Pamela Aldred and Another v. Castle Fiduciary Ltd and Another

HCA 643/2022

[2023] HKCFI 1325

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 643 OF 2022

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D E C I S I O N

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A.  INTRODUCTION

1.There are before me three summonses:

1.1  the Plaintiffs’ summons of 30^th May 2022 for an injunction against the 1^st Defendant (“the Trustee”), principally to restrain it from dealing with assets of the Compass Trust (defined below) (“the Injunction Summons”);[1]

1.2  the Trustee’s summons of 30^th August 2022 to strike out the 1^st Plaintiff’s indorsement of claim on the Writ, as against the Trustee, on the grounds that she has no standing to bring her claim, not being a beneficiary of the Compass Trust (“the Striking-Out Summons”);

1.3  the Plaintiffs’ summons of 23^rd December 2022 to add Amber Aldred (“Amber”) and Aiden Aldred (“Aiden”), the daughters of the 1^st Plaintiff, as the 3^rd and 4^th Plaintiffs in these proceedings, and to amend the Writ accordingly (“the Joinder Summons”).

2.At the hearing before me, Mr Victor Joffe SC, leading counsel for the Trustee, indicated that he took a neutral position as regards the Joinder Summons, and I made an order in terms of the summons.

B.  THE BACKGROUND

3.The dispute between the parties arose after the death of Michael Aldred (“the Deceased”), who died intestate on 3^rd June 2021. He was survived by his widow, the 1^st Plaintiff (“Pamela”), and his daughters Amber and Aiden. Pamela was appointed as the sole administratrix of the Deceased’s estate in Australia in about September 2021. The 2^nd Plaintiff was granted letters of administration of the Deceased’s estate in Hong Kong on 4^th February 2022, as the lawful attorney of Pamela.

4.The Deceased was also survived by his three brothers John Lindsay Aldred (the 2^nd Defendant) (“Lindsay”), Anthony Damien Aldred (“Anton”), and Russell John Aldred (“Russell”) (collectively “the Brothers”), and other family members.

5.Some decades earlier, the Deceased’s father (“Aldred Senior”) founded a successful concrete chemical additives business under the brand “Cementaid”. The Deceased began working for the Cementaid business in the 1970s. The Plaintiffs say that he took over the business from Aldred Senior when he stepped down from daily management in 1976. The Trustee says that previously, the bulk of the Cementaid business was beneficially owned by Lindsay.

6.The parties’ dispute centres around the Compass Trust, a discretionary trust governed by Hong Kong law, which was established by a trust deed of 4^th July 2014 (“the Trust Deed”).

6.1  The settlor was Lindsay. The Plaintiffs say that he was merely the settlor on paper, and that the Compass Trust was in fact created at the behest of the Deceased with the advice and assistance of his financial and tax adviser Peter Trace (“Mr Trace”), to minimise the Deceased’s tax liability under Australian law.

6.2  The trustee was The Winterbotham Trust Company (Hong Kong) Limited. It was replaced on 30^th September 2019 by the Trustee.

6.3  Elysium Limited was the Appointor (“Elysium”). A Dominic Sum (“Mr Sum”) was Elysium’s director until 21^st March 2022. Mr Sum was, and is, the sole director and shareholder of Tempio Limited (“Tempio”), a Hong Kong company. Since April 2015, Tempio held all the issued share capital in Elysium on trust for the Deceased. On 30^th December 2021, Mr Sum passed a written resolution causing Elysium to resign as Appointor with effect from 31^st December 2021, and a WHA Nominees Limited (“WHA Nominees”) because the successor Appointor. The validity of the resolution and resignation are disputed in HCA 502/2022.

7.The Plaintiffs say that the Deceased exerted ultimate control over the Compass Trust through the Appointor. In particular, under the Trust Deed:

7.1  the Appointor has the power to remove the trustee and, if there would then be no continuing trustee, to appoint a new trustee (cll.14.4, 14.5);

7.2  the trustee’s power to apply the income and capital of the Trust Fund[2] is subject to the giving of “Prior Notice” (cll.7.1, 8.1). Under cl.15.8, any provision of the Trust Deed requiring Prior Notice requires not less than 75 days’ written notice to be given to the Appointor, detailing the steps which the trustee intends to take;

7.3  the trustee’s power to terminate the trust, and appoint the remaining income and capital of the trust, is also subject to the giving of Prior Notice (cll.9.1, 10);

7.4  the trustee’s power to revoke, vary or supplement the trust administratively is also subject to the giving of Prior Notice (cl.19).

8.The Plaintiffs say that the Deceased, either by himself or through his control of Elysium, supervised, oversaw and exerted control over the Compass during his lifetime. They say that the contemporaneous evidence shows that the beneficiaries all deferred to and acted in accordance with his wishes. One example is a memo dated 7^th October 2018 written by Mr Trace to the Deceased in which he stated that “…Elysium (controlled by you or your executors or testamentary beneficiaries) has the last say” (“the October 2018 Memo”).

9.Until 7^th April 2022, the Compass Trust held all the shares in Cementaid International Holdings Limited (“CAIHL”), a Hong Kong company incorporated five months after the constitution of the Compass Trust. The shares in CAIHL (“the CAIHL Shares”) were the most substantial asset of the Compass Trust.

9.1  CAIHL acquired the Cementaid group companies incorporated outside Australia.

9.2  Subsequently, in December 2017, it further acquired from the estate of Aldred Senior its shares in Aldred & Co Pty Ltd (“Aldred & Co”), an Australian company set up by Aldred Senior which, until July 2021, held various operating subsidiaries incorporated in Australia (“the Australian Subsidiaries”). (Pamela says that the Deceased held certain other shares in Aldred & Co giving him substantial governing influence over the board and powers regarding the company’s operations.[3])

9.3  Also in December 2017, CAIHL acquired two-thirds of the issued share capital of Werribree Pty Ltd (“Werribree”) from the estate of Aldred Senior. Werribree owned real properties in Australia used by the Australian Subsidiaries for operating their businesses.

9.4  CAIHL thereby became the global holding company of the Cementaid group.[4]

10.The Plaintiffs’ complaint is that the Trustee has acted in breach of trust by, inter alia, dissipating the assets of the Compass Trust, to the detriment of the beneficiaries.

C.  THE STRIKING-OUT SUMMONS

C1.  The Trustee’s submissions

11.The Trustee takes the stance that Pamela is not a beneficiary of the Compass Trust. The classes of persons who are beneficiaries are set out in Schedule 2 of the Trust Deed, which reads (in relevant part):

“…

(2) Each of the brothers and sisters…of the Settlor; and

…

(5) The lawfully married persons of any of the persons mentioned in (1) to (4) above while they remain as such and are not separated, whether informally or by judicial separation.”

12.It is said that Pamela no longer comes within paragraph (5), as her marriage to the Deceased was dissolved by operation of law upon the death of the Deceased. It is said that paragraph (5) does not extend to “widows” or “surviving spouses”, such terms not having been used by the draughtsman.

13.Mr Joffe submitted that the proper approach to the construction of trust instruments is no different from that of construction of contracts or wills, citing PTNZ v AS [2020] EWHC 3114 (Ch) at [41] where it was said that the principles of construction summarised in Marley v Rawlings [2015] AC 129, which apply to wills, similarly apply to lifetime settlements. In Marley, Lord Neuberger said:

“19. When interpreting a contract, the court is concerned to find the intention of the party or parties, and it does this by identifying the meaning of the relevant words, (a) in the light of (i) the natural and ordinary meaning of those words, (ii) the overall purpose of the document, (iii) any other provisions of the document, (iv) the facts known or assumed by the parties at the time that the document was executed, and (v) common sense, but (b) ignoring subjective evidence of any party’s intentions…

20. When it comes to interpreting wills, it seems to me that the approach should be the same. Whether the document in question is a commercial contract or a will, the aim is to identify the intention of the party or parties to the document by interpreting the words used in their documentary, factual and commercial context…

21. Of course, a contract is agreed between a number of parties, whereas a will is made by a single party. However, that distinction is an unconvincing reason for adopting a different approach in principle to interpretation of wills: it is merely one of the contextual circumstances which has to be borne in mind when interpreting the document concerned…”

14.It was said that in the present case, whether or not Pamela is a beneficiary of the Compass Trust can be determined from the plain words of the Trust Deed, and that they are clear: the effect of the phrase “while they remain as such and are not separated” excludes widows, being a temporal qualification to eligibility.

15.It was also said that evidence of the subjective intention of the settlor – whether Lindsay as alleged by the Trustee or the Deceased as alleged by Pamela – is irrelevant; equally, evidence of conduct of the parties after the constitution of the trust is inadmissible. It was submitted that whilst it is necessary to have regard to the matrix of fact surrounding the formation of the trust in construing the Trust Deed, this could not contradict, vary or alter its terms, nor to make admissible evidence of the subjective intention of the settlor: Lewin on Trusts, 20^th ed., at [7-011]. Furthermore, where there was no ambiguity in the words, as in the present case, there was no need to investigate any factual disputes.

16.Mr Joffe further submitted that the Striking-Out Summons should be determined first, before the Injunction Summons, as questions of standing should not be left for determination at trial. Reliance was placed on Kammy Town Ltd v Super Glory Corporation Ltd , unreported, HCA 3524/2003, 14^th January 2005, approved by the Court of Appeal in Mok Mei Ling Rekei v Lau Muk Fat [2021] HKCA 706 at [37].

C2.  The Plaintiffs’ submissions

17.Leading counsel for the Plaintiffs, Mr Charles Sussex SC, submitted that the issue of standing could not be determined summarily, as there was conflicting affirmation evidence as regards the factual circumstances in which the Compass Trust came into being. Mr Sussex indicated that he would wish to cross examine deponents such as Mr Trace. It was said that the conflict ought to be resolved at trial, it being unnecessary and inappropriate to have a separate hearing prior to trial for the purpose of such determination: Achieve Goal Holdings Ltd v Zhong Xin Ore-Material Holding Co Ltd, unreported, HCA 1987/2005, 6^th March 2008, at [24] to [31] (Fung J) and Confederated Assets Group Ltd v Ng Kwok Ching, unreported, HCA 188/2010, 9^th November 2010, at [21] to [23] (Au J, as he then was).

C3.  Standing cannot be summarily determined at this stage.

18.In my view, it cannot be said that the phrase “while they remain as such and are not separated” unambiguously excludes widows from the class of “lawfully married persons [of any beneficiary under paragraph (1) to (4)]”. Whilst it may be that as a matter of law, a relationship of marriage terminates on the death of either party, the concept of a “surviving spouse” is recognised by the law: Goodrich v AB [2022] EWHC 81 (Ch) at [105] to [106]. Mr Joffe argued that the existence of the express qualification “while they remain as such” excluded surviving spouses in the present case, since a widow could no longer be married to the deceased husband. However, the full qualification reads “while they remain as such and are not separated, whether informally or by judicial separation”. It seems to me at least arguable that the qualification was intended to exclude spouses or former spouses separated by divorce or a more informal form of separation, rather than to exclude widows (or widowers).

19.Whether or not this was the case cannot be determined by looking at the words of the Trust Deed alone. The Trust Deed cannot be properly construed without first establishing the factual matrix surrounding the formation of the Compass Trust, including the purpose for which the trust was set up. In this regard, there is a conflict of evidence as to whether (as the Trustee contends) Lindsay was the true settlor of the Compass Trust, having injected assets which he beneficially owned, for the purpose of disposing of the Cementaid business;[5] or (as the Plaintiffs contend) was a mere “paper” settlor, with the Deceased being the “true” settlor but Lindsay appearing on the formal documentation, for the purpose of minimising Australian tax liability, and the intention that Pamela and the Deceased’s two daughters were to enjoy a majority of the benefit of the trust.[6] In order to determine the objective intention of the settlor, it would first be necessary to identify who the real settlor is in the first place.

20.I further note that Lindsay had, prior to the Trustee taking legal advice relatively recently, proceeded on the basis that Pamela remained a beneficiary after the Deceased’s death.[7] Similarly, Mr Trace wrote the October 2018 Memo to the Deceased, referring to a distribution of 60% of the trust assets to the Deceased and his family, in the context of the Deceased no longer exercising control of the trust upon death. I note that Mr Joffe submits that evidence of the parties’ conduct after constitution of the trust is inadmissible. However, I consider that it is not necessary for me to determine definitively at this stage whether such evidence is indeed inadmissible or whether it may somehow be indicative of the factual circumstances prevailing at the time of establishment of the Compass Trust.

21.In the light of the fundamental conflict of evidence referred to above, I do not consider that the issue of Pamela’s standing can be summarily determined at this stage on the affirmation evidence alone. Furthermore, Mr Sussex has indicated that there will be further evidence adduced as to what happened at the time when the Compass Trust was set up, and that since Mr Trace’s evidence currently appears to be confined to the form rather than the substance of the trust, it will be necessary to cross examine Mr Trace about the origins of the trust.

22.The question is then whether a separate hearing, involving cross examination of deponents, should be held in advance of the trial.

23.It seems to me that the reasoning in Kammy Town Ltd was that if the issue of whether proceedings have been properly constituted is raised (for example, because the plaintiff has no authority to sue), this should be dealt with at the outset, rather than being left until trial, as otherwise time and costs would be wasted if the court should hold, at the end of the day, that the proceedings were not properly constituted in the first place: see [9] to [11].

24.The circumstances of the current case are very different. Even if Pamela’s claim were struck out altogether, the 2^nd to 4^th Plaintiffs’ claims, which are in identical terms to Pamela’s, would remain to be considered at trial.

24.1  Submissions were made that the 2^nd Plaintiff has no standing to sue, as although it is not disputed that the Deceased was a beneficiary of the Compass Trust, the interest of a beneficiary of a discretionary trust does not pass on his death to persons interested in his estate. However, there is in fact no application to strike out the 2^nd Plaintiff in the Striking-Out Summons. In any event, as pointed out in the skeleton for the Plaintiffs and not refuted by Mr Joffe, the estate of the Deceased would at least have standing to sue in relation to rights or benefits (if any) which had already accrued prior to the Deceased’s death.

24.2  It was not suggested that Amber and Aiden, as the 3^rd and 4^th Plaintiffs, would not have the standing to pursue the claims in the Amended Writ, as it is common ground that they are beneficiaries of the Compass Trust.

25.In such circumstances, deferring the determination of Pamela’s standing until trial would not raise the spectre of having a set of proceedings progress to trial, only to find that they were not properly constituted in the first place.

26.Furthermore, no saving of time and costs would be achieved by having the issue of Pamela’s standing determined at a separate hearing prior to trial. On the contrary, it would be more efficient for the issue of standing to be considered at trial, as the factual disputes which arise in relation to the issue of Pamela’s standing (such as the circumstances in which the Compass Trust came to be established) will also arise at the trial of the substantive claims. It would not make sense for the witnesses to be required to attend for cross-examination twice.

27.As Achieve Goal Holdings Ltd and Confederated Assets Group Ltd illustrate, there is no hard and fast rule that an application to strike out a party for want of authority or standing must invariably be determined before other steps in the proceedings can be taken.

28.I therefore do not agree that the Striking-Out Summons should be determined at a separate hearing prior to trial.

29.If the issue of standing cannot be determined summarily, it should nevertheless not be dismissed (as would be the case in an ordinary application to strike out a pleading), as otherwise the defendants would then not have the further opportunity of raising the issue. Instead, it should be adjourned for determination, with cross examination if necessary: see Kammy Town Ltd at [9], [14], [15], [18].

30.In the circumstances, I consider that the most appropriate course is to adjourn the Striking-Out Summons for determination at trial.

D.  THE INJUNCTION SUMMONS – INJUNCTIVE RELIEF

D1.  The injunctive relief sought

31.On 2^nd June 2022, the Plaintiffs obtained an interim-interim injunction in terms of paragraphs 1 and 2 of the draft order annexed to the Injunction Summons. They seek the continuation of this relief.

32.The relief is sought by way of a preservation order under RHC O.29 r.2 or injunction, essentially:

32.1  to restrain the Trustee from dealing the assets of the Compass Trust;

32.2  (without prejudice to the aforesaid), to restrain the Trustee from taking any step which requires the giving of “Prior Notice” to the Appointor as defined under the Trust Deed, and in particular to revoke, vary or supplement the Trust Deed or the Compass Trust, to terminate the Compass Trust, to declare that any person is an Excluded Person under the Trust Deed or shall cease to be a Beneficiary; or to appoint any additional trustee.

33.In relation to RHC O.29 r.2(1), the court has the power to make an order for the detention, custody or preservation of property which is the subject matter of the action. As set out in Samtani v Samtani [2012] 4 HKLRD 872 at [75] (Au Yeung J), it has to be shown that:

(i) There is property which is the subject matter of the cause or matter, or as to which any question may arise. The property must be bona fide the subject matter of the action: Scott v Mercantile Accident Insurance Co (1892) 8 TLR 320, Hong Kong Civil Procedure 2012, Vol.1, p.659 para.29/8/6; (ii) Something ought to be done for the security of that property. The Court will not be deterred from making an order for preservation of property because a party against whom the order is sought has a proprietary interest in it. An order should not be refused merely because the defendant claims that he has a discretionary power to determine whether or not the property should be preserved and how it should be preserved, when one of the issues in the case is whether or not the power is untrammelled by a duty to the plaintiff to preserve the property: Johnson v Tobacco Leaf Marketing Board [1967] VR 427, Hong Kong Civil Procedure 2012, Vol.1, p.659 para.29/8/8.

34.To show that “something out to be done for the security of that property”, a serious issue to be tried needs to be shown: Samtani at [84].

35.In relation to the grant of an injunction, where the court is satisfied that trust property is in danger, by reason of the misconduct of the trustees, an injunction will be granted on an interim claim at the instance of any person with a right to make the trustees account for the trust property, either compelling the trustees to do their duty, or restraining them from interfering with the trust property. The approach in American Cyanamid[8] should be followed. See Underhill and Hayton, Law of Trusts and Trustees, 20^th ed., paragraphs 95.1, 95.2.

36.Mr Joffe does not dispute that the American Cyanamid principles apply in determining whether an injunction should be granted. The only real dispute between the parties is whether the Plaintiffs show a serious issue to be tried.

D2.  Relevance of proprietary interest to showing serious issue to be tried

37.Mr Joffe submitted that even if Pamela were a beneficiary of the Compass Trust, she would nonetheless not be able to show a serious issue to be tried, as, being the beneficiary of a non-exhaustive discretionary settlement, she would not have any proprietary interest in the trust’s property, citing Gartside and anor v Inland Revenue Commissioners [1968] AC 553 at 602F and 606D-E.[9] However:

37.1  this would not be an obstacle to the making of a preservation order under O.29 r.2: see the citation from Samtani above;

37.2  it is not suggested that the causes of action relied on by the Plaintiffs (breach of fiduciary duties, breach of trust) require Pamela to have any proprietary interest in the property of the Compass Trust. Accordingly, it is not necessary for the Plaintiffs to demonstrate any proprietary interest in the trust property in order to establish a serious issue to be tried for the purpose of obtaining an injunction.

38.The real issue is therefore whether the Plaintiffs show a serious issue to be tried, on the state of the current evidence, in relation to their substantive claims that the Trustee has acted in breach of fiduciary duties and in breach of trust, so as to justify, inter alia, a declaration to the same effect, the removal of the Trustee as trustee of the Compass Trust, and a declaration that the amounts paid under the Loan Agreement (defined below) to Lindsay are held on behalf of the Compass Trust.

D3.  Trustee’s duties

39.There is no dispute that the court has the jurisdiction to remove a trustee and appoint a replacement under s.42 of the Trustee Ordinance (Cap.29) or, perhaps more appropriately in a case such as the present, under its inherent jurisdiction. The general principle guiding the court in the exercise of this inherent jurisdiction is the welfare of the beneficiaries and the competent administration of the trust in their favour: Lewin on Trusts, 20^th ed., paragraph 14-076. The range of reasons for which a trustee may be removed is broad, and would include misconduct by the trustee: see Lewin at 14-081.

40.Trustees must act in good faith, that is, give genuine and responsible consideration to the exercise of their powers.

40.1  They must not act irresponsibly or capriciously, that is, for reasons which could be said to be irrational, perverse or irrelevant to any sensible expectation of the settlor.

40.2  If trustees produce an absurd result, or have an absurd reason for a decision, it may be possible to infer that they have not given genuine and responsible consideration to the exercise of the power or that they have failed to take relevant matters, and only those matters, into account.

See Lewin at paragraphs 29-034 to 29-037.

41.Trustees must not omit to give their own consideration to the exercise of their powers. They should not simply exercise their powers on the promptings and at the direction of others. See Lewin at paragraph 29-038; Tao Soh Ngun v HSBC International Trustee [2019] HKCFI 1268 at [140(2)] (Wilson Chan J).

42.A trustee must be impartial in the execution of his trust. He is bound to look to the interests of beneficiaries as a whole, and not only the interests of any particular beneficiary. See Thomas and Hudson, The Law of Trusts, 2^nd ed., paragraph 10.14.

D4.  Plaintiffs’ complaints of breach of fiduciary duty and breach of trust

43.The Plaintiffs rely on a number of matters for their complaint that the 1^st Defendant has acted in breach of the aforesaid duties and in breach of trust. The 1^st Defendant says that they are not instances of misconduct, and instead can all be explained. I should indicate at this stage that having considered the parties’ evidence and submissions, I have come to the view that there is a serious issue to be tried. As the complaints ought to be properly ventilated at trial, what follows does not seek to be a comprehensive review of all the matters raised or set out any definitive view of the evidence and arguments.

D4.1  Alleged dissipation of CAIHK Shares and Wrightway Shares

44.It is not disputed that on or around 7^th April 2022, the Trustee executed a deed of transfer and indemnity to transfer all of the CAIHL Shares and the shares in Wrightway Trading Limited[10] (“the Wrightway Shares”) from the Compass Trust to the Augustus Trust at a nominal consideration of $1. The Plaintiffs say that this is an unjustified dissipation of assets of the trust.

45.The Augustus Trust is a discretionary trust constituted in December 2017 under Part VIII of the Cayman Islands Special Trusts – Alternative Regime in the Trusts Act (referred to at the hearing as “STAR”). Mr Pun says that he was told that it was originally constituted for the protection of certain intellectual property rights in relation to the Cementaid business. In April 2022, the Trustee decided to resettle the companies comprised in the Cementaid business into the Augustus Trust.

46.Mr Joffe submitted that under cl.8.1 of the Trust Deed (of the Compass Trust), the Trustee had the power to transfer all or part of the Trust Fund of the trustees of another trust, so there can be no issue that the Trustee did not have such power, and the only issue is whether the Trustee properly exercised such a power.

47.As to this, Mr Pun’s evidence for the Trustee is that Lindsay expressed concern at a “mounting jurisdictional risk in Hong Kong, in particular following the civil disturbances in 2019 and the Government’s response to the same”. Lindsay and the Trustee were also concerned that “following the death of the Deceased there was a material risk that [Pamela] would, through Elysium, seek to replace the Trustee with a compliant trustee and so assume control of the Trust Fund, relevantly including the Cementaid business”, particularly as the “tone and contents” of her correspondence had indicated that “[Pamela] thought she was owed the majority of the Trust Fund as of right”.[11]

48.Mr Pun goes on to say that the Trustee instructed solicitors to assess the implications of a potential resettlement of the Trust Fund in another jurisdiction, and the solicitors identified the Cayman Islands as a suitable alternative jurisdiction. He says that Mr Trace identified the Augustus Trust as a suitable substitute settlement.

49.Mr Pun says that the Augustus Trust was particularly suitable to hold the Cementaid business, being another Aldred family trust which had terms materially identical to that of the Compass Trust, and the trust deed could be amended so that it would have the same class of beneficiaries as the Compass Trust. Indeed, the class of beneficiaries was varied by deed in April 2022 such that the discretionary beneficiaries would be the same as those of the Compass Trust, save that the trust deed of the Augustus Trust expressly provides that “spouse” includes a widow. Mr Pun says that the transfer of the CAIHL Shares and the Wrightway Shares was therefore in fact in Pamela’s interest rather than to her detriment.

50.Mr Joffe submitted that the Trustee was reasonably entitled to consider that there were risks to the Compass Trust as expressed by Lindsay, that the transfer would be in the interests of the beneficiaries as a whole; and that the decision was taken after advice from lawyers and Mr Trace, on rational grounds, rather than for the Trustee’s personal interests.

51.I agree with Mr Sussex that there is a serious issue to be tried in relation to the Plaintiff’s complaint.

51.1  There is no real explanation as to why any concerns regarding events in Hong Kong would create some sort of risk for the Compass Trust and its assets.

51.2  As to the other concern expressed by Mr Pun, that shortly after the Deceased died, Pamela sought to seize control of the Compass Trust so as to benefit herself and her daughters, Mr Sussex submitted that this allegation is based on a mischaracterisation of the correspondence between Pamela and Mr Trace. Mr Pun exhibited correspondence in paragraph 62 of Pun 1^st in support of his statement that Pamela “became very demanding, and assumed that the Trust Fund should be distributed primarily, if not exclusively, for her benefit or for the benefit of her daughters”. However, as Mr Sussex demonstrated at the hearing, the correspondence can, to put it neutrally, be read as showing that Pamela in fact respected the Deceased’s wishes as to how distributions should be made from the Trust Fund (including to members of the family other than Pamela and her daughters), and that Pamela became upset only when she discovered that attempts had been made to deregister Elysium without her knowledge. Mr Trace had all along acknowledged and indicated that Pamela and her daughters would indeed enjoy a majority interest in the distributions. There is therefore a question as to how Mr Pun’s concern led to the decision to transfer away the CAIHL Shares and the Wrightway Shares.

51.3  Pamela has produced a legal advice from Cayman Islands lawyers that unlike the case with typical discretionary trusts, the beneficiaries of a STAR trust do not have standing to enforce the trust, or enforceable rights against a trustee or enforcer. The legal advice went on to say that STAR trusts were frequently used because they enabled a settlor to restrict information flow to a beneficiary and to protect the trustee from attack by beneficiaries. Mr Joffe says that it is not accepted that the advice is admissible or carries weight, but he does not deny that the statutory provisions expressly provide that beneficiaries of STAR trusts do not have standing to enforce the trust or enforceable rights against a trustee, and instead and confer the right of enforcement on whoever has been appointed to be an “enforcer”. Whilst it is not for me to construe such legislation, there must at least be a question as to how the transfer was considered to be in the interests of the beneficiaries in such circumstances.

D4.2  Alleged dissipation of trust funds by the Loan Agreement and Loan Assignment

52.It is not in dispute that on or around 27^th October 2021, a loan of US$34m (“the Loan”), which is said to comprise substantially all of the liquid assets of the Compass Trust, was apparently made by the Trust to Lindsay (“the Loan Agreement”). Then, on 3^rd May 2022, the Trustee served a Prior Notice on WHA Nominees (the Appointor appointed in circumstances under challenge in HCA 502/2022) that the Trustee intended to assign the entitlement to repayment of the Loan to the Augustus Trust. According to the draft deed of transfer, no valuable consideration was to be given for the assignment.

53.The trustee of the Augustus Trust is ITA Global Trust Limited, a Cayman Islands company. The Plaintiffs say that the effect of the transfer would be to take the rights to repayment of the Loan entirely out of the Compass Trust and beyond the supervision of the Appointor.

54.The Plaintiffs say that they discovered the intended assignment in time to obtain an injunction preventing this from happening, namely, the interim-interim injunction granted in these proceedings on 2^nd June 2022.

55.Again, Mr Joffe submitted that the Trustee had the power to lend the Trust Fund to any person on any terms, citing cl.10.1 of Schedule 4 to the Trust Deed (of the Compass Trust), so that the question is whether the Trustee properly exercised this power.

56.Mr Pun’s evidence is that Lindsay wrote to the Trustee on 27^th October 2021 requesting the making of the Loan to “safeguard” the “liquid assets of the Compass Trust in the event that the trusteeship fell into the hands of a trustee under [Pamela’s] control. Mr Pun says that given her hostility to the Brothers, the Trustee was satisfied that there was a risk that Pamela would attempt to take control of the Compass Trust and seek to apply it primarily or exclusively for the benefit of herself and her daughters, which would have been prejudicial to the body of the beneficiaries as a whole, and therefore took the view that the granting of the Loan was for the benefit of the beneficiaries as a whole. He adds that the Trustee was satisfied that Lindsay was independently wealthy, prudent and credit-worthy and had the financial ability to repay the Loan, and that he had credible oral guarantees from Lindsay of immediate repayment once the risk of Pamela assuming control of the Appointor had been eliminated.[12]

57.In the light of this, Mr Joffe submitted that it was a proper exercise of the Trustee’s power to make the Loan, and that it was not the case that the Trustee simply uncritically followed Lindsay’s view.

58.I agree with Mr Sussex that there is a real issue to be tried in relation to this allegation.

58.1  I have already referred to the correspondence above on which Mr Pun relied to support his claim that Pamela sought to take control of the Compass Trust, and which is at least open to a different interpretation, calling into question the basis on which the Trustee based its decision.

58.2  The Loan was not secured by anything other than “credible oral guarantees” from Lindsay, was not interest-bearing, and was not to be repayable within fifteen years. This calls into question the basis of the Trustee concluding that the Loan was in the interest of the beneficiaries and could be immediately repaid when the perceived risk from Pamela had passed.

58.3  In requesting the Loan, Lindsay had indicated that the intention was for him to place the funds in a designated bank account, and to eventually distribute them after his repatriation to Australia. This calls into question (1) whether the Trustee had proper basis to consider that the Loan would be repaid at all as claimed, and (2) whether the arrangement would have amounted to a wrongful delegation by the Trustee of its obligations to consider and make distributions under the Trust Deed, given that (a) cl.13.5 of the Trust Deed limits delegation of the Trustee’s powers and functions to those delegable under s.41B of the Trustee Ordinance (Cap.29), and s.41B(2) provides that such functions do not include those relating to whether, or in what way, assets of a non-charitable trust are to be distributed; (b) trustees generally cannot delegate their powers (Lewin, paragraph 28-110, 28-111).

58.4  The Trustee had no control over the Augustus Trust, and could not have enforced Lindsay’s obligation of repayment after the assignment. Nor could it have ensured that any distribution would be made to the beneficiaries as represented by Lindsay.

58.5  Whilst the beneficiaries of the Compass Trust are also beneficiaries of the Augustus Trust, as mentioned above, it is the Plaintiffs’ case that the latter do not have standing to enforce the trust, or enforceable rights against a trustee or enforcer, so that they are worse off as a result of the assignment of the Loan.

58.6  Mr Pun’s affirmation in reply of 20^th January 2023 (“Pun 2^nd”) denies that he uncritically followed the instructions of Lindsay and the Brothers. He says that it was prudent to entrust the liquidity in the Trust Fund to Lindsay rather than to accept it falling into Pamela’s hands. “In particular, in view of the time pressure from the Appointor Action by which [Pamela] threatened to take control of the Trust Fund, the Trustee concluded that advancing the Loan was, in the circumstances, the most expedient solution.” Mr Sussex points out that the Appointor Action (HCA 502/2022) was not commenced until 3^rd May 2022, whereas the request for the Loan and the Loan Agreement were dated 27^th October 2021. Mr Joffe says that there is a typographical error in this part of Mr Pun’s affirmation as to the time which he had intended to apply to correct. Again, this raises questions as to the real basis of the Trustee’s decision to make the Loan.

D4.3  Alleged derogation of duty by allowing Lindsay to control distributions and misuse of trust funds

59.The Plaintiffs say that the Trustee acted irrationally, capriciously and wrongfully in making distributions solely to Lindsay in the mere hope that Lindsay would then make distributions to other beneficiaries; however, funds were misused, without the Trustee exercise any oversight. Sometimes, Lindsay would simply ask the Trustee to “consider” making a distribution of a certain sum to him for his “personal use”. The Plaintiffs say that of the funds transferred to Lindsay, some were misused. A number of examples, varying in nature, are given by the Plaintiffs (skeleton section III C). It is not necessary to set them all out here. One example is the use of a distribution of US$1.885m on 17^th January 2022 to pay for the purchase by the Brothers of Pamela’s share in a holiday home. Pamela says that she agreed to sale of her share in the property, but she did not know of, or agree to, the use of the assets of the Compass Trust for this purpose, which effectively meant that she was, to some extent, funding the Brothers’ purchase of her interest in the holiday home.

60.Mr Pun’s evidence is that all along, the Deceased and the other Brothers trusted Lindsay to act as a conduit for distributions from the Compass Trust, and the Trustee continued this practice after it was appointed, on the basis that it was tax-efficient and therefore safeguarded the value of the Trust Fund for the benefit of all beneficiaries.[13] He says that Pamela did not have any vested right to an equal distribution out of the Trust Fund, and that there was no liability due to Pamela in respect of the holiday home, but only an arrangement.

61.Mr Joffe submitted that this was not an abrogation or delegation of the Trustee’s dispositive powers, but rather, a considered approach to safeguard the Trust fund. Moreover, the distributions were proper.

62.In my view, there are serious questions to be tried in relation to whether the Trustee acted impartially, and whether the Trustee gave its own consideration to the exercise of its powers or simply followed Lindsay’s request for a distribution.

D4.4  Other matters relied on by the Plaintiffs in relation to claims of breach of fiduciary duty, breach of trust and removal of Trustee

63.It will by now be apparent that there is, in my view, a serious issue to be tried in relation as to the Trustee has acted in breach of fiduciary duties and breach of trust, whether the Trustee should be removed and replaced, and whether there are grounds for impeaching the Loan.

64.The Plaintiffs have relied on a number of other matters in support of their argument that there is a serious issue to be tried in relation to their claims of breach of fiduciary duty, breach of trust and their claim to remove the Trustee and recoup (for the Trust) the amounts paid to Lindsay under the Loan Agreement. In view of the conclusion I have reached, I will simply make some brief observations in relation to these matters.

65.First, the Plaintiffs say that the Trustee failed to take action to stop the repeated wrongful attempts by Lindsay to deprive Elysium (or the estate of the Deceased) of the Appointorship, without Pamela’s knowledge.

65.1  On 10^th June 2021, a week after the Deceased’s death, Lindsay notified Elysium that it would be removed as Appointor. (This subsequently did not come to pass since Mr Sum told Lindsay that cl.15.1 of the Trust Deed had been amended to remove the settlor’s power to remove the Appointor.)

65.2  Then in August 2021, Tempio applied to the Companies Registry to have Elysium deregistered, supposedly on the basis that the sole member of Elysium agreed, although the sole beneficial owner of the shares in Elysium was the estate of the Deceased. Pamela says that this was done at Lindsay’s request. Pamela happened to discover the attempt at deregistration and halted this by writing to the Companies Registry.

65.3  Then in December 2021, Mr Sum signed a written resolution as sole director of Elysium to cause Elysium to resign as Appointor of the Compass Trust, and to appoint WHA Nominees instead, pursuant to cl.15.3 of the Trust Deed.

66.Pamela says that the Trustee ought to have been alarmed by this given that it was aware that all along, it had been Elysium, controlled by the Deceased, who supervised and oversaw the operation of the Compass Trust, and that upon the Deceased’s death, ownership of Elysium had devolved onto his estate. However, the Trustee failed to raise any enquiries.

67.Mr Pun says that Mr Sum told him that he sought to resign because he was aware of the risk that the shares in Elysium might pass to Pamela; he did not want to be involved in any family dispute; he recommended appointing WHA Nominees instead; the Trustee was satisfied that WHA Nominees was independent and professional. Accordingly, the Trustee concluded that the resignation of Elysium and the appointment of WHA Nominees were in the interests of the beneficiaries as a whole. In fact, it considered the appointment of WHA Nominees as Appointor to be preferable as this reduced the risk of Pamela assuming control over the Appointorship.[14]

68.However, the Plaintiffs say that the Trustee has repeatedly requested WHA Nominees to waive the requirement of giving Prior Notice under the Trust Deed in relation to various transactions such as a request for a distribution to be made to Lindsay, and the transfer of the CAIHL shares. This replacement of Elysium with WHA Nominees has nullified the checks and balances on the exercise of powers by the Trustee.

69.Mr Joffe submitted that whether there was a serious issue to be tried in HCA 502/2022 is irrelevant to this action. In any event, the position of Appointor is fiduciary in nature, so that it could not be owned beneficially by Pamela for her own interest, and was to be exercised for the benefit of the beneficiaries as a whole; the law of trusts does not recognise the notion of a right to control a trust. Even if the Deceased exercised de facto control over the Trust Fund, this was not a right that passed on his death, not being his property. The Deceased’s estate was entitled to shares in Elysium, not the Appointorship. The Trustee had no obligation to challenge Mr Sum over his reasons for resigning. There was no evidence of collusion between the Trustee and Lindsay.

70.Whatever the merits of these arguments may be, it seems to me that at the very least, this dispute is relevant to the Plaintiffs’ complaints that in managing the affairs of the Compass Trust, the Trustee was not impartial and favoured the Brothers over Pamela.

71.The other matter relied on by the Plaintiffs is their complaint that the Trustee allowed the Brothers to deal with Aldred & Co and Werribree (which were wholly or majority owned by CAIHL) by restructuring or seizing control of them, or disposing of their assets, thereby damaging the interests of the Deceased’s estate. For example, in relation to Aldred & Co, it is said that the Brothers caused Aldred & Co to sell its shareholdings in the Australian Subsidiaries to Cementaid (Australasia) Pty Limited (“Cementaid Australia”), a company owned by CAIHL and incorporated by Lindsay and Anton eighteen days after the Deceased died, which sale was made without notice to the Deceased’s estate (the Deceased had held what Pamela calls the “Governing Shares” in Aldred & Co). There was then a restructuring, involving Lindsay and Anton, the net effect of which was to circumvent the control which the “Governing Shares” enabled the Deceased’s estate to exercise over Aldred & Co. It is said that the Trustee, as the ultimate controller of CAIHL, must have acquiesced in the restructuring, and allowed Lindsay and Anton to take control of the Compass Trust, in disregard of Pamela’s interests.

72.Mr Joffe submitted that the Trustee had no duty to protect the shares which belonged to the Deceased’s estate, not to the Compass Trust; the Trustee played no part in the restructuring; under paragraph 5 of Schedule 4 to the Trust Deed, the Trustee was not bound to participate in the management or conduct of any company whose shares or interest might be comprised in the Trust Fund and incurred no liability in leaving the conduct of the business of the company to the officers of the company.

73.Again, it seems to me that at the very least, this dispute raises the question of whether the Trustee has used its powers for an improper purpose, being ultimately to prevent the Plaintiffs from enjoying their rights, exercised through the control of Elysium, which would otherwise have enabled them to exercise negative control over the Compass Trust and its assets.

D4.5  Refusal to provide accounts and information

74.The Plaintiffs say that since the Deceased died, both Pamela and the Deceased’s estate have been stonewalled by the Trustee in their attempts to obtain information and accounts from the Trustee concerning the Compass Trust and the companies it owns.

75.Pamela says that she first wrote to Mr Pun on 4^th August 2021 asking for information about the trust, including who was managing CAIHL, how the trust was being managed and administered in the absence of the Deceased. However, Mr Pun’s reply was to the effect that the Compass Trust is a discretionary trust, no beneficiary has the right to the assets of the trust, and that the Trustee was not obliged to provide information concerning the trust or its assets to any beneficiary.

76.Pamela’s solicitors wrote to Mr Pun on 24^th December 2021, raising concerns regarding the mismanagement of the assets of the Compass Trust, which appeared to be a concerted effort to administer the trust in a manner detrimental to the interests of Pamela and her daughters, and to remove assets from the control of the Deceased’s estate. A request was made for information and documents in the light of those concerns.

77.Mr Pun’s evidence is that the Trustee declined to provide the information because it was satisfied that Pamela had no right to ask for it. Furthermore, he did consider the request, but by the time of her first request in August 2021, Pamela had already made known her belief that the vast majority of the Trust Fund belonged to her, and was disruptive and hostile, so the Trustee concluded that the request should be declined. Providing her with the information would facilitate her seizing control of the Trust Fund to the detriment of other beneficiaries and intermeddling with the Trust Fund.

78.Mr Joffe submitted that under cl.13.3 of the Trust Deed, the Trustee was not bound to give any explanation to the beneficiaries for its decisions, and that under cl.13.4, the Trustee was not bound to disclose various classes of documents, including accounts of the Compass Trust, documents going to the exercise of the Trustee’s power or discretion or the performance of the Trustee’s duties. Furthermore, the Trustee had rational, evidence-based reasons to decline the requests.

79.I agree with Mr Sussex that there is a serious issue to be tried as to whether the refusal to provide information and documents was a breach of fiduciary duty. Whilst it is now said that the Trustee feared that Pamela would intermeddle with the trust, this was not the reason given at the time. It is at least open to question whether the real reason was, as Mr Sussex submits, that the Trustee sought to protect its own interests and prevent its removal, which would not be a proper reason for refusing to provide information and documents.

80.Mr Sussex further submitted that there is a serious issue to be tried in relation to the Plaintiffs’ (separate) claim against the Trustee for disclosure and information. Even though a beneficiary of a discretionary trust has no right to receive any capital or income of the trust fund until the trustee exercises its discretion in his favour, in the meantime, he has the right to have the trust property properly managed and to have the trustee account for his management, and for this purpose he may be entitled to obtain disclosure of trust documents: see Schmidt v Rosewood Trust Ltd [2003] 2 AC 709 at [59], [63], [66], [67]. Mr Joffe submitted that this confuses the issue of whether a beneficiary may be able to obtain a court order for discovery with the issue of whether the trustee was entitled to refuse the giving of discovery. Even if the beneficiary can get such an order, this does not mean that the trustee was in breach in refusing to give discovery. Mr Sussex submitted that cl.13.4 of the Trust Deed is expressly stated to be “[s]ubject to the Proper Law]”, that is, Hong Kong law. However, it seems that Mr Sussex relied on Schmidt not for the argument that the Trustee had acted in breach of trust, but in support of the Plaintiffs’ separate claim for discovery against the Trustee.[15] On the other hand, whilst I agree that there must be a serious issue to be tried on this claim, it does not seem to me that this is relevant to the injunctive relief being sought by the Plaintiff.

D4.6  Injunctive relief should be granted

81.In the light of the matters in the preceding sections, I consider that there is a serious issue to be tried in respect of the Plaintiffs’ claims.

82.There is a suggestion in the Defendants’ skeleton[16] that even if there is a serious issue to be tried on the Plaintiffs’ complaints of breach of fiduciary duty and breach of trust, on the balance of convenience, no injunction should be granted in any event because the right to repayment of the Loan would be transferred to the Augustus Trust, which has the same beneficiaries as the Compass Trust. It is said that this would only be a transfer of assets to a sister settlement, rather than a dissipation. However, I have already referred above to the Plaintiffs’ case that the beneficiaries of the Compass Trust are worse off as a result of the assignment of the Loan to a STAR trust. I agree with the Plaintiffs that the balance of convenience lies in protecting the trust assets and preventing dissipation. The 1^st Defendant has not made out any case as to why trust assets should continue to be disposed of pending determination of the Plaintiffs’ claims.

83.It follows from the above that the orders sought in paragraphs 1 and 2 of the draft order annexed to the Injunction Summons, namely

83.1  to restrain the Trustee from dealing the assets of the Compass Trust;

83.2  (without prejudice to the aforesaid), to restrain the Trustee from taking any step which requires the giving of “Prior Notice” to the Appointor as defined under the Trust Deed, and in particular to revoke, vary or supplement the Trust Deed or the Compass Trust, to terminate the Compass Trust, to declare that any person is an Excluded Person under the Trust Deed or shall cease to be a Beneficiary; or to appoint any additional trustee

should be granted.[17]

E.  THE INJUNCTION SUMMONS – DISCOVERY

84.Paragraph 3 of the draft order annexed to the Injunction Summons asks for an order that “If any of the assets, moneys or proceeds set out in paragraph 1 hereinabove had been transferred or otherwise disposed of, the 1^st Defendant must in writing within 7 days of this Order [provide various particulars in relation to such transfers or disposals]”. Paragraph 4 of the draft order provides for the time and form of disclosure.

85.The assets, moneys or proceeds referred to in paragraph 1 of the draft order annexed to the Injunction Summons are funds in various bank accounts, shares in CAIHL, and the interest in the Loan, its repayment and its proceeds.

86.The Plaintiffs say that the orders sought are ancillary disclosure orders, to ensure that the injunctive relief (under paragraphs 1 and 2 of the draft order annexed to the Injunction Summons) are effective, and are to allow for tracing.[18]

87.The Trustee opposes the grant of interim disclosure on the grounds that this would dispose of the substantive application for disclosure, and that the breadth of what is sought is more than is necessary to police the injunction or ensure proper performance of the trust.

88.I do not agree that the interim disclosure would dispose of the substantive claim for disclosure in paragraph (1) of the Plaintiffs’ indorsement of claim in their writ, which seeks “full and complete accounts and inventory of the Compass Trust … and of the 1^st Defendant’s dealings with or in relation to, and administration of, the Compass Trust…”.

89.At the same time, however, I do not agree that the orders sought can properly be granted either as “ancillary disclosure orders” or “to allow for tracing”.

90.In the case of a Mareva injunction, the court may grant ancillary disclosure orders to ensure that the exercise of the Mareva jurisdiction (to prevent a defendant from dissipating his assets so as to stultify any eventual judgment against him) is effective to achieve its purpose. However, disclosure as to the defendant’s assets in the past does not assist in the freezing of the defendant’s current assets, and goes beyond the legitimate purpose of an order for discovery in aid of a Mareva injunction. See Bekhor v Bilton [1981] 1 QB 923 at 940G, 949A-B, 955C-D; Pacific King Shipping Holdings Pte Ltd v Huang Ziqiang [2015] 1 HKLRD 830 at [32].

91.Of course, the present case does not involve a Mareva injunction against the Trustee’s assets. However, as demonstrated by the analysis in Bekhor v Bilton, obtaining discovery as to past dealings with the assets of the Compass Trust would not assist in making the injunctive relief, which looks to the future, effective. I do not agree that the orders sought are “ancillary” orders to the injunctive relief granted.

92.As to the Plaintiffs’ claim that the interim disclosure would allow for tracing, they cite Pacific King Shipping Holdings Pte Ltd at [29]. There, the Court of Appeal said that if the interlocutory injunction involves a proprietary claim where the plaintiff seeks to trace property which in equity belongs to him, the court not only has jurisdiction to grant an injunction restraining the disposal of the property, but may also make orders designed to ascertain the whereabouts of that property.

93.However, the Plaintiffs are discretionary objects of the Compass Trust. They cannot say that in equity, the trust property belongs to them, such that they are entitled to trace the property. The Plaintiffs have not cited any authority to suggest otherwise.

94.In the circumstances, I do not agree that the discovery sought under paragraphs 3 and 4 of the draft order annexed to the Injunction Summons should be ordered.

F.  DISPOSITION

95.I adjourn the Striking-Out Summons for determination at trial, and make a costs order nisi that the costs thereof be reserved, save that one-third of the costs of the hearing (being roughly the time spent on the summons) should be paid by the 1^st Defendant to the Plaintiffs in any event, with certificate for two counsel, given that I have accepted the Plaintiffs’ submissions that the summons cannot be determined at this stage.

96.As to the Injunction Summons:

96.1  I make an order in terms of paragraph 1 of the Injunction Summons (granting an injunction in terms of the draft order annexed thereto) save that I decline to make any order for disclosure as provided for in paragraphs 3 and 4 of the draft order annexed to the summons;

96.2  I further make a costs order nisi that the costs of the summons be in the cause, with certificate for two counsel. Whilst the Plaintiffs have asked for costs, on the basis that (1) they reasonably asked, but the 1^st Defendant unreasonably refused to give, an undertaking not to deal with the assets of the trust, (2) the 1^st Defendant as trustee wrongfully failed to respond to reasonable requests and defaulted in its duties by dissipating the trust assets, (3) the 1^st Defendant as trustee ought to remain neutral rather than to actively or unreasonably defend the claim, these are matters which ought to be determined after further investigation at trial, as indeed the authorities cited by the Plaintiffs demonstrate.

Mr Charles Sussex SC leading Mr Kerby Lau, instructed by Hugill & Ip, for the 1^st and 2^nd Plaintiffs

Mr Victor Joffe SC, instructed by Deacons and Mr Stefano Mariani (Solicitor Advocate) of Deacons, for the 1^st Defendant