Law Shuk Hoi v. Lo Lok Fung Kenneth and Others

HCMP 1053/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1053 OF 2008

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Before:  Hon Lam J in Court

Date of Hearing:  6 July 2010

Date of Judgment:  26 July 2010

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J U D G M E N T

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1.Law Ting Pong [“the Deceased”] died on 13 August 1996.  A few months before his death, he transferred some assets to his second son who is the Plaintiff in these proceedings.  As I understand, it is common ground (at least for present purposes) that the transfer was made pursuant to a Letter of Wishes executed by the Deceased on 23 April 1996 [“the Letter of Wishes”].

2.The Letter of Wishes was in Chinese and it was not drafted by a lawyer.  It was executed by the Deceased and the Plaintiff and witnessed by the wife of the Deceased and another son, the 5^th Defendant.

3.The Letter of Wishes is in the following terms,

“羅定邦先生意願書

花無百日紅，人無千歲翁。慎始者必慎於終。余年已晚，疊次與吾妻楚思，談論身後事，對去世後我倆之財產處理方法，每因彼此尊重對方意見反而提不出一具體實施方案。昨日會談中得一具體結論現分列於下：-

A) 我委任羅蜀凱為執行人全權依照我生前所列出意願全權處理，一經他拍板決定便無需他人參與意見。

B) 我擁有Kandos, Venus, LPHL和Ostar等家族公司之權益，連同現有部份現金，物業和股票債卷等資產處理方法如下：-

（1）    將我應得權益和資產轉入羅蜀凱名下或其指定代理人。

（2）    生前上述資產和權益由我全權管理，蜀凱須遵我意願行事。

（3）    死後我授權蜀凱「全權」管理我在上述家族公司應得權益和上述資產，包括擁有，授予，分配，行善，資助和投資。唯蜀凱將視乎日後實際環境及情況盡量遵照下列分配和執行之管理大綱：

將我應得權益，收益和資產平均分為3份，目標如下：

(a)   用作資助「羅氏家族子孫」日後在香港脫出遭遇可能出現困境和突破。

-    資助可作為送贈，借貸，週轉，贊助或奬賞；

-    資助金額，時間長短，收息與利率多少由蜀凱全權決定；

-    羅氏家族子孫指羅定邦之子孫後代可追溯族譜名稱，如有爭議，蜀凱可全權給予確認或拒絕而無須給予任何解釋；

-    突破指在學業上，事業上，行為上，成績表現卓越，見義勇為或為家族或為民族爭光但因財力出現困難之資助和為此之奬賞及鼓勵。

(b)   用作「慈善事業」之捐獻和「援助」之送贈：

-    慈善事業不單止指政府認可之慈善機構，亦包括羅氏家族名義所開辨之學校，醫院和安老院，世界各地因天災橫禍而引致病，死，殘廢，無家可歸，飢荒，寒冷，老弱，孤寡之捐助；

-    援助指需要幫助人仕，包括現在，過去或將來羅氏家族之同事，親戚和朋友。援助性質亦包括升學，創業，醫療，嫁娶，移民，生育，購置物業之幫助；

-    上述慈善捐獻和援助之決定，釐定金額，一概由蜀凱全權處理。

(a)及(b) 兩點我妻陳楚思絕對贊同她將來處理其財產亦本此。

(c)   流亡海外仍未回歸兒子一經証實認同回歸或我已去世經現在兒女兩人已上証實認同回歸即將此部份財產無條件全部贈與以補償我過去未盡父親之責任過失。”[1]

4.There are different views on the proper interpretation of the Letter of Wishes and its legal effect.  In the present proceedings, the Plaintiff seeks direction from this court under Order 85 as to the correct construction of Clause (B)(3)(a) [“the Clause”] of the Letter of Wishes.  Though other interested parties are joined as defendants, effectively only two views have been canvassed before me: one by Mr Shieh SC on behalf of the Plaintiff and the other one by Mr Yu SC on behalf of the 2^nd to 5^th and 7^th and 8^th Defendants.  Whilst the estate of the Deceased has not been formally joined and represented, a consent order was made on 23 June 2010 pursuant to Order 15 Rule 15 that the outcome in these proceedings shall bind the estate.

5.Through oral submissions, the differences between Mr Shieh and Mr Yu were further narrowed down to the following issues,

(a) Whether the Clause set up a discretionary trust over one third of the assets transferred to the Plaintiff so that he is obliged to exercise his discretion to make a distribution from time to time when the criteria laid down in that clause were satisfied (Mr Yu’s contention) or it merely conferred a fiduciary power upon the Plaintiff that he is obliged to consider whether to exercise from time to time but without obliging him to make any distribution at all (Mr Shieh’s contention);

(b)    At the end of the perpetuity period, whether there shall be equal distribution in favour of all the descendants of Law Ting Pong born before he passed away (Mr Yu’s primary contention) or an implied trust in favour his descendants who are worthy (Mr Yu’s alternative contention) or a gift over of the remainder of the one third in favour of the Plaintiff absolutely (Mr Shieh’s primary contention) or a resulting trust in favour of the estate of the Deceased (Mr Shieh’s alternative contention and Mr Yu’s further alternative contention).   

6.Before I deal with these contentions, I shall set out several points agreed between the parties.  First, it is agreed that the Letter of Wishes created legally enforceable obligations, though the extent of the obligations on the part of the Plaintiff is in dispute.  In this respect, the nature of the Letter of Wishes is materially different from the usual letter of wishes given by a settlor to an institutional trustee when he or she sets up a discretionary trust.  Actually, the expression “Letter of Wishes” is adopted by the parties (and hence this court) to describe the document.  In the Chinese original, the document is called “羅定邦先生意願書” which can equally be translated as “Letter of Intent of Law Ting Pong”.  As seen below, in construing the effect of the document, the court would examine the substance rather than merely looking at the title given to the document.

7.It is not suggested by Mr Shieh that the Letter of Wishes was void for uncertainty or for infringement of the rule of perpetuity.  It is accepted by the Plaintiff that the assets transferred to him under the Letter of Wishes are not absolute gifts to him though he is given very wide discretion in dealing with them.  Regarding the one third governed by the Clause, it is also accepted by the Plaintiff that there is no uncertainty as to objects.

8.It is common ground that the settlement under the Clause [“the Settlement”] does not create any charitable trust or non-charitable purpose trust.

9.As regards the problem of perpetuities, it is agreed that the Settlement is governed by Section 8 of the Perpetuities and Accumulations Ordinance Cap.257.  By reason of the “wait and see” provision, the problem of perpetuity is deferred under Section 8(4) and (5) to the end of the period calculated by reference to the lives of such descendants of the Deceased who were in being on 23 April 1996 plus 21 years.  On the evidence, the youngest descendant born before 23 April 1996 was a great grandson of the Deceased born in 1994.  That great grandson is about 16 years old.  Therefore there are still many years ahead before the deferred period shall expire. 

10.It is to be noted that these common grounds have answered some of the questions set out in the Amended Originating Summons.  I shall focus on the two issues mentioned above.

Discretionary trust or power?

11.The distinction between a discretionary trust and a power is not an easy one.  I will start by referring to what Lord Wilberforce identified as the difference between the two in McPhail v Doulton [1971] AC 424 at p.456G-457B after His Lordship decided that the test for certainty should be the same for both,

“Assimilation of the validity test does not involve the complete assimilation of trust powers with powers.  As to powers, I agree with my noble and learned friend Lord Upjoin in In re Gulbenkian’s Settlements that although the trustees may, and normally will, be under a fiduciary duty to consider whether or in what way they should exercise their power, the court will not normally compel its exercise.  It will intervene if the trustees exceed their powers, and possibly if they are proved to have exercised it capriciously.  But in the case of a trust power, if the trustees do not exercise it, the court will: I respectfully adopt as to this the statement in Lord Upjoin’s opinion (p.525).  I would venture to amplify this by saying that this court, if called upon to execute the trust power, will do so in the manner best calculated to give effect to the settlor’s or testator’s intentions.  It may do so by appointing new trustees, or by authorizing or directing representative persons of the classes of beneficiaries to prepare a scheme of distribution, or even, should the proper basis for distribution appear by itself directing the trustees so to distribute.”

12.This dictum focused on the difference in terms of how the court may control the trustee (in the case of trust) or the donee (in the case of the power).  And as mentioned above, this is the basic difference between Mr Yu and Mr Shieh.  But one needs to decide whether a settlement gives rise to a power or a discretionary trust before one can tell whether these consequences follow.  On the facts of McPhail v Doulton [1971] AC 424, the lower courts (except Russell LJ) held that the instrument in question created a power whilst the House of Lords concluded that a discretionary trust was created.  Lord Wilberforce explained why he differed from the lower courts at p. 449H to 450D (see also Lord Hodson at p.438E to 439D and Lord Guest at p.444B to E).  As the judgments of their Lordships demonstrated, as in the judgment of Russell LJ in the Court of Appeal, it is an exercise in construing the relevant clause (see also Lewin on Trusts, 18^th Edn para. 30-21; Parker & Mellows: The Modern Law of Trusts, 9^th Edn para. 6-063).

13.Their Lordships referred to the plain intention of the settlor in construing the clause.  But as Mr Shieh submitted, the plain intention must be gathered from the document itself.  Whilst evidence of the underlying factual matrix may be admissible to aid construction in cases where there is ambiguity in some of the words used in the document, I do not find this to be such a case in respect of the first issue.  I do not discern any ambiguity in the Letter of Wishes and the wordings used in the Clause.

14.At the same time, I agree with Mr Yu that the document must be construed as a whole and the Clause should not be construed out of the context of the Letter of Wishes.

15.In my judgment, the Deceased clearly manifested an intention that his assets would be dealt with in accordance with the Letter of Wishes after they were transferred to the Plaintiff.  As stated in the first paragraph (which can be regarded as the preamble), even though the document was called a Letter of Wishes (意願書), its primary purpose was to set out instructions agreed between the Deceased and his wife regarding the disposition of the assets of the Deceased after his death and it was expected that the assets of his wife would be dealt with in a similar manner as per Clause (B)(3)(a) and (b).  I refer to them as instructions as opposed to mere wishes because of the following,

(a) As stated in the first paragraph, the terms of the Letter of Wishes were the conclusions reached between the Deceased and his wife at a discussion on 22 April 1996.  Further, it was stated that the wife would deal with her estate in similar manner.  The wife also signed the Letter of Wishes as a witness.  The Plaintiff signed it as a party.  Hence, it was a document containing terms which were meant to be implemented rather than something put forward as mere wishes or recommendations.

>(b)    In Clause (A), the Plaintiff was appointed as the “執行人”[2] with full authority to handle the assets in accordance with the wishes or intents expressed by the Deceased before his death (“全權依照我生前所列出意願全權處理”).  The capacity of the Plaintiff is a “執行人” which carries with it the connotation of a person executing the instructions of others.  Mr Shieh and Mr Yu agreed that the wishes or intents are the terms set out in the Letter of Wishes.  Looking at the substance rather than the mere choice of the word itself, reading this clause as a whole, the Plaintiff is obliged to follow the terms of the Letter of Wishes in dealing with the assets transferred to him.  Though the latter part of the clause (“一經他拍板決定便無需他人參與意見”) conferred upon him the final authority to decide on matters, I do not read that as watering down the prescriptive effect of the first part in terms of the need to observe the terms expressed in the Letter of Wishes.  

(c) Clause (B) set out specific terms regarding how the assets should be managed.  The opening sentence ended in mandatory term (“處理方法如下”).  There was no suggestion that the Plaintiff can manage the assets in complete disregard of the terms in the Letter of Wishes.  As I understand, Mr Shieh did not argue otherwise.

(d)    By Clause (B)(1), the assets were to be transferred to the Plaintiff or his nominees.  In my view, this clause clearly referred to the transfer of the legal titles of the assets as opposed to the transfer of beneficial interest.  The beneficial interest was dealt with in Clause (B)(2) and (3).  Clause (B)(2) dealt with the beneficial interest prior to the death of the Deceased and it stated in clear and mandatory terms to the effect that the Deceased had full power to deal with the assets and the Plaintiff had to act in accordance with his directions.  This would be inconsistent with any proposition that the beneficial interest of the assets were to be passed to the Plaintiff absolutely under Clause (B)(1).

(e) Likewise, Clause (B)(3) dealt with the beneficial interest after the death of the Deceased.  Again the obligation of the Plaintiff was couched in mandatory languages: he was entrusted with the full power of management (“死後我授權蜀凱「全權」管理”) and this, like his appointment as “執行人”, suggests that the Plaintiff was entrusted with the power to carry out the instructions of the Deceased.  It is noteworthy that the expression 「全權」in this clause was written within quotation marks as opposed to a similar expression used under Clause B(2) when the assets were said to be managed by the Deceased with full authority.  This distinction highlights the point that though the Plaintiff was given full authority to manage after the death of the Deceased, he had to manage the assets in accordance with the instructions of the Deceased as provided explicitly in the Letter of Wishes. 

(f) Though the Plaintiff was given a discretion to cater for the actual situation and circumstances when he would exercise his power in the future, the Plaintiff had to follow the terms set out in that clause as far as possible (“盡量遵照下列分配和執行之管理大綱”).  The phrases “盡量遵照” and “管理大綱” were used to give some flexibility to cater for actual situation and circumstances in the implementation of these objectives.  But the phrases do not mean that the Plaintiff needs not implement the same.

(g) For the use of the assets, it was spelt out in languages more consistent with mandatory instructions than mere permissive recommendations or requests: the whole pool was to be divided into three equal parts (“將我應得權益，收益和資產平均分為3份”).  This was a precise and definite instruction which would not be necessary if these were merely recommendations.  Then it was provided that the assets would be used for three specified purposes and they were to be the objects of distribution (“目標如下”).  He used the words “用作” as opposed to “可用作” in Clause (B)(3)(a) and (b), again signifying that these were instructions to be followed rather than merely wishes or recommendations to be considered.  Clause (B)(3)(c) provided for an unconditional gift to the lost child and there was no suggestion that the Plaintiff could have any discretion in the matter.

16.Mr Shieh submitted that the Clause conferred a very wide discretion on the Plaintiff.  However, if one reads the Letter of Wishes carefully as a whole, the discretion so conferred is not unfettered.  As mentioned, the power to make final decision in Clause (A) cannot be construed as giving the Plaintiff the power to disregard the terms of the Letter of Wishes.  Rather he was explicitly instructed to follow those terms as far as possible.  Granted that Clause (B)(3) did give him a discretion to manage the assets with reference to the actual situation and circumstances after the death of the Deceased.  But that general discretion did not allow him to depart completely from the terms laid down as to the three specified uses of the assets.  For example, he could not use the assets to make gifts to persons who do not fall within the scope of the three specified objects.  In my view, the general discretion referred to the managerial discretion in terms of the management of the assets before distribution and the administrative and managerial discretion in formulating the implementation of the objects (including the process of investigating potential distribution and the timing and manner of distribution).

17.Coming to the discretion built in under the Clause itself, there were provisions as to the discretion of the Plaintiff in the following respects,

(a)    Since it was expressly provided that the mode of financial assistance could either be gift, loan, temporary financial aid, sponsorship or award, and the Plaintiff had the full authority to manage, he had the discretion to decide the appropriate mode of financial assistance in each particular case;

(b)    The amount, duration and interest (chargeability as well as rate, if any) of the financial assistance would be decided by the Plaintiff.

18.But these discretions did not permit the Plaintiff to refuse to exercise the power to provide any financial assistance at all.  Mr Shieh submitted that the Plaintiff could provide illusory assistance like lending $10 with interest for a very short duration.  I do not accept this to be the case.  Even on Mr Shieh’s own case, the power conferred under the Clause cannot be exercised capriciously.  

19.The Clause also provided that the Plaintiff had full authority in confirming or rejecting any claim of a person as regards his or her status as descendants of the Deceased whenever there was a dispute on such person’s status.  However, the Plaintiff cannot confirm or reject claims capriciously.  The criteria for determining whether a person is a descendant was specified in the Clause, viz. “羅氏家族子孫指羅定邦之子孫後代可追溯族譜名稱”.  If a claimant’s status as a descendant is beyond dispute, the rejection of his or her claim on the basis that he or she is not a descendant can be challenged in court notwithstanding the full authority conferred on the Plaintiff because the authority would not be engaged when there is no bona fide dispute about the status.

20.As regards the criteria laid down for financial assistance: breakthrough (“突破”) and/or destitute/adversity (“困境”), the Clause has a definition for breakthrough but not for destitute/adversity.  The Plaintiff would have to decide whether a descendant of the Deceased satisfied these criteria.  But the power to make such a decision is not an exercise of discretion.  Rather it is the performance by the Plaintiff of his duty in the management of the assets in accordance with the terms of the Settlement.

21.Thus, instead of advancing Mr Shieh’s case, the express provisions for these limited discretions suggest that the Plaintiff does not have absolute discretion in respect of matters not provided for.  Though I accept that the Plaintiff has been given full managerial discretion in terms of the daily management of the assets and the implementation of the objects provided for under Clause (B)(3) by virtue of the beginning part of that clause, the manner in which such managerial discretion is exercised cannot be inconsistent with three specified objects set out explicitly.

22.Mr Shieh also placed some emphasis on the expression “擁有” in Clause (B)(3) and counsel submitted that the Plaintiff was given not only the legal title but also the beneficial ownership of the assets.  I cannot accept this submission.  Reading the sentence as a whole and in the context of Clause (B)(3) and the Letter of Wishes as a whole, the phrase “包括擁有，授予，分配，行善，資助和投資” was a description of the power of management conferred upon the Plaintiff in the earlier part of that sentence.  In such context, the expression “擁有” carried with it the meaning of “to hold” rather than “to own”.  I do not read that part of the clause as giving the Plaintiff a discretion to confer on himself the beneficial interest of the assets.  That would be inconsistent with the other parts of the Letter of Wishes as previously explained.

23.In this connection, I do not see any parallel between the present case and the other cases cited by Mr Shieh in which the assets were given to a person “for his own use and benefit” or “absolutely”.  Thus, I cannot derive any assistance from those cases and I do not propose to go through them.

24.Construed in its proper context, I do not think the managerial discretion in “擁有” (meaning holding the assets) can give rise to a discretion on the part of the Plaintiff to withhold the making of any financial assistance in accordance with the Clause when the criteria laid down are satisfied and the financial state of the one third estate under the Settlement permits some forms of financial assistance to be provided.

25.Coming back to the question whether the Settlement should be regarded as a power or a discretionary trust, mindful of the caution of Mr Shieh that discretionary trust can bear different meanings in different context, I would adopt the distinction used by Buckley J in In re Leek  [1967] 1 Ch 1061 at p.1073B that focus on the real difference in substance,

“The authorities establish that different considerations apply to a case in which a power to select beneficiaries is coupled with a duty to make such selection and to distribute the fund accordingly from those applicable where there is no such duty, the power of selection being a bare power…”

And then at p. 1074G-1075A,

“The problem being one of interpretation, every case must depend upon its own circumstances, the question in every case being whether there is a trust or fiduciary duty to distribute amongst members of a specified class of objects, the only discretion given to the done being to decide which particular objects shall benefit, or whether there is a trust only for such members, if any, of a specified class of objects as the donee shall select.”

26.The point is succinctly put in Parker & Mellows: The Modern Law of Trusts, 9^th Edn para. 6-063in one sentence,

“… the question is purely one of construction, namely whether or not the settler has shown an intention to benefit the objects of the power …”

27.As explained above, the discretion vested upon the Plaintiff under the Settlement is not so much a discretion in selection in the usual case of discretionary trust.  The Plaintiff is not given a general mandate to select some members from the descendants of the Deceased for distribution.  Rather the first question that the Plaintiff should address is whether a particular person satisfied the criteria laid down under the Clause in that he or she is a descendant of the Deceased and he or she achieves breakthrough (“突破”) and/or in a state destitute/adversity (“困境”).  I have explained why in my view, subject to cases where the descendant status is doubtful, the Plaintiff’s consideration of this question should not be regarded as a true discretion.

28.If these criteria are satisfied, the Plaintiff was directed by the terms of the Settlement as set out in the Clause to decide what should be the mode of financial assistance and what should be the terms of such assistance.  As I said, whatever decision is made by the Plaintiff in the exercise of these discretions, it cannot be exercised in a capricious manner.

29.Though there is a general discretion on the part of the Plaintiff in the implementation of the object under the Settlement in accordance with actual circumstances and situation, I have already explained why that general discretion is more managerial and administrative in nature rather than conferring upon the Plaintiff the power to refuse to provide financial assistance even though the criteria laid down in the Settlement are satisfied.  

30.In my judgment, in answer to the key question, on proper construction of the terms of the Settlement, the Deceased did intend to benefit the objects of the power, viz. those descendants who satisfied the criteria laid down in the Clause.  The Plaintiff has a duty to provide financial assistance out of the one third estate if the criteria are satisfied though he has a discretion in deciding the mode and the terms of such assistance.

31.Thus, I agree with Mr Yu and hold that the Settlement is a trust rather than a power.

The default position

32.Mr Yu accepted that the Plaintiff needs not exhaust the one third estate by the end of the perpetuity period.  The Letter of Wishes did not expressly provide for any gift over in default.  Given that the Letter of Wishes was not drafted with legal advice, it is not surprising that the Deceased did not deal with the default position upon the end of the perpetuity period.  There is nothing to suggest that the Deceased was aware of the legal problem relating to perpetuity.  It is quite probable that he expected the one third estate to be used for the object specified under the Clause until its exhaustion.

33.Apart from resulting trust in favour of the estate of the Deceased, three alternatives were put forward,

(a) A gift over in favour of the Plaintiff in default of appointment;

(b)    A gift over in favour of all the descendants of the Deceased born before the date of the Letter of Wishes;

(c) A gift over in favour of the worthy descendants.  

34.For reasons given below, I must reject all these alternatives.  In my judgment, the correct analysis is that in the Letter of Wishes the Deceased did not address the question of perpetuity.  Upon the expiry of the statutory perpetuity period calculated in accordance with Section 8 of the Perpetuities and Accumulations Ordinance Cap.257, the balance of the one third estate shall be vested on the estate of the Deceased by operation of resulting trust.

35.Alternative (a) is Mr Shieh’s primary contention.  Counsel argued that a gift in favour of the Plaintiff was made as a matter of proper construction of the Letter of Wishes.  He placed emphasis on the expression “擁有” in the Clause which he translated as the power to own.  For reasons already canvassed, I do not accept such translation.  I have also explained why the use of that expression cannot be construed as giving the Plaintiff the power to pass the beneficial interest in the one third estate to himself.  As regards the full authority and wide discretion conferred on the Plaintiff, I have already discussed the same in the previous section of this judgment and there is no need for me to repeat.

36.As a matter of construction, based on the wordings used in the Clause and reading the Letter of Wishes as a whole, I cannot discern any intention on the part of the Deceased to make a gift over in favour of the Plaintiff by way of default.  Mr Shieh did not advance any submission by way of implied gift over in favour of the Plaintiff.  Once I reach the conclusion that there is no gift over in default of appointment in favour of the Plaintiff, he accepted that it would be a case of resulting trust.

37.Alternative (b) is Mr Yu’s primary contention.  Counsel advanced the following proposition based on Lewin on Trusts, 18^th Edn para. 30-21,

“Where there is no gift over to others in default of appointment but no express gift to the objects of the power in any event, the court may imply a trust or a gift to those objects if the power is not exercised in the following situations: (1) where the instrument may be read as a gift to the class amongst whom the donee has a power of selection; or (2) where there is no gift but only a power in the donee to make the gift, the court may nonetheless infer a trust in favour of members of the class if there clearly appears an intention in the instrument that the objects should not be disappointed.”

38.The authorities cited by the learned editors under footnote 55 are Lambert v Thwaites (1866) 2 LR Eq 151 and Re Arnold [1947] Ch 131.  In the former case, the Vice Chancellor set out the general principle at p. 155 as follows,

“The general principle seems to be this: If the instrument itself gives the property to a class, but gives a power to A to appoint in what shares and in what manner the members of that class shall take, the property vests, until the power is exercised, in all the members of the class, and they will all take in default of appointment; but if the instrument does not contain a gift of the property to any class, but only a power to A to give it, as he may think fit, among the members of that class, those only can take in default of appointment who might have taken under an exercise of the power.  In that case the court implies an intention to give the property in default of appointment to those only to whom the donee of the power might give it.”

39.This statement of principle was applied by Wynn-Parry J in Re Arnold [1947] Ch 131.  After reciting the statement, His Lordship said at p. 135,

“… in the end, it must come back to a question of construction of the particular document …”

40.The learned editors of Lewin on Trusts, 18^th Edn further explained the difference between the two situations at para. 30-31 in terms of the date of ascertainment of the class of objects.

41.Mr Yu also referred to Underhill & Hayton: Law of Trusts and Trustees 17^th Edn para. 8.201 and Thomas Hudson: The Law of Trusts 2^nd Edn paras. 13.16 to 13.19 in support of his proposition of implied gift over.  I further note at para. 8.204 of Underhill & Hayton, it was said,

“… the question is always one of construction of the particular instrument, the lack of a gift over being no more than an argument as to what the settlor’s intention really was; for a resulting trust may be implied.”

42.Since it is a question of construction of the document, I must come back to the terms of the Letter of Wishes to see whether the court can either (1) read the Settlement as a gift to a class amongst whom the donee has a power of selection; or (2) inferred an intention on the part of the Deceased to give the property in default of appointment to the object of the power.

43.Under alternative (b), the class identified by Mr Yu is all the descendants of the Deceased born before the date of the Letter of Wishes.  With the greatest respect, I do not see how the Settlement can be read as a gift to such a class.  The Clause clearly specified the criteria (breakthrough (“突破”) and/or destitute/adversity (“困境”)) which a descendant must satisfy before he or she can benefit from the Settlement.  The Plaintiff was not given any power to provide any financial assistance to those descendants who cannot meet such criteria.  The power of the Plaintiff, as explained above, was not a power of appointment.  Thus, it is not a case where the Deceased made a gift to all his descendants born before the date of the Settlement with a power given to the Plaintiff to select specific beneficiaries out of such a class.  

44.For the same reason, I cannot infer an intention on the part of the Deceased to give the property to all his descendants born before the date of the Settlement  even though they (or some of them) do not meet the criteria set out in the Clause.  That would be inconsistent with the clear meaning of the Clause.  The non-exhaustion of the trust fund (if any) at the end of the perpetuity period will not be attributable to the failure on the part of the Plaintiff to exercise his power to appoint or select.  Rather it will be the consequence of the absence of sufficiently large number of descendants satisfying the criteria exhausting the trust fund during the perpetuity period.  The Deceased simply had not addressed his mind to such eventuality.  There is simply no basis for inferring such intention on the part of the Deceased as suggested by Mr Yu under alternative (b).   

45.In this respect, the Clause is materially different from those considered in the cases relied on by Mr Yu: Burrough v Philcox (1840) 5 My & Cr 72, Re Llewellyn’s Settlement [1921] 2 Ch 281 and Re Leek [1967] Ch 1061.

46.Coming to alternative (c), it was put forward by Mr Yu in the course of his oral submissions.  In the course of his submissions on alternative (b), counsel suggested that the court can also consider a gift over not by way of equal divisions amongst all the descendants born before the Settlement.  Instead, counsel referred to Lord Wilberforce’s judgment in McPhail v Doulton [1971] AC 424 at 457 as to how the court could execute a trust when a trustee failed to do so and suggested that the court can receive evidence and decide that there should be a gift over in favour of the worthy ones amongst the descendants.  Mr Yu also suggested given that there would be quite some time before we reach to expiry of the perpetuity period, the court might consider adjourning or declining to rule on how the gift over should be formulate to a later stage.

47.Upon due consideration of the matter, I do not think I should defer the decision of the matter.  First, the point has been raised in the originating summons and I have heard parties’ submissions on it.  Second, I agree with Mr Shieh that I should not simply rule upon alternative (a) and leave the other alternatives open.  That would not be a fair exercise of my jurisdiction.  Third, as seen from the authorities, the point was argued as a point construction.  No matter what happened in the future, the proper construction of the Letter of Wishes should be the same.  Fourth, though it has not been argued before me, I can see that the determination of the question as to the default position could have a bearing as to whether a particular person may have an interest or locus to come to this court to seek enforcement of the trust.

48.Returning to alternative (c), since the point was only canvassed in oral submissions, there are some questions arising from the argument which have not been adequately addressed.  First, what is the meaning of the “worthy” descendants? Does it mean descendants who satisfied the criteria of breakthrough (“突破”) and/or destitute/adversity (“困境”)? If that is the meaning, the worthy descendants should have been given some financial assistance during the currency of the perpetuity period.  One then asks why should they, in addition to what they have already received, be entitled to share amongst themselves the balance of the one third estate after the expiry of the perpetuity period.  I cannot discern such intention on the part of the Deceased from the Letter of Wishes.

49.In the alternative, if “worthy” descendants mean something else, the suggested gift over would be a rewriting of the object of the Settlement when the Clause actually providing otherwise.  Lord Wilberforce was not dealing with the question of implied gift over at the end of the perpetuity period in that part of the judgment in McPhail v Doulton [1971] AC 424 at 457 cited by Mr Yu.  His Lordship was dealing with the question as to how the court could supervise or control the execution of trust power when the trustee fails to exercise his power.  I do not think one can rely on that judgment to support a proposition that the court can devise its own scheme of gift over based on extrinsic evidence as to the intention of the Deceased when the relevant instrument is silent.  Before the court can deal with control or supervision in the exercise of trust power, it has to ask whether a trust power exists and if so on what terms.  On that prior question, as the authorities show, it is a matter of gathering the intention of the settlor by construing the relevant instrument.

50.Again one comes back to the fundamental differences between the Settlement and the relevant clauses considered by the court where a gift over could be implied.  Unlike such other cases, the non-exhaustion of the trust fund in our case will not be the result of the failure of the trustee in the exercise of his power of appointment or selection.  None of the implied gift over cases concerns the non-exhaustion of fund due to the expiration of the perpetuity period.  The object of the Settlement is to provide financial assistance to the descendants who are in destitute/ adversity and/or who achieves breakthrough as defined.  I do not read the Clause as a gift to such descendants as a class.  By the very nature of this object, different descendants may satisfy these criteria at different times and their respective needs for financial assistance would be different.  For those who have received assistance before the expiry of the perpetuity period, many of them will no longer be in destitute/ adversity or may even have passed away by the end of the perpetuity period.  In such circumstances, I do not think there is any basis for inferring an intention on the part of the Deceased to make a gift over of the surplus to them jointly upon the expiration of such period.

51.I therefore reject all the alternatives.  The remaining option, as agreed between Mr Shieh and Mr Yu, is resulting trust in favour of the estate of the Deceased.

Admissibility of extrinsic evidence

52.I have reached the above conclusions without referring to any extrinsic evidence.  There is however a dispute between the parties as to whether extrinsic evidence is admissible in dealing with the issues raised by the originating summons.  Mr Yu’s clients filed several affirmations containing mostly extrinsic evidence.  Mr Shieh submitted that this was purely an exercise in construction and extrinsic evidence is not admissible.  On the other hand, Mr Yu submitted that even though his case could be established without resort to any extrinsic evidence, such evidence is admissible.

53.Mr Yu’s argument was as follows.  The present exercise is not a pure exercise in construction in the sense of a simple searching for the meanings of the words used in a document.  Because of the contention of the Plaintiff that the nature of the transaction was a gift in his favour as opposed to a trust, the court is asked to inquire into the nature of the transaction.  For the purpose of finding out the real nature of the transaction, extrinsic evidence is admissible.  He referred to Halsbury’s Laws of England, 4^th Edn 2007 Reissue, Vol.48, para. 650 and the two cases cited at footnote 5: Bentley v Mackay (1851) 15 Beav 12; Shepard v Cartwright [1955] AC 431.

54.Further, Mr Yu also relied on the proposition that where the court is asked to determine whether or not a precatory trust is created, the settlor’s contemporaneous and subsequent acts may be taken into account in cases of doubt.  He referred to Thomas Hudson: The Law of Trusts 2^nd Edn paras. 2.18 to 2.19.

55.Subject to three points, I agree with Mr Yu.  First, irrespective of how the case had been presented prior to the hearing of 6 July 2010, by the time of oral submissions, Mr Shieh accepted that the Settlement is not an absolute gift to the Plaintiff.  Mr Shieh further accepted that the Clause does have legal effect and the only disputes between the parties are whether it operated as a trust or a power and the question of gift over in default.  Though Mr Shieh still contended that there was a gift over in default in favour of the Plaintiff, the contention was advanced as a pure point of construction.  Within such narrow confines, there is limited scope (if any) for the operation of the principles relied upon by Mr Yu.

56.Second, since the matter was argued in this court by way of construction summons, it would not be the suitable procedure for determination of dispute of facts.  If extrinsic evidence were admitted, and if there were disputes on the facts, it would appear that the matter should be proceeded by writ.

57.Third, amongst the several items referred to at paragraph 72 of the skeleton submissions of Mr Yu, even applying his principles, I do not think items (5) to (7) are admissible.

58.In the light of the fact that this court is able to reach conclusions on the substantive issues without referring to the extrinsic evidence, the question of admissibility would only have a bearing on costs, if any.  Parties have agreed that they would file written submissions on costs within 21 days after the delivery of judgment.  They can make submissions on the costs implications flowing from my above comments on admissibility of extrinsic evidence.

Directions

59.I believe I have dealt with all the matters argued before me.  I now direct as follows,

(a) Parties shall file written submissions on costs and directions for future conduct of HCA 1820 of 2007 within 21 days from the date of this judgment;

(b)    Parties shall file an agreed draft order to be made by this court in the light of this judgment.

60.Lastly, I wish to thank counsel for their valuable assistance and succinct submissions.

Mr Paul Shieh, SC and Mr Eugene Fung, instructed by Messrs Mayer Brown JSM, for the Plaintiff

Mr Victor Lee, instructed by Messrs Anthony So & Co., for the 1^st Defendant

Mr Benjamin Yu, SC and Ms Sara Tong, instructed by Messrs Kok & Ha, for the 2^nd to 5^th, 7^th & 8^th Defendants

Mr Patrick Fung, SC, instructed by Messrs S K Lam, Alfred Chan & Co., for the 6^th Defendant

Mr Sunny Li of Department of Justice, for the 9^th Defendant

Annex

(Uncertified English translation of the Letter of Wishes provided by the Plaintiffs)

(FOR REFERENCE ONLY)

Letter of Wishes of Mr Law Ting Pong

1.    Colours of flowers would fade away, man could not live forever.  Those who are careful at the beginning would also be careful to the end.  I am old, I have discussed with my wife Chor Si several times, about the arrangements after we pass away and how our assets should be handled.  Everytime, due to our respect for each other's opinion, we could not come up to any specific proposal.  During a conversation yesterday, we came up with a specific conclusion, which is as follows:-

(A)    I appoint Law Shuk Hoi as the administrator, with full power to handle [my assets] in accordance with the wishes that I had set out when I am alive.  Once he makes any decision, participation or opinion from others is not necessary.

(B)    My interest in family companies such as Kandos, Venus, LPHL and Ostar etc., together with some existing cash, properties and shares, debentures etc shall be handled in the following manner:-

(1)   Transfer the interests and assets which I am entitled to into the name of Law Shuk Hoi or his designated agent.

(2)   During my lifetime, I shall have full power to manage the abovesaid interests and assets, Shuk Hoi should act according to my wishes.

(3)   After I pass away, I grant "full power” to Shuk Hoi to manage my interest in the above family companies and the above assets, including owning, conferring, distributing, carrying out charitable works, sponsoring and investing.  But Shuk Hoi should, depending on the actual condition and circumstances in the future, follow the management outline for distribution and administration below as far as possible:

To divide the interests, income and assets which I am entitled to into 3 equal shares, for the following objectives:-

(a)   To render financial assistance to "descendents of the Law's family" who may in Hong Kong in the future escape from possible adverse conditions and breakthrough.

-  Financial assistance can take the form of gift, loan, temporary financial aid, sponsorship or reward;

-  Shuk Hoi shall have the full power to determine the amount and duration of the financial assistance and whether to charge interests and if so, the interest rate;

-  Descendents of the Law's family mean sons, grandsons and descendents of Law Ting Pong, who can be traced from the genealogy.  If there is any dispute, Shuk Hoi has the full power of recognition or refusal without the need to give any reason;

-  Breakthrough means being brilliant and outstanding academically, professionally or behaviourally, acting gallantly for just cause or gaining honour for the family or the nation, but due to financial difficulties financial assistance is required and reward and encouragement because of this.

(b)  Use for donations to "charitable operations" and gifts made to “aid”:

-    Charitable operations are not limited to charitable organisations recognised by the government, but also include schools, hospitals and elderly homes established under the name of the Law's family, donations and assistance made in relation to illness, death, disability, homelessness, famine, coldness, weak and elderly, orphans and widows resulting from natural disasters and accidents around the world;

-    Aid means those who need help, including present, past and future colleagues, relatives and friends of the Law's family.  The nature of aid also include assistance for advancing in education, starting business, medical treatment, marriage, immigration, giving birth and purchasing real property;

-    Shuk Hoi shall have the full power to make decision on the abovesaid charitable donations and aid, and to determine the amount.

My wife Chor Si agrees to points (a) and (b) absolutely and she will deal with her assets in this way in the future.

(c)   The son who is in exile abroad and yet to return, once verified and recognised to have returned or after I passed away verified and recognised to have returned by two of my existing children such part of the estate shall be gifted to him without any condition so as to compensate for my fault in the past in failing to discharge my paternal duties.

[1] This is the original Chinese version.  Since this is a bilingual court and Chinese is one of the official languages, I shall refer to the Chinese version in my judgment.  An English translation (provided by the Plaintiffs, not certified) is annexed at the end of the judgment solely for reference. 

[2] Translated as “administrator” in the uncertified translation, the accuracy of which I express no comment.

Appeal by the plaintiff to Court of Appeal allowed. Please refer to CACV203/2010 dated 30 June 2011