The Secretary for Justice v. Wong Tak Wai and Others
Read the full judgment text of HCMP 853/2012 on BabelCite. This High Court CFI judgment was delivered on 21 October 2022.
1. This is, it is hoped, the beginning of the final stages of the proceedings concerning the estate of the late Nina Kung (“the Testatrix”), being the first stage of the hearing of the Secretary for Justice (“SJ”)’s application (brought in the SJ’s capacity as parens patriae and protector of charities) for the court’s settlement of a scheme for the purpose of implementing and regulating the charitable trusts which the Court of Final Appeal held to have been created by the Testatrix’s will dated
Cited by 14 cases · Cites 9 cases
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HCMP 853/2012 [2022] HKCFI 3255 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO 853 OF 2012 ------------------------------
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(By original originating summons and order to carry on dated 15 March 2022) ------------------------------ Before: Hon Barma JA (sitting as an additional judge of the Court of First Instance) in Court Dates of Hearing: 7, 8, 15, 21 and 22 July 2022 Date of Judgment: 21 October 2022 ___________________ J U D G M E N T ___________________ Introduction 1.This is, it is hoped, the beginning of the final stages of the proceedings concerning the estate of the late Nina Kung (“the Testatrix”), being the first stage of the hearing of the Secretary for Justice (“SJ”)’s application (brought in the SJ’s capacity as parens patriae and protector of charities) for the court’s settlement of a scheme for the purpose of implementing and regulating the charitable trusts which the Court of Final Appeal held to have been created by the Testatrix’s will dated 28 July 2002 (“the Will”). For the purposes of this hearing, draft schemes have been put before the court by the SJ, Chinachem Charitable Foundation Limited (“the Foundation”), which was the named beneficiary in the Will, and the Joint Administrators of the Testatrix’s estate (“the JAs”). 2.As mentioned, this is the first stage of the hearing for the settlement of a charitable scheme to enable the Testatrix’s vision to be realised. In this judgment, I propose to consider the legal principles which should guide the court in settling a scheme, and to deal so far as appropriate with some key questions relating to the identity of the trustee and the supervisory organisation envisaged by the Testatrix to be put in place to oversee the trustee. As will become apparent, a final decision as to the identity of the trustee, and more detailed provisions relating to that trustee, and to the workings of the scheme, will have to await further consideration following a further hearing or hearings. 3.By the Will, the Testatrix bequeathed the entirety of her estate to the Foundation. The estate’s main asset is its shareholding in the Chinachem group of companies (“the Group”), the value of which (as at December 2020) was (on a net book value basis) some HK$141 billion. Other assets of the estate (also as at December 2020) comprised cash of some HK$257 million and Taiwanese Dollars 44 million, 160 million shares in ENM worth some HK$118.4 million, other securities worth some HK$12.6 million, personal effects valued at HK$31.7 million and an interest in the Testatrix’s late husband’s estate (of which the Testatrix was sole beneficiary) estimated to be worth about HK$195.1 million (net of estate duty). The estate also had known liabilities of about HK$229.5 million, although there were some known claims which had not been quantified, so that the eventual amount of the liabilities might be somewhat higher. 4.Given the vast size of the estate (which is, as noted above, in excess of HK$141 billion (or some nearly US$18 billion)), the Testatrix’s benefaction is by a long way the largest charitable gift ever made in Hong Kong, and places the value of the trust created by it in the top ranks (probably in the top ten) worldwide. To give a sense of the scale of the bequest by reference to a quintessentially Hong Kong comparator, the annual contributions to charity of the Hong Kong Jockey Club, which is generally recognised to be the largest single charitable benefactor in Hong Kong, have averaged about HK$4.5 billion per annum over the past decade (including some HK$6.6 billion in its most recent financial year). The Testatrix’s gift thus represents more than 25 years’ of charitable giving by the Hong Kong Jockey Club. As Mr Yu SC, senior counsel for the JAs, rightly submitted, it clearly merits a scheme that embodies a governance structure of very high standards. The Factual Background 5.The factual background to the Chinachem Group, the establishment of the Foundation, the circumstances in which the Will was made, and its terms, have been set out in detail by Poon J (as Poon CJHC then was), at [2] to [17] of his judgment in this action dated 22 February 2013 (“the CFI judgment”) and by Lord Walker of Gestingthorpe NPJ in [15] to [26] of the judgment of the Court of Final Appeal dated 18 May 2015 (FACV 9/2014, (2015) 18 HKCFAR 169) (“the CFA judgment”). While I do not think it necessary to rehearse the whole of the background in detail, it would, I think, be helpful to provide a summary of key aspects of the background, as follows. The Chinachem Group 6.In 1952, the Testatrix’s father in law, Wang Din Shin, established in Hong Kong what was to be the foundational company of the Chinachem Group, China United Chemicals Corporation Limited. After the Testatrix’s marriage to her late husband Wang Teh Huei (known as Teddy Wang) in 1995, she and her husband assumed management and control of that company, and over the years expanded it into a very large portfolio of property development and other companies, which formed the Chinachem Group. Unfortunately, the Testatrix’s husband was twice kidnapped, the second time in 1990, following which he was never seen again and was presumed to have died (leave to swear death on about the date of his kidnapping in April 1990 was granted by the court in September 1999). After his disappearance, the Testatrix took over management of the Chinachem Group, and until her demise, had overriding authority over all decisions relating to the affairs of the Group and companies in it. 7.As the JAs (who have administered the affairs of the Chinachem Group in their capacity of interim administrators for some 10 plus years) have explained in their evidence filed for the purposes of these proceedings, the Chinachem Group was very much a family owned business, consisting of a large number of companies which were not organised by reference to any coherent structure, and lacking a holding company through which overall control and direction of the Group could be provided. Further, the companies in the Group were not organised in a systematic way that reflected the different business areas that were undertaken by them (the main business areas, spread across a large number of companies, were (i) property development and sales, (ii) property investment and leasing, (iii) building management, (iv) hospitality and (v) general investment). The affairs of the various companies in the Group were directed by the Testatrix and her husband, and later by the Testatrix alone, assisted by long-serving and trusted senior staff. During their tenure, the JAs have taken steps to reorganise and improve the management and corporate governance of the Group, by procuring the appointment of qualified professional senior management to run the Group, and by seeking to organise the various companies comprising the Group into sub-groups that reflect their businesses, so that companies with similar businesses are grouped together. It would appear that they have enjoyed a measure of success in this regard – the Group has been profitable and has grown in value under their stewardship. In the three most recent financial years prior to this hearing for which audited accounts are available, the Group returned profits of HK$4.24 billion in 2018, HK$8.29 billion in 2019 and HK$2.69 billion in 2020. The Foundation 8.As for the Foundation, it was established in 1988. The Testatrix had said that it was her and her late husband’s intention ultimately to leave their wealth to charity rather than to their family members. It was no doubt also regarded as a tax efficient way in which to make charitable donations during their lifetime. Since its establishment, the Foundation has made charitable gifts to a wide range of causes, both in Hong Kong and on the Mainland. A summary of these can be found at [40] of the 2nd Affirmation of Jong Yat Kit filed on 7 December 2020, from which it seems fair to say that there was no clear pattern to such donations. The Testatrix’s practice was to give instructions to senior employees as to the donations that she wished to effect, following which they would identify a company within the Group from which to obtain funds, which would be channelled to the Foundation to enable it to make the donation. 9.As far as management of the Foundation is concerned, when first established its only Governors were the Testatrix and her late husband. Later, three long-serving and trusted senior employees of the Chinachem Group were appointed as Governors. From about 1995 until shortly before the Testatrix’s death, the Governors consisted of the Testatrix and the three senior employees. Shortly before the Testatrix passed away, she caused her siblings Dr Kung Yan Sum (“Dr Kung”), Madam Gong Zhongxin (“Madam Gong”) and Ms Kung Yan Sum (“Mrs Tong”) to be appointed as Governors (there was a question as to the validity of their appointment, in that they may not have been appointed in strict accordance with the articles of the Foundation, but this does not seem to me to be particularly material for present purposes). 10.After the Testatrix’s death, there have been extensive further appointments of Governors and also some resignations, such that the composition of the board of Governors has changed substantially since the last nominations (of her family members) made at the behest of the Testatrix. The changes in the Governors of the Foundation that took place on or after the appointment of the Testatrix’s family members on 2 April 2007 are shown in the following table:
The Will 11.In 2002, the Testatrix made the Will (it was executed on 28 July 2002). She did so with the assistance of her sister, Mrs Tong, who had acted for some years as the Testatrix’s personal assistant. The circumstances in which the Will was made were described by Mrs Tong in an affirmation she made in 2012 (the relevant parts of which were set out in [13] of the CFI judgment, and will be referred to later in this judgment). The Will was in Chinese, but a certified English translation was made for the purposes of the earlier proceedings, and was set out in [25] of the CFA judgment. For convenience, the translation is reproduced below:
Legal proceedings after the Testatrix’s death 12.On 3 April 2007, the Testatrix passed away. Following her death, there were a number of legal proceedings concerning her estate. 13.The first such proceedings related to a dispute between the Foundation and Chan Chun Chuen, a fung shui master engaged for many years by the Testatrix, over which of them was entitled to the Testatrix’s estate, the Foundation claiming to be so entitled under the Will, while Chan claimed to be entitled to the estate under another will put forward by him which purported to leave the entire estate to him. These proceedings concluded with a finding by Lam J (as Lam PJ then was) that the Will was the true will of the Testatrix and that the rival will put forward by Chan was a forgery, created by Chan. An appeal by Chan to the Court of Appeal was dismissed, and he was refused leave to further appeal to the Court of Final Appeal. 14.Thereafter, the SJ brought these proceedings, by an Originating Summons filed on 2 May 2012 (which was eventually re-amended on 11 September 2012), seeking (by paragraphs 1 to 6 of the Re-Amended Originating Summons) the resolution of various questions regarding the construction of the provisions of the Will, and asking (at paragraphs 7 and 8 of the Re-Amended Originating Summons) the court to approve and direct a cy-près scheme for the application of the Testatrix’s residuary estate, and to give any further necessary or consequential directions, accounts and inquiries. These proceedings resulted in the CFI judgment, a judgment on appeal by the Court of Appeal, and culminated in the CFA judgment which affirmed the judgments of the courts below. The main contest was between the SJ and the Foundation as to the proper construction of the Will. The SJ contended that the Will created a charitable trust, of which the Foundation was the named trustee, so that the Foundation was bound by the terms of the trust. The Foundation, on the other hand, claimed that the Will contained a gift of the estate to the Foundation absolutely, unencumbered by the obligations of trusteeship (although the Foundation was itself a charitable body). This dispute was resolved, at all levels, in favour of the SJ, with the CFA confirming the decisions of the courts below that the Will clearly created a charitable trust. 15.In the CFA judgment, the Court of Final Appeal expressed the view that, having regard to the home-made nature of the Will, which lacked detailed machinery and directions for the carrying into effect of the trusts which had been held to have been created, there should be a scheme (which would be an administrative scheme rather than a cy-près scheme), to be sanctioned by the court, governing the operation of the charitable trusts created by the Will. The Court of Final Appeal identified as the principal objectives of such a scheme (i) the establishment of the supervising body, including its terms of reference and membership, and (ii) the detailed working out of arrangements for establishing and administering the Chinese prize envisaged by the Testatrix (see the CFA judgment at [76]). As it turns out, and as will become apparent from the issues that have been put before the court for consideration and determination, the extent of the matters that will require to be dealt with in the settlement of the scheme are far more extensive that the Court of Final Appeal had envisaged. The Scheme Summons and the SMO Summons 16.After the CFA judgment and a further ruling by the Court of Final Appeal as to the costs of the appeal to it, the SJ and the Foundation embarked on discussions with a view to trying to reach agreement on the terms of a scheme. However, serious differences emerged between them as to the material terms of such a scheme, which could not be mutually resolved, leading the SJ to issue a summons dated 29 March 2019 (“the Scheme Summons”) seeking (by paragraph 1) orders for the restoration of paragraphs 7 and 8 of the Re-Amended Originating Summons seeking the settlement of a scheme and such further directions as might be necessary. The Scheme Summons also sought (by paragraphs 2 to 4 of the summons) directions for the substitution of parties so as to ensure that the current JAs were parties to the proceedings, and (by paragraphs 5 to 9 of the summons) directions for the filing of evidence for the purposes of the present proceedings. 17.On 13 June 2019, I gave directions for the filing of evidence by the parties. These directions have since been complied with (albeit with a number of extensions of time for doing so), and directions for the filing of further evidence have also been made and complied with. Extensive evidence has been filed for the SJ, the Foundation and the JAs, and will be referred to as necessary below. The evidence includes draft schemes put forward for consideration by each of the parties. 18.On 21 May 2020, the Foundation issued a summons (“the SMO Summons”) seeking orders that the SJ should issue formal requests to the Premier of the State Council of the PRC (“the Premier”) and the Secretary General of the United Nations (“the Secretary General”) inviting them to join a supervisory managing organisation (“SMO”) to be formed for the purpose of supervising the Foundation in its role as trustee of the trusts of the Will. The SMO was intended to be the managing organisation mentioned in clause 2[1] of the Will. On 26 May 2020, I gave directions for the filing of evidence in relation to the SMO Summons, which was adjourned to 5 August 2020 for substantive argument. Having heard the parties on 5 August 2020, I concluded that it would be appropriate to adjourn the SMO Summons to be heard at the next directions hearing of the Re‑Amended Originating Summons, which had been fixed for 26 May 2021, after the filing of evidence in compliance with the timetable that had been laid down on 13 June 2019, as extended. 19.At the directions hearing on 26 May 2021, I directed that the substantive hearing of the SMO Summons should take place at the same time as the substantive hearing of the Scheme Summons, giving further directions for the filing of evidence, the fixing of hearing dates and the exchange of written submissions. Subsequently, on 18 March 2022, it was directed that the Scheme Summons and SMO Summons, which had originally been fixed for hearing between 31 October and 7 November 2022, should instead be dealt with in two stages, with the first stage taking place on 7, 8, 15, 21 and 22 July 2022, and the second stage envisaged to take place from 31 October to 7 November 2022. 20.Following the filing of some further evidence, the parties were able to agree on a detailed and extensive list of issues for consideration and determination with respect to the Scheme Summons and the SMO Summons. The list of issues is attached to this judgment as Annex A. 21.The precise allocation of issues between the stages was left open. In the event, all parties agreed that it would be for the court to determine what issues should appropriately be dealt with at the first and subsequent stages, although they offered varying suggestions as to what might usefully or appropriately be dealt with first. Necessarily, the further conduct of the Scheme Summons and SMO Summons beyond the first stage hearing would depend on the outcome of the issues determined at that stage. As I explain below, in the light of the conclusions to which I have come on the issues that I think it appropriate to determine at this stage, it is likely that the second stage hearing will have to be modified so that it is more in the nature of a directions hearing, to enable the further stage(s) which I will identify below to proceed to a conclusion. 22.At this first stage hearing, all the parties (with the exception of the 3rd defendant, who is understood to have passed away in 2013 but who has not yet been removed from these proceedings) appeared before me by counsel, the JAs having been authorised to take part in these proceedings in order to enable them to provide information and evidence which might assist the court in reaching its conclusions. At the hearing, the SJ was represented by Mr Ambrose Ho SC and Mr Michael Yin, the Foundation was represented by Mr Bernard Man SC, Mr Justin Lam and Mr John CK Chan, and the JAs were represented by Mr Benjamin Yu SC, Miss Sara Tong SC and Mr Joshua Chan. Each of them has lodged extensive written submissions, written submissions in reply, and speaking notes. Preliminary matters 23.Before proceeding to identify the issues that I shall deal with in this judgment, and discussing and determining those issues substantively, it will be convenient first to deal with some less contentious matters. As noted above, paragraphs 2 to 4 of the Scheme Summons sought to substitute parties to the proceedings to reflect changes in the identity of the JAs. The JAs from time to time since 5 July 2012 have all been partners of PriceWaterhouse Coopers, although there have been changes to the particular partners holding office as a JA to cater for retirements over the years. They were appointed as joint and several administrators of the Testatrix’s estate by Chu JA (also sitting as an additional judge of the Court of First Instance), pending the full grant by the court of Letters of Administration of the estate with the Will annexed, or further order. On 13 December 2019, Chu JA directed that the JAs should participate in these proceedings, including by the provision of evidence and furnishing of assistance to the court, in connection with the resolution of issues arising in relation to the scheme, and in connection with the drafting of the scheme, to the extent they considered necessary to protect the interests of the estate and the charitable beneficiaries. Although three specific aspects of such evidence and assistance were referred to in paragraph 2 of Chu JA’s order of 13 December 2019 (these being (1) evidence as to the assets which might be affected by the scheme, including the Chinachem Group, and the interaction between the Group and the Foundation and its Governors, which may bear on how the Foundation should be supervised, (2) the JAs views on the structure and terms of the scheme that are needed to ensure its feasibility, viability and sustainability, and (3) the development of a comprehensive transition process to deliver the estate to the trustees at the end of the day), it is clear from the terms of paragraph 1 of that order that the evidence and assistance that may be provided is not limited to those specific areas, but extends to any respects that may be considered to be of assistance to the court in resolving and dealing with the issues that arise in respect of the Scheme Summons, and in connection with the drafting of the scheme. 24.Sensibly, no party opposed the making of orders to effect the necessary substitutions to bring the identity of the JAs, as reflected in the title to these proceedings, up to date. Accordingly, I shall make orders in terms of paragraphs 2 to 4 of the Scheme Summons. 25.As for paragraphs 5 to 9 of the Scheme Summons, these have been dealt with by the directions given by the court from time to time between the issue of the Scheme Summons and this hearing. Issues to be dealt with at this hearing 26.I turn now to the issues to be dealt with at this stage. Having had the benefit of the parties’ submissions, both written and oral, I have concluded that it would be appropriate to deal with the following issues (using the numbering in the List of Issues at Annex A).
27.The remaining parts of Issues 2 and 4 and Issues 3, 5, 6 and 8 are, I think, more appropriately dealt with at or after the next stage of these proceedings, for reasons which I shall explain briefly at the end of this judgment. Issues 1.1 to 1.2.1: Legal principles and the test to be applied 28.Issues 1.1, 1.2 and 1.2.1 concern the guiding principles as to the approach that the court should adopt when settling an administrative scheme in respect of a charitable trust such as that created by the Will. As Lord Walker indicated at [76] of the CFA judgment, there is a strong public interest in having a properly devised scheme in order to provide a clearer and sounder legal basis for the charitable trust than is afforded by the language of the Will, which was very much a home-made will, which identified broad objectives and aspirations without providing any real detail as to how those objectives and aspirations were to be defined, and how they were to be achieved. 29.The court’s jurisdiction to settle a scheme for the administration of a charitable trust is well recognised. It is one aspect of the court’s scheme-making jurisdiction, but is quite distinct from other types of schemes relating to charities such as a cy-près scheme where a charitable gift might otherwise fail due to fundamental problems such as uncertainty, impossibility or illegality. Although [7] of the Re-Amended Originating Summons asked for the settlement of a cy-près scheme, it is apparent from the CFA judgment that what is called for here is not a cy-près scheme, as the objectives to be attained are not unclear, impossible or illegal, but an administrative scheme to ensure that the gaps and omissions in the Will can be filled in by the creation of a suitable administrative structure that will enable the Testatrix’s vision to be realised. For a discussion of the difference between the two types of scheme, see e.g. The Law and Practice Relating to Charities (4th ed), Hubert Picada QC at pp.437-438; In re Robinson [1931] 2 Ch 122 at 128-129. 30.Mr Ho SC for the SJ submitted that the court should approach the exercise of its jurisdiction to regulate the administration of a charity by means of an administrative scheme by focusing firmly on ensuring that a proper and suitable machinery is put in place for the administration of the charitable trusts being dealt with. In doing so, Mr Ho suggested that the court need not approach the matter with a disposition to follow the settlor’s (in this case the Testatrix’s) intentions “as closely as possible”, although he accepted that the wishes of the Testatrix were a relevant factor, which should be taken into account. He submitted that the most important consideration was the best interests of the charitable objects to be attained, and that while the court would generally be slow to thwart a donor’s wishes, it was free to depart from those wishes if the proper administration of the charitable trusts so required. 31.So far as the test or standard to be applied when settling a scheme was concerned, Mr Ho submitted that the guiding principle which the court should follow was that of expediency (and not some higher or stricter standard). 32.Mr Yu SC, for the JAs, made similar submissions. He submitted that the court’s jurisdiction over charities is broad, and includes the power to supervise and direct the administration of the charity by way of an administrative scheme. In the exercise of this jurisdiction, the court’s ultimate duty is to the charitable purposes to be served, and in discharging that duty, the wishes of a settlor are a relevant but not dominant factor. Like Mr Ho, Mr Yu submitted that it was clearly established that the court should do what it considered expedient, and could depart from a settlor’s wishes were it was expedient to do so for the due administration of the charity. 33.Although both Mr Ho and Mr Yu pitched the test at the level of “expediency”, I did not understand them to be suggesting that the court should simply do whatever it thought best. Both recognised the need to take the settlor’s wishes into account, even though neither accepted that these were paramount, and both acknowledged that there had to be shown some adequate reason for intervening so as to depart from those wishes, before doing so. In other words, it was not their position that the court, once seised of the jurisdiction to settle an administrative scheme, was free to do whatever it thought most appropriate. Rather, where the court considered that it would be inexpedient to adhere to the settlor’s wishes (or where it would be inexpedient not to make certain additional provision that was under consideration), the court could then intervene by ensuring that such inexpediency was adequately addressed by the scheme which it settled. In this regard, inexpediency involves a less stringent standard than impracticability or impossibility. Whether or not a particular provision, or mode of operation, is inexpedient would fall to be judged by reference to the overall nature and context of the charitable gift. 34.Mr Man SC for the Foundation disagreed. He submitted first that the court, in making an administrative scheme, did not have power to depart from or alter the charitable purpose or object. I do not think that this was seriously disputed. To do so would take one out of the realms of administrative schemes, and into that of cy-près schemes. Mr Man went on to suggest that this restriction also applied to other provisions which were integral or essential to the charitable purpose. In his oral submissions, Mr Man developed his submissions, and argued that in order to depart from a settlor’s wishes, it was necessary for there to be some impossibility, impracticality or inexpediency, and that if this were demonstrated, the court should only intervene where (and to the extent) necessary to give effect to the charitable objects of (in this case) the Will. 35.In my view, the formulation suggested by Mr Man, if taken literally, is significantly stricter than that proposed by Mr Ho and Mr Yu, in that on this formulation, even where inexpediency (or impracticability or impossibility) is established, intervention is only permitted where it is necessary to give effect to the charitable objects. By the addition of this latter requirement, the standard would appear to be elevated well beyond inexpediency, in effect raising the bar to a standard of necessity. 36.But there was a suggestion in Mr Man’s speaking note, provided during the hearing on 15 July 2022, that none of the terms used (whether “impracticable”, “impossible”, “inexpedient” or “necessary”) should be understood in the literal sense or (as put in the speaking note) “extremely construed”. It was said that they had to be interpreted in context and not as if they were words in a statute. If this is the case, it may be that the difference between the approaches advocated by Mr Ho and Mr Yu on the one side, and Mr Man on the other, may not be very great, so that the difference is principally a matter of emphasis, with Mr Man contending for a greater regard to be paid to the wishes of the settlor, and greater caution exercised by the court when intervening by way of an administrative scheme. But if that is the case, I am bound to say that the more appropriate formulation of the applicable test would be in terms of expediency, as this better captures the standard that is to be adopted. The use of terms such as “necessary” are liable to mislead, and to result, if taken more literally, in a test that is much stricter than that which is (to my mind) well established. 37.I am satisfied that the authorities establish that the standard of inexpediency (or expediency), and not necessity (however that term is to be understood), is the appropriate standard to be adopted by the court. Moreover, it seems to me that this standard strikes the appropriate balance between respecting the wishes of the settlor, and properly safeguarding the interests of the charitable purposes to be achieved. 38.That the court may intervene where it is expedient to do so (or conversely, inexpedient not to do so) appears from a number of authorities, including Re JW Laing’s Trusts [1984] 1 Ch 143 (at 153F and 155B), Trilogy Management Ltd v YT Charitable Foundation (International) Ltd [2014] JRC 214 (at [133] and [147]), Re Meshakov-Korjakin [2011] VSC 372 (at [54]), and Boyd v Talbot [2021] QSC 99 (at [42] and [81]). The court will need to be satisfied, by evidence where that is appropriate, both that there is some inexpediency in the existing arrangements that warrants its intervention, and that the course proposed to be adopted is itself expedient and justified. In deciding how to proceed, and what arrangements to make by way of administrative scheme, the court will have regard to the settlor’s wishes or directions, and try to respect them as closely as possible, but where it is satisfied that it is necessary to act, even if this involves possibly substantial departures from the settlor’s proposed administrative machinery, it should not hesitate to do so in order to best protect the charitable objects and their attainment. 39.Mr Man’s suggestion (by way of the second limb of his formulation) that the court should only depart from the settlor’s arrangements where it is necessary to give effect to the charitable objects identified cannot be accepted. To accept it (if “necessary” were given its literal or usual meaning) would negate the test of expediency, which, as noted above, is well established. It would be tantamount to insisting that amendments could only be made where the scheme would not work without them, thus reintroducing by the back door a test of impracticability or impossibility. Highly advantageous and desirable improvements to a scheme which would otherwise be defective or inexpedient could well be thwarted because it might be said that despite being highly desirable, they were not strictly necessary, as the charitable scheme could operate without them. And, as noted above, if the term “necessary” is not to be taken literally, it would be best avoided in order to avoid confusion. 40.In any event, I do not think that the cases relied on by Mr Man in fact support his submission. 41.Mr Man relied on Philpott v St George’s Hospital (1859) 27 Beav 107 which was said to concern an administrative scheme in which the Master of the Rolls, Sir John Romilly, stated that “expediency” in a wide and unbridled sense was not the test to be adopted when settling or amending the terms of an administrative scheme in respect of a charitable trust. But in fact, the proposal put forward by the Attorney-General by way of administrative scheme would have involved an alteration of the charitable objects of the trust, from the building of almshouses, to the building of a hospital or infirmary with provision for accommodation for almspeople. Not surprisingly, this was held to be not permissible when the court’s cy-près jurisdiction, which might permit such a change, had not been invoked. While it is correct that Sir John Romilly stated that it was erroneous to think that whenever the court had to direct a scheme to be framed it had power to deal with the property as it pleased, and do anything it thought to be expedient to be done with the property, it seems clear that this was in the context of the proposal mentioned above, which did involve a change in the objects of the charity. Moreover, it is not suggested by Mr Ho or Mr Yu, that the court has a free hand to do whatever it thinks best. Even in the case of an administrative scheme, it is acknowledged by them, and inherent in the principles that I have set out above, that there must be some identified problem (or “inexpediency”) that requires to be addressed, and that in addressing it, the court should have appropriate regard to the wishes of the testator. 42.Mr Man also referred to a number of cases to support his suggestion that the Testatrix’s wishes should be followed as closely as possible. He referred in particular to Trilogy Management Ltd v YT Charitable Foundation (International) Ltd (supra) and submitted that when faced with two proposals (being the dismantlement of the charitable trust or the replacement of the trustee) as means to address a breakdown in the working of the charitable trust under consideration, the court opted for the latter (despite having acknowledged the attraction of the former), thus retaining the structure of the trust as intended by the settlor. But as Mr Ho pointed out, the reason given by the court for doing this was in fact that the dismantlement route, although attractive, was not something that the court was satisfied on the evidence was expedient to do (see the judgment at [137]). Further, as noted above, the court made it clear that the test was one of expediency (at [133]) and that the requirement was not to follow the settlor’s wishes unfailingly, but rather not to depart from them without good reason (at [146]). Most pertinently, the court said (at [147]) that:
By that statement, it is clear that the court was reaffirming the primacy of the principle of expediency, and emphasising that the need for expediency takes priority over the wishes of a settlor. 43.Attorney-General v Dedham School (1857) 23 Beav 350 was another decision of Sir John Romilly MR relied upon by Mr Man. But it seems clear that when the learned judge stated that “if it cannot carry [the intentions of the founder] into effect specifically, it carries them into effect as nearly as may be, and with as close a resemblance to them as it can”, the reference to the intentions of the founder was a reference to the charitable objects (which can only be altered by way of a cy-près scheme) and not the administrative machinery by which those objects were to be attained. 44.Mr Man also relied on Phillips v Roberts [1975] 2 NSWLR 207, where Mahoney JA identified three types of schemes, and said in relation to the third of those (the case where the settlor has provided for a precisely detailed procedure which is impracticable) (at p.224A-B) that “that, essentially, which the court does, is to select the manner of application of the gift which is as near as possible to the manner which the deceased herself selected”. But, as Mr Ho correctly pointed out, earlier in the judgment, Mahoney JA had referred to this class of cases as being properly described as an exercise of the cy-près doctrine (the other two being clearly cases of administrative schemes: to provide an administrative framework where none had been specified, or where what was specified was incomplete and lacking sufficient detail), and it would not be right to read too much into the statement. 45.Reliance was also placed on a passage in the Canadian case of Toronto Aged Men’s and Women’s Homes v Loyal True Blue and Orange Home 68 O.R. (3d) 777, where Cullity J, while acknowledging the distinction between cy-près and administrative schemes, said:
In my view, this does not really alter the approach which I have held to be the appropriate one, which recognises the desirability of having regard to the donor’s wishes or directions, subject to the need to deal with the inexpediency that has been demonstrated. 46.It is also noted that in Re Meshakov-Korjakin [2011] VSC 372 (also relied on by Mr Man), Mukhtar AsJ stated at [54] that:
It might be thought that this suggests a stricter test of necessity (as indeed has been suggested by Mr Man). However, it is clear that Mukhtar AsJ adopted expediency as the guideline for intervention, and it seems to me that the use of the work “necessity” in this context should be understood as meaning that the test should be applied so as to permit intervention where it is necessary to address the inexpediency that has been identified (and not to require that intervention only take place where it is strictly necessary to enable the charitable objectives to be achieved at all). It may also be observed that in that case, the court was not satisfied on the evidence that there was any inexpediency at all in the direction that there should be a single trust rather than separate ones for each of the three objectives that had been identified by the settlor, and accordingly declined to interfere. 47.Other cases relied on by Mr Man included Boyd v Talbot [2021] QSC 99, in which, with respect, the jurisdictional threshold for altering an administrative provision was not really discussed, Re Royal Society’s Charitable Trusts [1956] Ch 87 which clearly involved an alteration of the objects of a number of trusts which it was proposed should be amalgamated, Corish v Attorney-General’s Department of NSW [2006] NSWSC 1219, in which it was held that the proposal put forward was more than a mere matter of administration and required the invoking of the cy-près jurisdiction (and where there was no inexpediency in any case, although some other arrangement might have been thought preferable), and HSBC Trustee (Hong Kong) Ltd v SJ [2000] 1 HKLRD 31, where there was no real discussion of the appropriate standard for intervention by way of administrative scheme, and it was held that the change there being proposed by the SJ was not in any event justified. None of these cases provides any basis for suggesting that the appropriate test is other than that which has been put forward by the SJ and the JAs, with which I agree, as set out above. 48.I shall therefore consider the issues to which I shall now turn by reference to the principle of expediency, pursuant to which the court may intervene by way of an administrative scheme where there is something inexpedient in the machinery put forward by the Testatrix, or where there is some omission in that machinery which it would be inexpedient not to address. In determining what is called for, I shall have appropriate regard to the Testatrix’s wishes, where these have been stated, in the light of the need to address the inexpediencies that are identified. Necessarily, in considering these matters regard must be had to the context and circumstances of the particular case before the court. Issue 2.1: Can a trustee other than the Foundation be appointed? 49.With that discussion of the law, it is possible to turn now to the issues which can appropriately be decided at this stage. The first such issue for consideration is Issue 2.1, which raises the question of whether it is open to the court to appoint a trustee other than the one named in the Will (i.e. the Foundation) when settling the scheme, and if so, what principles should guide the court in deciding whether or not to do so, and in what circumstances it should exercise such a power? 50.The parties differ on the question of whether or not the Foundation can be replaced as the trustee of the trusts created by the Will. The SJ and the JAs contend that the appointment of the Foundation as trustee is simply part of the administrative machinery laid down by the Testatrix, and as such is capable of being departed from if the court is satisfied that the appointment of the Foundation would be inexpedient, having regard to the need to attain the charitable objects specified by the Testatrix. On the other hand, Mr Man for the Foundation submitted that its appointment was something that was integral or essential to the purpose of the charitable trust created by the Testatrix. 51.Mr Man submitted that the choice of the Foundation to be the trustee under the Will went to the heart of the Testatrix’s bequest. He suggested that the Foundation was a “bespoke charitable organisation” designed to carry out the charitable objects envisaged by the Testatrix, was repeatedly referred to in the Will, and that it would be a great shock to the Testatrix if the charitable objects specified in her Will were to be administered by a different trustee. 52.As a fall-back position, Mr Man submitted that even if the identity of the trustee were no more than an administrative provision, there would nonetheless be no proper basis for the court to intervene by appointing a different trustee, as there was nothing impractical, impossible or inexpedient in the way of the Foundation’s appointment. 53.I am unable to agree with Mr Man’s submissions in this respect. To start with, the identity of a trustee generally relates only to the mode of administration of the trust, and will very rarely go to the heart of the trust objects. In Picada, The Law and Practice Relating to Charities (4th ed), it is stated (at p.514) that:
To similar effect is Luxton’s The Law of Charities, in which it is stated (at [15.25]) that:
54.To this it might be added that should circumstances arise where a trustee of a charitable trust falls to be removed, it is hardly conceivable that the trust should thereby fail. 55.I recognise that there may, exceptionally, be circumstances in which the choice of trustee is essential to the settlor’s charitable purpose, such that the inability, refusal or failure of the trustee to act, or the trustee’s removal, may mean that the charitable purpose as a whole will fail. But it does not seem to me that the Will presents such a case. This is so for a number of reasons. 56.First, it will be recalled that the evidence concerning the circumstances in which the will came to be made was to the effect that the Testatrix indicated that she wished to leave her estate to charity, and for charitable purposes, and therefore proposed to leave it to the Foundation, which she and her late husband had established, rather than to her relatives. This, to my mind, strongly supports the view that the Testatrix’s primary objective was to achieve the charitable objects that she had in mind, and that it was for those purposes that she proposed to leave her estate to the Foundation. On this basis, the charitable purposes took precedence, with the Foundation being simply the medium through which they were to be achieved, and thus part of the machinery, rather than an integral part of the purpose. 57.Second, the suggestion that the Foundation was a bespoke entity is without foundation in the facts. It was, of course, established by the Testatrix and her late husband. But that does not mean that it was bespoke for the purposes of the charitable bequest contained in the Will. It was established nearly 20 years prior to the Testatrix’s death, and throughout her lifetime, it was, as I have noted above, used essentially as a conduit through which charitable donations of her choosing were channelled from companies in the Chinachem Group to the intended recipients. As she approached the end of her life, the Testatrix does not seem to have done anything to render the Foundation particularly fit or well suited to being the recipient of the vast gift that was to be made to it as trustee upon her death. No steps were taken to set up any machinery within it to enable it to effectively carry out, say, the charitable purpose of the creation, funding and award of the Chinese Prize. It would appear that the Foundation was chosen to be the recipient of the charitable bequest for the simple (and entirely understandable) reason that it had been set up by the Testatrix for general charitable purposes. It therefore cannot be said to be uniquely well-suited to be the trustee of the bequest, such that the bequest should fail if the Foundation were not to be the trustee. 58.Further, as is apparent from the changes to the Governors of the Foundation subsequent to the Testatrix’s death, there has been a wholesale change in the identity of the Governors, particularly after 2017. At the time of her death, the Governors consisted of trusted employees and immediate family members of the Testatrix, but that is no longer the case, with all the long-serving employees no longer Governors, and the family members far outnumbered by later appointees, none of whom appear to have had any connection to or relationship with the Testatrix. Given that the make-up of the board of Governors would inevitably have been susceptible to change over time, it is not, I think, to be supposed that the Testatrix inevitably regarded the Foundation as an irreplaceable element of her charitable intentions. 59.Further, in the course of argument, Mr Man appeared to accept that notwithstanding his submission that it should be appointed at this stage, the Foundation could subsequently be removed if circumstances arose in which that would be an appropriate course to take, pursuant to the court’s powers to appoint new trustees under section 42 of the Trustee Ordinance. By that section, new trustees can be appointed in addition or in substitution to existing trustees of a trust, if it is expedient to do so, and inexpedient to do so without the assistance of the court. This acceptance that the Foundation was susceptible to removal clearly cuts across the suggestion that the Foundation should be regarded as an essential part of the charitable purpose. 60.Finally, I note that in the Court of Final Appeal’s costs ruling following the CFA judgment (see Secretary for Justice v Joseph Lo Kin Ching (No. 2) (2015) 18 HKCFAR 414, Lord Walker stated at [12]):
This clearly indicates that the Court of Final Appeal envisaged the possibility that the Foundation might not ultimately be appointed as trustee of the benefaction under the Will, and further undermines the suggestion that the Foundation is somehow irreplaceable. 61.For all of the foregoing reasons, I am unable to accept that the Foundation should be regarded as irreplaceable, and integral to the charitable bequest, and that it was intended to be more than part of the machinery by which the charitable objects were to be achieved. If it should be established that it would be inexpedient to appoint the Foundation to be the trustee, whether on the grounds of insolvency or other grounds, it would clearly be open to the court to settle a scheme under which a different trustee were appointed. Issue 2.2: Can Foundation Conditions be imposed? 62.This leads on to the question of whether the court has, in principle, the power to impose conditions which the Foundation should be required to meet in order to be appointed as the trustee of the trusts created by the Will. Given the views which I have already expressed as to the court’s powers when settling an administrative scheme, and the basis on which such powers should be exercised (i.e. by reference to the test of expediency), and my conclusion that the Foundation is not an essential part of the charitable purposes such that there is no alternative but to appoint it if the trusts are to be effective, the answer to this question is clearly yes. What particular conditions might appropriately be imposed is a separate question, with each condition contended for to be assessed by reference to whether or not it would be expedient to impose it (or inexpedient not to do so), an exercise which will involve looking at the evidence before the court as to why this would be the case. 63.At this stage of the proceedings, I shall, as indicated above, consider the first two proposed Foundation Conditions – the first being solvency (Issue 2.2.1), and the second being that the Governors of the Foundation should be fit and proper persons (Issue 2.2.2), possibly with the further more particular qualifications mentioned in the formulation of that Issue. Issue 2.2.1: The solvency condition 64.The first condition proposed by the SJ and the JAs is that the Foundation should be solvent in order to be appointed as trustee. In considering whether this, and indeed other, conditions should be imposed, it is necessary to keep in mind the particular characteristics of the trust, which include the following:
65.It is also appropriate to have regard to the fact that the Will is a brief document, with little or no detailed machinery put in place for the administration of the trusts created by it. It is perhaps unsurprising that the Testatrix should not have foreseen that there might be problems as to the solvency of the Foundation, which throughout her lifetime was funded by her (or the Chinachem Group, at her direction). But it cannot be supposed that she would have wished to have an insolvent Foundation as her trustee, particularly if this might jeopardise the charitable objectives which she clearly wished to achieve. 66.Bearing these features in mind, both the SJ and the JAs submit that it is obvious that the trustee of the Will trusts, whether it be the Foundation or some other entity, should be solvent, and that it would be highly inexpedient if the appointed trustee were to prove to be insolvent, or mired in financial difficulties. They submit that it is essential that the trustee should be of sound financial standing, in order to avoid the risk of jeopardy to the proper administration of the trust that would be caused by the insolvency of the trustee. Such risks would include the complications and uncertainties that would arise in the event that the trustee were to go into liquidation, which would include the risk that the appointed liquidator might not be in a position to effectively manage the trust assets and discharge the duties of the trustee, the risk that creditors of the trustee might lay claim to the trust assets (even if such claims would not be justified, they could well involve the trustee or its liquidators being embroiled in disputes and litigation to the detriment of the charitable objects of the trust), and the risk that the trustees might be tempted to have recourse to the trust funds to bail themselves out of their financial difficulties. Beneficiaries of a trust managed by insolvent trustees might well find difficulty in seeking compensation for breaches of trust. I would also add that even short of liquidation, a trustee beset by financial problems and facing the risk of insolvency would hardly seem likely to be in a position to wholeheartedly devote its time and energy to the management of the trust assets and pursue the trust’s charitable objectives. 67.Although Mr Man submitted at first that insolvency was not necessarily a disqualifying factor that would prevent a trustee from continuing in office, I am satisfied that in the case of this trust, with its particular characteristics identified above, the trustee’s solvency is undoubtedly of critical importance. It would clearly be inexpedient, to put it no higher, to have as trustee of these trusts an entity that is insolvent. 68.The need for such a condition would be heightened where the evidence discloses cause for concern as to the proposed trustee’s financial position, and there will be even greater reason for the condition as to solvency to be imposed. 69.Solvency in this context can, of course, refer to solvency by reference to either or the well-known tests of solvency, namely cashflow solvency (i.e. the ability to pay debts as they fall due) or balance sheet solvency (i.e. that the assets of the entity should exceed its liabilities). 70.Both Mr Ho and Mr Yu submit that there is ample evidence giving rise to substantial grounds for concern as to the Foundation’s solvency. They submit that such evidence provides clear justification for the imposition of a condition that the Foundation should be solvent if it is to take up office as trustee. 71.Without coming to a final determination of whether or not the Foundation is in fact insolvent, or whether it will be able ultimately to demonstrate its solvency or satisfy the court that it is suitable for appointment, which, for reasons I shall explain later, are issues better left to be decided at a later stage of these proceedings, I am satisfied that on the evidence before me that there is sufficient ground for concern as to the Foundation’s financial position such that it would be appropriate and expedient for the court to impose the solvency condition as suggested by the SJ and the JAs. 72.The starting point is the Foundation’s audited accounts for the 2018 and 2019 financial years. Both of these financial statements disclosed that the Foundation was balance sheet insolvent in each of those financial years. In the year ended 31 December 2018, the Foundation had a net deficiency of slightly in excess of HK$46 million, while in the year ended 31 December 2019, it had a net deficiency of over HK$50 million. In both of those years, its then auditors issued a qualified audit opinion, the qualification in the 2019 accounts relating to a limitation on audit evidence relating to a loan of HK$17 million (although it is not clear which loan this refers to, as the accounts in fact appear to contain reference to loans of HK$15 million and HK$27 million, but not of HK$17 million), and as to appropriateness of the going concern basis for the preparation of the accounts, which had been adopted notwithstanding the size of the deficit on the assumption that financial support would be forthcoming from third parties (although no evidence had been provided to the auditors as to availability of such financial support). 73.These accounts disclosed the existence of two loans which are relevant for present purposes. The first was for HK$27 million, which was classified as a non-current liability, as it was said to be a loan under which the Foundation’s directors (Governors) had the option to decide whether or not to repay in full or in part, or to never repay the loan, and whether or not to pay interest (and if so, at a rate of the Governors’ choosing) and it was further said to be the intention of the Governors not to effect repayment within the following 12 months. The second was a loan of HK$15 million which was classified as a current liability on the basis that it was unsecured, interest bearing and with no fixed repayment terms. 74.These accounts also formed part of the basis on which the Court of Appeal ordered the Foundation to pay security for costs of its intended appeal in Chinachem Charitable Foundation Ltd v Chan Wai Tong Christopher & others [2021] HKCA 1708, in which the Court of Appeal observed that the Foundation appeared to have been balance sheet insolvent since 2012. 75.Quite apart from these loans, the SJ and the JAs also drew attention to the fact that the deficits in these accounts did not take account of claims of alleged creditors of the Foundation in pending litigation – namely, HCA 832/2014 in which a Mr Chan Shu Chun claims repayment of an alleged loan of HK$50 million to the Foundation (a claim which has been resisted by the Foundation on the basis that the amount in question was a donation and not a loan) and HCA 764/2015 in which a Mr Lam Yee Hung claims repayment of a further alleged loan, this time of HK$42.35 million, to the Foundation (resisted by the Foundation on the same basis). Both of these proceedings have now been tried (HCA 832/2014 in September 2022 and HCA 764/2015 in January 2022), and judgment in both is pending. 76.It appears that both of the alleged loans the subject of those proceedings, and the HK$27 million loan recorded in the accounts of the Foundation were made to assist in payment of legal costs incurred by the Foundation in its litigation with Chan Chun Chuen, by which it successfully established that the Will was the true will of the Testatrix. It is not known to what purpose the HK$15 million short term loan was put. 77.On the basis of this material, there would clearly appear to be evidence to suggest that the Foundation may be insolvent, at least on a balance sheet basis. However, in her 6th Affirmation filed in these proceedings on 27 April 2022, Madam Molly Gong (a sister of the Testatrix and a Governor of the Foundation) stated that both the loans recorded in the audited accounts had been advanced in 2014, and that both were, to the Foundation’s understanding, provided by the relevant creditors (who have never been identified) “out of generosity and without a definite expectation of repayment”. She explained that although there was no expectation of repayment on the part of those who provided the funds, it was the hope of the Governors that repayment could be effected at some future date, and this explained the recording of the payments as loans, in the Foundation’s financial statements. However, in the light of the lapse of time (some 7 years) and the inability to foresee a time when the loans could be repaid, the Governors had decided to reclassify the loans as donations. 78.This proposed accounting treatment was indeed adopted in the audited accounts for the 2020 and 2021 financial years, which were produced on 6 July 2022, the day before this hearing commenced. In those financial statements (which were audited by different auditors), it is recorded that the Governors had decided to exercise the option never to repay the loans, and they were therefore reclassified so that they were no longer liabilities of the Foundation. 79.Mr Ho and Mr Yu did not accept that such reclassification was appropriate or justified. Mr Yu pointed out that while the HK$27 million loan was indeed said to be subject to the rather special terms described in [73] above, which might permit a decision never to repay, those terms had never been said to be part of the HK$15 million loan, so that there did not appear to be any justification for the latter loan’s reclassification. 80.It would also be fair to say that the alleged terms in respect of the HK$27 million loan would appear to be unusual, and it might be open to question whether such terms were correctly stated, particularly as there is no clear indication that the auditors had obtained confirmation from the unidentified lender (as distinct from the Foundation) as to those terms, the audit evidence relied upon by the auditors not having been identified. 81.It may also be observed that in relation to the alleged loans the subject matter of the two actions mentioned above, the position taken by the providers of funds is very different from that of the Foundation, with the providers maintaining that the funds were provided as loans, and not (as the Foundation says) donations. 82.In any event, even if the reclassification is accepted at face value, the Foundation remained balance sheet insolvent in both the 2020 and 2021 financial statements, although the extent of the insolvency was much reduced, and had been reduced to some HK$2.5 million by 31 December 2021. 83.After the hearing, by a letter dated 29 August 2022, the court, the SJ and the JAs were informed that an unidentified Governor of the Foundation had made a donation of HK$3 million to the Foundation by way of “further continuous financial support”. Neither the SJ nor the JAs have had an opportunity to consider or respond to this further material, which has no proper evidential basis. In the circumstances, I shall not have regard to it for present purposes. 84.It is clear that there have been and remain real concerns as to the financial position and solvency of the Foundation, and in these circumstances, there is in my view every justification for the imposition of the solvency condition, which should be incorporated within the scheme. 85.Further, it seems to me that the change of stance in relation to the repayability of the loan gives rise to other concerns which may impact on the suitability of the Foundation to be the trustee. These include:
86.There also appears to be a lack of transparency and clarity about the loans or gifts that have been made to the Foundation, in that lenders or donors have been kept anonymous, making it harder to ascertain the Foundation’s sources of funding (most of which seems to have been provided for the purposes of litigation over the Will), the terms on which such funding is provided, and whether or not with the funding come expectations on the part of the funder as to the possibility of future advantage. This tendency to secrecy may also, in my view, be a factor that should be taken into account when considering the suitability of the Foundation for appointment as trustee under the scheme. 87.I shall deal with the question of who is to decide whether the solvency condition is met, and when that question should be decided below, at the same time as dealing with the like questions in relation to the “fit and proper” condition. Issue 2.2.2: The fit and proper condition 88.I turn next to Issue 2.2.2 - the question of whether or not there should be a requirement that the Governors of the Foundation should be “fit and proper persons” or “persons with unquestionable integrity, experience and judgment”, and whether they should be persons capable of managing the Foundation. Thereafter, I shall deal with the questions of how and by whom it should be determined whether this condition and the solvency condition are satisfied. 89.The current Governors of the Foundation, and the dates of their respective appointments can be identified from the table set out in [10] above. 90.As with the solvency condition just discussed, I do not propose at this stage to come to any conclusions as to whether or not particular Governors of the Foundation are “fit and proper persons”. However, as with the solvency condition, it will be necessary to consider the material before the court that bears on this question in order to explain why the imposition of such a condition is, to my mind, clearly justified. 91.Mr Ho and Mr Yu both submitted that, as a matter of principle, it was clearly appropriate to require that those in charge of the Foundation were fit and proper persons so as to ensure that the Foundation itself was a fit and proper trustee for the trust imposed by the Will. Mr Ho submitted that the starting point had to be that the court was entitled to be assured that the administration of the charitable trusts would not be imperilled by the unfitness or incompetence of those responsible for managing the affairs of the Foundation, if it should be appointed as trustee. To similar effect, Mr Yu submitted that a key objective of the scheme should be to put in place proper safeguards with a view to preventing maladministration and loss to the trust, rather than seeking only to act after the event, when things had already gone wrong. He submitted that all those responsible for managing the affairs of the trustee should be persons of “unquestionable integrity, experience and judgment” (the phrase used by Lord Walker in respect of persons who might be appointed to serve on the supervisory management organisation envisaged by the Testatrix as being put in place to supervise the Foundation in its role as trustee). Mr Yu emphasised that the Governors of the Foundation must be fit and capable to act as such. 92.Both Mr Ho and Mr Yu submitted that a condition requiring the Governors of the Foundation to be “fit and proper” or “of unquestionable integrity, experience and judgment” was plainly expedient, and beyond that, plainly necessary. As Mr Yu said, it would be unthinkable that a Governor of the Foundation should not fulfil such a requirement, particularly when one has regard to the characteristics of the estate and the trust that have been mentioned above (see [64] above). 93.Mr Man, however, suggested that to impose such a requirement could prove problematic, as it might not provide clear and ascertainable criteria against which to judge whether or not a particular individual meets the standard required, and would be likely to give rise to much room for dispute. With respect, I cannot agree with this submission. The concept of being “fit and proper” is one that is utilised in many contexts. Indeed, when considering whether or not a new trustee should be appointed in respect of a trust pursuant to section 42 of the Trustee Ordinance, the court will consider whether or not the proposed appointee is a “fit and proper” person to be so appointed (see e.g. Re Daiei Sanko Co Ltd HCMP 2940/2014, 20 January 2015 at [6]; Jeremy Gar Yin Ip v Secretary for Justice [2021] HKCFI 3215 at [19]). Beyond the area of trusteeship, the term “fit and proper” is commonly used in statutes to describe the criterion by which the suitability for office of directors, controllers and executive officers of companies that carry out operations of public importance is to be determined. These include directors of authorised insurers under the Insurance Ordinance (Cap 41), who must satisfy the Insurance Authority that they are “fit and proper” to act as such (see ss. 13AC(1) and (4)), and executive officers of registered institutions under the Banking Ordinance (Cap 155), who must have their appointment consented to by the Monetary Authority on the basis (inter alia) that they are “fit and proper” to be so appointed (see ss. 71C(1) and (2) of Sch. 7(4) to the Banking Ordinance). Further, in the context of the Legal Practitioners Ordinance (Cap 159), s.27 provides that the court may admit as a barrister of the High Court someone whom it considers a “fit and proper” person to be a barrister. 94.The concept of “fit and proper” is clearly one which is frequently used as a qualification for appointment to various offices and positions, and there is no reason to think that the use of a similar concept in the present context would be unworkable or would lead to difficulty. 95.Of course, what characteristics a person should have in order to be considered fit and proper to take up a particular office will necessarily be dependent on the context, and in particular on the nature and requirements of the office. Having regard to the size and public importance of the trust established by the will, it seems to me that these characteristics will necessarily include a high level of integrity, and the capability to manage the Foundation and its affairs. Such capability is to be assessed by reference to their qualifications and experience which should equip them for managing the affairs and operations of the Foundation, which will include both the supervision and management of the Chinachem Group in order to preserve and enhance the assets of the trust, and the supervision and management of the charitable endeavours which the Foundation is tasked to deliver. That said, it does not follow that every Governor of the Foundation should be expected to have the same level of qualification and expertise in all relevant areas – given that the board of Governors may be expected to operate collectively in managing the affairs of the trust, it would be possible for different governors to bring different skills and areas of expertise to the endeavour, although all of them would, I think, have to be persons of great integrity. 96.It is clearly expedient that every Governor of the Foundation should satisfy the “fit and proper” criterion. It would not be feasible for some but not others to do so, as it would not be possible to know which individual Governors may have more sway or influence over the Board as a whole. It would in my view be clearly inexpedient to countenance the possibility of having appointed as a Governor someone who falls short of the appropriate standard. 97.As in the case of the solvency condition, the need for the “fit and proper” condition is clearly expedient, appropriate and, indeed, necessary. But beyond this, the available evidence in the present case (like that in relation to the solvency of the Foundation) also serves to emphasise the need for such a condition to be imposed, as it discloses a range of matters which give rise for concern, although in saying this, I do not intend at this stage to make any findings as to fitness and properness of particular Governors, or the Foundation as a whole. 98.In their evidence, the JAs have referred to a number of what are said to be questionable transactions entered into by the Chinachem Group after Nina’s passing in 2007. These are summarised in the 2nd affirmation of Mr Jong Yat Kit, one of the JAs, at [80] to [108], and include the following:
99.Dr Kung and the Foundation would appear, on the face of it, to have been involved in some of these transactions (those mentioned in [98(1), (2), (8) and (9)]). In relation to the other transactions, while not apparently directly involved, Dr Kung and Mrs Kung were members of the Chinachem Group Exco, and as such might be expected to have had some oversight function in relation to the Group’s affairs. 100.Apart from these specific transactions, which to some extent involve Dr Kung, there are further matters that warrant consideration. These include the following:
101.While I again emphasise that I am not, at this stage, making any findings as to whether or not the Foundation is suitable for appointment, it does seem to me that these matters do underline the need for the “fit and proper” condition. I do not think it necessary to couch this condition in terms of the Governors being persons of unquestionable integrity, experience and judgment, as the concept of “fit and proper” is, in my view, sufficient for the purpose of ensuring that only suitable persons are permitted to be involved in the management of the trustee of this trust. 102.Having concluded that both the solvency and “fit and proper” conditions are appropriate, further questions arise as to who is to be the arbiter as to whether or not the conditions are met, and whether the court should seek to determine this issue at the present stage. Who should decide whether conditions are satisfied? 103.So far as the question of who is to determine whether or not the Foundation meets the conditions that will be imposed is concerned, Mr Ho submitted that this should be a matter for the SJ, in his capacity as protector of charities. Mr Yu, however, submitted that in the case of the Foundation, it would be more appropriate for the court to do so, although thereafter (if the Foundation were not to be trustee) it would be appropriate for the matter to be left to the SJ. 104.In my view, notwithstanding that I am satisfied that the naming of the Foundation as trustee in the Will does not mean that the Foundation must of necessity be appointed as trustee, having regard to the fact that the Foundation was named as trustee by the Testatrix, it would be appropriate for the question of whether or not the Foundation meets these conditions to be determined by the court. 105.This is also consonant with what appears to have been envisaged by the Court of Final Appeal in the CFA costs judgment, where it was indicated (at [12]) that if the SJ considered that the Foundation was not fit to be appointed, whether on grounds of insolvency or some other grounds, this was a matter that should be dealt with in the proceedings for the settlement of a scheme. When should it be determined whether the conditions are satisfied? 106.I turn next to the question of whether or not the court should seek to determine whether the Foundation meets either or both of these conditions at this stage. 107.The SJ’s position was that the court should at this stage decide whether or not these conditions should be imposed, but that it need not decide whether or not they were satisfied, unless it felt able to do so. The JAs took a similar stance, but did suggest that there was sufficient material before the court to enable it to come to a view on these matters. The Foundation, however, submitted that it would not be appropriate to determine the question of whether or not the conditions were met at this stage. Mr Man pointed out that it would be unfair to impose the conditions and at the same time conclude that they were not met, without giving the Foundation an opportunity to attempt to meet the points made against them. He also suggested that even if it were held that the Foundation did not meet any particular condition, it should be afforded an opportunity to remedy any shortcomings, in the case of insolvency, by taking steps to render itself solvent, and in the case of fitness and properness, by considering whether to make changes to the composition of the board of Governors to deal with any concerns that might exist. 108.I am satisfied that it would not be appropriate for me to attempt to come to any conclusions at this stage as to whether or not the Foundation meets the conditions that I have held should be imposed. 109.Quite apart from questions of fairness that would arise from the imposition of conditions and an immediate conclusion that they are not satisfied, it seems to me that the present position in relation to the solvency condition is unsatisfactory, in that the SJ and JAs have not had a proper opportunity to deal with the latest sets of audited accounts put forward by the Foundation, which (as I have observed above) raise further questions on which I would find submissions helpful. In relation to the “fit and proper condition” it seems to me that it would be helpful to the court and fair to the Foundation and its Governors for it to be made clear whether it is suggested that one, some or all of the Governors are not fit and proper persons, for those to whom objection is taken to be identified, and in each case, for the essential complaints in respect of each individual Governor to be spelt out, so that they may be responded to and then assessed by the court. If it is suggested that the Foundation as a whole is not fit and proper for appointment, or that there are other bases on which it is suggested that the Foundation should not be appointed as trustee, these should similarly be identified and particularised, so that they may be addressed and evaluated. Issues 4.1 and 4.2: Can the composition of the SMO can be altered? 110.This brings me to the Issues relating to the SMO, its composition, powers and other matters relating to it. It seems clear from the CFA judgment at [73] that while the inclusion, as part of the administrative structure of the trusts created by the Will, of a body that would have supervisory power over the trustee (then anticipated to be the Foundation) was required, the aspirations expressed in the Will as to the membership of that body were to be regarded as precatory rather than mandatory. Thus, while a supervisory body is necessary, its composition is not to be regarded as pre-determined by the wishes of the Testatrix. 111.This is supported by [77] of the CFA judgment. The establishment of the SMO, including the determination of its membership, was identified by Lord Walker as one of the principal objectives of the scheme to be settled by the court. He provided guidance as to the characteristics of the members of the SMO in that paragraph, where he said:
It may be observed that in prescribing such qualifications for membership of the SMO, Lord Walker must necessarily have been proceeding on the basis that persons other than the Secretary General, the Premier and the Chief Executive could be appointed to the SMO. If no other persons could be considered for appointment, it would not have been necessary to identify the characteristics and qualifications that they should possess. 112.Mr Ho and Mr Yu supported this approach, and contended that the principle of expediency should apply to the question of whether the court should depart from the composition of the SMO envisaged in the Will. Mr Ho submitted that where the appointment of particular persons to the SMO could undermine the court’s inherent power to supervise and (if necessary) intervene in the administration of the trusts, it would be inexpedient to appoint such persons to be members of the SMO. 113.Mr Man differed. He drew attention to the decision in HSBC Trustee (Hong Kong) Ltd v Secretary for Justice & ors [2000] 1 HKLRD 31, in which the court rejected an application for approval of a scheme by which a charitable trust “for the furtherance of such charitable objects … in the Colony of Hong Kong as His Excellency the Governor for the time being … may specify as deserving causes” would be amended to specify in place of the Governor the Chief Executive for the time being or such Bureau Director as the Chief Executive may designate. I do not think this authority assists Mr Man. Although Le Pichon J referred to the need to respect the wishes of the testator, she also considered that the delegation of power by the Chief Executive was “wholly unwarranted”, which indicates that the test of inexpediency (which was not referred to in the judgment) would not, in any case, have been met. 114.Mr Man also submitted that the identification by the Testatrix of the three dignitaries named was not a matter of mere whim, but that they were chosen to bring prominence and prestige to the charity, so that it would attain both national and international recognition. On this basis, he submitted in effect that the nature of the positions held by the three dignitaries made them especially suitable for appointment to the SMO such that it would be inappropriate to depart from the Will in this respect. However, this is, in my view, contradicted by the Court of Final Appeal’s views as to the non-necessity to appoint the named office holders to the SMO, which I have discussed above. It is also contradicted by the Foundation’s own suggestion that the named dignitaries should be permitted to put forward nominees to serve on the SMO in their stead, or to represent them on the SMO. Finally, it is to be noted that in Dr Kung’s 6th Affirmation dated 17 July 2020, he confirmed at [18] that the Foundation had in July 2018 suggested that two of its Governors should be appointed to serve as members of the SMO, which would also contradict the suggestion that the three named dignitaries are essential. 115.I am therefore satisfied that it is open to the court to appoint as members of the SMO persons other than the three named dignitaries. 116.Issue 4.1 appears to recognise that this would be possible, and as worded seems to acknowledge that the court has power to constitute an SMO that differs from that suggested in the Will. As to the extent or limits of the court’s powers to depart from that suggestion or preference, I am of the view that the same principle identified above, namely that of expediency, applies to this question, as it does to other questions concerning the appropriate administrative provisions to be made for the purposes of the scheme. Thus, if the make-up of the SMO hoped for by the Testatrix would be inexpedient for the purposes of achieving the purposes of the trust, for example if their appointment might make it difficult for the trust to be properly administered or supervised, it will be open to the court to depart from those wishes. 117.Issue 4.2 raises the question of whether and under what circumstances the court has the power to decline to appoint the Secretary General, the Premier and/or the Chief Executive, and what principles the court would adopt in deciding this issue. The answer is the same as for Issue 4.1 – in deciding these matters, the court will apply the principle of expediency, so that it will intervene where the provisions made by the Testatrix are shown to be inexpedient. Issue 4.3: Are members of the SMO fiduciaries? 118.This leads on to Issue 4.3, which raises the question of whether or not the members of the SMO owe fiduciary duties with respect to the charitable objects of the trust. 119.In considering this question, the starting point is that the key feature of a fiduciary is that he is bound to act only for the benefit of another (whether a person or a charitable object) in respect of matters covered by his fiduciary obligations (see e.g. Children’s Investment Fund (UK) v Attorney General [2022] AC 155, per Lady Arden JSC at [45]). Mr Ho submits that it is clear that the powers conferred on members of the SMO are not intended for their personal benefit, but are conferred on them in order to constitute the SMO as an organisation within the machinery of the administration of the charitable trust established by the Will, for the purpose of supervising the trustee with a view to ensuring that the trustee properly and effectively discharges its duties. He further submits that in discharging their function the members of the SMO must act only for the benefit of the charitable objects. This is, in my view, clearly correct. 120.Mr Ho went on to draw an analogy between the SMO and a protector in a private trust, pointing out that such a protector is generally a fiduciary. He says that if it is right that the SMO is in a fiduciary position vis-à-vis the charitable objects, it must follow that they should be subject to the court’s jurisdiction to oversee and supervise the charity, and where necessary to intervene in its affairs. 121.Mr Man submitted that it does not follow that, even if the analogy with a protector of a private trust were a valid one, that it necessarily follows that the SMO members must owe fiduciary duties. Mr Man drew attention to Underhill & Hayton’s Law of Trust and Trustees (19th ed) where it is stated at [72.4] that:
122.Relying on this passage, Mr Man submitted that it was not necessary for a person in the position of a protector to owe fiduciary duties. This is correct, and Mr Ho’s analogy is not exact, but what is important is to consider the role of the SMO and to see whether it carries with it fiduciary obligations. It is clear from the Will that the SMO is to play a supervisory role in respect of the trustee. In doing so, it has no interest of its own to pursue, but must carry out its function in the sole interest of the charitable objects, as Mr Ho submitted. In those circumstances, the position of the SMO here is far removed from that of a protector who is the settlor or a beneficiary, and is clearly much closer to that of one whose role is to supervise the trustee in the interests of all the beneficiaries, and who clearly is subject to fiduciary obligations. 123.Mr Man also sought to emphasise the Testatrix’s desire to have the SMO constituted of the three dignitaries she had identified, as justifying the non-imposition of fiduciary duties on the SMO office holders if this would make it feasible for them to accept office. With respect, I cannot agree with this submission. While the Testatrix may have hoped to have the three dignitaries take up roles within the SMO, the key objective was to have a supervisory body over the trustee, and the Testatrix’s wishes as to that body’s composition were, as the Court of Final Appeal held, not mandatory. 124.Given the undoubted fiduciary obligations imposed on the trustee, and having regard to the function envisaged for the SMO, which clearly involves the exercise of fiduciary powers for the benefit of the charitable objects, I am of the clear opinion that the members of the SMO would owe fiduciary duties for which they must be answerable to the court if the need arises. It would, I think, be illogical were this not the position. Issues 4.4 and 4.5: Should the named dignitaries be appointed to the SMO? 125.This leads on to Issues 4.4 and 4.5. These essentially ask whether the three named offices should be named as members of the SMO (assuming they agree to take up such an appointment) or whether they should be asked to designate someone to take up membership of the SMO as their representative, and whether there is any impediment (as suggested in the evidence of Ms Vienne Luk for the SJ in [23]-[28] of her 4th Affidavit) to the Premier and the Secretary General taking up such a position. 126.As the argument has developed, the latter question has largely fallen away. This is because even assuming there is no impediment to the Premier or the Secretary General taking up membership of the SMO, the more fundamental question is whether they should do so, having regard to the position taken by the Foundation (which is also relied upon by the SJ and the JAs) that neither the Premier nor the Secretary General can be subject to the jurisdiction of the court, or be subjected to fiduciary duties which would require them to be so subject to the court’s jurisdiction. 127.In the case of the Premier, Mr Man submitted that the Premier cannot be subject to the jurisdiction of the Hong Kong courts by reason of the constitutional structure of the PRC and the HKSAR (see [97.2] of the Foundation’s skeleton), and the Secretary General cannot be so subject by reason of diplomatic immunity. The Premier is agreed by all parties to enjoy immunity from the supervisory jurisdiction of the court on constitutional grounds. The Secretary General is similarly immune from the jurisdiction of the court because of the diplomatic immunity which he enjoys. Neither of them are amenable to the court’s jurisdiction, or subject to the laws of Hong Kong. 128.This presents, in my view, an insuperable obstacle to their appointment to the SMO. Given that the trust is, for reasons which I explain below in connection with Issue 7, clearly subject to and governed by Hong Kong law, it necessarily follows that it must be subject to the court’s supervisory jurisdiction over charities, and those involved in its administration must be similarly so subject. The inability of the court to exercise its jurisdiction over the Premier or the Secretary General would clearly be highly inexpedient, in that it would prevent the court from exercising full control and supervision over the charities established by the Will. In these circumstances, regrettable though this may be, it would be inexpedient and inappropriate to appoint these dignitaries to the SMO. 129.For completeness, while there does not appear to be anything to suggest that the Chief Executive would not be subject to the court’s jurisdiction, the then Chief Executive (Mrs Carrie Lam) was in fact approached to take up a position on the SMO, but declined due to the demands of her office, which required her full attention. There is no evidence to suggest that any different view is espoused by the current Chief Executive. 130.Mr Man emphasised the Testatrix’s desire to have the dignitaries appointed to the SMO, but quite apart from the fact that it has been held that their participation in the SMO should not be regarded as essential, it seems to me that it is unlikely (and there is certainly no evidence to suggest) that the Testatrix addressed her mind to the question of whether or not the Premier and the Secretary General could be subject to the court’s jurisdiction, which is the impediment to their appointment. 131.As for the suggestion that nominees of the office holders should be appointed to the SMO in their stead, this was not something contemplated by the Will, and does not seem to me to be a satisfactory alternative. Given that the named office holders cannot be appointed, the appropriate course to take is to establish a differently constituted SMO, which will, it is hoped, be composed of or operated by eminent and distinguished persons so as to raise the national and international profile of the charitable objects to be pursued. 132.As a result of my conclusions as to the composition of the SMO, it follows that the SMO summons need not be determined and falls away. It should therefore be dismissed. Issues 7.1 to 7.3: Governing law 133.This leaves for consideration at this stage Issue 7, relating to the system of law that should govern the Scheme. Both Mr Ho and Mr Yu submitted that the administration of the charitable trusts declared by the Will should be subject to Hong Kong law, and that such trusts should be supervised by the SJ and the court pursuant to Hong Kong law. Mr Yu also pointed out that if the trusts and the scheme as a whole were not subject to Hong Kong law, there was a risk of the trust losing its charitable status, and running the risk of becoming void for uncertainty or contravention of the rule against perpetuities. 134.Mr Man did not appear to dispute that the scheme should generally be subject to Hong Kong law. However, he submitted that two particular aspects, namely, (i) the Chinese Prize and (ii) the appointment of the Premier and his exercise of powers as a member of the SMO should be governed by PRC law, and not Hong Kong law. He further suggested that the Chinese Prize should be subject to the jurisdiction of the relevant PRC court and not this court. 135.With respect, while there may be room for the application of PRC law to certain aspects of the activities of the trust, if they are to be carried out in the PRC, I would not accept that Mainland law should apply to aspects of the scheme to the exclusion of Hong Kong law. 136.At [76] of the CFA judgment, Lord Walker indicated that the scheme should be prepared and submitted to the High Court for approval. In saying this, he clearly proceeded on the basis that the scheme would be subject to Hong Kong law. This is unsurprising, as the Will was executed in Hong Kong, the Testatrix was domiciled in Hong Kong at the time the Will was executed and at the time of her death, and the vast bulk of her estate consists of assets that are very much located in Hong Kong, or which are businesses that are managed and administered here. The fact is that the Will was construed by the Hong Kong courts in accordance with Hong Kong law, and there is therefore nothing to suggest that some other law should govern any part of the trusts declared by it, to the exclusion of Hong Kong law. 137.That said, depending on where the Chinese Prize is to be administered (a matter which will be considered and determined at a later stage of the proceedings), it may be that its administration or certain matters relating to it will have to be also subject to Mainland law, for example if it is to be administered out of Beijing rather than from Hong Kong. But even if Mainland law were also to be relevant, it does not follow that it would apply to the exclusion of Hong Kong law. I have some difficulty in seeing how that could be the case, as the Chinese Prize would, wherever it is administered or presented, still be an element of the charitable trusts of the Will, which is clearly governed by Hong Kong law. 138.As to the question of whether the Premier’s role should be governed by PRC law, this question is academic, given my conclusion in connection with Issue 4.4 that the Premier should not be appointed to the SMO owing to his inability to be subject to Hong Kong law and the jurisdiction of the Hong Kong court, and his consequent inability to undertake fiduciary obligations that could be overseen by the court. 139.In any event, for the reasons explained in the section dealing with Issues 4.1 to 4.5, it is in my view necessary for the SMO and its members to be subject to fiduciary obligations and subject to the jurisdiction of the Hong Kong Court. Further stages of these proceedings 140.For completeness, I shall go on to indicate how the proceedings might continue from this point (and I would emphasise that these are preliminary views, that will be subject to submissions to be made by the parties) and also why I consider that the other issues listed, with which I have not dealt at this stage, are better dealt with at a later stage of these proceedings. 141.Having concluded that the governing principle on which the scheme is to be settled is that of expediency, and determined that the solvency and fit and proper conditions should be imposed in respect of the Foundation, it seems to me that the next step should be to determine whether or not the Foundation meets those conditions so as to be qualified for appointment as trustee of the charitable trusts established by the Will. 142.To do so, it will, I think be necessary (subject to what the parties may submit) to give directions to enable the SJ to indicate his position on these matters, with sufficient particularity to enable the Foundation to respond and (if it thinks it appropriate to do so) to take steps to rectify (to the extent possible) any matters that are relied on as rendering it unsuitable for office as trustee, whether in relation to solvency, fitness of its Governors, or fitness of the Foundation itself. It may also be appropriate for further evidence to be filed and submissions to be lodged prior to a hearing. Directions will also be needed in relation to the hearing itself. All this may usefully be done at the hearing due to take place between 31 October and 7 November, although it will probably not be necessary to use the whole of the time set aside. 143.Thereafter, there will almost certainly have to be a hearing to determine these matters. Following that hearing and the determination by the court of the issues arising in it, it will be known whether or not the Foundation is to be appointed as the trustee. 144.Whatever the outcome of that hearing, it should then be possible to deal with the remaining issues as to the scheme, the approach to some of which may differ to some extent depending on whether or not the Foundation is the trustee, and directions for doing so can be given at the appropriate time. 145.I appreciate that this means that it will still take some time to finally fully settle the scheme. However, as things presently stand, I do not think that this is avoidable. Issues not dealt with at this stage 146.As for the issues left over for later determination:
147.So far as costs are concerned (including those of the SMO Summons), I propose to leave these to be considered and determined at a later stage, and not before a determination is made as to whether or not the Foundation should be appointed trustee. 148.Lastly, I must place on record my thanks to all the teams of counsel and solicitors. The written submissions with which I was provided were very comprehensive and extremely helpful. Leading counsel’s oral submissions were to the point and distilled and crystallised the arguments on the matters which I have dealt with. I am very grateful to each of the teams of counsel for their industry and effort, which made my task a much more manageable one.
Mr Ambrose Ho SC and Mr Michael Yin, instructed by Department of Justice, for the plaintiff Mr Benjamin Yu SC, Ms Sara Tong SC and Mr Joshua Chan, instructed by Gibson, Dunn & Crutcher, for the 1st defendant Mr Bernard Man SC, Mr Justin Lam and Mr John CK Chan, instructed by Jones Day, for the 2nd defendant Annex A | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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