You are being asked to advise clients. “Advise” requires you to:

(a) Analyse the fact pattern of the case presented to identify relevant issues of law or fact;

(b) Indicate the relevant rule of substantive law, procedure or evidence relevant to the issues identified;

(c) Apply the relevant law and principles to come to a conclusion on the issues;

(d) Demonstrate an understanding of legal concepts, values and principles by formulating an opinion, interpreting the relevant principles and providing a solution. In doing so, you are required to:

(a) Discuss the arguments, making reasoned choices between alternatives;

(b) Examine ideas with the correct terminology;

(c) Employ information technology as an aid in the preparation of the advice.
You will also be assessed on the organization, clarity, and cohesion of the advice rendered to the clients.

Read the following hypothetical scenario and complete the task set out thereafter:

In 2018, Mr Alfred Ang was diagnosed with Stage 4 cancer. Being concerned to provide for his two children and being no longer able to run the family business, Yasmine and Zorro, he settled the AA Trust appointing his brothers Bernie Ang and Carl Ang as trustees. The trust fund consisted of his 30% share in the family business i.e. AFK Shipping Pte Ltd (“AFK”).

AFK was formed out of a partnership between Mr Ang Sr and two other business partners, Mr Foo and Mr Koh. When AFK was incorporated as successor to the partnership’s business, Mr Ang owned 60% of AFK, Mr Foo 20% and Mr Koh 20%. The Ang brothers inherited their respective shares in AFK from Mr Ang Sr when he passed away. From the time of Mr AngSr’s passing, Alfred Ang owned 30% of AFK, Bernie Ang 15% owned 15% of AFK and Carl Ang owned 15% of AFK. Each of Mr Foo and Mr Koh only had one child, namely Freddie Foo and Kenny Koh, who had inherited their fathers’ shares as well i.e. each of them owns 20% of AFK.

Under the terms of the AA trust, Bernie and Carl were to hold the AFK shares and manage AFK’s business on behalf of Yasmine and Zorro until 1 January 2025. Yasmine and Zorro’s respective equal shares were not to vest until 1 January 2025. Upon the vesting date, the shares were to be registered in their respective names.

Sadly, on 14 December 2019, Alfred succumbed to the cancer and passed away. Yasmine turned 21 on 4 August 2020 and Zorro attained the age of majority soon after on 6 May 2021. Curious as to how AFK was performing, Yasmine and Zorro visited AFK’s offices on 9 July 2021. There, they met AFK chief accountant, Larry Lai. Larry had seen the children grow up and was fond of them. When asked, Larry was therefore quite happy to show them the accounts of AFK.

To their horror, Yasmine and Zorro learned that AFK has not declared any dividends since the last quarter of 2018. Instead, since the first quarter of 2019, the shareholders of AFK unanimously approved directors’ fees of $250,000 per quarter to each of the directors of AFK. The directors are Bernie, Carl, Freddie and Kenny. From 2019 to date, each director has received $1.75 million in directors’ fees for the 7 quarters.

Honoring their father’s wishes, Yasmine has a degree in accounting (also making her Larry’s favorite “niece”) and Zorro has a degree in marine engineering. Zorro has also been school sailing captain since secondary school, much to his late father’s pride and joy.

Prior to that, the average dividend declared each quarter, stretching back to 2001, was $150,000 per quarter for Alfred’s 30% stake. Working together, Yasmine and Zorro estimate that if dividends were paid according to the previous dividend policy, and those amounts were instead accumulated and re-invested into AFK, the value of their 30% beneficial interest could have increased by $1.2 million. This would be a larger amount than the seven (7) quarters worth of average dividends which add up to only $1.05 million. Their professors from university agree with this conclusion, and would be willing to give expert evidence to support it.

However, what Yasmine and Zorro are not aware of is a non-binding side letter dated 1 January 2018 between all the second-generation owners of AFK (the Ang brothers, Freddie and Kenny). The letter contains a new dividend policy starting 1 January 2019 agreed to by all parties limiting the amount of reinvestment of profits into AFK. This was because all of them viewed shipping as a sunset industry and wished to slowly diversify their family wealth out of shipping.

Thus, under this new dividend policy, only profits in excess of specified historical dividends could be reinvested. The specified dividends for Alfred’s 30% stake was $150,000. Aghast, Yasmine and Zorro have come to your senior partner, Jack Lim, for advice on what remedies can be pursued against their uncles. They have also heard that the Trustees Act provides certain defences for trustees, and would like advice on whether their uncles can avail themselves of any of the defences as well.

Jack has asked you to prepare an opinion on these two (2) issues. You are instructed not to address any claims under the Companies Act (Cap 50, 2006 Rev Ed). Another associate will prepare that part of the opinion for clients.