Hsbc Institutional Trust Services (Asia) Ltd v. Tin Lik and Another

CACV 124/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 124 OF 2011

(ON APPEAL FROM HCMP NO. 242 OF 2011)

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BETWEEN

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Before: Hon Tang VP, Hartmann JA and Fok JA in Court

Date of Hearing: 23 November 2011

Date of Judgment: 21 December 2011

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JUDGMENT

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Hon Tang VP:

Introduction

1.HSBC Institutional Trust Services (Asia) Limited ("the Trustee") and RREEF China Reit Management Limited ("RREEF") are respectively the trustee and the manager of the RREEF China Commercial Trust ("the Trust") which is constituted by a deed of trust dated 28 May 2007.  The Trust:

"3.2      … is a Hong Kong collective investment scheme authorised by the Securities and Futures Commission ('SFC') under section 104 of the Securities and Futures Ordinance (Cap. 571). As a collective investment scheme which is a real estate investment trust, the operation and management of RREEF CCT is subject to the Code on Real Estate Investment Trusts ('REIT Code') issued by the SFC." 

2.The principal assets of the Trust are shares in a company which owned the Beijing Gateway Plaza ("the Property").  The company is Hong Kong Gateway Plaza Company Limited ("HK Gateway"), a wholly owned subsidiary of Beijing Gateway Plaza (BVI) Limited ("Beijing Gateway"). 

3.The 1^st Defendant, Tin Lik ("Tin") owned the entire issued share capital of Beijing Gateway.  By a sale and purchase agreement dated 4 June 2007 made between the Trustee on behalf of the Trust, the 2^nd Defendant as the manager of the Trust ("the Manager") and Tin ("the SPA"), the Trust acquired the entire issued share capital of Beijing Gateway from Tin.  By a separate agreement between the Manager and Tin dated 31 May 2007, Tin agreed to subscribe for 48,440,000 shares in the Trust which was subsequently reduced to 45,376,000 shares.

4.The principal source of income of the Trust was from the rental payable by the tenants of the Property.  The value and terms of the tenancies were provided and warranted to be true and accurate by Tin in the SPA.  See Clauses 9.1 and 10.6.9(i) of Schedule 3 of the SPA. 

5.However, on 10 September 2007, the 2^nd Defendant, as the Manager, issued an announcement that it had:

(1)   discovered discrepancies between the amount of rental payments being made by tenants of the Property, and the amount of rental income expected to be paid under the tenancy agreements disclosed to the Manager at the time of listing (i.e. the SPA Tenancy Agreements);

(2)   that the financial value of the discrepancy over the terms of the affected leases was HKD278,526,708 (the "Shortfall"); and

(3)   on 7 September 2007, Tin paid HKD278,526,708 into the account of the Trustee to make up for the Shortfall (the "Shortfall Payment"), and undertook to immediately on demand of the Manager make further payments if the Shortfall Payment was not sufficient.

6.The announcement of 10 September 2007 also stated that:

"The Directors of the Manager jointly and severally accept full responsibility for the accuracy of the information contained in this announcement and confirm, having made all reasonable enquiries, that to the best of their knowledge opinions expressed in this announcement have been arrived at after due and careful consideration and there are no other facts not contained in this announcement, the omission of which would make any statement in this announcement misleading."

7.At that time, as the announcement itself disclosed, Tin was a non-executive director of the Manager. 

8.There is also a letter dated 7 September 2007 from Tin (in the form of a Deed), which I set out in full below:

"Re:  Sale and Purchase Agreement dated 4 June 2007

I refer to the Sale and Purchase Agreement ('SPA') dated 4 June 2007 entered into between myself (as vendor), the Manager and the Purchaser and hereby:

(a)   confirm and acknowledge that there are identified and potential discrepancies between the terms of the tenancy agreements (including rental payment amounts) signed with the tenants of Gateway Plaza, and the terms of the tenancy agreements disclosed to the Manager and the Purchaser under or pursuant to the SPA;

(b)   acknowledge that on-going processes are taking place to ascertain the extent of such discrepancies and undertake to fully cooperate with and make available all relevant information to the Manager and the Purchaser in a timely manner to enable them to fully assess the situation;

(c)   agree and undertake to credit in immediately available funds the sum of HK$278,526,708 ('Sum') to the following account as soon as possible but in any event, no later than 4 p.m. 10 September 2007 (Monday):

Account Number: 808-284855-292

Bank:   The Hongkong and Shanghai Banking Corporation Limited

Name:  HSBC Institutional Trust Services (Asia) Limited - RREEF CCT Account;

(d)   irrevocably and unconditionally authorize the Manager and/or the Purchaser to apply all or part of the Sum, in its or their absolute discretion, in or towards payment or reimbursement of any losses, damages, costs and expenses which are or may be incurred or suffered by the Manager, the Purchaser, RREEF CCT and/or their related companies arising from any actual or potential discrepancies in the terms of the tenancy agreements;

(e)   confirm that, at any particular time, a certificate in writing signed by any of the duly authorized officer of the Manager and/or the Purchaser and/or the RREEF CCT and its related companies stating the amount of any losses, damages, costs and expenses suffered by any of them due to or arising out of my breach of the terms of the SPA and/or the discrepancies or potential discrepancies of the terms of the tenancy agreements stated in the SPA shall be conclusive and binding on me; and

(f)   undertake that if the Sum is not sufficient to cover such losses, damages, costs and expenses, to immediately on demand of the Manager and/or the Purchaser make further payment(s) to the account specified in paragraph (c) above at the request of the Manager and/or the Purchaser.

I understand that all rights, powers and remedies under or pursuant to the SPA and any other rights, powers and remedies which the Manager and/or the Purchaser and/or RREEF CCT may have at law or otherwise, in respect of any past, current or future breach are reserved by the parties and no failure or delay in the exercise of such rights, powers or remedies will operate as a waiver by the Manager, the Purchaser or any other person of those rights, powers or remedies or prejudice in any way the ability of any of them to exercise those rights, powers or remedies at any time.

I confirm that I have had the opportunity to seek independent legal advice prior to executing this letter.

The letter shall be governed by the laws of Hong Kong."

9.Later, an "Announcement Pursuant to Listing Agreement Para 4(3) and Rule 10.3 of the Code on Real Estate Investment Trusts" dated 28 October 2007 ("the Announcement"), stated that the Manager's investigation of this matter had then substantially been completed, and:

"In summary, after taking into account (Tin's) payment of HK$278,526,708 on 7 September 2007 to (the Trust) (which was used to adjust the consideration payable for the acquisition), the net assets attributable to unit holders of (the Trust) (excluding deferred taxation) as at 30 September 2007 is HK$69,663,000 lower than it would have been if the rental values had been in fact as represented and warranted by the Vendor, and as reflected in the Offering Circular issued on 11 June 2007."

10.It also stated:

"In summary, it appears that:

●          there was a complex fraud perpetrated by members of the Vendor's team, which had the effect of concealing the true lower value of rentals payable by tenants of the building;

●          the fraud was of a degree of sophistication that meant that, despite what Clifford Chance consider to have been robust due diligence for the purposes of (the Trust's) IPO (at or at least consistent with industry standards), it was not detected by any of the Manager, the Joint Global Co-ordinators of (the Trust's) IPO, their respective legal advisers or the Reporting Accountants;"

11.It appears that by 28 October 2007, Tin had ceased to be a non-executive director of the Manager. 

12.There is a further description of the fraud at page 11 of the Announcement.

"The fraud

The fraud at its heart involved the surreptitious generation of false lease agreements which were introduced covertly into the due diligence process. It does not appear to have involved undisclosed side-letters or side-agreements with tenants. In particular, the Vendor's team surreptitiously intercepted tenant confirmations provided in response to due diligence questionnaires and altered the documents before they were returned to those conducting the due diligence. The discrepant lease agreements with high values (the 'High Lease Agreements') which were produced for the purposes of due diligence were the product of a fraud conducted in a clandestine manner without any apparent knowledge or involvement of the Manager, the JGCs or their respective professional advisers. Whilst both the High Lease Agreements and the lease agreements at lower values actually entered into by tenants (the 'Low Lease Agreements') all appear on their face to be legitimate original documents, a detailed inspection conducted from the standpoint of testing the authenticity of the documents revealed that Low Lease Agreements subsequently had pages swapped fraudulently so as to create the false High Lease Agreements. The Low Lease Agreements were provided by the Vendor to the Manager on 6 September 2007. The nature of these discrepancies is such that they are much more readily discernible when the two sets of original Lease Agreements can be directly compared, one against the other. These irregularities have now become clear, but only after a detailed, sceptical comparative review and with the benefit of having both sets of original Lease Agreements available. Approached in this manner, the discrepancies have been identified. But they are not immediately obvious.

The fraud also involved the falsifying of accounts, tenant invoices and original bank documents reviewed by KPMG as part of their work in the role of reporting accountants in the IPO."

These Proceedings

13.By an originating summons dated 18 February 2011, the Trustee as the Plaintiff (with Tin as the 1^st Defendant and the Manager the 2^nd Defendant):

"… seeks the determination of the Court on the following directions and orders:

(1)   That it may be determined whether the Plaintiff should proceed with a distribution of the entirety of the net assets of the Trust without retention to meet any possible claim which might otherwise be made against it by the 1^st Defendant."

14.Paul Thomas Keogh, a Managing Director and the Chief Investment Officer for Asia Pacific of the Trust, the real estate and infrastructure investment management arm of the Deutsche Bank Group as well as the Fund Manager of RREEF and the Manager of the Trust, explained in his affidavit dated 6 May 2011:

"5.   The immediate background to the Trustee's application is that the Unitholders of RREEF CCT resolved by an 86% majority at an Extraordinary General Meeting held on 31 March 2010, to sell the Trust Property, distribute the proceeds and other Trust assets and then de-list and terminate the Trust. The present position is that the Trust Property has been sold and an interim distribution made to Unitholders. However, the payment of the final distribution and subsequent termination of the Trust is now on hold pending the determination of this application. There is now produced and shown to me marked 'PTK-1' the Manager's announcements dated 10 November 2010 and 24 February 2011 informing Unitholders of these proceedings.

6.   The Manager owes a fiduciary duty to act in the best interests of the Unitholders of (the Trust). The position of the Manager and its Board of Directors, consistent with that duty and with the Unitholders' Special Resolution, is that the remaining Trust assets should be distributed to Unitholders as soon and as efficiently as is possible.  With that objective in mind, and now that this application has been brought, the Manager supports the determination sought by the Trustee that RREEF CCT should proceed with a distribution of the entirety of its net assets without retention.

7.   The Manager does not consider there to be any reason or basis to withhold assets to meet any claim that might hypothetically be brought by Mr Tin Lik, the Vendor of the Trust Property. To do so, would be directly contrary to the interests and wishes of all other Unitholders and would unfairly expose Unitholders to further financial disadvantage because of Mr Tin."

15.Further information was provided in the affidavit of Chai Geok Lim, a Senior Vice President of the Trustee, dated 31 March 2011:

"11    Termination and Liquidation

11.1    On 11 February 2010, the Manager issued an announcement concerning the sale of the Property. Since the Property was the only material asset of RREEF CCT, RREEF CCT would have no other operating real estate assets to fulfil the criteria for operating as a REIT in accordance with the REIT Code, and the announcement informed investors that RREEF CCT should be terminated in accordance with the REIT Code and the units in RREEF CCT delisted from trading on the Hong Kong Stock Exchange, all of which being subject to approval by Unitholders at an extraordinary general meeting ('EGM') of Unitholders to be convened.

11.2    On 31 March 2010, the Manager announced that the Unitholders had by special resolution as set out in the notice of EGM dated 5 March 2010 approved the Disposal and the proposed termination and delisting of RREEF CCT. Now produced and shown to me marked 'CGL-22' are copies of the announcement dated 11 February 2010, the notice of EGM dated 5 March 2010 and the announcement dated 31 March 2010.

11.3    Following completion of the Disposal on 12 April 2010, the Manager approved the payment of an interim distribution of HKD4.10 per unit to Unitholders. On 11 May 2010, the Manager issued an announcement in this regard and stated that the effective date of the proposed termination of RREEF CCT was 12 May 2010. Now produced and shown to me marked 'CGL-23' is a copy of the announcement dated 11 May 2010. In the announcement, Unitholders were also informed that, following termination of RREEF CCT, it was expected that the Trust would be liquidated within 12 months from 12 May 2010 (in accordance with note 2 of paragraph 11.8 of the REIT Code) prior to which a final payment would be made to Unitholders following the realising of any other remaining assets held by the Trust.

11.4    On 29 October 2010, pursuant to section 29 of the Trustee Ordinance (Cap. 29), the Trustee published a notice in The Government of The Hong Kong Special Administrative Region Gazette, the South China Morning Post, the Hong Kong Economic Times, Wen Wei Po, and China Daily (each a 'Publication'), providing, amongst other things, that any person (other than Unitholders) who claims to entitled to the assets of RREEF CCT and/or is otherwise interested in them, is required to send full particulars of its / his / her claim to the Trustee before 12 noon (Hong Kong time) on 30 December 2010. The Trustee has not received any claims pursuant to such notice. Now produced and shown to me marked 'CGL-24' are copies of the notice as published in each Publication.

11.5    In view of this application to Court for directions, the Manager issued an announcement on 10 November 2010 informing Unitholders of the intended application by the Trustee and the resultant delay of the liquidation of the Trust pending the outcome of the application. Now produced and shown to me marked 'CGL-25' is a copy of the announcement dated 10 November 2010.

12    Conclusion

12.1    Pursuant to paragraph 11.8 of the REIT Code: 'In the case of termination, the trustee shall oversee, as soon as practicable after the scheme falls to be wound up, the realisation of the real estate of the scheme by the management company, and ensure that, after paying all outstanding liabilities and providing adequate provisions for liabilities, the proceeds of that realisation are distributed to the holders proportionately to their respective interests in the scheme at the date of the termination of the scheme.'.

12.2    The Trustee believes that the interests of the Unitholders would be best served by a distribution of the entirety of the net assets of the Trust and seeks a direction from the Court to do so as set out in the Summons. I am informed by the Manager that as at 23 April 2010, there are 723 Unitholders. Each Unitholder holds approximately 1,000 to 46,290,000 shares in the Trust, and, as at 31 December 2010, would be entitled to a final distribution of approximately HKD0.41 per share if the Trustee proceeded to final distribution without retention to meet any potential claims. Such amount would be diminished by any costs incurred from 1 January 2011 up to the termination of the Trust.

12.3    Although Tin has had ample opportunity to seek relief in respect of the Set Offs and has failed to do so, the Trustee is unable to ignore the letter sent by Tin's solicitors on 20 May 2010 purporting to reserve his rights to challenge the Set Offs. In the circumstances, the Trustee is concerned that Tin could bring a claim for the amounts involved in the Set Offs after the final distribution of (the Trust's) assets. At that point, the Trustee would have to bear the financial exposure of such a claim without recourse to any Trust assets. While the Trustee believes that the claims from Tin do not have merit, and notwithstanding a successful defence of such a claim, the Trustee is informed by its solicitors that the costs of defending the claim would include legal costs of at least HKD500,000, as well as administrative costs of the Trustee.

12.4    Further, the initiative for bringing proceedings lies entirely with Tin. In the meantime, the Trust continues to incur administrative expenses, such as the Manager's and Trustee's fees payable pursuant to section 11 of the Trust Deed.

12.5    Given the conflict between the choices available to the Trustee, the Trustee believes that it would be prudent to obtain the guidance of the Court prior to making a final distribution."

16.The matter went for hearing before Deputy High Court Judge L Chan on 31 May 2011, which concluded on that day with judgment reserved.  Although the proceeding had been served on Tin, he was absent from the hearing nor had he signified an intention to defend the proceeding.

17.On 15 June 2011, Ford, Kwan & Co. filed a Notice to Act on behalf of Tin; and on 24 June 2011, Ford, Kwan & Co. wrote to the clerk to the learned Deputy Judge, saying that Tin asked for an opportunity to make submissions; and that he was in the final stages of preparing to commence a claim against, inter alia, the Trustee and the Manager.  It went on to say:

"The purpose of HSBC Trust's application in these proceedings is exactly to obtain the Court's leave for it to distribute substantial assets notwithstanding the potential of Mr. Tin's claim thereto.  It is so stated in paragraph 1 of the Originating Summons.  Thus Mr. Tin's case is highly relevant.  The Court would also no doubt find it helpful to hear the submissions of Leading Counsel."

18.By letter dated 27 June 2011, the clerk to the learned Deputy Judge informed Messrs Ford, Kwan & Co. that his Lordship had directed that:

"The 1^st Defendant should apply by inter-partes summons."

19.In the morning of 29 June 2011, Notice of Handing Down Judgment was given.  Later on the same day, Tin issued a summons asking for leave to be given to Tin to file evidence in response to the Trustee's originating summons and that he be given leave to be heard.  The return date for the summons was 20 July 2011.  That summons was supported by an affirmation of Neville Cheng Chung Hon, a partner of Messrs Ford, Kwan & Co., which stated that leading counsel has advised that Tin has a claim against the Trustee and the Manager because Tin claimed:

"10.    … that he was induced by fraudulent misrepresentation and/or illegality to sign the letter in relation to the Shortfall Payment ('CGL-8' in CGL's Affirmation). It will be the 1^st Defendant's case that he made the Shortfall Payment, in the sum of HK$278,526,708 in order for it to be used as security for any shortfall in the rental income received for and on behalf of the Trust. In addition to that Shortfall Payment, the Plaintiff herein has also retained other sums of money due and owed to the 1^st Defendant by the Plaintiff, acting for and on behalf of the Trust, representing the balance of the purchase consideration for the sale and purchase of the Property. Those additional sums are referred to in paragraph 5 of CGL's Affirmation, and amount to about HK$286.497 million (including the Retention Sum of US$20 million).

11.    In total the Plaintiff has retained (including the Shortfall Payment) about HK$564.497 million as security to meet any alleged losses of the Trust. However, as declared in CGL's Affirmation (at 'CGL-19'), the Plaintiff has only identified the sum of HK$276,596,671 as being the alleged losses of the Trust up to around 30^th June 2010. Those alleged losses also include the alleged capitalised loss for the diminution of the Property's net asset value of only HK$69.663 million (see the Final Results of the Trust for the year ended 2008 'CGL-13' page 52). After purportedly setting off those alleged losses against the total retained sums, there is a remaining balance of at least HK$287.9 million.

12.     The Property was sold in or around February 2010 and as a result there were no further losses suffered by the Trust in relation to 'shortfalls' of expected rental income.

13.     The 1^st Defendant has recently been orally advised by Senior Counsel that he has a cause of action, inter alia, against the Plaintiff, acting as trustee of the Trust, for the return of at least HK$280 million. Senior Counsel is in the process of settling the appropriate court papers which will be imminently ready and proceedings will be instituted soon against, inter alia, the Plaintiff herein."

20.On 30 June 2011, the learned Deputy Judge handed down his judgment in which he directed the Trustee to proceed with a distribution of the entirety of the net assets of the Trust without retention to meet any possible claim which might otherwise be brought against it by the 1^st Defendant. 

21.On 5 July 2011, Tin as Plaintiff, commenced proceeding, HCCL 17/2011, against Deutsche Bank AG as the 1^st defendant; and the Manager as the 2^nd defendant; and the Trustee as the 3^rd defendant.  He claimed against the three defendants jointly and severally for, inter alia:

"(1)   The balance of the Price due under the SPA, namely HK$270,955,000, pursuant to paragraph 62 above or damages in lieu.

(2)   The balance of the sums refundable to the Plaintiff by the 3^rd Defendant and/or the 2^nd Defendant, namely HK$289,426,166 plus all sums invalidly or unlawfully certified for payment and all sums payable to the 1^st or 2^nd Defendants herein, pursuant to paragraphs 81 and 82 above or damages in lieu."

22.There are also claims against the 1^st and/or 2^nd defendants jointly and severally for, amongst other things, damages for wrongful intimidation, damages for fraudulent misrepresentation, etc.

23.Mr Barrie Barlow, SC, appearing for Tin, submitted that Tin's claim in respect of $270,955,000 is as an unpaid vendor and such unpaid purchase price is held on trust for Tin.  As for the sums said to be refundable to Tin, Mr Barlow submitted that they are subject to a Quistclose trust.  He has referred us to the relevant paragraphs in Tin's statement of claim.  Deutsche Bank Group and the Manager filed a defence denying liability where they claimed that after various setoffs, a sum of HK$11,000,000 was payable to Tin, subject to any further losses caused by Tin in breach of his contractual obligations. 

24.Mr Eugene Fung, for the Trustee, has pointed out that after the judgment was handed down, Tin had three options.  He could have gone back to the learned Deputy Judge under Order 28, rule 4(1), Order 32, rule 5(3), or Order 35 rule 2(1) of The Rules of the High Court (Cap. 4A).  It is sufficient to look at the commentary at 35/2/1, for some of the general matters which should be taken into account when the court is asked to set aside the judgment obtained when a party has failed to appear:

"(1)   where a party with notice of proceedings has disregarded the opportunity of appearing at and participating in the trial, he will normally be bound by the decision;

(2)   where a judgment has been given after a trial it is the explanation for the absence of the absent party that is most important: unless the absence was not deliberate but was due to accident or mistake, the court will be unlikely to allow a re-hearing;

……

(4)   the court will not consider setting aside judgment regularly obtained unless the party applying enjoys real prospects of success;"

25.In Mr Barlow's written submission he submitted that he had not made an appropriate application before the learned Deputy Judge because:

"17.   … However, given the Deputy Judge's peremptory and premature rush to deliver his adverse judgment – what purpose would any such application have served?"

26.There is no basis for this submission and I reject it.

27.Mr Barlow also submitted that the existence of the jurisdiction of the trial court to set aside the judgment does not negative the jurisdiction of the Court of Appeal to order a new trial.  Re Edwards Will Trusts Edwards v. Edwards [1982] Ch 30.  However he acknowledged that even if he should succeed before this Court, his client might properly be ordered to pay the costs both here and below.  That being the case, I am prepared to consider the appeal on its merits.

28.Mr Barlow relied on the following passage in Underhill and Hayton on Law of Trusts and Trustees - Law Relating to Trusts and Trustees (18^th ed):

"85.9 Merely applying to the court for directions does not automatically involve a surrender of discretion. In this second class of case, there is no question of surrender of discretion. Indeed it is most unlikely that the court will be persuaded in the absence of special circumstances to accept a surrender of discretion on questions of that sort, since the trustees are prima facie in a much better position than the court to know what is in the best interests of the beneficiaries. The task of the court here is not to say how it would itself exercise the discretion, but merely to ensure (via an inquisitorial process) that the proposed exercise is lawful in the sense that the trustees can properly form the view which they have. The consequence of the court being so satisfied is that the beneficiaries will be deprived of the opportunity to allege that it constitutes a breach of trust, and thus the court will act with caution."

29.It is not Mr Barlow's case that the learned Deputy Judge's order would relieve the Trustee or the Manager from Tin's claim.  Nor has the Trustee or the Manager so contended before us.  Mr Barlow accepted that Tin's claim against the Trustee or the Manager is not a claim in respect of any holding which he may have in the Trust.  Nor does Tin contend that should he succeed in his claim, the Defendants might not be in a position to satisfy any judgment which Tin may obtain in the proceedings. 

30.The parties accept that the consequence of the order is that the Trustee would be relieved from any claim by a beneficiary of the Trust that the distribution was made in breach of trust. 

31.Mr Barlow submitted that since it was the possibility of a claim by Tin which prompted the Trustee to make the application, since Tin had made clear prior to the delivery of judgment on 30 June that he was about to make a claim, the Trustee should have withdrawn the application. 

32.Mr Fung has explained that the possibility of a claim by Tin was not the reason, or the sole reason for the application.  In any event, it must be a matter of judgment for the Trustee to decide whether they should proceed with the application in such circumstances.

33.Alternatively, Mr Barlow submitted that the nature of the proceedings being inquisitorial, the learned Deputy Judge should have refrained from giving judgment before giving Tin an opportunity to be heard.

34.In support, Mr Barlow relied on the passage from Underhill and Hayton quoted in para. 28 above, as well as the following observation of Lord Oliver in Marley and Others v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198:

"In explaining the reasons why their Lordships have reached the conclusion that the appeal should be allowed it will be necessary to review in a little detail the events leading up to the order appealed from. By way of introduction, however, it is appropriate to state two general propositions. In the first place, there has always to be borne in mind the position and duties of a trustee who applies to the court for directions. A trustee who is in genuine doubt about the propriety of any contemplated course of action in the exercise of his fiduciary duties and discretions is always entitled to seek proper professional advice and, if so advised, to protect his position by seeking the guidance of the court. If, however, he seeks the approval of the court to an exercise of his discretion and thus surrenders his discretion to the court, he has always to bear in mind that it is of the highest importance that the court should be put into possession of all the material necessary to enable that discretion to be exercised. It follows that, if the discretion which the court is now called upon to exercise in place of the trustee is one which involves for its proper execution the obtaining of expert advice or valuation, it is the trustee’s duty to obtain that advice and place it fully and fairly before the court, for it cannot be right to ask the judge in effect to assume the burdens of a trustee without the information which the trustee himself either has or ought to have to enable him to carry out his duties personally. The court ought not to be asked to act upon incomplete information and, if it is so asked, the proper course is either to dismiss the application or adjourn it until full and proper information is provided.

Secondly, it should be borne in mind that in exercising its jurisdiction to give directions on a trustee’s application the court is essentially engaged solely in determining what ought to be done in the best interests of the trust estate and not in determining the rights of adversarial parties. That is not always easy, particularly where, as in this case, the application has been conducted as if it were hostile litigation; but it is essential that the primary purpose of the application-indeed, its only legitimate purpose-be not lost sight of in academic discussion regarding the discharge of burdens of proof. Where beneficiaries oppose a proposal of a trustee with a host of objections of more or less weight, the court is, of course, inevitably concerned to see whether these objections are or are not well founded, but that must not be permitted to obscure the real questions at issue which are what directions ought to be given in the interests of the beneficiaries and whether the court has before it all the material appropriate to enable it to give those directions."

35.Mr Fung submitted that Lord Oliver was concerned with a situation where the trustee had surrendered its discretion to the court. That was the context in which the observation was made, but I believe Lord Oliver's observations have wider application.  Even where a trustee has not surrendered his discretion, a court exercising its supervisory jurisdiction would not wish to act upon incomplete information.  But I agree with Mr Mark Strachan, for the Manager, who submitted that it cannot be that in proceedings under Order 85, rule 2, the court is bound to indulge a litigant who decides in the last moment that he wants to participate.  I believe the learned Deputy Judge acted entirely properly in giving judgment when he did.  No doubt that he was mindful of the fact that in an appropriate case, relief could have been granted, for example, under Order 28 rule 4(1).

36.Moreover, I do not believe the learned Deputy Judge lacked the essential information on which to exercise his discretion.  So far as I can see, the distribution is in the interest of the beneficiaries of the Trust.  Nor has any unit trust holder as unit holder complained about it. 

37.Of course, on such application, the court should consider:

"[24]    … whether any, and if so what, protection should be afforded to the potential creditors. Such protection may take the form of a retention, an indemnity from the beneficiaries or insurance. …"  Re K [2007] WTLR 1007, per Richard Arnold QC, sitting as a deputy judge

38.As I have said, it is not suggested that this is a case where any protection is required.

39.For the above reasons, I would dismiss the appeal and make a cost order nisi against Tin.

Hon Hartmann JA: 

40.I agree. 

Hon Fok JA: 

41.I agree with the judgment of Tang VP. 

Mr. Barrie Barlow, SC & Mr. Laurence Li, instructed by Messrs Ford, Kwan & Co., for the 1^st Defendant/Appellant  (Tin)

Mr. Eugene Fung, instructed by Messrs Linklaters, for the Plaintiff/1^st Respondent  (HSBC the Trustee)

Mr. Mark Strachan, instructed by Messrs Clifford Chance, for the 2^nd Defendant/2^nd Respondent  (RREEF the Manager)