Keeping The Peace: Preventing And Managing Family Conflicts

The Chinese proverb, “wealth does not last beyond three generations”, is a timeless adage that illustrates the transient nature of financial prosperity and the challenges of maintaining family wealth across generations. One main factor that contributes to this phenomenon is the conflict that may arise as the family (and the wealth) grows, and the family’s inability to properly manage such conflict.

In the Singapore context, we have seen several prominent family feuds that have taken place in the public eye, for instance, the Jumabhoys’ public fallout over Scotts Holdings, whose crown jewel was the Scotts Shopping Centre on Singapore’s main shopping belt, the Yeo family’s public fight to control Yeo Hiap Seng, a food and beverage group widely known for its products distributed under the ‘YEO’s’ brand, and the most recent boardroom tussle involving property giant City Development Limited.

More often than not, such disputes have serious financial and non-financial consequences for the families and their business empires, eventually resulting in a depletion of the family’s wealth. It is therefore crucial for ultra-high-net-worth (UHNW) families to take pro-active steps at the planning stage to prevent family conflicts. It is equally important for these families to adopt effective strategies to handle family conflicts in the unfortunate event that they arise.

Planning To Avoid Family Conflicts

Establishment Of Clear Family Governance Frameworks

It is helpful for UHNW families to establish clear family governance frameworks, thereby ensuring that the family’s long-term goals are expressly spelled out, family members are aligned, and accountability is encouraged.

Family Constitution

A family constitution is one of the primary tools of family governance. This document records a family’s values, mission and goals, and serves as a ‘living’ document that can be amended as the family and its businesses evolve. Family constitutions usually contain provisions that delineate the family’s expectations on certain issues, such as business dynamics, transition of leadership and succession planning, wealth management, and philanthropic visions (if any).

These provisions provide clear indications of a family patriarch’s intentions, and encourage open dialogue and communication between different members and generations of UHNW families. They also help to engender accountability amongst family members by establishing clear expectations for each member’s roles and contributions. With more certainty, family conflicts can be minimised.

Importantly, family constitutions can also set out procedures for addressing potential family conflicts, for instance, the establishment of a family council tasked with resolving conflicts or requiring members to attend mediation in the event of a conflict. Some families may also appoint the family’s patriarch as the ultimate arbiter of conflicts. These again help to prevent family conflicts before they escalate further into courtroom litigation.

Shareholders’ Agreement

A shareholders’ agreement is particularly relevant in a family-owned company where family members are shareholders. By expressly providing for the different shareholders’ rights and obligations, a shareholder’s agreement can minimise conflicts concerning these matters. Express restrictions on shares transfers, eg in the form of pre-emption rights, can also be useful when the sensitive issue of whether family members may transfer their shares to a third party arises.

Shareholders’ agreements can also provide an exit mechanism for family members who wish to leave the business. Such situations can potentially raise contentious issues, including the fair valuation of the shares of the departing member and the possible restructuring of the family business following the member’s departure. Clear, comprehensive, and well thought out exit mechanisms can prevent a law suit stemming from one of these matters. They can also help stave off an application to wind up a company on the ground of unfairness, on the basis that the exit mechanism already provides a ready and available means for the affected shareholder to exit on fair terms. In fact, such circumstances were one of the considerations taken into account by the Singapore High Court when it dismissed the winding up applications filed by two sisters against their family’s companies in Tan Bee Hong Blossom and another v Tan Seng Keow Doreen and others [2020] SGHC 89.

Similarly, shareholders’ agreement can also specify the mode of dispute resolution. For instance, an agreement can stipulate that disputes must first be referred to consultation or mediation, before proceeding to arbitration, which has the advantage of being confidential as compared to litigation.

Succession Planning Is Vital

The time of distribution of the patriarch’s wealth can also lead to bitter conflicts between family members and across generations. To minimise such conflicts, UHNW families should avail themselves of succession planning tools, which range from wills and trusts administered by institutional trustees or private trust companies (where family members can be involved as directors), to the establishment of family offices to corporatise the family wealth. 

Where the testator is domiciled in Singapore, he has free rein in deciding how he wishes to distribute his assets under a will. Having said that, an unequal distribution under the will may sometimes require further explanation by the testator. A well-crafted letter of wishes or statutory declaration by the testator can help to explain the rationale behind the manner of distribution, and minimise disputes in the future.

Terrorem clauses can also be included in the will or trust documents, providing that a beneficiary’s inheritance or gift shall be revoked in the event he/she contests the will or trust.

Managing Unfortunate Family Conflicts

Unfortunately, despite careful planning, it is not possible to completely eradicate family conflicts. Litigation may also be inevitable. In that event, it is critical to manage the legal process and its potential fallouts.

Pre-litigation Communications

In many situations, a family dispute could have been brewing for years before it finally gets litigated in Court. Under the Singapore Rules of Court 2021 (ROC 2021), a claimant is to sue and proceed on the strength of his case and not on the weakness of the defendant’s case. Parties to an action are also required to disclose all documents that they will be relying on, and all known adverse documents.

This underscores the importance of evidence gathering prior to the commencement of any legal proceedings. Further, it is also vital that one exercises caution when communicating or corresponding with the other family members, eg through emails or during board meetings, as soon as there are signs that a dispute is brewing. It would therefore be sensible to seek professional and legal advice as soon as one sees signs of a dispute, so that a holistic litigation strategy can be formulated at the earliest instance, which would aid in a party’s case during litigation.

Duty To Consider Amicable Resolution

Under the ROC 2021, parties to a dispute also have a duty to consider the amicable resolution of the dispute before the commencement of legal proceedings. The claimant is therefore required to make an offer of amicable resolution before commencing the action, unless he has reasonable grounds not to do so. Given this requirement, family members who intend to commence legal proceedings should always consider making an offer of amicable resolution before filing their claim. An offer of amicable resolution can include a proposal to refer the dispute to mediation, meeting to discuss the resolution of the dispute on a without prejudice basis and making a settlement offer. Similarly, the other party must not reject an offer of amicable resolution unless they have reasonable grounds to do so.

Even if parties are unable to agree on a settlement before the commencement of the claim, it remains open to parties to attempt to settle the dispute over the course of proceedings. Indeed, the duty to consider amicable resolution of the dispute continues during the course of the action.

Having said that, the timing and substance of any settlement offer should also be thoroughly discussed with the legal professionals. Many times, a well-timed settlement offer or settlement discussions can help to bring the conflict to an end, or be favourable to the overall legal strategy.

Managing The Non-legal Aspect

Family disputes involving UHNW families can attract unwanted media attention. It is crucial to manage this, as such attention can damage personal and business relationships, exacerbate family tensions, and ultimately deplete the family wealth.

Therefore, other than having effective litigation strategies, it is also important to have an effective media strategy to avoid any negative publicity or minimise media exposure. Sometimes, well-crafted public statements can help to clarify certain misconceptions or to galvanise a certain narrative. On the other hand, poorly worded statements can potentially attract a counterclaim in defamation. Generally, to minimise media fallout, there should be minimal disclosure, and information should only be provided on a ‘need-to-know’ basis to protect the family’s privacy.

A Roadmap For Generations

Given the emotionally charged nature of most family disputes, UHNW families must devote sufficient time and resources to engage the different factions of the family, to encourage communication and ensure that there is adequate and holistic planning that can serve as a clear roadmap for the future generations to come. This will help to minimise the potential for future family conflicts.

Even when family conflicts do arise, the families must approach them with care and sensitivity. It is important that they work closely with and seek advice from the relevant experts to ensure that a holistic approach is adopted, so that the commercial, financial, and emotional impact of such conflicts is minimised. It never pays to wait until it is too late. The ultimate objective is to ensure that the family is well-positioned to weather any internal storms, so that the family’s wealth can be preserved across many generations.