The Ban Khi and Others v. The Loei Beng and Another

HCMP 1312/2018

[2019] HKCFI 1492

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1312 OF 2018

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REASONS FOR DECISION

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INTRODUCTION

1.This is the plaintiffs’ application by Originating Summons dated 23 August 2018 (the “OS”), pursuant to sections 42, 44, 45, 50, 51 and 56 of the Trustee Ordinance (“the Ordinance”), Cap 29, for, inter alia, the following orders:

(1) Declarations that two real properties in Hong Kong within the Yau Yat Chuen Developments (collectively, the “Hong Kong Properties”), namely:

(a) Flat B on Ground Floor and Car Parking Space No 11 in Basement, Nam Yuen Mansion Nos 7 – 9A Fa Po Street, Nos 22 – 24A Tat Chee Avenue, Kowloon (the “1^st Property”); and

(b) Flat E on Ground Floor of Nam Yuen Mansion and Car Parking Spaces Nos 22 and 23, No 22A Tat Chee Avenue, Kowloon, Hong Kong (the “2^nd Property”),

are held on trust by the 1^st and 2^nd defendants respectively for the beneficiaries listed in Schedule A of the OS (the “Beneficiaries”) in equal shares.

(2) The Hong Kong Properties be sold and the proceeds therefrom be distributed among the Beneficiaries in equal shares.

(3) The 4^th plaintiff be appointed as trustee of the 1^st Property and the 2^nd Property in place of the 1^st and 2^nd defendants respectively, and all legal rights and interests in the 1^st and 2^nd Properties be vested in the 4^th plaintiff.

(4) Various other orders to facilitate the sale and distribution of the proceeds of sale of the 1^st Property and the 2^nd Property by the 4^th plaintiff.

(5) A declaration that the issued shares in the 2^nd defendant are held on trust by the registered shareholders for the Beneficiaries in equal shares.

2.On 24 May 2019, the Friday before the scheduled hearing on 28 May 2019, the court received a one-page letter from the 1^st defendant.  The letter states:

“ 2. I have got a stroke 5 years ago and I’m 81 years old. I have to laid in bed (confined) all the time and influence effect of heart medications make me fall asleep. It is not convenience and easy to go around.

3. So I require for adjournment of the HCMP 1312/2018 hearing date to late July 2019.

4. As I’m looking for a lawyer and engage a lawyer to represent me in the case.”

3.No medical certificates were attached to the letter.

4.At the hearing, I refused the 1^st defendant’s application for an adjournment of the hearing and made an order in terms of the draft order as submitted by Ms Tong for the plaintiffs.  I now give my reasons.

ADJOURNMENT  

5.First, the OS was served on the 1^st and 2^nd defendants on 11 February 2019.  Both the 1^st defendant and the 2^nd defendant have not filed any Acknowledgment of Service of the OS.  They also have not filed any evidence in opposition to the OS.

6.The Notice of Appointment of the hearing of the OS was filed and served on 11 April 2019.  There is no reason why the 1^st defendant has to wait till 24 May 2019 to make the application for an adjournment.  On his case, he had a stroke some five years ago.  There was no sudden or new medical condition as from 11 February 2019.

7.Secondly, the 1^st defendant produced no medical certificates to prove his current medical condition.  Indeed, Ms Tong referred this court to a court order from Singapore dated 10 April 2017 which clearly shows that the 1^st defendant personally attended court to give oral evidence under cross examination on 16 February 2017.

8.Thirdly, the 1^st defendant could have engaged lawyers as soon as he received the OS in February 2019.

9.In the circumstances, I am of the view that there is no good reason to adjourn this hearing in order for the 1^stdefendant to engage lawyers.  

THE APPLICATION

10.This is a rather straight forward application. The undisputed evidence and contemporaneous documents demonstrate that the Hong Kong Properties and the 2^nd defendant’s shares are held on trust for the Beneficiaries in equal shares.

11.Given the persistent refusal of the 1^st and 2^nd defendants to duly execute the trusts, the appointment of the 4^th plaintiff as trustee of the Hong Kong Properties in place of the 1^st and/or the 2^nd defendants is correct,and would give effect to the wishes of the settlor and promote the execution of the trusts for the equal sharing of the relevant assets equitably amongst all the Beneficiaries.

Salient material facts

12.The Soe Soei (the “Father”) had 10 children with his wife KhoGek Sim (the “Mother”).  The 1^stdefendant is the eldest son.  All 10 children (or their estates) are the Beneficiaries listed in Schedule A to the OS.

13.The Father was a successful businessman.  He was the patriarch of the family, exercised power and influence over the family, and financially provided for the entire family.  I accept that it was the Father who provided the consideration for the purchase of the 1^st Property and the 2^nd Property which were held for the benefit of the entire family.

14.During his lifetime, the Father had a practice of keeping handwritten records (the “Father’s Memos”) with respect to his assets and family issues which he allowed family members to view and verbally conveyed their contents to his children from time to time.  I agree that the Father’s Memos indicate his intention that assets bought by him but registered in others’ names were to be used for the benefit of the whole family.  

15.The 1^st Property was registered in the name of the 1^st defendantand Ban Leng.  The purchase price was paid by the Father and the 1^st Property was at all material times used as a family property.

16.The consideration of HK$106,042.44 was paid by the Father.  I find that in 1978, both the 1^st defendant and Ban Leng were unemployed and were supported by the Father financially.  They did not have the financial means to purchase the 1^st Property.

17.I accept Ban Khi’s evidence that the Father had told him that the 1^st Property was registered in the names of the 1^st defendant and Ban Leng for the benefit of the entire family.  The 1^st defendant and Ban Leng were chosen because they were the only two unmarried children in the family and that there would be less complications for them to hold the 1^st Property for the entire family.

18.As a matter of fact, the 1^st Property was used as a family home. Prior to 1965, the 1^stplaintiff stayed with the Father in the 1^st Property.  From around early 1970s, Man Mie, her family, Ban Leng and the 1^st defendant stayed with the Father and the Mother in the 1^stProperty.  The Father resided in the 1^st Property until his death.

19.The Father’s intention for the 1^st Property to be held in favour of the entire family is evidenced by the Father’s Memos, in particular, the one dated 5 October 1982 (“5 October 1982 Memo”) which expressly stated that:

“ the property at No.24 at Yau Yat Chuen was registered in the names of [the 1^stdefendant] and The Ban Leng, and should belong to the whole family.” (emphasis added)

20.The 5 October 1982 Memo is prefaced with the following paragraphs:

(1) “ [D1] to pass to my children for their safekeeping.  All my children shall be treated equally.  Please do not act against my wish.”

(2) “ The Family belong to everyone.  Stand together and we shall survive, be divided and everyone will starve.  Please bear this in mind.”

21.The Father’s Memo dated 18 July 1983 also stated that “Ban Leng and [the 1^st defendant] are merely acting as trustees.”

22.Hence, I have no difficulties in ruling that the 1^st Property was and is still held on trust for the benefit of all the Beneficiaries listed in Schedule A to the OS.

23.The 2^nd defendant is a company incorporated in Hong Kong by or under the instigation of the Father in 1962 for investment purposes.  I accept that it was the Father who bought out all non-family members since 1984, after which the 2^nd defendant had been used to hold family assets, including the 2^nd Property.

24.The 2^nd Property was also purchased by the Father in the name of the 2^nd defendant on 11 September 1968.  The purchase price of HK$103,966 was paid by the Father.

25.The 2^nd Property was also at all material times used as a family property:

(1) Members of the family have lived in (or continue to live in) the 2^nd Property.

(a) The 4^th plaintiff resided in the 2^nd Property for a short period in around 1966 before her marriage, and with the Father’s consent, moved back and has been residing there since around 1970s.

(b) Ban Leng resided in the 2^nd Property from 1960s until 1970s when Goat Gho stayed there for a couple of years.

(c) The 1^st plaintiff stayed with the 4^th plaintiff in the 2^nd Property when he visited Hong Kong.

(2) The 2^nd Property is connected to the 1^st Property by a common balcony.  The cooking was done at the 2^nd Property and the family would dine together in the 2^nd Property.

26.Importantly, the 5 October 1983 Memo clearly states the following:

“ The shares of Lam Tung Enterprises Co. Ltd [ie the 2^nddefendant] besides 11750 shares held by Yong Yu Mei Brothers, should be worth HK$352,500.00 calculated based on the ratio of 1:3. The rest should belong to the family as a whole (Mother’s personal 5000 shares are worth HK$150,000.00).

Currently, there are only some over one million dollars cash left in Lam Tung [ie the 2^nd defendant], and a property at Block 22A at Yau Yat Chuen [ie the 2^nd Property] …” (emphasis added)

27.Again, I have no difficulties in ruling that the shares of the 2^nd defendant, the entity holding the 2^nd Property and the 2^nd Property itself are family assets and belong to the family as a whole.

28.Since the Father’s death, the 1^st and 2^nd plaintiffs have attempted to communicate with the 1^st defendant to remind him of the Father’s wishes for the family assets to be held for the benefit of the entire family.  These assets include the Hong Kong Properties as well as a property at 28 Namly Crescent (the “Singapore Property”).

29.However, the 1^st defendant has ignored such requests and taken no steps to implement the Father’s intention and wishes.  The 1^stdefendant did not reply to the 2^nd plaintiff’s letters dated 11 August 1997 and 2 November 2011.

30.During the 1^st plaintiff’s visits to Hong Kong, the 1^st defendant refused to discuss the issues of the sharing of family assets with the 1^st plaintiff.  Later, he also refused to see the 1^st plaintiff.

31.In the circumstances, on 17 March 2014, the 1^st to 5^th plaintiffs issued an originating summons against the 1^st defendant in the High Court of Singapore under section 42 of the Trustees Act (Cap 337) (“Singapore OS”) for, inter alia, orders that:

(1) The Singapore Property was held on trust by the 1^st defendant;

(2) The Singapore Property to be sold and the proceeds of sale distributed to the beneficiaries;

(3) The 1^st and 4^th plaintiffs be appointed as trustees of the Singapore Property in place of the 1^st defendant and be empowered to do all acts for the sale of the Singapore Property.

32.Upon consideration of documentary evidence and the parties’ oral evidence testified under cross examination, the High Court of Singapore held that the Father continued to control the Singapore Property during his lifetime, which conduct was inconsistent with any intention to gift the Singapore Property to the 1^st defendant absolutely.

33.Accordingly, the Singapore Court made an order on 10 April 2017 granting, inter alia, a declaration that the Singapore Property was held on trust by the 1^st defendant for the Beneficiaries, as well as various consequential relief sought in the Singapore OS.  This Court is told that the Singapore Property has since been sold and the proceeds of sale distributed among the Beneficiaries.

34.Despite the outcome of the Singapore Proceedings, the 1^st defendant has persistently refused to give effect to the Father’s intention as far as the Hong Kong Properties are concerned.  The plaintiffs have through their solicitors written to the 1^st defendant on 18 May 2018 and 20 June 2018 requesting the 1^st defendant to “arrange for the two Hong Kong Properties to be sold and distribute the proceeds of sale among the Beneficiaries.”  No reply has been received from the 1^st defendant to date.

35.In around or before September 2018, the 1^st defendant even demanded the 4^thplaintiff to move out from the 2^nd Property.  The 4^th plaintiff was informed by the maintenance lady that the 1^st defendant was intending to sell the Hong Kong Properties.  None of the plaintiffs have been informed by the 1^st defendant his intention to sell the Hong Kong Properties.

Applicable legal principles

Appointment of new trustee by the Court

36.The court has wide discretionary powers to, inter alia, appoint new trustee or new trustees either in substitution for or in addition to any existing trustee or trustees.  Section 42(1) of the Ordinance provides:

“ The court may, whenever it is expedient to appoint a new trustee or new trustees, and it is found inexpedient, difficult or impracticable so to do without the assistance of the court, make anorder appointing a new trustee or new trustees either in substitution for or in addition to any existing trustee or trustees, or although there is no existing trustee. In particular and without prejudice to the generality of the foregoing provision, the court may make an order appointing a new trustee in substitution for a trustee who is sentenced to a term of imprisonment or is a lunatic or a person of unsound mind or is a bankrupt or is a corporation which is in liquidation or has been dissolved.”

37.The Court has jurisdiction under section 42(1) of the Ordinanceto displace a trustee against his will and appoint a new trustee in substitution for him.  (See Re Henderson [1940] Ch 764.)

38.The Court’s discretion under section 42 of the Ordinance to appoint a trustee may be exercised whenever it is expedient to do so.

39.Actual misconduct on the part of the trustee need not be shown, but the Court must be satisfied that his continuance in office would be prejudicial to the due performance of the trust or impede the effectual execution of the trusts, and so adversely affect the interests of the beneficiaries.(See Koo Wai On Mina, an infant by Koo Hong Wai, her father and next friend v Tai Sau Lin HCMP 1733/1994, unreported, 21 July 1995 per Keith J (as he then was) at p 7; Underhill and Hayton: Law of Trusts and Trustees 19^th ed, at §71.39.

40.In deciding whether to exercise its discretion to appoint a new trustee, the court will take into account the following factors:

(1) the wishes of the person by whom the trust was created;

(2) the interests, which may be conflicting, of all the beneficiaries;and

(3) the efficient administration of the trust, and whether the appointment would promote or impede the execution of the trust.  

(See Re Tempest (1865–66) LR 1 Ch App 485 at 487 – 488 per Turner LJ.)

41.In relation to the identity of the person being appointed:

(1) While the court may not generally appoint a beneficiary as a trustee, owing to the fact that the trustee may be placed in a position where his duty and his interest conflict, there is no rigid prohibition against such appointment as a matter of principle.  Where there are advantages to be gained from such an appointment, and no disadvantages, the court may make it.  (See Snell’s Equity 33^rded, at §27-019; Re Marquis of Ailesbury[1893] 2 Ch 345 at 360).

(2) The mere fact that a beneficiary with a small interest opposes the appointment of the proposed trustee will not necessarily dissuade the court from making the appointment.  (See Re Dickinson’s Trust [1902] WN 104).

(3) It is not usually the practice of the court to appoint as trustee persons who are resident out of the jurisdiction.  (See Lewin on Trusts 19^th ed, at §15-007).

42.As to the powers, authorities, and discretions of the new trustee, section 44 of the Ordinance provides:

“ Every trustee appointed by a court of competent jurisdiction shall,as well before as after the trust property becomes by law, or by assurance, or otherwise, vested in him, have the same powers, authorities, and discretions, and may in all respects act as if he had been originally appointed a trustee by the instrument, if any, creating the trust.”

Vesting order

43.The legal principles relating to vesting orders are well established.  Under section 45(a) of the Ordinance, the court has the power to make a vesting order where the court appoints or has appointed a trustee.  Such order vests the land or interest therein in any such person in any such manner and for any such estate or interest as the court may direct, or releases or disposes of the contingent right to such person as the court may direct.

44.Section 50 of the Ordinance provides:

“ A vesting order under any of the foregoing provisions shall in the case of a vesting order consequential on the appointment of a trustee, have the same effect—

(a) as if the persons who before the appointment were the trustees,if any, had duly executed all proper conveyances of the land for such estate or interest as the court directs; or

(b) if there is no such person, or no such person of full capacity, as if such person had existed and been of full capacity and had duly executed all proper conveyances of the land for such estate or interest as the court directs,

and shall in every other case have the same effect as if the trustee,or other person or description or class of persons to whose rights orsupposed rights the said provisions respectively relate had been anascertained and existing person of full capacity, and had executed a conveyance or release to the effect intended by the order.”

45.The effect of a vesting order is to vest the trustee appointed by the Court with the trust property, enabling him to deal with outside parties, without any further formality or any express conveyance or assignment.

ANALYSIS

46.Applying the law to the facts of the present case, and as set out in paragraphs 22 and 27 above, first, I am satisfied and ready to make the declarations that the Hong Kong Properties are and have been held on trust in favour of the Beneficiaries.

47.It is not disputed that it was the Father who provided the purchase price of the Hong Kong Properties which are thus held by the 1^st and 2^nd defendants on resulting trust for the Father.  (See Lewin on Trusts (supra) at §9-019).

48.The Father’s intention to create a trust over the Hong Kong Properties in favour of the Beneficiaries is made clear in the Father’s Memos and by the conduct of the parties over the years.  At no time did the 1^st defendant or Ban Leng or the 2^nd defendant treat the Hong Kong Properties as being exclusively as their own properties and for their own use or benefit.

49.It is evident from the Father’s Memos that he remained the key decision maker in relation to the Hong Kong Properties during his lifetime and gave instructions as to how the properties were to be dealt with.  It was with the Father’s consent that the 4^th plaintiff has been residing in the 2^nd Property since the 1970s.

50.The subject matter of the respective trusts are clearly identifiable, namely, the 1^st Property and the 2^nd Property.  The objects of the trust are the members of the whole family.

51.For completeness, I agree with Ms Tong’s submission that the trusts over the Hong Kong Properties are valid notwithstanding that they are not in writing because:

(1) Section 5 of the Conveyancing and Property Ordinance (Cap 219) is not a rule of validity but only a rule of evidence (requiring a declaration of trust to be evidenced in writing), ie describing how a trust must be proved if it comes to be disputedin litigation, not a rule of validity.  (See Butterworths Hong Kong Conveyancing and Property Law Handbook 4^th ed, at §5.13.)

(2) In any event, the Court will not permit the statutory requirementunder section 5 to be relied on as an instrument of fraud to denya trust.  (See Rochefoucauld v Boustead [1897] 1 Ch 196 at 206 per Lindley LJ.)

52.Secondly, I am also satisfied that it would be expedient to appoint the 4^th plaintiff in substitution of the 1^st and 2^nd defendants respectively as trustee of the Hong Kong Properties.  It is quite obvious to this Court that the 1^st defendant has been deliberately unhelpful in relation to the administration of the trust in respect of Hong Kong Properties.  He has adopted an evasive and uncooperative approach.  He dragged his feet in the implementation of the Father’s wishes and intention.

53.I agree that the Beneficiaries’ interests have been adversely affected by the unwillingness of the 1^st defendant to act in accordance with the Father’s wishes and to give effect to the trusts over the Hong Kong Properties.  The continuation of the 1^st and 2^nd defendants as trustees is clearly prejudicial to the due performance of the trusts, the object of which was to allow the Beneficiaries to share or benefit equally from the Hong Kong Properties as family assets.

54.The appointment of the 4^th plaintiff as the new trustee of the Hong Kong Properties is the right course to take. Applying the three-fold criteria in Re Tempest (supra):

(1) The intention of the Father was for the Hong Kong Properties to be held for the benefit of the Beneficiaries and shared equally. This is supported by the Father’s Memos.

(2) There is no reason to doubt that the interests of all the Beneficiaries would be looked after by the 4^th plaintiff. This is not a case where the interests of certain beneficiaries stand in opposition to the interests of others, given the Father’s clear statements that all of his children are to be treated equally.  Further, the unified wishes of a majority of the Beneficiaries are put beyond doubt by the fact that 7 of the 10 Beneficiaries are the plaintiffs in these proceedings.  I agree that such wishesof the majority should prevail in any case.  (See Re Dickinson’s Trust (supra).)

(3) In light of the attitude and conduct of the 1^st defendant, the 4^th plaintiff’s appointment in substitution of the 1^st and 2^nddefendants would facilitate the effectual execution of the trusts and the sale of the Hong Kong Properties for the benefit of the Beneficiaries.

55.Further, since the interest of the Beneficiaries are aligned and the assets are to be sold and the proceeds shared equally among them, the 4^th plaintiff will not be placed in a position where his duty (qua trustee to all Beneficiaries) and his interest (qua beneficiary) conflict.

56.Also, I agree that the 4^th plaintiff is the only person within the Beneficiaries, aside from the 1^st defendant, who is ordinarily resident in Hong Kong, and can more conveniently handle the intended sale and distribution of proceeds thereafter.

57.Thirdly, I make a declaration that all the issued shares in the 2^nd defendant (including but not limited to those 850 shares presently held by the 1^stdefendant in the 2^nd defendant) are held on trust by the registered shareholders for the Beneficiaries in equal shares.

58.The undisputed evidence shows that the 2^nd defendant is a company used by the Father to hold family assets, including the 2^ndProperty.  The Father’s clear intention was that the shares in the 2^nd defendant were to be held for and on behalf of the whole family.

DISPOSITION

59.For the reasons stated above, I make an order in terms of the draft order as submitted by Ms Tong for the plaintiffs.

60.Finally, it remains for this Court to thank Ms Tong for her very clear and helpful skeleton submissions which greatly assisted this Court.

Ms Sara S P Tong, instructed by Deacons, for the 1^st to 7^th plaintiffs

Both the 1^st and 2^nd defendants were not represented and did not appear