Joseph Hayim Hayim and Another v. Citibank N.A. and Another
Read the full judgment text of CACV 34/1985 on BabelCite. This Court of Appeal judgment was delivered on 26 July 1985.
1. We are here concerned to consider the liability of a trustee to the beneficiaries under a second trust where the second trustee (as such) is to be the recipient of the entire proceeds of the first trust.
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CACV000034/1985
BETWEEN
------------------ Coram: Sir Alan Huggins, V.-P., Cons & Fuad, JJ.A. Date of Hearing: 2, 3, 4 & 5 July 1985 Date of Judgment: 26 July 1985 __________ JUDGMENT __________ Sir Alan Huggins, V.-P.: 1. We are here concerned to consider the liability of a trustee to the beneficiaries under a second trust where the second trustee (as such) is to be the recipient of the entire proceeds of the first trust. 2. The trusts in question were created by two concurrent wills made by Ellis Joseph Hayim, deceased ("the Testator"). The Testator owned property both in and outside the United States of America and decided to dispose of the two classes of property by separate wills. He made several wills over the years, but at the time of his death on 6th June 1977 his last wills were that dated 13th July 1972 in the U.S.A. and that dated 25th April 1975 in Hong Kong. The 1st Defendant ("Citibank") was the executor under the New York Will and the person appointed to receive the residuary estate under the Hong Kong Will, whilst the appellant 2nd Defendant ("H.K.B.T.") was the executor under the Hong Kong Will. The Plaintiffs were sons of the Testator and were two of the three residuary beneficiaries under the New York Will: they were to receive the income during their lives with remainder to the American Jewish Joint Distribution Committee Incorporated ("J.D.C."). The 1st Plaintiff died after the action was commenced, but there is a representation order. J.D.C. was not made a party to the proceedings. 3. The dispute relates to a valuable house in Hong Kong, in which the Testator formerly lived with his mother, his brother, his sister and the sister's son. At the date of the Testator's death the sister was aged 87 years, but she died in November 1982. The brother was nearly 95 years of age at the date of the Writ. All the difficulty which has arisen flows from the natural desire of the Testator to ensure that his brother and sister should have a roof over their heads if he predeceased them: they belonged to a closely knit Jewish family and he was indebted to them to the extent that he had previously lived in their house in Shanghai. This desire was accompanied by a wish to avoid death duty which would be payable if he were to grant life interests to the brother and the sister. 4. After discussion between the Testator, H.K.B.T. and Citibank the device adopted was that the house was left to H.K.B.T. on trust to sell and convey the proceeds of sale to Citibank, which was to hold on the trust of the New York Will, but with a power to H.K.B.T. to postpone the sale at its absolute discretion. Concurrent with the Will, but having no direct testamentary effect, was a letter of wishes in which the Testator requested H.K.B.T. to allow the brother and the sister to continue in residence in the house after his death without payment to the estate, in accordance with previous correspondence but "subject to a maximum of such residence of one year from my death". There had been earlier letters of wishes which were of a 'similar nature save that the one year limitation had not been included. This limitation appears to have been added because the Testator had begun to have doubts about the financial ability of the brother and the sister to pay the expenses of running the house. Be that as it may, the limitation is there. In spite of it, H.K.B.T. formed the view that the Testator's wish would have been that the brother and the sister should continue to reside in the house for the rest of their lives if they could afford to do so, a view which (at least initially) seems to have been shared by everyone concerned. To give effect to it H.K.B.T. obtained from the Plaintiffs and J.D.C. letters addressed both to H.K.B.T. and to Citibank which included this paragraph:
The letters were signed in 1977. On 6th January 1978 Citibank wrote to H.K.B.T. a letter, referring to those letters, which concluded:
H.K.B.T. being of opinion that it was strictly Citibank "as residuary beneficiary of the Hong Kong Will" from which it should receive any acquiescence to a breach of trust, sought a similar letter from Citibank. In the event Citibank did not provide what was sought because, for one reason or another, it did not appreciate the point which was then worrying H.K.B.T. It matters not, and H.K.B.T. did not press for a further letter, whether because it eventually decided that "the executor of Mr. Hayim's American Will" was "the residuary beneficiary of the Hong Kong Will" or because it was sufficiently protected by the letters from the Plaintiffs and J.D.C. 5. By June 1981 the Plaintiffs had had second thoughts about the desirability of further postponement of the sale of the house and they wrote to Citibank and to H.K.B.T. a letter dated 1st June 1981 requesting that the house be sold. The copy of this letter intended for H.K.B.T. was forwarded to it by the Plaintiffs' American attorney. It was received on some date before 19th June, when the attorney's covering letter was acknowledged. On 20th June H.K.B.T. received from Citibank a telex message asking it "to defer any action on the matter at this time". J.D.C. had also been reconsidering its position, and by a letter dated 15th June 1981 and addressed both to Citibank and to H.K.B.T. joined in the request that the house be sold. The copy for H.K.B.T. was forwarded by the Plaintiffs' American attorney and was received on 25th June. On that date J.D.C.'s attorney wrote to the Plaintiffs' American attorneys and gave notice that it withdrew its request of 15th June that the house be sold, the ground for the withdrawal being that J.D.C. considered that it had been misled by the letter of 1st June 1981 from the Plaintiffs' American attorneys, a copy of which had been sent to it. A copy of the letter withdrawing J.D.C.'s consent was sent to H.K.B.T. and was received on 9th July. 6. H.K.B.T. has not sold the house and the Plaintiffs claim against it damages for breach of trust and an order for sale. No relief is sought against Citibank. H.K.B.T. contends:
Locus standi 7. H.K.B.T. contends that any action ought to have been brought by Citibank and not by the plaintiffs, who are not beneficiaries under the trust of the Hong Kong Will: they have no direct interest in the house and are concerned solely as beneficiaries under the New York Will. The Plaintiffs accept that in normal circumstances they would be incompetent to sue, but they argue that there are here "special circumstances" which entitle them to go over the head of their trustee, Citibank. The burden is on them. 8. Mr. Godfrey for the Plaintiffs has argued that Citibank "will not or cannot" call on H.K.B.T. to execute the trust of the Hong Kong Will and that that gives his client the right to sue direct, otherwise a wrong would go without a remedy. Mr. Ainger points out that para.16 of the Statement of Claim alleges merely unwillingness and not inability on the part of Citibank, but I attach no importance to that. The question is whether the Plaintiffs would be left without a remedy if they were not permitted to sue H.K.B.T. directly. 9. As I understand the authorities cited to us, Mr. Ainger has correctly stated the question. If (a) there has been a breach of trust by H.K.B.T. and (b) that breach has resulted in a loss to the estate and (c) there has been no acquiescence which binds the Plaintiffs, then prima facie the Plaintiffs may have suffered damage. Compensation for that damage should be paid to the estate by H.K.B.T., but Citibank declines to sue. Even if Citibank be in breach of trust itself in declining either to sue or to give directions for the sale of the house, an action by the Plaintiffs against Citibank might (in theory at least) not give a sufficient remedy. It is argued by Mr. Ainger that the only "special circumstance" (or"substantial impediment" as it is otherwise called) which was relied upon at the trial was c1.10 of the New York Will, which (it is said by the Plaintiffs) would afford a complete defence to any action against Citibank by the Plaintiffs. Mr. Ainger says it would not be a complete defence (and I shall have to consider the terms of that clause in a moment), but I do not think that the Plaintiffs were obliged to sue first in the United States courts to establish that Citibank has been in breach of trust nor do I think that the Plaintiffs could sue H.K.B.T. directly only if Citibank then continued to decline to sue. Bleach of Trust 10. In the end Mr. Ainger seemed disposed to concede that there was what he called a "technical" breach of trust by H.K.B.T. For my part I think the matter is beyond doubt. The Testator's direction was to sell the house, subject to a power to postpone the sale. Although declared to be "absolute", that power could not be exercised arbitrarily or with regard to any consideration other than the best interests of the beneficiary. The letter of wishes was not binding and, even if it had been, its effect would not have extended beyond one year from 6th June 1977. H.K.B.T. may not be open to adverse criticism for considering the interests of the brother and the sister to the extent of obtaining the acquiescence of those concerned to a longer postponement, but that was acquiescence in a judicious breach of trust: H.K.B.T. had no discretion in itself to postpone sale for such a humanitarian reason. It has not been, and could not be, suggested that there was any ground upon which a sale could properly have been postponed other than with the acquiescence of the beneficiary. If acquiescence was necessary, it was because there was a breach of trust: Clause 10 11. Clause 10 of the New York Will has played a prominent part in the argument. It is in these terms:
12. It is important to see how the clause was thought to be relevant at a11. Mr. Ainger asserts in his skeleton argument:
I have already said that I attach no importance to the fact that the judge held that Citibank was disabled from suing whereas all that had been pleaded was that Citibank was unwilling to sue. The effect in each case would be that the Plaintiffs might be left without an effective remedy. 13. That being so, I do not think that c1.10 is of any great significance for our purposes, but, as the matter has been canvassed and I may be held to be wrong in that, I will make some observations upon it. Originally it was the Plaintiffs and not H.K.B.T. who introduced it into the argument. Nevertheless Mr. Ainger did suggest that the clause gave the brother and the sister a "discretionary right" to occupy the house, the discretion being that of Citibank. Mr. Godfrey submits that the clause confers nothing upon the brother and the sister, that any discretion in relation to their occupancy is clearly vested in H.K.B.T. and that the true effect of the clause is merely to exonerate Citibank from liability to its beneficiaries for its inactivity in prescribed circumstances. I incline to think that Mr. Godfrey is right. H.K.B.T. was not concerned to inquire into the nature and extent of the trust created by the New York Will. That Will clearly did not purport to confer any right on the brother and the sister, nor did it purport to confer any discretion upon Citibank in relation to them: it merely provided that Citibank should be under no obligation to call for the sale of the house or to collect rent for it so long as the brother and the sister required it as a residence. Mr. Godfrey did, however, submit that the purpose of c1.10 was that the sale of the house should not be the subject of consideration by Citibank until certain events occurred. It did not go as far as that. The discretion whether to sell or not was that of H.K.B.T., but there was nothing to prevent Citibank from calling for a sale if, in the exercise of its discretion under the New York Will, it was of opinion that its acquiescence to a postponement should be withdrawn. Perhaps the matter can be most clearly stated thus: the discretion whether to postpone sale was (while it existed) that of H.K.B.T. whilst the discretion whether to acquiesce in the breach of trust was that of Citibank. Acquiescence by Citibank 14. It is here that the real dispute comes into the picture. It is not that any doubt exists as to Citibank's having acquiesced, but the issue is as to the effect of that acquiescence. H.K.B.T. submits that on the facts of this case Citibank, and Citibank alone, had authority to acquiesce in a breach of trust by H.K.B.T. and equally that any request to sell had to come from Citibank and not from the beneficiaries under the trusts of the New York Will. Mr. Ainger recognizes that Citibank in its turn was subject to a measure of control by the Plaintiffs and J.D.C., but he contends that the ultimate beneficiaries had no control over H.K.B.T.: any binding direction to it would have to come from (or, if emanating from the ultimate beneficiaries, through) Citibank. He submits that, as Citibank was not a mere "conduit pipe", Citibank had its own discretion to exercise and H.K.B.T. was entitled to assume (at least until the contrary clearly appeared) that Citibank had exercised that discretion properly - that is to say, after considering all the factors relevant to the trusts under the New York Will. He objected to any suggestion that H.K.B.T. was under a duty to investigate the trusts under the New York Will and to give effect to them. Mr. Godfrey's argument, on the other hand, involves the contention that, when H.K.B.T. became aware of a disagreement between Citibank and one or more of the beneficiaries under the New York Will, H.K.B.T. had to pay regard to the wishes of the ultimate beneficiaries and, if necessary, to decide between them. Thus he submitted that the position after J.D.C. withdrew its consent to a sale was that the "capital" beneficiary wished to retain the property and the "income" beneficiaries wished to sell the normal rule was that the wishes of the income beneficiaries would take preference over the wishes of the capital beneficiary and, as Citibank was apparently disregarding that rule, Citibank's direction to defer sale should in any event have been ignored. Mr. Godfrey went further and argued that the telexed direction to defer was in any event one to defer "at this time", so that if a further direction (one or the other) was not received within a reasonable time H.K.B.T. should not have continued to act upon the telexed message - or, in the light of the changed circumstances, upon the original direction to retain the house. 15. No authority has been cited to us which indicates expressly the duty of the first in a chain of trustees. The purpose of the testator in creating the chain may not be solely to transfer his property to the ultimate beneficiaries in the simplest possible way but may include the avoidance of taxes. Nevertheless, where he chooses to appoint a trustee to receive property and does so in a manner which conifers on the trustee a discretion, it seems to me that the testator must be presumed to have desired the trustee to exercise the discretion and that anyone whose conduct will be affected by that exercise of discretion is entitled to assume that it has been exercised properly. If H.K.B.T. had not continued to postpone the sale in accordance with the directions of Citibank, H.K.B.T. would have been usurping the discretion' which this Testator, under the New York Will, vested in Citibank. I do not say that there might not be a case where a second trustee was so obviously giving directions in breach of trust without the acquiescence of the beneficiaries under the second trust that the first trustee would be at fault in acting upon them. That is not this case. 16. H.K.B.T. was in breach of trust but, until June 1981, had the full acquiescence of everyone concerned, including Citibank. Mr. Godfrey argues that, by looking to Citibank, H.K.B.T. was attempting to delegate its own discretion to Citibank. If it was, then of course it was in breach of its duty. However, a trustee who commits a breach of trust with the acquiescence of his sole beneficiary is not thereby in breach of duty towards the beneficiary, however far the act involved departs from the declared intention of the testator. This was not a case of delegation at all. There was a deliberate breach of trust, acquiesced in by Citibank, and in my view the Plaintiffs have no right to complain: it is they who are trying to oust the discretion of Citibank and to compel H.K.B.T. to consider their wishes as paramount. Acquiescence by the Plaintiffs 17. This is material only if I am wrong as to the effect of acquiescence by Citibank. 18. There is no suggestion that until 1st June 1981 the Plaintiffs, having acquiesced in the postponement of the sale of the house, could complain of H.K.B.T.'s breach of trust in not selling in accordance with the provisions of the Hong Kong Will. They and J.D.C. had said that their acquiescence was to continue until the ultimate beneficiaries "shall, unanimously, notify you to the contrary". They did not bind themselves not to withdraw their acquiescence unless the others also did so. The notification dated 1st June 1981 was not unanimous. It is true that J.D.C.'s letter of 15th June 1981 apparently made it unanimous, but J.D.C.'s consent to the sale was subsequently stated to be withdrawn.. The Plaintiffs' contention obviously is that it could not be "withdrawn" in the sense that it could be treated as never having been given but could only be cancelled with effect from the date when the letter of 25th June 1981 was received, i.e. from 9th July. In other words it is said that the alleged misrepresentation made J.D.C.'s consent to the sale at the most voidable and not void: it followed that between 25th June and 9th July H.K.B.T. had information that the ultimate beneficiaries were unanimous and that any direction from Citibank not to sell was in breach of trust: therefore steps should have been put in hand to sell the house. I incline to think that J.D.C.'s consent to sell was not void, but in my view that does not help the Plaintiffs. If steps to sell had been put in hand on 25th June they could have been halted when J.D.C.'s withdrawal" was received on 9th July: it would not have been possible to effect a sale in the space of about two weeks. Accordingly H.K.B.T. would, on the Plaintiff's own case, have been once more in a position where it had to look to Citibank for an exercise of its discretion as to continued acquiescence in the postponement of the sale. Citibank had clearly said "Defer". Whether the Plaintiffs suffered any damage 19. This also is immaterial on the view I have taken of the case so far. 20. H.K.B.T. contends that once J.D.C. withdrew its consent to the sale Citibank would inevitably have exercised its discretion to acquiesce in a postponement of the sale, so that the Plaintiffs have no cause for complaint. It is sought to infer this allegedly inevitable result from the correspondence. It was an inference which the judge found himself unable to draw from the documents, notwithstanding J.D.C.'s strong views prior to their attorney's letter of 24th December 1984, by which they elected not to take sides in the present proceedings. I take the same view as the judge and am not persuaded that Citibank would necessarily have sided with J.D.C. if H.K.B.T. had indicated an intention to proceed with a sale. This defence would therefore not be available. Section 60 of The Trustee Ordinance 21. Having come to the conclusion that there was no actionable breach of trust I think it becomes altogether too unrealistic to discuss whether H.K.B.T. should have been excused if it had committed an actionable breach of trust. 22. For the reasons I have given I would allow the appeal. Cons, J.A.: 23. I have had the advantage of reading in draft the judgment my Lord the Vice-President has just delivered and that which will be read next on behalf of my Lord Fuad J. A. Therein are set out fully the background of this appeal and the arguments put forward. I may therefore state my conclusions briefly. 24. If Clause 10 of what the Testator called his "American Will" is to be treated merely as an exonerating provision for the benefit of Citibank, as Mr. Godfrey suggests it should, then I agree that H.K.B.T. has been guilty of no breach of trust or at least no actionable breach. Clause 10, on that construction, could have no bearing on the responsibility of H.K.B.T. with regard to the trust for sale or its power to postpone the sale. In the exercise of those responsibilities the H.K.B.T. would be bound of course to have regard to the wishes of the ultimate beneficiaries, but only, as I see it, if those beneficiaries were in agreement. The interpolation of Citibank as a further trustee would clearly indicate that if there were any disagreement the balance between the competing claims of the life interests and the remainderman were to be decided by Citibank. Once that decision was conveyed to H.K.B.T., as in effect it was when the dispute arose in 1981, H.K.B.T. would be entitled to act on it without further inquiry. 25. I do not think this would be a satisfactory situation. It takes no account at any stage of the existence of Albert and Maisie, and leaves Joseph and George unprotected if Citibank should deliberately tilt the balance. 26. The inclusion of Albert and Maisie in Clause 10 is not accidental and the clause must, if possible, be given some effect. At paragraph 15(2)(b) of the skeleton of his argument Mr. Ainger suggests a possibility, that it operates-
27. I must confess to an initial attraction for reading Clause 10 as indicating that the trustee had already been appointed, and was to be found in the then valid Hong Kong will of January 1972, in which the H.K.B.T. is appointed trustee of the Hong Kong property with "power to postpone the sale .....so long as my Trustee shall in its absolute discretion think fit without being liable for loss". Those words are repeated in the Testator's last will of April 1975. With respect this would seem eminently sensible, for H.K.B.T. would be much better placed than Citibank to decide upon the desirability of allowing Albert and Maisie to continue to reside and for how long. I see no reason for not reading Clause 10 together with the Hong Kong Will in that fashion.. When making it the Testator clearly had his American Will in mind. He is careful to declare that the Hong Kong Will shall not affect his American property or his American Will:
It is pertinent to note that there are no similar declarations in the American Will. It may also be observed, although the document may not assist us as a matter of construction, that from the very beginning the H.K.B.T. accepted the responsibility as their own. In the letter of 17 October 1967 (C48) it is said:
And it is to H.K.B.T., not Citibank, that the Testator subsequently directs his non-testamentary wishes. 28. However no argument has been advanced on these lines, no doubt for good reason, and or reflection I prefer to accept the submission of Mr. Ainger. The discretion arises under the American Will and lies in the ,hands, and only in the hands, of Citibank. If that view is correct the only remedy for Joseph and George, if indeed in the circumstances they have any remedy at all, is an action in the New York courts. 29. It is not then necessary to deal with what the Judge below referred to as the "fall back defences" but in deference to the arguments of Counsel I would add that I have grave doubts as to the merits of the "indemnity point". I find it difficult to give contractual force to the written consents of Joseph and George in view of the circumstances in which they were executed. The "no loss point" depends upon the presumed action of Citibank in preventing a sale if in fact Hong Kong Bank had proposed to arrange one. The Judge was not prepared to assume that Citibank would so have acted and I am not persuaded that he was wrong. Section 60 of the Trustee Ordinance is no longer relevant. 30. For these reasons I too would allow the appeal. (The judgment of Fuad, J.A. was read by Huggins, V.-P.) Fuad, J.A.: 31. This appeal requires us to construe and give effect to the testamentary intentions of the late Mr. Ellis Joseph Hayim who died in Hong Kong, full of years, on 6 June 1977. He was a rich man and it is clear that his wish was to provide after his death as best he could for his sons Joseph and George, and to meet the obligations he felt for his sister Maisie and his brother Albert. He did not forget those members of his faith who were less fortunate than he, or his faithful servants. 32. Whatever may be the legal position as regards the claims made by this action, there can be no doubt that the executors (later trustees) of his two Wills acted throughout perfectly honestly, as the Plaintiffs Joseph and George have always acknowledged. Nor can any possible criticism be levelled against either brother for the stand they have taken. They were getting on in years themselves, and while anxious not to cause any unhappiness to their uncle and aunt, they had their own interests to consider in respect of a valuable Hong Kong property which was bringing in no income and which was rapidly falling in value; indeed, Joseph died in October 1984 before he was able to enjoy any benefit from that part of his inheritance. 33. The whole problem arose, of course, because the Testator wanted to do something for his brother and sister in the late evening of their lives for they had lived kith him as part of one household for many years, first in Shanghai, and since 1959 in 41, Island Road. But from early on, he went along with the suggestion of his American lawyers that the relevant provisions in his New York Will should not be "too detailed because of what the Hong Kong tax authorities might say if they saw the instrument" (letter dated 5 January 1968 to the testator). And so none of the sensible and well - tried methods of providing rights of residence under a Will (they are discussed in WILLIAMS ON WILLS, 5th Edition, at pp. 1290-1) was adopted. 34. Instead, we have the obscure have the obscure and labyrinthine 10th Clause. Those responsible for this advice owe a heavy responsibility for the unhappy situation in which the surviving members of this loving family later found them - selves. I would also comment that nothing would have been hard of this action had the Hayim family not been blessed with such remarkable constitutions. Happily, Aunt Maisie lived on until she was 95 (eight years after the death of Mr. Ellis) and more happily, Uncle Albert is still alive at 97. 35. There are several issues in this appeal, but the crucial one is the true effect of the Testator's two Wills in so far as they relate. to 41, Island Road. A decision in favour of Hong Kong Bank Trustees Ltd. (H.K.B.T.) would render the other issues irrelevant; and so I propose to address that question first. 36. The Hong Kong Will presents no difficulties of construction. By Clause 6, H.K.B.T. is directed to hold the Hong Kong residuary estate upon trust for sale, with power to postpone the sale (and conversion) in its absolute discretion, and to pay or transfer the proceeds of sale to Citibank, to be held by Citibank, upon the trusts of the New York Will. 37. The New York Will, too, for the most part, is perfectly straightforward. The Will applies to Mr. Ellis Hayim's property in the U.S.A. and to any other property which is added to it by reason of any other Will. There are beneficial trusts, in the form of life interests, to Joseph and George with a remainder after each life to a designated charity. 38. Thus, no problems are presented until we turn to the 10th Clause. Of course, the possibilities envisaged by the Testator, that he might be the owner of a residence in Hong Kong, and be survived by either his sister Maisie or his brother Albert, turned out to be the facts. Leaving aside the purpose of the 10th Clause for the moment, it clearly relates to the residence in Hong Kong in which Mr. Hayim may have been living at the time of his death, although the opening words of the Clause do not expressly say so. I regard the use of the word "residence" as significant and nothing in the 10th Clause would affect any other real property the Testator may have owned in Hong Kong when he died. 39. By providing that his executor and trustee "shall have no responsibility or duty" to take title to 41, Island Road; or to collect the proceeds for its sale; or to collect any rent for its occupation, I think it to be apparent that the Testator intended to absolve Citibank from any liability for failure to act as a trustee should act, unless and until one of the events stipulated later in the Clause should occur. I recognise that effect must be given to both the word "responsibility" and the word "duty" but one must resort to the ordinary dictionary meanings of these words, and very plain words would have to be used to take away the usual powers of a trustee. I find nothing in the 10th Clause that does this and so in my judgment Citibank could, at any time, have called for the property or the proceeds of its sale; and to enforce the execution of the trusts in the Hong Kong Will if H.K.B.T. disobeyed their instructions. It seems to me that if Citibank had this power, then they must also have had the discretion at any time, properly exercised, to instruct H.K.B.T. not to sell 41, island Road. 40. It follows that if Citibank had exercised the power I have suggested they possessed while Albert or Maisie still lived, then assuming H.K.B.T. had responded appropriately, the first of the events which gave rise to its "duty and responsibility" would have occurred. 41. I have said that Citibank's discretion had to be exercised properly. Is there any indication that they did not do so? They were entitled to give effect to the Testator's intentions as expressly or impliedly indicated in the New York Will. It is true that there is no express connection between the "residence" and Maisie and Albert. But this must be inferred from the Clause read as a whole. If Citibank were not entitled to have regard to Maisie and Albert in meeting their obligations to the ultimate beneficiaries, why were they mentioned? It is surely highly significant that Citibank is exonerated from any breach of its ordinary duties as trustees in respect of matters which would otherwise affect the ability (I do not say the right) of Maisie and Albert to continue to live in 41, Island Road, rent free. 42. Whether or not Mr. Ainger is right in designating Maisie and Albert as "discretionary beneficiaries" under the New York Will, he has persuaded me that having regard to the terms of the 10th Clause, and in the light of the surrounding family circumstances, Citibank had the implied discretion to so administer the trusts for which they were responsible as to allow Maisie or Albert to continue to live in 41, Island Road rent free, and the rights of Joseph and George under the New York Will were subject to the exercise of that discretion, in effect, in favour of Maisie and Albert. 43. On my view of the true effect of the New York Will, Joseph and George could have asked Citibank to direct H.K.B.T. to sell 41, Island Road. If Citibank had refused, surely their appropriate remedy was to be sought through the New York Courts by what I might call a friendly application or by action. This they did not do, but chose to institute this action in Hong Kong. 44. Was H.K.B.T. bound to ignore Citibank's instructions as well as the capital beneficiary's wishes (the Charity) in the exercise of the discretion vested in them by the Hong Kong Will and to accede to the request of Joseph and George to sell (or to seek the directions of the Courts of this jurisdiction as to what should be done)? No authority directly in point has been cited to us that compels such a view. The Hong Kong Will was expressly declared to be independent of the New York Will - it would probably have been so even if this had not been stated. H.K.B.T. were bound by the terms of their Will and the obligations that derived from it. 45. Although the Will told them that Citibank itself was a trustee for other beneficiaries and (as it happened) H.K.B.T. knew what the trusts were as well as the identities of the beneficiaries, unless constrained by authority otherwise, I do not think it can be right to hold that they were in any form of fiduciary relationship with George and Joseph. It seems to me that to so hold would be to impose an unjustified burden. on trustees in the position in which H.K.B.T. found themselves. If that were so, they would be bound to construe the effect of the second Will which might have been even more complicated than the one before us, and have regard to interests that might be conflicting so that a decision would need to be taken, and a balance held. They would have to consider and apply foreign. law which might be different from that which prevails in their own jurisdiction. They would have to be sure that the foreign trusts had not been varied. It would, in short, place them in an impossible position. Here the Testator reposed confidence in Citibank to carry out his wishes under the New York trusts; I agree with Mr. Ainger that they were not bare trustees. 46. I do not say that the position might not have been different if H.K.B.T. had known, or had had reason to suspect, that Citibank were acting other than bona fide, or perhaps capriciously. In such circumstances, no doubt, H.K.B.T. should have sought the directions of the Hong Kong Courts. But here I feel bound to hold that H.K.B.T. were fully entitled to regard the instructions of Citibank as a governing factor in the exercise of their own discretion. 47. I would mention here that in his judgment the learned Deputy Judge said, in relation to the position of Citibank: "No instructions. were forthcoming nor any positive expression of view by Citibank." With respect, I think he was wrong. A telex, received by H.K.B.T. on 21 June 1981, told them "Please defer any action on the matter at this time." Citibank's American lawyer requested them on the telephone on 25 June 1981 to await instructions before taking any action. These instructions have never changed. 48. I reach the conclusion that no actionable breach of trust against H.K.B.T. was established. If that be right, the locus standi of Joseph and George to sue H.K.B.T. becomes irrelevant - but I think it would be right in all the circumstances to express my opinion on this issue. As Goff, J. (as he then was) pointed out in In re Field,(1) the latest of the cases on the subject, at p.559, this issue is sometimes resolved on a preliminary objection being taken, as happened in Meldrum v. Scorer (2) and indeed in In re Field itself. However the point is sometimes dealt with in a different way - the case is heard on the merits and a decision is reached whether the action is maintainable in form: Yeatman v. yeatman(3) and Hanmer v. Armstrong(4) are examples. When Goff, J. said, at p.559 of In re Field(1) (speaking of the first of these procedures) "which one would suppose would be the normal way of dealing with such an objection", I venture to think that he had in mind a situation of the kind we have here, that once a court decides the action should fail on its merits, the locus standi issue becomes academic. 49. The cases show that in the circumstances which were before the Deputy Judge, Joseph and George had to establish that they were entitled to sue H.K.B.T., notwithstanding the fact that it was Citibank who was the residuary beneficiary under the Hong Kong Will, and their rights only arose under the trusts in the New York Will - so they were obliged to put forward what most of the cases call "special circumstances". What are special circumstances depend, of course, in each case on its own facts and it is not surprising that no court has attempted to lay down principles of general application to the ascertainment of special circumstances. But it is helpful to study the cases to see those circumstances which have been found to be special and those which have not been so found. 50. Several cases hold that the mere fact that a trustee (or other person in a similar capacity) is unwilling to sue is not enough of itself. 51. Kay, J. in Meldrum v. Scorer,(2) at p.474, cited with approval what Lord Selborne had said in Beningfield v. Baxter(5):
52. The formulation of Turner V.C. in Travis v. Milne(6) has been approved in several subsequent cases. I will not quote his exact words but it is clear that he considered that where the relation between a trustee and his beneficiaries "is such as to present a substantial impediment" to the prosecution by the trustees of the proceedings to enforce the rights of the beneficiaries, the latter may maintain an action for that purpose. In Meldrum v. Scorer (2) Kay, J. also said:
53. What influenced Lord Hanworth, M.R. in Harmer v. Armstrong(4) was that, on the facts before him, circuity of action and unnecessary expense would be occasioned if the parties were obliged to institute separate proceedings to get leave to sue in the name of the alleged trustee and agent when he was already before the court and had declared that if he were found to be a trustee, then in that capacity it was his wish to share in the fruits which he, as one of the beneficiaries, was entitled to receive. 54. In Wong Yu Shi and Others (No.1) v. Wong Ying Kuen,(7) Hogan C.J., at p.428 giving the judgment of the Full Court, found special circumstances in that the conduct of the administratrix of the estate had been called in question by evidence that had been sufficiently cogent to induce the trial judge to remove her from the administration of the trust, and there would be unnecessary circuity of action since the plaintiff's immediate trustees had been joined, as had all the beneficiaries save one who had undertaken to be bound by the proceedings. 55. I have no doubt that the special circumstances found by the learned Deputy Judge were principally based on the existence of the 10th Clause. If I am right in the views I have earlier expressed, then his view that the Clause conferred no power upon Citibank in relation to 41; Island Road before one of the special events. occurred (so that it was "difficult for Citibank to contemplate proceedings") is vitiated. 56. In my opinion it would be a most unusual case that special circumstances could legitimately be found in the terms of the very trusts by which trustees are bound, and which the Courts are required to construe and give effect to. If he 10th Clause bears only one meaning, then it reflects the Testator's own wishes. If it does not, as I have already suggested, the proper course would have been to institute appropriate proceedings in the New York jurisdiction. 57. If special circumstances of the kind envisaged by the cases are relied upon, I consider it to be the better practice to plead clearly (in the Statement of Claim or originating process) the facts upon which it is claimed that special circumstances arise. My examination of the authorities cited to us suggests that this happened in each case. If it is said that there was collusion between the trustee and another defendent, or that the trustee's improper conduct has disabled him from prosecuting proceedings in his own name, surely this must be distinctly pleaded, and not left to uncertain inference. Otherwise it is not shown that the action is properly constituted. 58. I have read and re-read the Statement of Claim and I can find nothing to found the Plaintiffs' contention that special circumstances existed (although, no doubt, leave to amend would readily be given) once it is accepted that a trustee's mere unwillingness to sue is not enough. An amendment had been allowed and the 10th Clause was recited, but nothing more was said about it. I can find no trace in the proceedings of impeachment of the conduct of Citibank. No attempt was made to further amend the Statement of Claim in the light of the fact that the locus standi point had been very clearly pleaded in the amended Defence. 59. Be that as it may, even if special circumstances could be said to have been established, I entertain no doubt that on the facts, the Deputy Judge ought to have exercised his discretion to declare, at whatever stage he chose to do so, that the action in its present form should not be maintained. I have arrived at this conclusion because I respectfully agree with the notes of caution expressed by Lawrence, L.J., arid later by Romer, L.J., in Harmer v. Armstrong. (4) At p.88, Lawrence, L.J. said this:
And Romer, L.J. had this to say at p.93:
60. In my respectful opinion, the principles behind these cogent and compelling expressions of view are applicable to our case. At all material times the New York trustees and the American Charity took a stand quite opposite from that taken by Joseph and George. The issue raised by this vital conflict in wishes and opinion could have been resolved satisfactorily by proceedings instituted for that purpose, and I have no reason to suppose that the Beddoe Summons type procedure is not available in New York. If this had happened, I cannot believe that the present proceedings would have seen the light of day. 61. The American Charity's wishes were plain enough - they did not think it right to insist upon a sale of 41, Island Road while the old people were still living. They were surely entitled to bear humanitarian considerations in mind in relation to their own interests. Their response to the letter addressed to them by the Plaintiffs' solicitors does not alter the position at the time the cause of action is said to have arisen. They were being asked, nearly two ;ears after the action had been instituted, if they were prepared to agree with their clients' contention "that the property be sold'.. They replied that they did riot wish to "take a position concerning the question raised." 62. I have found that no breach of trust was established. Mr. Godfrey submits that it would be open to this Court in that event, nevertheless, to uphold the order for the sale of the house. With due respect to, his arguments that cannot be right. The Plaintiffs' whole case was based on breach of trust. If this Court is satisfied that H.K.B.T. was not properly the object of judicial indictment by a finding that no breach of trust was revealed, then it seems to me, none of the reliefs sought by the action should be given. The fact that the parties have all agreed that 41, Island Road should now be sold in any event (Aunt Maisie having died and Uncle Albert being confined to a hospital bed) is neither here nor then. 63. I do not propose to go through what would be the rather unreal exercise (on my view of the facts and the law) of deciding whether, if a breach of trust had been made out, it would have been a proper case to grant H.K.B.T. relief under s.60 of the Trustee Ordinance. 64. For these reasons, I would allow the appeal and set aside all the orders made by the Deputy Judge. (1) [1971] W.L.R. 555 (2) (1887) 56 L.T.471 (3) (1887) 7 Ch. D. 210 (4) [1934] 1 Ch. 66 (5) 12 App. Cas. 167, 178 (6) 9 Hare, 141 (7) [1957] H.K.L.R. 420 26th July, 1985. Representation: W.D. Ainger & Andrew Li for Appellant G. Godfrey, Q.C. & Re Ribeiro for Respondent |