WONG TIN CHEE TINLY AND OTHERS v. WONG TO YICK AND ANOTHER

HCMP 1316/2018

[2019] HKCFI 2064

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1316 OF 2018

________________________

________________

________________

________________

JUDGMENT

________________

Introduction

1.  The 1^st defendant (“D1”) and 2^nd defendant (“D2”) were husband and wife who divorced in 2003. The 1^st plaintiff (“P1”) is their son, and the 2^nd, 3^rd and 4^th plaintiffs (“P2, P3 and P4”) were their daughters. D1 and D2 (collectively, “Ds”) had a total of 8 children including Ps. D1 was born in 1919 and is currently about 100 years old.

2.  By an originating summons issued on 23 August 2018 (“OS”), P1, P2, P3 and P4 (collectively, “Ps”) claimed against Ds for the following reliefs:

(a)  declaration that by an assignment dated 8 September 1977 and registered in the Land Registry by Memorial No UB1437247 (“Assignment”) Ds have been holding the property known as Office A, 1^st Floor, Fu On Commercial Building, Nos 190-192 Cheung Sha Wan Road, Kowloon (“Property”) upon trust for Ps as tenants-in-common in the respective shares of 40%, 20%, 20%, 20% thereof (“Trust”);

(b)  a declaration that the Trust be terminated forthwith upon the unanimous consent of all Ps being all the beneficiaries in the Trust and of full age and majority;

(c)  an order that D1 do within 28 days from the date of the order to be made take steps to sign and/or execute the assignment as per the draft annexed to the OS and all other necessary conveyances to assign the Property to WTY World Dynamic Limited (“Company”);

(d)  alternatively, an order that D1 do forthwith take steps to sign and/or execute the necessary conveyances to transfer and vest the Property in Ds absolutely as tenants-in-common in the respective shares of 40%, 20%, 20%, 20% of and in the Property;

(e)  an order that D1 do within 28 days from the date of the order return and deliver the Assignment, title deeds and all such other documents relating to the Property in his custody or possession to Ps; and

(f)  costs of and occasioned by the OS be paid by D1.

3.  In short, Ps sought to terminate the Trust and have the Property transferred to the Company or alternatively to themselves.

4.  The OS was supported by the affirmations of P1, P2, P3 and P4 all filed on 23 August 2018. All 4 Ps by their affirmations confirmed they had attained the age of majority. P1 by his affirmation confirmed he was born in 1956 (ie about 21 years old at the time of the Assignment), and he had since adopted “Tinly” as his name. P2 by her affirmation confirmed she was born in 1949 (ie about 28 years old at the time of the Assignment), and she had reverted to use her maiden name. P3 by her affirmation confirmed she was born in 1954 (ie about 23 years old at the time of the Assignment), and she had since adopted “Cathy” as her name. P4 by her affirmation confirmed she was born in 1952 (ie about 23 years old at the time of the Assignment), and she had since adopted “Lucia” as her name.

5.  In their affirmations, all Ps confirmed D2 agreed to cooperate and transfer the Property as directed by them, but D1 did not accede to their request, so they believed D1 would not comply with their wishes/directions unless ordered by the court.

6.  P3 set out the supporting facts/matters in her affirmation (“P3 1^st Aff”) (which I will deal with below). P1, P2 and P4 confirmed and adopted P3 1^st Aff.

7.  According to an affirmation of service filed on 10 September 2019, the OS and Ps’ affirmations were served on D1 by insertion through the letterbox at D1’s usual and last known address at Flat B, 1^st Floor, Block 3, Peridot Court, Tuen Mun, New Territories, Hong Kong (“D1 Address”) on 27 August 2018.

8.  On 10 September 2018, D2 by her solicitors filed acknowledgment of service to indicate she did not intend to contest the proceedings. On 28 August 2017, D2 confirmed in writing to Ps that she was willing to transfer and vest the Property as Ps would direct, so Ps did not seek any formal order against her in the present proceedings.

9.  On 10 September 2018, D2 filed her affirmation to state her stance on the relevant matters (“D1 1^st Aff”).

10.  On 17 September 2018, Ps filed Notice of Appointment to Hear Originating Summons seeking the same reliefs as in paragraph 2(a)-(f) above (“Notice”).

11.  According to an affirmation of service filed on 11 October 2018, the Notice was served on D1 by ordinary post addressed to the D1 Address on 21 September 2018.

12.  On 31 October 2018, Ps filed the affidavit of their solicitor Shaw Shun Fat to exhibit a covering letter dated 29 October 2018 for service of the OS and Notice to D1’s solicitors with enquiry as to whether they had instructions to act for D1 in the present proceedings, and D1’s solicitors replied on the same date that they had no such instructions.

13.  At the hearing of the Notice on 1 November 2018, DHCJ Keith Yeung (as he then was) granted leave for Ps to file further evidence, if any, within 28 days of the date of his order and leave for Ds to file evidence in reply within 28 days thereafter with costs reserved (“2018 Order”). The learned judge also delivered a reasoned decision (“2018 Decision”).

14.  According to an affirmation of service filed on 11 December 2018, the sealed copy of the 2018 Order was served on D1 by ordinary post addressed to the D1 Address on 14 November 2018.

15.  On 23 November 2018, Ps filed the 2^nd affirmation of P3 in support of the OS (“P3 2^nd Aff”).

16.  According to an affirmation of service filed on 11 December 2018, the P3 2^nd Aff was served on D1 by ordinary post addressed to the D1 Address on 23 November 2018.

17.  On 19 December 2018, D2 filed her 2^nd affirmation to state her stance (“D2 2^nd Aff”).

18.  The adjourned hearing of the Notice was fixed and scheduled to be heard by this court on 14 August 2019 (“Hearing”).

19.  On 25 February 2019, I granted leave for D2 to be excused from attending the Hearing.

20.  According to an affirmation of service filed on 12 August 2019, the hearing bundles prepared by P’s solicitors and the skeleton arguments and list of authorities prepared by P’s counsel were served on D1 by ordinary post addressed to the D1 Address on 9 August 2019.

21.  D1, who was not legally represented, did not attend the Hearing.

Affirmation evidence

22.  By the Assignment dated 8 September 1977, Fu Kin Company Limited (“Fu Kin”) assigned the Property to Ds as joint tenants for a consideration of $150,000.00. It was expressly provided in the Assignment that:

“…… the Vendor DOTH hereby assign unto the Purchaser [ie Ds] [the Property] …… TO HOLD [the Property] hereby assigned unto [Ds] as Joint Tenants for the residue now to come and unexpired of the said term of 24 years less the last 3 days thereof created by the said new Crown Lease UPON TRUST for sale for and on behalf of Wong Tin Chee (黃天賜) Student [P1], Yuk Kuen Cheung (NEE WONG) (黃玉娟) Married Woman [P2], Wong Wei Kin (黃慧娟) Student [P3] and Wong Sheung Kin (黃嫦娟) Student [P4] …… as Tenants in Common in the following shares that is to say as to [40%, 20%, 20%, 20% thereof unto P1, P2, P3 and P4]” (ie the Trust)

“…… with power to sell the same and to postpone such sale without referring to the said beneficiaries [Ps] or joining them as parties in the relevant deed of Assignment for such sale and with further power without referring to the said beneficiaries [Ps] to mortgage or otherwise charge [the Property] in favour of any person firm corporation or bank for the purpose of raising money by way of banking facilities, overdraft or immediate advance either for the use of the Purchasers [Ds], the beneficiaries [Ps] or for other principal and persons and upon such terms and conditions as the Purchasers [Ds] shall think fit and with further power to sign seal and deliver such deed of mortgage or charge and to receive the mortgage principal and give valid receipt thereof and/or to operate accounts in respect of the said banking facilities or overdraft without having the said beneficiaries [Ps] joined in the Deed of Mortgage ……” (“Power”)

23.  According to the terms of the Assignment, P1, P2, P3 and P4 were respectively 40%, 20%, 20% and 20% beneficial owners of the Property.

24.  As for the assignee of the Property proposed by P, ie the Company, its sole shareholder was a BVI company World Dynamic Group Limited, and its current directors were P1, P3, P4 and other family members (but not P2 and D1).[1] P3 said the Company was a family-related company, and the prefix “WTY” in its name stood for D1’s name “Wong To Yick”, which was the trademark for medical ointment and other generic products manufactured by the “Wong To Yick” group.

25.  The P3 1^st Aff claimed all Ps had reached the age of majority, so they were entitled to terminate the Trust and ask for the Property to be transferred to a party as directed by them, ie the Company, or alternatively, to Ps absolutely as legal/beneficial tenants-in-common in the respective shares of 40% (P1), 20%(P2), 20% (P3) and 20% (P4). It was said that upon termination the Trust and under the rule in Saunders v Vautier,[2] it would be the duty of Ds as trustees to vest and assign the Property in Ps absolutely or to act on the unanimous direction of Ps being all beneficiaries of full age.

26.  On 17 February 2017, D1’s solicitors wrote to Ps’ solicitors to acknowledge D1 was holding the Property as trustee for Ps, and indicated that by reason of his age D1 no longer wished to hold the Property as trustee for Ps and would like to vest the Property unto Ps at nil consideration. It was suggested the vesting assignment of the Property be done at the same time as the completion of the transaction relating to another property situate at Office 1B, Store Room, All External Walls and Old Party Wall of Fu On Building (“Other Property”), but if Ps preferred D1 to assign the Property to the Company, “he agrees to do so but in any event all stamp duty (if any) shall be paid by [the Company]. To enable [Ps’ solicitors] to advise [Ps], we send you herewith a certified copy Assignment Memorial No UB1437247 for your consideration. …… For the purpose of this vesting assignment, [D1] will let you have the original Assignment Memorial No UB 1437247 (which is already in our firm’s possession) ……”.

27.  On 3 March 2017, D1’s solicitors wrote to Ps’ solicitors stating that D1 no longer insisted the vesting assignment of the Property be dealt together with the completion of the transaction that involved the Other Property. D1’s solicitors requested an early reply regarding Ps’ intention as it was “[D1’s] wish to deal with this matter as early as possible”.

28.  But by June 2017, Ps decided to sell the Property to the Company at the price of $4,680,000. On 13 June 2017, Ps’ solicitors wrote to D1’s solicitors proposing to purchase the Property at the price of $4,680,000 with completion on/before 25 July 2017. On 14 June 2017, D1’s solicitors noted that such proposal for a sale and purchase transaction was different from the original proposed transaction for a vesting assignment to Ps, and suggested inter alia that the Company was not to raise requisition/objection to the title of the Property. “We shall obtain [D1’s] confirmation to proceed after the above matters have been clarified”. On 26 June 2017, Ps’ solicitors replied to say they were still taking instructions.

29.  On 12 July 2017, the Company’ solicitors wrote to D2’s and Ps’ solicitors to propose purchase of the Property for $4,680,000 and to pay the purchase consideration directly to P1 (40%) and P2, P3 and P4 (each 20%). On 18 July 2017, D2’s solicitors gave a holding reply. On 21 July 2017, the Company’s solicitors sent the pro forma assignment and undertaking letter to be sent to D1’s solicitors to Ps’ solicitors for their consideration. On 26 July 2017, D2’s solicitors sent to D1’s solicitors draft Memorandum for Sale and Purchase of the Property for comments. On 23 October 2017, the Company’s solicitors chased D2’s and Ps’ solicitors for (a) confirmation of the distribution of payments to Ps, and (b) comments on the pro forma assignment and undertaking letter. On 23 October 2017, Ps’ solicitors replied to approve the draft assignment and undertaking letter, and indicated willingness to proceed. They also gave instructions on how the purchase consideration was to be split amongst the 4 Ps.

30.  On 2 November 2017, the Company’s solicitors wrote to D1’s solicitors to chase for the draft agreement for sale and purchase, and to indicate the Company’s intention that the signing of such agreement and the completion of the sale and purchase should take place at the same time on a date to be agreed by the parties. The Company’s solicitors also sent the pro forma assignment and undertaking letter to D1’s solicitors for comments. On 22 November 2017, the Company’s solicitors chased D1’s solicitors for the draft agreement for sale and purchase for approval and sought comments on the pro forma assignment and undertaking letter.

31.  On 12 January 2018, Ps’ solicitors wrote to inform D1’s solicitors that in July 2017 Ps as beneficiaries agreed to sell the Property to the Company, and requested/directed Ds to convey and assign the Property to the Company. Ps’ solicitors had no amendment to the pro forma assignment and undertaking letter, and they understood D2 was ready to convey and assign the Property to the Company, so they chased D1 for a constructive reply. On 12 January 2018, D1’s solicitors stated that they were unable to contact D1 although messages had been left for him.

32.  From the above series of solicitors’ correspondence, Ps summarised the material events as follows:

(a)   the Company offered to purchase the Property for a consideration of $4,680,000;

(b)   Ps considered the offer acceptable and agreed in principle to sell the Property to the Company for the consideration of $4,680,000;

(c)   D2 confirmed Ds held the Property as trustees for Ps, and agreed to return all interests in the Property to Ps;

(d)   D1 failed to respond on whether he was willing to execute the relevant conveyancing documents to assign the Property unto the Company notwithstanding Ps’ requests/demands; and

(e)   D1 did not make clear via his solicitors or otherwise whether he was willing to the execute the necessary conveyances to assign the Property to the Company or alternatively to vest the same in Ps absolutely as legal/beneficial tenants-in-common in the respective shares of 40%, 20%, 20%, 20%, and did not put forward any alternative proposal.

33.  P3 claimed that as a result the Property was yet to be sold to the Company, and it would be injurious to Ps’ interests under the Trust for D1 to neglect, ignore or refuse P’s unanimous wishes/directions to assign the Property to the Company (as evident from their solicitors’ letter dated 26 July 2017 to D1’s solicitors) whereby Ps were unable to realise their interest in the Property. Hence, Ps by the present proceedings asked for an order to terminate the Trust and for D1 do forthwith take steps to sign and/or execute the draft assignment annexed to the OS and all other necessary conveyances to transfer the Property to the Company or alternatively, to P1, P2, P3 and P4 absolutely as legal/beneficial tenants-in-common in the respective shares of 40%, 20%, 20%, 20% of and in the Property.

34.  D2 by the D2 1^st Aff confirmed the contents of P3 1^st Aff, and in particular that:

(a)   she was 1 of 2 trustees holding the Property on trust for Ps pursuant to express provisions in the Assignment;

(b)   she agreed to transfer the Property to the Company or alternatively to Ps beneficially, or to any party as P would direct as evident in her written confirmation dated 28 August 2017;

(c)   at material times she was able, ready and willing to take steps to sign/execute (in her capacity of 1 of 2 trustees) all conveyancing and other necessary documents to transfer the Property to the Company, or to P1, P2, P3 and P4 absolutely as legal/beneficial tenants-in-common in the respective shares of 40%, 20%, 20% and 20%;

(d)   D1 failed to give any response as to whether or not he would be agreeable to transfer the Property to the Company despite Ps’ requests and demands; and

(e)   D2 believed D1 (given his dilatory attitude) would continue not to cooperate with Ps and/or act in accordance with Ps’ directions as beneficiaries unless ordered by the court.

35.  By the 2018 Decision, DHCJ Keith Yeung SC (as he then was) noted the following features of the Trust: (a) the Trust was a trust for sale, so Ds’ duty was to sell the Property and hold the sale proceeds on trust for Ps as beneficiaries, (b) Ds as trustees had the power to postpone any sale, (c) pending such sale Ds as trustees had the power to mortgage or charge the Property, and (d) the purpose of such mortgage or charge might be to raise money “for the use of the Purchasers, the beneficiaries or for other principal and persons”. The learned judge noted the operation and application of the rule in Saunders v Vautier required the beneficiaries making the application to have the entire interest in the property concerned. Since the Trust for sale was one with power to postpone the sale and in the meantime to mortgage/charge the Property “for the purpose of raising money … either for the use of the Purchasers, the beneficiaries or for other principal and persons”, the learned judge queried whether Ps were all the persons with present/contingent interests in the Property and whether there might be “Purchasers” and “other principal and persons”. This led the learned judge to wonder whether the width and undefined nature of such power and purpose would render the Trust void with risk of reverting the Property back to the settlors, ie Ds, especially when at the hearing Ps did not attempt to see whether such purpose and power could be severed, read down or somehow impliedly defined. The learned judge therefore adjourned the hearing of the Notice, and granted the 2018 Order for Ps to deal with the above matters.

36.  Ps addressed these matters in the P3 2nd Aff, which were based on what D2 told her and which D2 verified by the D2 2nd Aff. It was said since the creation of the Trust till now Ds as trustees exercised the Power only to create a mortgage of the Property in favour of FNCB Financial Limited (“FNCB”), which was redeemed by Ds as trustees in 1983:

(a)  By a mortgage dated 8 September 1977, Ds as joint tenants and mortgagors mortgaged/assigned the Property to FCNB as mortgagee for a loan of $150,000 payable upon a fixed term of 5 years. Ps as beneficiaries of the Trust were not joined as parties to the 1977 Mortgage. D2 said the mortgage loan of $150,000 was used to pay part of the purchase price of the Property.

(b)  In 1983, Ds fully repaid the mortgage loan and redeemed the 1977 Mortgage (see the reassignment dated 19 April 1983 (“1983 Reassignment”) whereby FNCB reassigned the Property to Ds).

37.  D2 said Ds collected the title deeds of the Property from FNCB in/about 1983 after the 1983 Reassignment was registered with the Land Registry. Thereafter, D1 as head of the family kept the title deeds of the Property in a safe at the Property, and no other person had access to such safe and/or made use of such title deeds to grant any security/other interests against the Property.

38.  Since 1985 P3 worked with Ds at the Property for their family business, but neither Ds nor anyone else told her D1 and/or D2 had exercised the Power to create any further security interest and/or generate any income. P3 had not been told about any third party other than Ps (as beneficiaries of the Trust) having any entitlements to any income/funds generated by any security/other interests granted against the Property. The updated land search records of the Property did not reveal any other mortgage/charge or any other interests registered against the Property. P3 therefore believed that apart from the 1977 Mortgage and 1983 Reassignment, the Power had not been exercised by D1 and/or D2 up till now. As such, Ps as beneficiaries of the Trust were the only persons having interests in the Property.

39.  D2 clarified that when the Trust was created, Ds expressly agreed they shall jointly act as trustees for Ps, and all decisions in relation to the Trust had to be made with their joint consent. The Assignment revealed Ds (as joint tenants) were indeed joint trustees of the Trust, so they must act jointly, at least in relation to important matters such as granting security/other interests against the Property. D2 (as 1 of the joint trustees) said since the 1983 Reassignment she as 1 of the trustees of the Trust had not exercised the Power and had no intention to exercise the Power in future, and D1 had not asked her to create any charge, mortgage or other interests over the Property or in any way exercise the Power. D2 said Ps as beneficiaries of the Trust were the only persons having interests in the Property, or in other words, no other person had any interest in the Property notwithstanding the Power that was granted to Ds as trustees. P3 therefore claimed that Ps as beneficiaries of the Trust were and would be the only persons having interests in the Property. It was further said since the Power had not been exercised for about 35 years since the 1983 Reassignment, it had lapsed and could no longer be exercised.

Discussion

40.  I am satisfied D1 had been properly served with the OS, Notice, supporting affidavits and notice of hearing. Thus, notwithstanding his absence at the Hearing, I consider it appropriate to proceed with the hearing of Ps’ application.

41.  I agree the Trust was a trust for sale with inter alia the Power given to Ds (the parents of Ps who had divorced) as trustees to mortgage/charge the Property for the purpose of raising money for use by Ds, Ps or for other principal and persons. P1, P2, P3 and P4 were the beneficiaries holding 40%, 20%, 20% and 20% shares under the Trust as tenants-in-common. All Ps had reached the age of majority and agreed to terminate the Trust. D2 (who confirmed she was 1 of 2 trustees of the Trust) supported Ps’ present application and was willing to transfer the Property to the Company or alternatively to Ps. As for D1, even though he confirmed via his solicitors’ letters dated 17 February and 3 March 2017 (see paragraphs 26-27 above) that he was a trustee of the Trust and that he intended to convey the Property back to Ps or to their order, he still had not done so.

42.  The 2018 Decision raised certain queries that potentially stood in the way of the application of the rule in Saunders v Vautier to terminate the Trust. Those concerns boiled down to 2 issues:

(a)  whether Ps were all the persons who had all the present and contingent interests in the Trust given Ds had the Power to raise funds for Ds, Ps and “other principal and persons”; and / or

(b)  whether the reference to “other principal and persons” in the Power would render the Power void as having “a wide and undefined power and purpose”, and if so whether the Power could be severed, read down or impliedly defined to preserve the validity of the Trust.

The P3 2^nd Aff and D2 2^nd Aff were filed to address such issues, and they essentially asserted (i) Ps were the only persons having interests under the Trust, (ii) the Power was certain and valid, and (iii) even if the Power were uncertain, it could be severed from the remaining part of the Trust and would not render the entire Trust void.

43.  On the issue in paragraph 42(a) above, Ms Ho (and with her Mr Cheung), counsel for Ps, started with the rule in Saunders v Vautier. Underhill and Hayton, Law Relating to Trusts and Trustees explained as follows:[3]

“Where: …… (b) the persons who are all those who may possibly benefit under a trust, whether concurrently or successively, and whether under fixed trusts, discretionary trusts, or powers of appointment, none being under any disability, unanimously so decide, the specific performance of the trust may be arrested, and the trust extinguished by that …… persons collectively without reference to the wishes of the settlor or the trustees.”

To put it in any way, all beneficiaries, if sui juris and together entitled to the whole beneficial interest under the trust, can put an end to the trust and direct the trustees to hand over the trust property to them.[4]

44.  The rule in Saunders v Vautier also applies to a trust for sale subject only to the trustee’s right to reimbursement or exoneration for the discharge of his liabilities incurred in the administration of the trust. However, such right does not give rise to a lien over trust assets for the trustee’s own benefit, and does not affect the beneficiaries’ power to give a Saunders v Vautier direction. In Beck v. Henley,[5] Leeming JA explained the rationale as follows:

“33. …… the ‘rule’ is best described as a power on the part of the beneficiaries, with a correlative liability on the part of the trustees … The exercise of the power does not involve the performance by the trustees of any part of their office as active trustees; instead, it brings their office to an end. The exercise of this power is a canonical example of, to use Hohfeld’s language, effecting a change in a given legal relation ……

34. Secondly, Anglo-Australian law has taken the course of giving primacy to adult beneficiaries who enjoy an absolute vested and indefeasible interest in trust property, such that the power overrides restrictions imposed by testators and settlors in the trust instrument ……

35. The upshot is that it is not to the point to observe …… that the trust established by [the will] is a trust for sale, with special provisions directed to a sale …… Adult beneficiaries who are absolutely and indefeasibly entitled have power to ‘overbear and defeat the intention of a testator or settlor to subject property to the continuing trusts, powers and limitations of a will or trust instrument’ ……

36. Third, the power is not unqualified, even where the beneficiaries are unanimous and absolutely and indefeasibly entitled. The exercise of the power may be subject to the trustee’s right to reimbursement or exoneration for the discharge of liabilities incurred in the administration of the estate …… That said, it seems clear that since the trustee’s rights to reimbursement and exoneration are a consequence of the trustee being a fiduciary with ownership and control of trust property, the exercise of those rights by the trustee is subject to the trustee’s fiduciary duties. Thus, the trustee may not refuse to accede to a Saunders v Vautier direction in order to keep the trust in existence for the trustee’s own benefit. ….. It likewise seems clear that the trustee’s lien over trust assets does not detract from the beneficiaries having power to give a Saunders v Vautier direction, although the terms of the trust may require the trustee’s interest to be protected …… why should the position be different from trust property subject to a charge or mortgage? These matters are considered in Thomas and Hudson, The Law of Trusts (2^nd ed, Oxford University press, 2010) pp 165-166. Professor Thomas also states (at p 166) that the power may be defeated by an exercise by the trustee of a power of appropriation; it is not necessary to consider this aspect, …… since the power was not exercised. The only point of relevance is that the power is not unqualified. This reflects merely the equitable nature of the beneficiaries’ interest.

……

72. The primacy accorded to the beneficial owners over the settlor means that …… the form of the trust (a trust for sale) and other restrictions in the instrument, are disregarded if the beneficiaries are adult, capacitated and absolutely and indefeasibly entitled.”

45.  In Berry v Green,[6] the House of Lords held that the rule in Saunders v Vautier will not apply unless “all the persons who have any present or contingent interest in the property are sui juris and consent”, and “all the persons who have any present or contingent interest in the property” referred to persons having an interest in the trust. In other words, a trust can only be terminated pursuant to the rule in Saunders v Vautier if all the parties having an interest in the trust agree to it.

46.  In that case, the testator by his will devised his property to his trustees upon trust to pay out of the income thereof a large number of annuities, and directed that the last annuities should determine on the death of the last of the personal annuitants. But so long as any of the annuitants were alive, the balance of the income of the residuary estate and the income resulting therefrom should be accumulated and invested, and subject to the aforesaid, the testator gave the whole of his property after the death of the last personal annuitant to a charity to be invested as capital. The charity as residuary legatee asked for an order that the trust for accumulation should be determined because section 164 of the Law of Property Act provided that the accumulation would cease if any of the annuitants survived the period of 21 years from the testator’s death. But in such circumstances, the surplus income down to the death of the last surviving annuitant would be undisposed of and would pass as on intestacy, and since the persons taking under an intestacy were not parties, it was held that the court ought not make the order asked for as the effect of such order would be to prejudice and possibly defeat altogether the possible interests of the persons taking under an intestacy. As Lord Maugham LC at p 582 explained:

“…… the rule in Saunders v Vautier does not apply, the reason being that that rule has no operation unless all the persons who have any present or contingent interest in the property are sui juris and consent. That is not the case here as all the persons who have rights as next of kin to share in the released income. There is therefore no legal right in the [charity] to stop the accumulations …… the real difficulty in this case is that the residuary legatees have no right to the released income.”

47.  As Ms Ho submitted (and I agree), here Ds had the power to mortgage and borrow money for use by themselves, Ps or “other principal and persons”, but these parties would not acquire any interest in the Trust as they would only be recipients of money borrowed on the security of the Trust property (ie the Property). When DHCJ Keith Yeung (as he then was) made preliminary observations otherwise in the 2018 Decision, he did not as yet have the benefit of Ms Ho’s full submissions. I am also mindful that at that stage the learned judge was not forming any definitive view, but was raising issues to be properly addressed by Ps, which Ms Ho has now done.

48.  Likewise, a trust with power to mortgage would not prevent the application of the rule in Saunders v Vautier, and would not constitute the mortgagor/mortgagee as a new class of beneficiaries. It is true that the mortgagee/chargee of the Property in advancing the loan to Ds would acquire an interest in the Property, but such interest would arise out of the mortgage/charge and not the Trust, so the mortgagee/chargee could not be said to be persons who had interest in the Trust.

49.  In the circumstances, I conclude that Ps as beneficiaries of the Trust were all the persons having an interest in the Trust, and they were the only parties who had to be before the court to invoke the rule in Saunders v Vautier. In any event, as D2 and P3 confirmed and as borne out by the latest land search records, the Property is currently not subject to any mortgage/charge. Ds had not exercised the Power since 1983, but there is no need for me to consider whether the Power had lapsed due to a lapse of nearly 35 years. In my view, Ps as all the parties interested in the Trust were entitled to invoke the rule in Saunders v Vautier to terminate the Trust.

50.  On the issue in paragraph 42(b) above, for an express trust to be prima facie valid, it is sufficient if the settlor indicates with reasonable certainty:

(a)   an intent to create a trust forthwith, involving the trust property being intended to be kept separate from other property of the trustee and not being at his free disposal;

(b)   the trust property;

(c)   the persons (individual or corporate) intended to be beneficiaries; and

(d)   the purpose of the trust so that the trust is administratively workable and not capricious.[7]

51.  I agree with Ms Ho that the Trust was not void for uncertainty as the beneficiaries under the Trust were certain, ie Ps, because (as discussed above) as a matter of law the Power did not create any interest in the Trust and would not make the parties who use the money borrowed under the mortgage/charge beneficiaries of the Trust.

52.  But would the Power for the benefit of inter alia “other principal and persons” render the purpose of the Trust uncertain? In In re Gulbenkian’s Settlements (No 1) Whishaw & anor v Stephens & ors,[8] Lord Reid at p 518 said “[if] the classes of beneficiaries are not defined with sufficient particularity to enable the court to determine whether a particular person is or is not, on the facts at a particular time, within one of the classes of beneficiaries, then the power must be made for uncertainty …… It may be that there is a class of case where, although the description of a class of beneficiaries is clear enough, any attempt to apply it would for that reason be held to be invalid. But that is not the case here”. Lord Donovan at pp 525-526 said as follows:

“…… where trustees are given power to make payments out of a trust fund to members of a designated class, then if the trustees have a complete discretion as to whom they shall pay the money, or as to whether they shall make any payment at all, I see no reason why the whole clause should be regarded by the law as void for uncertainty simply because some members of the designated class might be unascertained. It is true that this means that such members will never even get considered as possible objects of the trustees’ discretion, but I regard that result is less unfortunate than depriving all the ascertainable members of any chance of benefit. I find myself in complete sympathy with the rule that provided one can say with certainty whether a given individual is or is not a member of the class, the power collateral (as it is called) does not fail altogether simply because a complete list of every member cannot be drawn up.” (my emphasis)

53.  In respect of the Trust, even though “other principal and persons” were not specifically identified in the Power, they could be ascertained as and when Ds give the borrowed money to them for their use without need for disproportionate inquiries. In my view, the Power was administratively feasible and could not be said to be capricious.

54.  There is no need for me to deal with Ms Ho’s alternative argument that even if the Power was void for uncertainty, it could be severed from other parts of the Trust, thus leaving the remaining parts of the Trust intact and valid.

Conclusion

55.  In light of the above as against D1, I grant an order in terms of the reliefs sought in paragraph 2(a)-(b) above. I am not persuaded it would be the correct course to grant the primary relief sought by Ps in paragraph 2(c) above as the rationale for the rule in Saunders v Vautier was to bring the office of Ds as trustees to an end rather than to direct them to carry out any additional act, eg to transfer the Property to a third party. I therefore grant an order in terms of the alternative relief in paragraph 2(d) above. I also grant an order in terms of the relief in paragraph 2(e) above save that D1 shall comply with such order not within 28 days from the date of the order but within 28 days from the date of service of the order.

56.  A for costs, I see no reason why costs should not follow event. Fair notice had been given to D1 of Ps’ Saunders v Vautier direction, but he did not respond positively to such direction despite commencement of the present proceedings. I therefore grant a costs order nisi that D1 shall pay Ps costs of and occasioned by the present proceedings (including all costs reserved, if any) to be taxed if not agreed. Although I am sure Mr Cheung must have been of assistance to Ms Ho in the conduct of Ps’ claim in the present proceedings, I am mindful this was not an overly complicated matter and there was no active resistance to the claim. Since costs were awarded on party and party basis, I am not prepared to grant certificate for 2 counsel for the costs order nisi.