid under a mistake of law (citing Kleinwort Benson v Lincoln CC), and, at that point, it had acquired no proprietary remedy which would afford it a claim in the disposal inquiry.

More interestingly the court held that even if a constructive trust in the sale proceeds arose in 1994, the court could not recognise that interest because Intra had to assert the underlying illegality in order to establish its claim. The exception to the in pari delicto rule was not relevant to the case because there was no fraud in 1979 but only negligence. Furthermore, there was no fraud occurring in 1994 because H was entitled, legally and equitably, to the property.

WAI YEE, WAN